Labour Euro-Safeguards Campaign - Bulletin September 2004


QUESTIONS AND ANSWERS ON THE COST TO BRITAIN OF EU MEMBERSHIP

  1. Why have we never had an official cost benefit analysis carried out on our membership of the European Union?

    Requests for a thorough official investigation into the costs and benefits of Britain's EU membership have been called for regularly since we joined the Common Market in 1973. All governments since then, Labour and Conservative, have brushed them on one side, generally claiming that the advantages of membership are so obvious that studies to show that this is the case would be a waste of money. This contemptuous stance has not, however, stopped a number of independent assessments being made, by no means all by eurosceptic organisations. These have produced a substantial degree of consensus on most of the major factors, which have recently been summarised in the latest publication of this type entitled "A Cost too Far?", written by Ian Milne and published by Civitas. What does this show?

  2. How much does Britain's net contribution to the EU budget cost us?

    Some costs and benefits are more difficult to establish than others. There can, however, be no doubt at all about the net cost to the British economy of the EU budget. Over the last ten years it has averaged about 4bn per annum, made up of about 10bn in gross payments and 6bn in various forms of receipts, though much of this money is spent on projects which would not be the British government's first choice. The net payment would be about 3bn more than it is at present but for the rebate negotiated at Fontainebleau by Baroness Thatcher in 1984, which is now under threat as a result of enlargement. Much of Britain's net contribution is used to subsidise competition to UK producers, particularly in agriculture, while some 10% of the entire EU budget is either lost to fraud or misappropriated, reflected in the fact that the EU has not for the last nine consecutive years had its accounts signed off by its auditors. All the 4bn is a straight transfer of resources abroad from the UK, for which British citizens receive no benefit at all. It is a direct cost to the UK balance of payments.

  3. What does the Common Agricultural Policy cost Britain?

    The direct costs to Britain of the Common Agricultural Policy are massive. The UK Treasury has calculated that it involves an implicit 26% tax on food. The distortions thus involved have been calculated to cost the British economy an absolute minimum of 7bn per annum with a more realistic range being between 12bn and 17bn every year. An OECD study put the cost to the EU as a whole of the CAP in 2002 at 1.4% of total EU GDP, giving a figure of at least 14bn per annum for the UK, which suffers proportionately more than other EU Member States because agriculture comprises such a small proportion of our national income compared to theirs. We should also not forget the cost of the CAP to the Third World, recently estimated to be a staggering $12bn every year, while EU intransigence over CAP reform - now postponed until 2013 at the earliest - has been the main cause of the stalled Doha round of trade talks.

  4. What is the cost of EU regulations to the UK economy?

    The main sources of data about the cost to the British economy of EU regulations are the government's own Regulatory Impact Assessments, which began to be produced in 1999. These show the increased cost of regulations to the UK economy, of which some 80% stem from the EU, averaging over the last five years at roughly an additional 1bn every year. On this footing, it is calculated that the total cumulative cost to the British economy of EU regulations per annum must be of the order of 20bn per year, or 2% of British GDP. This is the same percentage as the Dutch Prime Minister recently claimed to be the case in The Netherlands. While there are undoubtedly some people who benefit from EU derived regulations, this tends to be a zero sum area where every benefit has corresponding costs to others, whether as taxpayers, workers or consumers. It is because, in many cases, the aggregate cost of regulatory measures appears to be much larger than the total benefit secured by them that the huge scale of EU regulation comes at such a high price.

  5. How significant is the EU to inward investment in the British economy?

    One of the arguments consistently advanced by those in favour of Britain joining the euro is that, outside the Single Currency, the flow of inward investment would slow down. Although this has not happened, it may well be that this has generally relatively little to do with either the EU or the euro. Measured by earnings, about 80% of foreign investment in the UK involves sectors such as oil, gas and financial services where access to the EU market is irrelevant. Most of the investment in manufacturing involves take-overs of existing companies rather than new green field site developments. This being the case, the significance of inward investment as a measure of the impact of Britain's EU membership may not be particularly large but, for what it is worth, it has remained at a much higher level than the EU average.

  6. What might have happened without the economic burden of EU membership?

    A considerably more speculative question, looking back over recent years, is how much better the UK economy might have done if, like Norway, which as a result of two negative referendums has never joined the EU, we had not done so either. There are three major reasons for believing that our growth rate would have been a good deal higher. One is the net cost to Britain detailed above, which has involved heavy financial burdens which we would not have had if we had not been in the EU. The second is that ever closer association with a slow growing area of the world economically is likely to have had an adverse affect on Britain's economic performance owing to the lack of buoyancy in EU markets. The third is that the thrust of so much EU policy on the way its constituent economies are run, particularly from over-regulation and unnecessary harmonisation, has had a significant negative influence on the economic performance on all EU economies. How much better might Britain's performance have been without these burdens? One possible measure is to compare the average growth rates of the economies most similar in tradition and governance to ours - Australia, Canada, New Zealand and the USA - over the last ten years. During this period, the raw average compound growth rate in these countries has been 3.47% compared to our 2.86%. If we had achieved what they did, our economy would now be about 60bn - 6% - larger now than it actually is.

  7. What are the future economic prospects for the EU?

    Looking ahead unfortunately provides no more comfort than looking backwards. There is little sign that the EU is going to change its policies in ways which will make it more economically dynamic. On the contrary, there are some alarming signs that the current malaise, particularly within the euro-zone, is likely to continue and may well worsen. A major factor is the demographic change resulting from the exceptionally low birth rate in much of the EU. As a result the ratio between the economically active and inactive sections of the population is steadily worsening, producing a pensions crisis which is already causing substantial unrest in countries such as Italy. Furthermore, the really significant decline in overall population projected for most EU economies - though not in Britain - is going to lead them into uncharted economic territory as a large proportion of the social capital - in housing, schools, transport facilities and much else - becomes surplus to requirements. The more tightly we are bound into the EU - particularly if we join the euro - the more likely it is that we will finish up by having to subsidise other EU member states' bankrupt pension schemes. The Maastricht agreement that this would not be allowed to happen is unlikely to provide us with the security we need as is evidenced by the contempt with which the constraints of the Stability and Growth Pact have been treated by France and Germany when it did not suit their interests to abide by its requirements.

  8. How many jobs in Britain are really dependent on our membership of the EU?

    An argument frequently advanced by those who favour our EU membership is that, without it, large numbers of jobs would be put at risk. Some commentators have even suggested that as many as three million jobs are directly dependent on our staying in the EU and would be in danger of disappearing if we were no longer in the Union. There is not a shred of evidence that this would happen. If we were no longer members it is highly likely that we would continue to have free access to EU markets for manufactured goods, as do countries such as Norway and Switzerland. Even if tariffs were erected against our exports, as a result of successive rounds of World Trade Organisation negotiations they would be so low as, in most cases, to be barely worth collecting. We would unambiguously be better off outside the Common Agricultural Policy and free from our large net contributions to the EU budget. In these circumstances, it is much more likely that job prospects and living standards in the UK would rise rather than fall if we were no longer in the EU. It is also worth remembering that only about 9% of British GDP involves trade with other EU Member States. All the remainder is either domestic or trade with the rest of the world.

  9. What are the overall costs of EU membership to Britain?

    The total economic costs to Britain of our membership of the European Union can then be calculated. "A Cost Too Far?" produces a range of estimates. At the bottom is a "rock bottom" figure of 15bn a year, or 1.5% of GDP. The true total figure, however, is almost certainly much higher than this. A middle estimate of the currently identifiable costs is 40bn a year - 4% of GDP - with the bottom of this band being 27bn and the top being 52bn. All these figures, however, measure no more than the costs on an annual basis. They do not take account of the dynamic effects described above which have in the past and are very likely in future to depress our growth rate below what it would otherwise have been. Indeed, although more difficult to establish and quantify, it is the long term consequences of our lowered growth rate which are, in the end, likely to turn out to be much the most important consequences of Britain's EU membership. The perception that not only are we paying very heavy current costs but also that our long term prospects are also being jeopardised is one which is evidently slowly sinking more and more deeply into the public consciousness, reflected in continuingly more adverse poll outcomes. How much longer is it going to be before disillusionment spreads to an extent which makes it uncontainable?

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