Labour Euro-Safeguards Campaign - Bulletin January 2007


QUESTIONS AND ANSWERS ON THE COST OF THE EUROPEAN UNION

  1. Should a cost benefit analysis of Britain’s membership of the EU be undertaken?

    On numerous occasions since Britain joined what was then the Common Market at the beginning of 1973, it has been suggested that the government ought to carry out a cost benefit analysis, to enable an assessment to be made as to whether the gains from our membership outweigh the costs. The response from both Conservative and Labour governments consistently over the three and a half decades during which we have been members has been the same. It is to say that the net benefits of membership have been so obvious that it would be a waste of time to carry out any investigation in detail to establish that this was the situation. Needless to say, this has never satisfied those who were sceptical of the government's case.

  2. Have others made estimates of the costs and benefits?

    The unwillingness of the government to allow any official assessment of the balance between costs and benefits has not, however, deterred many unofficial attempts being made to tackle this issue. The consensus among all those who have made careful efforts to quantify the position accurately is that the costs far outweigh the benefits where reasonably accurate figures can be produced and that it is extremely unlikely that such advantages as there are which cannot easily be measured are of such value that they outweigh the clearly identifiable costs. It is not true that it is particularly difficult to put figures on many of the tangible expenses and benefits. There is ample statistical information on which to draw conclusions and the numbers are so large on each side that it is very clear in which direction the balance falls.

  3. What, in detail, do these exercises show?

    The clearly quantifiable costs of Britain’s membership of the EU fall under a number of distinct headings. First, while we make a large gross contribution to the EU budget, currently running at about £12bn a year but rising towards £20bn in 2013, we receive so relatively little back that there is a net annual cost to us which is set to rise, on the government’s own figures, from about £4.7bn in 2007 to between £6bn and £7bn by 2013. Second, however, these figures do not include money which Britain pays to all EU institutions taken together, a substantial amount of which is not covered by payments to the EU budget. While these figures are more difficult to quantify accurately, they appear to involve an additional net cost to the UK economy of at least £1.8bn per annum. Third, the Common Agricultural Policy costs Britain about £15bn a year as a result of the unnecessarily high prices and market distortions which are endemic to it, a figure which was recently produced by the OECD as their best estimate of the costs involved. Fourth, there is a huge cost to Britain of regulations, mostly originating from Brussels. All regulations benefit some people but they also cost large sums of money to implement, these costs usually being spread over a much larger proportion of the population. If the costs are netted off the benefits, estimates based again on the government’s own figures, show that the net cost is now running at about 2% of GDP, i.e. approximately £25bn a year. These clearly identifiable costs total up to around £45bn per annum currently, but on a rising trend. It needs to be said, however, that recent revelations on the cost of regulation, both from within the EU and separately from the City on financial regulation, indicate that £25bn per annum may be a big underestimate for what the stream of controls from Brussels really costs the UK economy.

  4. Are these the only costs of membership?

    These static costs are, however, by no means the end of the story. The EU has a very poor growth record compared with all other developing or developed areas of the world and it is hard to believe that this has not had a negative impact on the growth achieved by the British economy. The reasons for the EU’s slow growth – primarily a combination of over-regulation, over protection and deflationary economic policies – have inevitably washed over on Britain. While it is hard to quantify accurately how much difference these have made, a comparison with other economies in the world, such as the USA, Australia, New Zealand and Canada, run on broadly the same lines as would be the case if Britain were not in the EU, suggest that our growth rate might have been something like 0.5% higher on average per annum for every year of the last ten years. If this figure is correct, then there is a very large additional cost to be paid for our EU membership. If the British economy had grown 0.5% faster than it actually did for the last ten years it would now be over 5% larger - about £65bn per annum greater - than it is now

  5. Is there now any independent official validation?

    The lack of any official view from any British government on any of these issues has, however, now been partly compensated by two official reports produced elsewhere. One was carried out by the Swiss Federal Department of Foreign Affairs, which is part of the Swiss government, and the other by a think tank close to the French government. Both documents exhibit a candour and willingness to face facts which has been totally absent at official level in Britain. Both documents strongly reinforce the views of those who regard Britain's EU membership as being very costly in both the static and dynamic senses outlined above. The Swiss report is particularly illuminating in providing an objective view on the annual budgetary and other costs of membership which Switzerland might incur if it deepened its involvement in the EU. The French document, on the other hand, is concerned with recognising why the EU economy has performed so poorly and describing what might be the reasons for this state of affairs.

  6. What is the Swiss view?

    The Swiss view is set out in a document entitled Europe 2006 Report. It has much to say on the loss of democratic control which Swiss citizens would incur if Switzerland became a full EU Member State but it also sets out the direct costs of various ways in which Switzerland could relate to the EU. This is therefore a major official attempt to quantify the costs of EU membership to Switzerland along much the same lines as those who have tried to do the same thing for the UK. At the moment, Switzerland has a large number of sector-specific bilateral agreements with the EU. It is not even a member of the European Economic Area (EEA), unlike Norway, for example, which thereby gains a little more involvement in EU policy making. The cost of the present arrangements is estimated by the report as being about 550m Swiss Francs per annum. If Switzerland joined the EEA, the cost would increase to about 750m Swiss Francs per annum. Full EU membership, however, would cost Switzerland almost 5bn Swiss Francs per annum gross and 3.4bn net – not far off 1% of Switzerland's entire national income.

  7. What does the French report show?

    The French report, by contrast, is not concerned with the cost to France of its EU membership but of the failings of the EU itself to promote the rates of growth seen elsewhere in the world, not least in the Anglo-Saxon economies. It attributes the reasons for relatively poor eurozone performance partly to Europeans’ preference for leisure as opposed to work – which may not be irrational – but also to restrictive macroeconomic policies, lack of effective competition and incomplete structural reforms of the markets for labour, goods and services. Opposition to liberalisation, however, among the large sections of the population likely to be adversely affected by it, is also not irrational in present circumstances. The key problem is that the changes of policy and institutional reforms required to make the EU economy perform better are impossible to sell to the electorate against the background of high unemployment, overstrained public services and general insecurity which are intrinsic to the unaccountable way in which governance of the EU economy is structured. The French report, while recognising all too clearly the problems from which the EU economy suffers, then nevertheless characteristically recommends more EU wide initiatives to solve them. These are to consist of more economic integration, monetary policy reform and more “structural initiatives” to be initiated by Brussels, on the grounds that anything more radical is “unrealistic” which, from a French perspective, may well be the case.

  8. Where does this leave Britain?

    The fact that both these two major official reports in their different ways validate and reinforce the critiques that eurosceptic critics in Britain have produced is of substantial significance. In the first place, it surely completely undermines the long-standing government line that the benefits to Britain of our EU membership are so obvious that no effort to quantify what the balance might be is justified. If, in their different ways, two official reports from important European countries portray such a different picture, it is hard to attribute any honesty at all to the government's unwillingness to face up to what an objective report might show. Unquestionably, of course, the main reason why no such document is on the cards at the moment is because the government is well aware of what any objective analysis would exhibit. This is, however, a very dangerous situation. Officialdom may not want to recognise what the real position is but the electorate at large, judged by all the opinion polls, is quite capable of doing so and is drawing its own conclusions. We are then left with a state of affairs where all our major political parties simply refuse to recognise facts which a majority of the people of Britain, including nowadays much of the press, increasingly take for granted. It is not a healthy situation when awkward facts are brushed under the carpet and policies are followed which are therefore based on entirely false premises. It is even less healthy when a majority of the electorate realise that this is what is happening. Nothing brings politicians and the political process more into disrepute than seeing an increasingly wide gap opening up between perception and reality. How much longer can this go on?

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