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Dr Eamonn Butler: There is no question that the EU comes at a huge and growing price in economic terms


Dr Eamonn Butler is director of the Adam Smith Institute.

Much of today’s parliamentary debate on the EU referendum proposal will focus on the constitutional argument that Maastricht, Lisbon and other major changes to the way the UK is governed were enacted without anyone asking electors what they thought; and that before the election, the politicians agreed to settle the issue with a referendum, so they should darn well deliver.

That seems to me a perfectly valid argument. But the debate will also turn on the costs and benefits of our EU membership. And this argument is much trickier.

In my student days I was a firm believer in European union, and was even on the committee of the Young European Federalists. Through much of the 1980s, despite serious misgivings about the politics, I still figured that the economic benefits to the UK were positive, thanks in particular to the (still incomplete) single market in goods and services. But like may other economists in the UK think tank world, I have come to the conclusion that our membership is a net economic cost rather than a net benefit.

Not that it is easy to identify the figures. The claims of –philes and –phobes diverge wildly, and even the EU and UK government figures diverge depending on what source you use. The Democracy Movement claims out membership costs £14.6bn a year net, but say that £28bn of EU regulation, £17bn higher food costs thanks to the Common Agricultural Policy, the £3.3bn cost of the Common Fisheries Policy, and other items bump up that annual cost to over £65bn – more than £1,000 a year for every man, woman and child in the UK.

The EU, meanwhile, says the UK’s gross contribution is £14.7bn, but it gets £5bn back in rebates. But Treasury figures suggest the gross contribution is £17.5bn. The Office of Budget Responsibility reckons the net cost at about £7.7bn, while a few years ago, the House of Commons Library calculated the gross annual cost at £12.5bn.

Confused? You should be. Lack of clarity seems to dog everything about the EU debate. But working out the UK’s subscription cost is nothing in comparison to trying to pin down the ‘off balance sheet’ costs and benefits of membership.

There are, for example, all the benefits of the single market, through which the UK has access to a market of some 500m people. Even the Euro (despite its potential to disrupt our financial system still more gravely) has served us well in terms of making prices in Europe more transparent. Those on the left would stress the various social benefits of membership, such as the push to gender equality. And free-marketeers like me would even point to the benefits of free movement between EU countries.

But there are costs too, such as regulation and red tape, budgetary fraud (auditors consistently refuse to sign off the EU’s accounts), VAT, and indeed the increased costs of food and fish and the higher costs of social welfare.

In purely economic terms, the regulatory cost is indeed considerable. Just looking at regulations in the pipeline, the British Chambers of Commerce complain that proposed changes to the European works council directive will cost business £5.5m a year; paternity leave regulations will cost £400m; the agency workers directive will cost £1.5bn, and the pregnant workers rules a massive £3bn a year. It all adds up, as they say.

My own view is that in purely economic terms, our membership of the EU was broadly positive until the Maastricht treaty of 1992. It took some years for that to have its effects, but the rule changes it gradually brought in to social policy, health and safety, gender equality, social exclusion and worker participation imposed increasing costs on the UK economy. Though British workers can still opt out of the 48-hour-week imposed by the 1992 working time directive, Whitehall still reckons the regulation costs employers £4bn a year.

If there was still any doubt about it the balance of costs and benefits was definitely tipped in 1997, when Tony Blair signed the UK up to the Social Chapter, followed by the Charter of Fundamental Rights in 2000.

In addition to this general regulatory cost, the UK now faces the impact of EU regulation aimed specifically at financial services. This sector is hugely important to the UK, much more so than any other EU member. It employs a million people, contributes around 10% of GDP, generates a trade surplus of £36bn and pays 11% of UK taxes. Incredibly, though, George Osborne has exported financial-services regulation to Brussels, where the City of London has few friends. A new directive on market infrastructure will favour Frankfurt over London; further rules will curb London’s derivatives market; a review of financial instruments markets is underway; and nobody doubts that the powers of the new European supervisory authorities will grow over time – indeed, their powers will be reviewed every three years.

Such threats to such an important UK industry, from those who have little or no skin in the financial-services game, must surely make the cost-benefit imbalance of the UK’s membership clear to anyone. You might love the EU’s politics and think that it provides us with important non-monetary benefits; but there is no question that in economic terms, that comes at a huge and growing price.


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