People have been clouded by scaremongering that has prevented us from getting to the real debate of Britain's EU membership, says Matt Walton. Today, he seeks to set the record straight on this key issue.
The debate surrounding the economic
implications of Britain leaving the EU has so far been dominated by both sides
trying to outdo each other in terms of scaremongering. “Brexit could cost £100bn and nearly 1m jobs” say the EU-funded CBI one week. “EU policies threaten to cost Britain £9,265” says the IEA the next. It is perhaps no wonder that many voters feel a little bit unsure about who to
trust. The announcement this week that the government would spend £9.3 million
on a pro-EU leaflet to every household meant that they had another organisation
to add to that list of scaremongers. In this piece, I will attempt to draw
together the economic arguments for Britain to leave the EU while rebutting
some of the outlandish claims of the ‘In’ side. Before starting, however, I
have a slight admission: My main motivation for wanting to leave the EU is not
economic, but rather democratic. I fundamentally believe that we must leave so
that we can hold those who make our laws accountable. However, given that this
is an economics blog site, I will focus on the potential economic benefits
which this country could enjoy.
Naturally
most of the economic arguments surrounding the debate concern Britain’s trading
relationship with the EU if we vote to leave. Trade is what the EU is all about
after all, isn’t it? Campaigners on the Remain side have said that Britain
would struggle to negotiate a favourable trading arrangement if we leave. That
Britain is a relatively insignificant market for the EU and it would therefore
be the EU which dictates the conditions of the deal, not the UK. This is
incredibly misleading. Firstly, on the day that we vote to leave the EU, we
become the EU’s largest export market for goods. Moreover, we currently export
goods and services to the EU to the value of £228.9 billion per year whereas we
import £290.6 billion of their goods and services (2014 figures). This means that we have a trade deficit with the EU of £61.7 billion. At a time
when the EU struggles to shake off the remnants of the Euro crisis and when
growth is still sluggish, can you imagine any desire on the EU’s part to
forfeit this huge source of income?
Let’s suppose, however, that Britain does not
reach a trade deal with the EU. A worst-case scenario, where the EU member states
close ranks and say: “We won’t give you a trade deal, if you’re out you’re
out.” Aside from being a particularly unlikely outcome, it’s also not a
particularly damaging one for the UK. In this situation, the UK would revert to
the rules of the World Trade Organisation (WTO). WTO rules dictate that tariffs
on most goods must be between 1% and 3%. Let it be reminded that this is the
minimum standard. In other words, almost negligible. The only areas where this
is not the case is a) cars and b) agricultural products.
But any tariffs the EU
imposes on Britain will be matched by equivalent UK tariffs on EU products. Who
makes wine and cars? Answer: the Germans and the French – the two countries who
dictate EU policy more than any others. The German car industry alone, would be
at risk of facing reciprocal UK tariffs on the £16 billion market for German
cars in the UK. Almost 1/3 of the new cars sold in Britain come from Germany. You can be sure that, if we vote to leave, the heads of BMW, Mercedes, Volkswagen
and the rest of the hugely successful German car manufacturers will be in
Angela Merkel’s office the next morning saying “We need tariff-free access to
the lucrative British market.” It is inconceivable, therefore, that a trade
arrangement between the UK and the EU would not be reached.
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| If countries like Norway and Switzerland can prosper outside of the EU, why not Britain? |
“But”,
cry those who want to stay in, “you won’t have access to the Single Market.”
This is a valid point as far as the Single Market in terms of goods is
concerned, yet our economy is not primarily goods-focused. David Cameron, in a
column urging people to vote ‘In’, has claimed that 80% of our economy is made up of services. Though as he well knows, there is currently no Single Market for services. So
the Single Market argument which he and others perpetuate cannot be relevant to
the UK’s situation. Non-EU Switzerland, which supposedly doesn’t have access to
the EU’s services market, exports five times per capita more to the EU than we
do. If countries like Norway and Switzerland, two of the world’s richest and
happiest nations, can prosper outside of the EU, maintaining friendly relations
and trading with the bloc, without being subject to its constant over
regulation, why not Britain?
Another argument peddled by the Remain camp is that British jobs would
be at risk if we voted to leave. Their favourite figure to use on this comes
from a report compiled by the National Institute of Economic and Social Research (NIESR) in 2000 which suggested that around 3 million jobs in the UK
are linked to our trade with the EU. The methodology behind this is fairly simple to understand. The UK’s exports to the EU are equivalent to
13% of our GDP. Thus, claim the researchers, it is logical to assume that 13%
(3 million) of British jobs are linked to our trade with the EU. The operative
word here is linked, however. The NIESR explicitly acknowledged that "there
is no a priori reason to suppose that many of these [jobs], if any, would be
lost permanently if Britain were to leave the EU." Plus, if you use the
same back-of-the-envelope-type calculations for the EU, you find that between 5
and 6.5 million jobs on the continent are linked to their trade with the UK. Thus a trade deal with the UK would be imperative for job security in both
countries.
I
want to move away, however, from criticising the arguments of the ‘In’ side.
Instead, let me spell out a more positive vision for Britain’s economy after we
leave. After the 2 year negotiation period set out in the Lisbon treaty, and
Britain is freed from the EU’s Common External Tariff, we will have access to
world prices. These are typically 8% lower than prices in the EU. As a nation with a particular preponderance for imported goods, this will be a
noticeable shift. The move from EU prices to world prices will mean that the cost
of food and household goods will fall. Furthermore, this means that British
firms will have access to cheaper factor inputs. The only result of cheaper
inputs is that we, as a nation, become more globally competitive.
A departure
from the EU’s protectionist external tariff wall will not just help the UK
though. Currently African farmers, some of the most impoverished businesspeople on the planet face EU tariffs of 7.5% on roasted coffee and 30% on
processed cocoa products, two of the continent’s major exports. Think what the removal of this barrier, at least on the UK’s part, will do for
those same farmers. Tariff-free access to the UK market, the 5th
biggest economy on the planet, can only make them richer.
One of the most frustrating things which I am hearing as the referendum approaches is that people “don’t know the facts” or that “they haven’t been told enough about it” – the inevitable result of media and government hysteria most likely. You each have, at your fingertips, possibly the most useful research tool in the history of humanity: the internet. If you are undecided or wanting more information about the referendum, it can be as simple as watching a YouTube video, reading a newspaper column or watching Question Time on Thursday evenings.
If you want to find out more about the case for Leave, I would recommend listening to Dan Hannan or Tony Benn, or perhaps even reading Michael Gove’s piece on why he is voting to leave. From the Remain side, David Cameron and Alan Johnson are the ones making the case most prominently.
Ultimately, however, it will be your choice on June 23rd. The outcome will fundamentally alter the course of British politics.
Whether we vote to leave or stay, there is uncertainty. Yet it is my strongly-held belief that leaving the EU is not a ‘leap into the dark’ but rather a ‘step into the light’, towards a more prosperous, more democratic United Kingdom.
What is your opinion on this issue? Should Britain stay in the EU or vote to leave? Put your opinions in the comments below!
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