Pro: Why Britain should leave the EU

Patrick Minford is a professor of Economics at Cardiff Business School, Cardiff University.

Many British citizens want self-government again, as they had for hundreds of years before the ‘Common Market’ that they joined became a European super-state on the way to ‘ever-closer union’. This seems a reasonable demand; under the rules of British democracy the citizenry are always able to eject the government, through a general election. However, whatever they do about the elite that governs the EU, they can never get rid of it or change its decisions. It is like being ruled by a foreign power immune to the normal processes of political economy.

That is seen as the political case for Brexit. But in truth it is as much the economic case, because not being able to learn from economic mistakes or to compel rulers to revise their policies is a serious problem of political economy; the UK democratic process, for all its faults, is a better mechanism for economic policy progress, as has been shown by the reform programmes since 1979.

The research that I have done on the European economy over the last few decades suggests considerable damage to the UK from EU membership.*

The EU is a Customs Union that erects a tariff and non-tariff wall around EU member states that is highly protectionist and raises the prices of protected agricultural and manufactured goods by around 20 percent in both cases; this implies that far from being a free market paradise the EU market has prices well above world market prices and in so doing twists the shape of our economy towards these protected goods and away from its best shape . We produce more of what we are worst at and less of what we are best at, while our consumers have to pay excessive prices for much of their shopping basket. Also because we buy more from the rest of the EU than we sell to them at these inflated prices, some of this price excess goes straight into the pockets of industry in the rest of the EU. This loss of free trade costs us overall about 4% of GDP.

A word on another trade scare tactic from the pro-EU camp: if we leave the EU we will be ‘out in the cold’ in the world trading system, unable to negotiate trade agreements and worse off through the tariffs erected against us by other countries. Yet as we have just seen we are better off outside the EU facing world prices as determined by myriad factors including the trade policies in other countries. As for trade agreements once we are outside the EU, they matter to us not at all since they have trivial effects on the world prices of the goods and services we sell. Negotiating trade agreements with other countries which contribute small fractions of world trade does mean that we would sell more to these countries; but as world prices would remain the same our supplies of these products in total would remain the same. So we would merely divert some output to these countries away from other countries, with our trading partners diverting their output in the opposite direction.

The trade costs of the EU are just the start. EU regulations are the result of lobbying by major industries and trade unions in Brussels, and of the ‘qualified majority’ views of other EU governments which usually oppose UK thinking. Whether one looks at climate change and energy, finance, labour market rules, or any of the myriad details of industrial standards, one finds numerous ways in which these deviate from what the UK would put in place. It is said that we would have to keep these regulations if we were to continue to export to the EU; but this is manifestly false. Our exporters, about a tenth of UK GDP, would indeed have to adhere to EU rules for imported goods. But the other 90 percent of the economy would not. Our findings are that EU regulation if pushed hard to suit the qualified majorities of EU members could cause massive damage to our economy; and it has already caused serious net cost. To these estimated costs we need to add the ‘dynamic’ costs of these regulations in discouraging growth; EU growth has slowed in recent decades and our growth too could go the same way.

What of the scares about FDI and job losses? These arguments are simple fallacies. FDI enters because there are returns to foreign capital here; of course it will continue but into the different sectors favoured by world free trade. Jobs too will expand in these sectors to replace those lost in the previously-protected sectors. Overall, with rising real wages, jobs will expand.

With planned EU ever-closer union comes the threat of joining the euro and ever more bail-outs such as we have just seen in the euro crisis. The closer we are tied to these continental countries the more we must share their problems. It will not be long before common taxes are set up and existing tax revenues pooled. This could well have us eventually paying a share of the unsustainable pension schemes of other continental economies.

Last but not least there is the political problem of migration. Limits on immigration giving priority for scarce skilled workers and families of UK citizens cannot be sensibly implemented when there is no control at all over immigration from 27 close neighbours, let alone over the refugees the EU is taking in and trying to allocate around its members whatever their views. UK citizens know the economic benefits of sensibly managed immigration, have always welcomed foreigners and have always been generous to refugees. What they rail against is the way in which the EU runs a coach and horses through any such management.

In conclusion we can see that our ‘establishment’ is keen to bamboozle the common man out of self-government with scares and fallacies about economics; the truth is that UK citizens will not only regain their political freedom outside the EU, they will also be a lot better off.

* see the second edition of my book ‘Should Britain leave the EU? Economic analysis of a troubled relationship’ (with coauthors Sakshi Gupta, Mai Le, Vidya Mahambare and Yongdeng Xu), Edward Elgar in association with the IEA, 2015.

Contra: Why Britain should remain in the EU

Terry Scuoler is Chief Executive Officer of the British industrial association EEF that represents almost 20,000 firms.

I have a mandate from manufacturers in the UK to back our membership of the EU. Following independent polling 61 percent of our member companies state they wish to remain, with 5 percent wishing to leave the Union – with the balance, a significant balance, I have to say either undecided or choosing not to take a position.

The reasons for the considerable majority wishing to remain in the EU are straightforwardly economic. They are linked to market access, trade & the benefits of wider EU negotiated trade deals, access to labour and the benefits of standardisation to name but several.

The effect of leaving the EU could be particularly problematic in terms of foreign investment. Britain is the leading recipient of foreign direct investment in the EU – measurably outstripping both Germany and France. It is hard to accept that some of that investment is not directly linked to the UK’s membership of the EU and access to the tariff free open market of 500 million people. Of course the obvious consequence of more foreign investment is jobs – which is why leaving the EU could have a dramatic and unpleasant impact on employment in the UK.

The issue of our economic wellbeing is central to much of the debate taking place in Britain. We are a trading nation, and I do not accept that our trade with the EU would come to a halt if we left. However the shockwave that would follow could plunge us into recession in the short term, so you have to ask the question why would you possibly risk that happening?

In the event of Brexit we would have to put in place new, and potentially unfavourable, trading links with the rest of the EU, who account for about 60 per cent of Britain’s total trade.

Trade flows would suffer with a resultant decline in output, productivity and GDP. Britain is a nation of house buyers and borrowers. Access to cheap finance is therefore important for house purchase and also to support businesses, particularly SMEs. The uncertainty caused by Brexit would also hit bond and stock markets. A sharp stock market correction could see billions wiped off the value of British and indeed non-British listed companies. Given the interconnected nature of the world economy such shock waves could have serious unintended consequences on a global level.

This is therefore an historic vote and the implications are generational. I have no doubt that British manufacturing would suffer a dramatic downturn if Britain votes to leave. The economic consequences are at best unpredictable, as I have set out, at worse they could be extremely serious on a global level. I hope that the British people will consider carefully the enormous amount of evidence that points to the very real economic risks of leaving the EU.

That said let us also recognise that the EU is far from perfect as an institution. It is in dire need of reform. If, as I hope, we remain in the EU after 23rd June one of our tasks will be to will be to encourage Prime Minister David Cameron and his team of negotiators to immediately get on with the reform agenda outlined in his February negotiations with Mr Tusk and the Council of Ministers. I believe that with reform and strong engagement by the UK, the EU will successfully support economic growth and opportunity across the continent for decades to come.