Should the United Kingdom leave the European Union?: Challenging Eurosceptics on the British economy

Introduction

On 23rd June 2016, the United Kingdom will vote to decide whether the country is to remain or leave the European Union. For the first time in a generation, the general public will have the opportunity to formally declare their position on the U.K.’s membership in the EU, a declaration that could potentially transform not only the country’s political, social and economic landscape, but the landscape of its European and international neighbours. In the lead up to the EU referendum, the main political parties have announced their allegiances to the opposing campaigns, which have either defended the U.K.’s commitment to the EU, or have argued for the country’s abandonment of the European politico-economic project. Within the Conservative Party, the EU referendum has reignited the historic divisions concerning the U.K.’s membership, creating a schism among the Tory leadership.

It is true that both the ‘In’ and ‘Out’ campaign groups have displayed instances of unsavoury scaremongering to encourage support for their respective causes. However, the fear-inciting tactics used in the defence of Brexit are in my view particularly concerning. Proponents of the Leave campaign, such as Nigel Farage, Michael Gove and Boris Johnson, have used the EU referendum to propagate misconceptions regarding the ailing state of the British economy, and promote an aura of hate towards immigrants across the country. The vile effect of the claims made by the ‘Out’ campaign have been exemplified by the brutal murder of Jo Cox MP by far-right activist Thomas Mair, who had previously links to neo-Nazi and pro-Aparthied organisations. But are ‘Brexiters’ correct in suggesting that the U.K. will be able to  improve the economy and control immigration if the country leaves the EU?

Trade

One of the central arguments advanced by the ‘Out’ campaign is that a Brexit would allow the U.K. to negotiate its own trade deals with other countries independent of existing EU trade agreements. There are currently no tariff barriers to trade for countries within the EU, creating a single market of goods and services (though non-tariff barriers such as product standards produce limitations on trade). However, EU member states (including the U.K.) are also subject to the trade agreements made with non-EU countries by the European Commission.

The EU trade agreements prevent the U.K. from negotiating separate trade deals with the rest of the world – which may appear suffocating given the rise in economic growth in the developing world, and the ever-increasing U.K. trade surplus with non-EU countries. In comparison, the U.K. has a trade deficit of £61 billion with the EU, with domestic consumer demand outweighing the value of our exports to the continent. In fact, U.K. exports have made a gradual shift from the EU to non-EU countries, with a decline in the EU share of total exports from 54.8 percent to 44.6 percent from 1999 to 2014. For Brexit campaigners, this illustrates the potential of the U.K.’s economic growth in the rest of the world, which could be maximised as a result of leaving the EU.

While it may be advantageous for the ‘Out’ campaign to postulate positive economic outcomes if the U.K. was to abandon the EU, we are simply unable to predict what kind of trading relationship the U.K. will be able to negotiate with the EU, or with the rest of the world. Eurosceptics have argued that the U.K. could negotiate a trade deal with the EU similar to that of Norway and Switzerland. Both countries are not members of the EU, but have access to the single market and can negotiate trade deals with non-EU countries independently. However, Norway and Switzerland are subject to EU rules and policies with limited or no influence, and make budget contributions to the union. Moreover, both countries must abide to the free movement of good, services and most importantly peoples.

On the other hand, Canada has also negotiated tariff free access to the EU, without making any budgetary contributions or the free movement of peoples. Though, the trade agreement took an incredible five years to complete, and is difficult to compare to a potential U.K. model as the EU’s share of Canada’s total exports was less than 10% – significantly less than the U.K’s. In the worst case scenario where the U.K. is unable to make any sort of trade agreement with the EU, the country would be subject to World Trade Organisation (WTO) rules. This would prevent access to the free trade agreements for goods or services with the EU, and the U.K. could face EU and non-EU external tariffs and no access to the single market. This uncertainty over what kind of trade deal can be arranged would heavily impact on the productivity of the U.K.’s economy in the interim, as the EU is the country’s main trading partner, evidently making Brexit a risky, uncalculated gamble.

Impact on the British economy

Another important argument put forward by Eurosceptics regarding the economy is the view that the U.K. could save an estimated “£350 million a week” by leaving the EU – as quoted by Boris johnson in a recent television debate, as the country would no longer have to make a financial contribution to the union. It has been suggested that the £18 billion saved could instead be invested into public services, such as education or health care. However, as the Institute for Fiscal Studies noted, the figure of “£350 million a week” is absurd as it ignores the rebate the U.K. receives from the European Union. If the rebate is included the figure actually stands at £14.4 billion or 0.8% of GDP in 2014 (around £275 million a week).

The EU also spends £4.5 billion on the U.K. in areas such as agriculture and research, thus the U.K. only provides approximately £8 billion a year to the EU budget. Moreover, though the U.K. receive per-capita the lowest spend from the EU of any member state, EU spending is only 1 per cent of our GDP – lower than the EU average, and is a relatively small amount in comparison to the £169 billion spent on health and education alone by the government. It is also important to note that the membership fee also brings with it increased trade, investment and jobs, which the U.K. would lose if it is unable to negotiate a trade deal with the EU. In fact, many economists have revealed that lower economic growth as a result of leaving the EU will negate any savings made from EU contributions anyway.

Immigration

Arguably the most distinguishable argument of the ‘Out’ campaign is the impact of EU immigration on the U.K. economy. UKIP leader Nigel Farage in particular has been defiant in his attempts to reduce immigration from the EU into the U.K., most demonstrable by the party’s  recent “breaking point” campaign poster. However there is no conclusive evidence to suggest that EU immigrants cause a strain on the British economy, with most studies suggesting that their impact is relatively small, costing or contributing less than 1% of  the U.K.’s GDP. Rather, a recent UCL report stated that since 2000, immigrants have made a more positive fiscal contribution than longer-established migrants – £5 billion from immigrants who entered the U.K. from countries that joined the EU in 2004. There is also evidence to suggest that EU immigrants pay more in tax than they gain in welfare or public services, and they have a higher net fiscal impact than non-EU migrants.

In any case, leaving the EU may not lead to a significant reduction in immigration. As alluded to above, the kind of trade deal the U.K. is able to negotiate with the EU after “Brexit” is pivotal to controlling immigration, as access to the EU single market is also likely to allow for the free movement of people. Therefore, it may require the U.K to leave the single market altogether in order to effectively control immigration, which could neverthless have a negative impact on the economy. In my view, the argument relating to the impact of immigrants is largely cultural; as Nigel Farage proclaimed “the country has become unrecognisable.” However, while the cultural impact of EU immigration is questionable, there is enough evidence to suggest that the economic value of EU immigration is likely to be beneficial to the U.K., counterpoising any superficial arguments that a Brexit will conclusively have a positive impact on the U.K. economy.

Expert analysis

Finally, let us not forget the overwhelming consensus of economic institutions and researchers and businesses (according to the British Chambers of Commerce) that argue that the U.K. must remain in the EU in order to preserve economic stability and continued growth. There is one notable exception to this trend – the suitably named Economists for Brexit.  Supported by Patrick Minford and Roger Bootle, Economists for Brexit have predicted a net benefit to the U.K. economy. However, even the most comprehensive analysis on Brexit by independent think tank Open Europe has predicted that even if the U.K. is able to negotiate a trade deal GDP  could increase by 1.6% by 2030. However, if a trade deal is not negotiated GDP could be lower than 2.2% in the same period.