Pro-EU politicians from the old parties keep telling us that “every UK family benefits by £3000 a year from EU membership”. This is based on a recent CBI report. But there are big questions about the CBI’s numbers.
First of all, they’ve done no new research. The CBI has simply carried out a review of existing literature on the theme. They’ve taken public estimates of “benefits” – typically 2 to 3 % –and rounded them up substantially. They say “It is not unreasonable to infer (my emphasis) from a literature review that the net benefit arising from EU membership is somewhere in the region of 4–5% of UK GDP or between £62bn and £78bn”. This claim is unsupported by references, at least in the Executive Summary.
It’s worth reading the excellent critique of the CBI position in the Telegraph blog by Mats Persson, Director of Open Europe.
The CBI appears simply to have ignored the costs of membership. This is a bit like the reverse of Lord Stern and The Stern Report on Climate Change. He took all the costs of “global warming”, exaggerated them, and ignored the benefits.
They have also implicitly assumed that we would lose the trade we currently do with the EU when we leave. They suggest that in any trade negotiations after we leave, the EU would have the stronger hand. This ignores the fact that we will be not only the EU’s largest external trade customer, but also the largest net customer. Clearly the UK will have the stronger hand. The CBI has failed to produce an exhaustive study of the literature and has ignored the many contrary views which have been published.
The most notable omissions include cost/benefit analyses by the Institute of Directors (IOD) and the National Institute of Economic and Social Research (NIESR). The conclusion of the IOD was that after totting up all the economic costs and benefits, staying in the EU leaves Britain out of pocket, to the tune of 1.75 per cent of GDP. A report by NIESR in 2004 concluded that EU membership delivers only a small net benefit.
Further studies by the Institute of Economic Affairs (IEA) and the US International Trade Commission found it essentially too close to call either way. The author of the IEA paper, the late Professor Brian Hindley, says: “Any economic gain or loss is small – almost certainly less than 1 per cent of GDP… more precise or more sophisticated calculations will not arrive at a large number for either gain or loss.”
This is very different from the CBI’s estimate of EU membership boosting GDP by 4-5 per cent a year. Have these contrary studies been missed off the list because they are “off-message”, as far as the CBI is concerned?
The independent House of Commons library has recently produced an alternative study on the topic which has a choice of literature completely different from the CBI, and represents a much broader spectrum of opinion. Separate and independent analyses by two of the UK’s most respected economists, Tim Congdon and Patrick Minford, both indicate that the costs of membership, including the huge damage inflicted by gross over-regulation, cost as much as 10% of GDP.
Former trade Commissioner Peter Mandelson estimated trade benefits at 1.8% of GDP (the CBI seems to start at 3 to 5%, and round up to 4 to six per cent). But former Industry Commissioner Günther Verheugen estimated the regulatory costs of EU membership at 5.5% of GDP (and rising).
So should we take this claim that EU membership boosts GDP by up to 5 per cent seriously? I don’t think so. No one seems very clear on how the CBI researchers have arrived at those figures. And, as the CBI report itself says, I wonder: “what would have happened if history had been different?”.