Should Britain pull out of the EU?

Membership of the European Union has long been a thorny political issue. Now, once again are pushing for Britain to change its relationship with the rest of Europe. But does leaving the EU make any sense? Simon Wilson investigates.

What does the EU cost us?

Over the past decade, there have been various attempts by economists to quantify the costs and benefits of EU membership. Their conclusions have differed greatly. In the mid-2000s, a study sponsored by Civitas, the right-leaning think tank, found that the costs of membership amounted to a loss of 4% of Britain's gross domestic product (GDP). Professor Patrick Minford of Cardiff University, a strong eurosceptic, came to a similar conclusion in his book Should Britain Leave The EU? Minford found "unacceptably high" ongoing costs of EU membership of between 3.2% to 3.7% of GDP. His conclusion, based on the assumption that the EU would impose the same trade barriers on Britain that it levies on non-members, is that "the UK would be considerably better off" leaving.

Is this view contested?

Yes. A study (Better Off Out?) by Brian Hindley and Martin Howe for the Institute of Economic Affairs concluded that Britain would lose economically by withdrawing, albeit by less than 1% of GDP. Nigel Pain and Garry Young concluded (in Continent Cut Off?) that Britain's GDP would permanently decline by 2.25% after withdrawal, primarily because of lower foreign direct investment (FDI) leading in turn to lower technical progress. Ray Barrell of the National Institute for Economic and Social Research found that membership of the EU has raised Britain's GDP by 3%-5% a year. Many of these academic studies are several years old, however. So many Tory MPs want the government to do a full, up-to-date, assessment (see below).

In what other ways does membership boost Britain?

The debates around costs and benefits centre on three core areas. First, what we gain in trade and consumer benefits from the single market. Second, what we gain in FDI. Third, what we lose in membership costs, especially EU-wide regulation and the common agricultural policy (the main reason we pay more into the EU than we get back, notwithstanding the rebate negotiated by Thatcher in 1984). The biggest perceived benefit of Britain's EU membership is tariff-free access to almost half a billion people in 27 countries the world's largest single market.

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A Treasury study found that Britain's trade with the EU was boosted after accession and again after the creation of the single market. This was not just directly due to free trade, but also to the increased competitive pressures and other productivity drivers associated with membership. Similarly, FDI flow into Britain took off in the late 1980s, and about one-third is directly attributable to EU membership.

What is the official view?

The British government, and all the main political parties, remain in favour of EU membership. Britain's Foreign Office, which bases its calculations on data supplied by the European Commission itself, has argued that the economic benefits to British consumers and businesses far exceed the budgetary costs of membership (by a factor of around six to one). That's despite the fact the UK remains a net contributor to EU funds.

What do the eurosceptic Tories want?

A small minority advocate complete withdrawal. They argue that membership of the single market is unnecessary since world trade rules guarantee tariff-free access to EU markets. Since the EU exports more to Britain than vice versa, it would be self-defeating for a spurned EU to attempt to re-erect trade barriers. A much larger group see an opportunity to "repatriate powers" to Britain while retaining access to the single market either within the EU or through a looser trading association along the lines of Switzerland's or Norway's. John Redwood, for example, wants a deal whereby Britain gives up its right of veto over further integration in effect clearing the way for closer fiscal and political union in exchange for an opt-out option on EU policy.

Is this feasible?

The Economist argued in an editorial last week that the opportunistic Tories are vastly overestimating the strength of their hand. Under no circumstances will the rest of the EU let such a large member state as Britain become a Norway-style "free rider" on Europe's single market. Meanwhile, Britain's trade deficit with the EU is a red herring ("Rhode Island runs a trade deficit with the other 49 American states but does not dictate terms to them").

Besides, the 17 eurozone nations would much sooner draw up a completely new non-EU treaty than allow the kind of scenario favoured by Redwood. In other words, although Britain has managed to stay on the fence for as long as the eurozone remained strong, now it's crunch time in or out?

The eurosceptic Bill to cost EU membership

Philip Hollobone, a eurosceptic Tory MP, has introduced a Private Members' Bill the "European Union (Audit of Benefits and Costs of UK Membership) Bill", which had a first reading in July last year. The purpose of the Bill is to "require the Secretary of State to commission an independent audit of the economic costs and benefits of the United Kingdom's membership of the European Union". But without government support, it's highly unlikely ever to happen and it is hardly whizzing its way through the Commons. After a gap of 18 months, the Bill's second reading is due on 27 January 2012, and as Parliament's website laconically notes, since "the House is not expected to sit on this day it is unlikely to be debated".

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.