Over the next two months there will be increasing discussion about whether we will be better off in or out of the EU. Some of this will focus on the political aspects, for example the potential gains in sovereignty and our ability to gain greater control of our borders versus our loss of influence were we to leave the EU. However the purpose of this article is to focus on the economic arguments.
In theory the case for and against leaving the EU should be an ideal opportunity to apply cost-benefit analysis, weighing up the monetary costs of leaving and comparing them with the monetary benefits and then seeing which are greater. However, in practice, this will not be easy to do. Even our contribution to the EU is not clear with the Leave Campaign focussing on the £18.3bn we paid in 2014/15 (which sounds a lot) while the Remain Campaign concentrate on the net contribution which is about £9bn, which, when divided by the population, works out at less than 40p per day (which sounds very little). There is little consensus on the overall cost or benefit of being a member. The National Institute for Economic & Social Research suggested, in 2004 that membership of the EU contributed about 2% to GDP, the CBI is suggesting that each household benefits by £3,000 per year while the Institute of Directors thinks it costs us 1.75% of GDP to belong.
Even assuming that we could agree on the amount of our net contribution to the EU, we are not going to be able to quantify the costs and benefits we will face if we leave. Crucial to this figure will be the type of trade deal we are able to negotiate if we leave. Will the EU be keen to encourage trade with us and therefore allow us to negotiate a favourable deal or will they be keener to discourage others from leaving and therefore impose significant tariffs on UK goods entering the EU? Possibly a more important question, given that non-tariff barriers are of increasing importance,is whether or not we will be able to gain easy access for our services, particularly financial services, if we leave the EU? It is true that we run a deficit with the EU but we cannot infer from this that we will be able to negotiate a favourable deal. Almost half our exports go to the EU while only about 7% of theirs come to us, therefore a favourable deal is far more important to us than them.
Furthermore, the deal we eventually agree will involve us making a financial contribution to the EU as Norway and Switzerland do. How much will this be and how many of the regulations we currently have to meet will we need if we leave and how much will it cost us to do so?
Another key question is what sort of trade deals we will be able to agree with non-EU countries? We would have less influence negotiating individually than we would as part of the EU given that the EU market is almost five times as large as the Uk’s.
[An unbiased analysis of the various claims and a good source of data is thr Channel 4 Factcheck (http://blogs.channel4.com/factcheck/tag/eu)%5D