"Plebs omnis plaudit ut me minore sepius audit."
TREBLE BELL, COMBE RALEIGH CHURCH, DEVON.
Thursday, 26 May 2016
An objective guide to the UK membership of the European Union, including expert opinion on the benefits or otherwise of remaining within the European Union
Foreword from Derek Thomas MP
On June 18th last year I proposed in Parliament that the Electoral Commission produce ‘a lay-person’s guide to the costs and benefits of UK membership of the EU before the EU referendum.’ I argued that ‘the British public have a right to a completely objective guide to our membership in order to take an informed decision in the in/out EU referendum’. Once the Prime Minister had announced the date of the EU referendum for June 23rd, I asked Gabriel Dreiman to research the issue and prepare independent information in response to questions and queries raised by constituents.
Derek Thomas MP with Gabriel Dreiman, an American undertaking a short internship as part of the Hansard Scholar Programme and author of this guide.
This guide has been abbreviated and presented by Abi Johnson (also an intern in Derek Thomas’ Westminster Office).
I want to be quite clear. I supported the Government's proposal to hold an 'in/out' referendum. The EU has moved far beyond the original single market and cooperation between member states that the British electorate believed they had voted for in 1975. I am convinced that people today deserve a say on whether we should remain or leave the EU project. People also deserve objective information and I am grateful to Gabriel who has worked so hard to attempt to provide clarity and facts about what UK membership of the EU actually looks like and what the risks are should the British people vote to leave.
This guide will not answer every question. So much is unknown. However, it is an honest attempt at answering the many queries that were raised.
This country is a great country with a great history and I believe has a great future. No-one can be absolutely sure what the future holds for the UK and how the European Union will evolve. This is true whether the UK public vote to leave or remain.
David Cameron, Prime Minister:
‘It is time for the British people to have their say,’ he said. ‘It is time to settle this European question in British politics. I say to the British people: this will be your decision.’ (23rd January 2013)1
What is the EU?
The European Union - often known as the EU - is an economic and political partnership involving 28 European countries. It began after World War Two to foster economic co-operation, with the idea that countries which trade together are more likely to avoid going to war with each other. It has since grown to become a “single market” allowing goods and people to move around, basically as if the member states were one country. It has its own currency, the euro, which is used by 19 of the member countries, its own parliament and it now sets rules in a wide range of areas - including on the environment, transport, consumer rights and even things like mobile phone charges.
What is it?
David Cameron negotiated an agreement with the EU that would reform the way the UK and EU interact. The Settlement addresses several areas of the UK’s relationship with the EU and if the UK votes to remain then the Settlement will drive the UK’s continued membership of the EU. The Settlement covers several key areas: Free movement, Benefits, Regulation, Sovereignty, and the Eurozone.
The UK will not face financial losses due to eurozone ‘bail-outs’. The Bank of England will remain responsible for supervising the financial stability of the UK and discussions of matters that affect all EU Member States, must involve all EU Member States, including non-eurozone members.
The EU and Member States ‘must enhance competitiveness’ and take steps to lower the regulatory burden on businesses. The Commission will review the EU legislation for compliance with subsidiarity and proportionality and will consult national parliaments.
The Settlement recognises the UK’s special position in the EU and exempts it from ‘an ever closer union’. Also, there is a red card option where national parliaments can block EU legislation with a 55% majority. The UK will retain its opt-out and opt-in arrangements in measures on policing, immigration and asylum policy and national security will remain the sole responsibility of the UK Government.
The free movement rights of non-EU family members of EU citizens will be restricted by amendments to the Free Movement Directive. An ‘emergency brake’ could be applied to ‘take account of a pull factor arising from a member-states in-work benefits regime’ by limiting full access to in-work benefits, whereby they are phased-in over a four-year period for new arrivals. (The UK already meets the criteria for this.) The deal makes it clear that when a new country joins the EU, transitional arrangements can be put in place on the free movement of people from that country. The UK has a veto over this already and the deal merely confirms this.
In-work benefits could be phased in over a four-year period, limiting new arrivals being able to claim the full amount immediately under an ‘emergency brake’. Exported Child Benefit can be indexed to the standard of living in the receiving country where the child resides - less in most cases but more in some.
Is it Legally Binding?
A report from Parliament’s Commons Library: ‘The Decision is not a binding EU treaty or EU law in itself. Most legal opinions consider it a binding treaty under international law, largely because the parties to it have declared that they intend it to be legally binding….The Court of Justice of the EU could not enforce the Decision, although it would have to take it into consideration when interpreting the EU Treaties...The Decision probably cannot be reversed without the consent of the UK. But it cannot guarantee all of the outcomes envisaged in it.’
In 2015, the UK’s gross contribution to the EU budget was £17.8 billion. After the UK’s rebate of £4.9 billion and other public sector receipts amounting to £4.4 billion, the actual net contribution to the EU for 2015 amounts to £8.5 billion.2 However, the £9.3 billion that the UK receives back from the EU (UK taxpayer’s money returned) is distributed in unequal ways, varying by geographical location as well as different sectors. This is demonstrated in the case of Cornwall where the European Regional Development Fund (ERDF) and the European Social Fund (ESF) provide significant levels of support.
Over the period 2007-13 Cornwall and the Isles of Scilly received £387 million from the European Regional Development Fund.3 It was designated as such because its GDP per capita is less than 75% of the EU average. Cornwall and the Isles of Scilly also received £166 million from the European Social Fund (ESF).4 ‘Universities in Cornwall’ also received €7.4 million of the funding from the EU’s 2007-13 research and development programme.5 The EU provided over half the investment (€55.1 million) needed for the Superfast Cornwall Project, providing fibre-optic superfast broadband.6 Similarly, Cornwall receives large subsidies from the EU in the agricultural industry, which are covered in the Agriculture section of this document.
What the Critics say:
John Redwood MP: ‘We will be able to spend £10bn a year on our priorities instead of sending that abroad and not getting it back. That adds 0.6% to our GDP.’7
David Cameron PM: ‘We do pay in more than we get out,’ he said. ‘We benefit, though, from the single market, making our economy bigger, creating jobs and more tax revenue. We get back much more overall than we put in. I think our membership fee is worthwhile.’8
Business and Trade
Cut free from red tape or cut off from customers?
As a member of the EU the UK is part of a customs union, with no tariffs on goods moving between EU countries. Member states cannot negotiate independent trade agreements with non-EU countries but instead are co-ordinated at EU level.
Figure 1 represents the current UK trading exports relationship with the EU, the USA and the rest of the world. The EU accounted for 44% of UK goods and services exports and 53% of all UK imports in 2015.9However, it is important to note that the share of exports from the UK to the EU has declined by 10% over the the last 12 years.10 It is argued that membership of the EU allows the UK to benefit from better trade deals than it would be able to negotiate on its own.
Figure 1: UK Exports relationships.
Nevertheless, it is probable that, due to the strong economic imperative, the UK and EU could seek to negotiate some form of trade deal as quickly as possible in the light of the political climate which would be tailored to the British economy rather than the EU.
On the one hand, Brexit could mean that the UK can negotiate new trade agreements focused specifically on national interests, as currently these are made with a large range of EU-focused interests. On the other hand, the smaller size of the UK market may mean other countries give higher priority to deals within the EU.
An open letter signed by 200 bosses of small firms: ‘As entrepreneurs we deal with the EU’s constant diet of unnecessary regulations which add to our cost base, reduce our bottom line, and raise prices for our customers with no return. We believe that our economy can do better and create more jobs, without being held back by the EU, thus we should vote to leave.’11
Patrick Minford, Professor of Applied Economics argues that the EU ‘erects a tariff and non-tariff wall around EU member states that is highly protectionist and raises the prices of protected goods, including agriculture and manufactures. 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.’12
Confederation of Business Industry: ‘The EU facilitates global trade providing the UK with privileged access to 53 markets outside of the EU through trade deals. As an economy worth £10.6 trillion in 2015 with a market of 500 million people, evidence shows the EU enables the UK to secure more and better quality trade deals.’13
Agriculture & Fishing
Leaving the EU would mean leaving the Common Agricultural Policy (CAP), which represents almost 40% of the EU budget and the largest element of the UK’s EU costs.14The CAP directly supports UK farmers through the Basic Payment Scheme and currently administers £3.5 billion to the Rural Development Programme in England, which sent £13.6 million to the St Ives Constituency.15 However, it has been highlighted that currently the UK pays £6billion into the CAP and receives £3billion back, effectively subsidising our competitors such as countries like France.16 Questions have ben raised as to how an independent UK would approach farming policy without common EU rules as the overall working framework.
Inshore fishing in Cadgwith
Previously, the UK has sought cuts in the overall EU budget supporting the CAP and want to see a more market-orientated policy, to ensure farmers can prepare for a future without income support. In order to stay in business, farmers need subsidies, so in the case of a vote to leave the EU, the government will have to provide similar subsides to maintain current food production.
Fishing The Common Fisheries Policy works via the Exclusive Economic Zone (EEZ) and under this, each country within the EU can control and manage an area of sea extending twelve miles from their coastline. Under the CFP, fish is a shared resource and the CFP therefore sets standardised rules which apply to all EU member nations, and in an effort to ensure stability, quotas are often taken from Member States and given to others falling below certain levels. The failure of the Common Fisheries Policy (CFP) has led some to suggest that fisheries management would be more effective outside of the EU.
Minster of The Department for Environment, Food & Rural Affairs, George Eustice MP,who is campaigning to leave, said an independent UK would ‘without a shadow of doubt’ be able to fund the farm subsidies, totalling more than £2bn, which are currently paid through the CAP.17 He also added that ‘outside the EU, we would re-establish national control for 200 nautical miles or the median line as provided for in international law.’18
GreenPeace UK has said ‘A failed quota system is destroying the UK’s small scale fleet…Many small scale fishermen struggle to earn a living wage from the tiny fishing quota they are allocated.’19 In the summer of 2014, a government report concluded that the CFP ‘had failed in the past to achieve key objectives namely to successfully maintain fish stocks or provide an economically sustainable basis for the industry.’20
David Cameron PM has described that ‘outside the EU, we would have no say over the rules governing our biggest export market… That is why I believe our farmers and countryside are stronger, safer and better off inside a reformed European Union.’ David Cameron has also said ‘As long as I am Prime Minister, I would make sure that an agricultural support system would be properly maintained.’21
Environment & Climate Change
Inside the EU, the UK is under common rules that protect the country’s nature and wildlife, set limits for pollution and waste and help us reduce our carbon footprint. Through its EU membership, the UK government has been required to put in place a host of policies with strict targets that can be legally enforced, and to provide regular, publicly available reports upon its performance in relation to those targets. Leaving the EU could result in the absence of external pressure and auditing from members of the EU.
However, there have also been reports highlighting the drawbacks of remaining in the EU. It can take a long time to get agreements and it does not always produce clear policy.
Additionally, the relatively recent ‘greening’ elements of the CAP- designed to support practices beneficial to the climate and the environment – have been described as overly bureaucratic, and some farmers and NGOs question whether they will have any effect.22
Newstatesman: Climate change ‘knows no borders. That means that coordinated action between all countries is needed to effectively take on the challenge of tackling it.’25
WWF-UK’s Director of Advocacy, Trevor Hutchings:
‘Not everything that comes from Europe has been good for the natural world but on balance membership of the EU has delivered benefits for our environment that would be hard to replicate in the event of the UK leaving.”23
Overall Economic Impact
GDP is an overall measure of the growth of the economy, generally growth over 2% is considered a healthy economy. There have been several studies on the impact of Brexit on the UK’s GDP and most of these show a negative impact on GDP if the UK votes to leave. There are a wide range of projections on how Brexit would either help or hurt the growth of Britain’s economy. In the case of Brexit, reports indicate either damage to the economy or little to no change.
It has been suggested that many international companies consider the single market as a significant factor when considering investment. The UK would still be an attractive place to invest in the case of Brexit, however EU membership is a key factor when these decisions are being made. The various benefits of EU membership produce an overall positive impact for the UK economy despite the membership fee and any regulatory costs. Research conducted by the CBI estimates that the net benefit of being an EU member is in the region of 4-5% of UK GDP, meaning the average household possibly benefits in the region of £2,700-£3,300 a year. 26
Dominic Cummings, former Government Advisor: ‘Straight after you go there is not going to be a huge eruption. Legally nothing changes the next day. A new government team is going to sit down with the EU and figure out what this new relationship should look like legally. That will be a big thing before any formal process happens.’27
The Open Europe think tank has released research suggesting that ‘the worst-case scenario outside the EU would be 2% GDP worse off and 1.6% better off, depending on the policies of the UK Government and the successor deal with the EU’.28
Business for Britain has stated ‘less than a tenth of the economy exports to the EU, but their access costs are shared out to everybody, regardless of whether they need the regulation or not.’29
Business and Financial Services
London ranks first on the Global Financial Centres Index followed by New York City, Singapore, Hong Kong and Tokyo. Former City Banker, Andrea Leadsom MP said ‘there is no credibility to the claims that London would lose its position as a leading financial hub.’30
The argument centres on whether the benefits of having a more tailored and flexible national regulatory regime outweigh the loss to access to the single market that may come with pursuing an independent agenda. A huge amount of financial series regulation is derived from the EU.
The UK has frequently led reform in this area, therefore it is likely that a significant amount of this legislation would remain post-withdrawal, though not necessarily in the same form or to the same extent. The majority of opinion of City firms is that the UK should remain within the EU.
Remain argues that the single market access and the consistency of regulation across the entire EU drives business growth in the UK. Leave feels that EU spends too much time coming up with and implementing expensive regulations. For instance, Open Europe analysed Government reports and found that the ‘100 most burdensome EU-derived regulations to the UK economy stands at £33.3bn a year in 2014 prices. This is more than the £27bn the UK Treasury expects to raise in revenue from Council Tax in the current (2014-15) financial year.’ 31 They did note that the reports also contained a £58.6 billion in benefits to the economy, which at face value outweighs the cost, however Open Europe feels that the benefits are wildly overstated.
Jamie Dimon, CEO of JPMorgan: ‘If we can’t passport out of London, we’ll have to set up different operations in Europe.’ He alludes to a massive dislocation to the financial hub that would reverse decades of growth for international banks in London and scatter them across Europe and the rest of the world.32
Howard Shore, Executive Chairman of Shore Capital Group, a broker specialising in smaller companies: ‘Outside of Europe, we wouldn’t suffer European regulation,’ he says ‘We would be able to liberalise our economy, set our framework and rules to suit us.’33
The Confederation of Business Industry A report published by CBI highlighted that various companies, including BP, EasyJet, BAE and Centrica, said ‘Business needs unrestricted access to the European market of 500 million people in order to continue to grow, invest and create jobs. Britain will be strong, safer and better off remaining a member of the EU.’34
André Villeneuve, former chairman of the London International Financial Futures and Options Exchange: ‘They said the City would die because the UK wasn’t part of the euro.’35
Foreign Defence & Security
Many people are interested in the ways that Brexit might change the UK’s military capabilities and security arrangements, particularly given the unrest in the Middle East and terrorism on the continent.
Withdrawal from the EU would not change the UK’s formal status in other key global and regional alliances and networks, including NATO, the United Nations Security Council, the Commonwealth, the G8 and G20. The EU has little impact on the UK’s ability to defend itself since most military co-operation is the with the US.
Additionally, since the EU defence co-operation remains intergovernmental, withdrawal from the EU should have a relatively minor impact on the UK’s long-term defensive posture and capabilities. We would also be able to maintain its bilateral defence co-operation with France, which is not anchored in the EU.36
Derek Thomas MP at RNAS Culdrose
A UK withdrawal would more likely place the EU at a disadvantage, and without the UK’s defence capacity and foreign policy experience, the EU’s voice in the Middle East, could be less influential. Outside the EU, the UK would not be a member of Europol and would no longer be part of the European Arrest Warrant (EAW), which provides simplified and uniform EU-wide extradition arrangements.
The ‘Five Eyes’ network of the USA, UK, Canada, Australia and New Zealand, meanwhile, which provides the UK’s most important intelligence-sharing framework, does not involve the EU, and leaving it is unlikely to affect this relationship in the immediate future or in the long term.
Sir John Sawers, ex-head of MI6: ‘The reason we would be less safe [if the UK voted to leave], is that we would be unable to take part in the decisions that frame the sharing of data, which is a crucial part of counter-terrorism and counter-cyber work that we do these days.’37
Iain Duncan Smith MP: ‘EU migration rules make the UK vulnerable to terrorist threats.’40
Stephen Booth of Open Europe says he is ‘very concerned about the EU developing a different view from the UK and USA on issues such as relations with Russia.’38
Matthiew Elliot, Chief Executive of Vote Leave: ‘UK border controls are in France because of a bilateral treaty, not because of our EU membership.’ 39
Sovereignty and Repatriation of Power
Leaving the EU could create opportunities for the UK to review and cut red tape, perhaps replacing it with rules that provide the protection sought but with fewer administrative burdens. In 2008 the UK signed the Lisbon Treaty- an amendment to the constitutional basis of the EU- which expanded the use of qualified majority voting where non-Eurozone countries are automatically an out-voted minority inside an organisation where the Eurozone has a built-in majority.
Whilst many argue that an exit from the EU could appear isolationist and could mean the UK has less influence on the standards and regulations that make up the barriers to trade in today’s global environment, it could also be suggested that free from the EU, the UK could become a more flexible and adaptable trader focused on sectors that matter most to the UK. Whilst the EU holds a strong leveraging position in negotiating trade deals, it inevitably would involve compromises amongst the interests and positions of Member States. Many argue that leaving the EU would mean the UK could regain its sovereignty and get away from the over-bureaucratic nature of the EU.
Boris Johnson MP, former Mayor of London: ‘I think staying in the European Union, as it evolves towards an ever more centralised federalist structure in the effort to preserve the Euro, is the risk option and the best thing for us now, because we’re a great country, a proud economy, a proud democracy, is to take back control over our borders, over the huge sums of money that we send to the European Union and to take back large amounts of control over our democracy. And this is really what clinched it for me.’42
Rt Hon Alex Salmon MP: The EU ‘delivers more freedom, more prosperity and more ability to influence the world environment than we could have if we weren’t members.’ 41
Free Movement of EU Citizens and Labour Market
The ‘free movement of labour’ is one of the 4 fundamental principles of the EU, entitling citizens of the EU member states and their families to reside and work anywhere in the EU, including in the UK. The effect of Brexit on immigration would simultaneously impact labour and the movement of individuals both in and out of the UK.
Annual net migration from Europe has more than doubled since 2012, reaching 183,000 in March 2015.43 Immigration from the European Union is currently boosting the workforce by around 0.5% a year, helping to support the economy’s ability to grow.
Whether the United Kingdom gains any powers to restrict immigration from Europe will depend on its future relationship with the European Union.44 It may be that in order to access to the single market, we may have to keep the free movement of individuals between the United Kingdom and the Union. However, some argue that this is unlikely and that policy would shift to restrict the number of low-skilled workers entering the country and move towards attracting more highly-skilled workers. If shifted to a model similar to those entering the UK from outside the EU, it could largely restrict economic migration to high-skilled migrations (via points-based system) and reduce the flow of migrant workers doing low-skilled jobs. Should the UK vote to leave the EU, it could impose its own rules on EU/EEA immigration.
Under the 1969 Vienna Convention on the Law of Treaties, withdrawing from a treaty releases the State Parties from any future obligations to each other but does not affect any rights or obligations acquired under it before withdrawal.45
Jacob Rees Mogg, MP: ‘As long as migration from Europe remains unlimited these reductions have to be made up of migrants from outside the EU. Unfortunately, these are often skilled migrants from Commonwealth countries with whom we have far closer links than with much of Europe.’46
George Peretz, QC argues ‘Brexiters want to be able to stop or control migration from other EU countries to the UK, and since any deal would have to be even-handed, we can’t expect that any such agreement would give Brits living elsewhere in the EU anything like the same rights they enjoy now.’47
In 2014, analysis from the Centre for Economics and Business Research and British Influence estimated that 4.2 million jobs were supported by exports by UK firms to the EU, 3.2 million supported directly by exports and 3.1 million indirectly through the spending this generated.48 These statistics have been used extensively by Remain campaigners who argue that an exit from the EU would have a significant effect on millions of jobs.
However, analysis conducted by the Institute of Economic Affairs has argued that these jobs are linked with trade with the EU, not membership of a political union, and that there is no evidence to suggest that trade would substantially reduce between British businesses and European consumers, even if the UK was outside the EU.
An EU exit could foreshadow significant change to UK employment law, much of which flows from Europe. The only clear conclusion that can be drawn is that a withdrawal will allow a UK government to decide its own employment law in the best interests of the UK.
Insititute of Economic Affairs: ‘We can say with certainty that 3-4 million jobs are not at risk if the UK leaves the EU. There may well be net job creation or a range of other possible outcomes which should be debated nationally.’49
A KPMG report on the car industry has said ‘The attractiveness of the UK as a place to invest and do automotive business is clearly underpinned by the UK’s influential membership of the EU.’ 50