At the time I write this, the referendum date has recently been announced, and already a few high profile conservatives, including Michael Gove and Boris Johnson, have declared their position against David Cameron’s “in” recommendation. The voting date of 23rd June is a few months away, and there’s going to be a huge amount of air-time and column-inches devoted to the topic of UK’s EU membership – many people will be sick to death of it, if they aren’t already.
The new (and rather ugly) word “Brexit” has entered the lexicon, since a UK referendum on EU membership was first mooted. That was probably inevitable, given that the “Grexit” word has been in and out of the headlines for some years now. The Eurozone has been staggering from crisis to crisis with the economic woes of Greece for a long time, and the issue is still very much unresolved .
As we move towards decision day, the UK in- and out- camps will be occupied by very strange bedfellows indeed, much as the last vote was in 1975. I can’t say it fills me with joy to be in the same camp as George Galloway or Nigel Farage, but there it is – I’m confident we have rather different rationales for our positions, so I’ll just have to get over it and stick to what I think is right, on its merits.
I’m one of the senior citizens old enough to have voted in 1975, and I voted “in”. But what I was voting for was a Common Market, the European Economic Community. If that’s what we were voting on this time, I’d still be for “in”. But what the EU has morphed into over the past 40 years is a very different beast. Though there’s a European Parliament, with elected MEP’s from all member countries, the European Commission has acquired a life of its own.
Before I try to make a case about the pros and cons, it’s probably worthwhile to set out in simple terms how the EU is organized. Otherwise, we are highly likely to be at cross purposes, or at least making rather different assumptions about the significance and validity of certain arguments.
There are 28 countries at present in the EU:
- an original bloc of 6 in 1958: Germany, France, Italy, Netherlands, Belgium and Luxembourg
- a second group of 3 joined in 1973: UK, Ireland and Denmark
- Greece joined in 1981, and then there were 10.
- Spain and Portugal joined in 1986. Now there were 12.
- Austria, Sweden and Finland joined in 1995. Now there were 15.
- A big expansion occurred in 2004, when 10 more countries joined: Poland, Czech Republic, Slovakia, Hungary, Latvia, Estonia, Lithuania, Malta, Cyprus, and Slovenia. The number of countries was now 25.
- Bulgaria and Romania joined in 2007.
- Croatia joined in 2013.
Of the 28, 19 are in the Eurozone, and 9 retain their own currency. Those nine are UK, Poland, Czech Republic, Hungary, Denmark, Sweden, Bulgaria, Romania, and Croatia, which together account for just over 1/3 of the EU population. The Danish and Bulgarian currencies are pegged to the Euro.
Even in defence there are differences: 22 of the 28 are members of NATO, and 6 are not: Ireland, Finland, Sweden, Austria, Cyprus, and Malta.
The following table provides a summary. I’ve arranged it by date of joining, with the founder members at the top.
I must admit, when I pulled this information together, there were a few things that I didn’t know, and I take an interest in such matters. How many people in the EU could even name all the countries which are members? And say which ones are in the Eurozone? Would you have got it all right? If you would, I’m impressed.
These countries represent a huge spread of geography, language (there are 25 main languages spoken across the EU), economic prosperity, culture, and history, developed to a large extent separately over many centuries. They include mature democracies such as the UK, and poorer countries in the east of Europe which were until relatively recently part of the Soviet bloc, on the “other side” in the cold war. Unlike the USA, a young country which has by and large never been anything other than the USA, and benefits from (pretty much) a single language, most of the countries of Europe have developed very differently from each other. The challenge of language shouldn’t be underestimated – whilst many Europeans can manage reasonably well in English, French, Italian, Spanish, and German, it’s a different matter trying to communicate in Czech, Hungarian, Croatian, or Bulgarian. Few are fluent in say Swedish and Romanian, or Greek and Polish, or Hungarian and Portuguese, so communication often has to take place in a language which is not the mother tongue of either party to a discussion or debate. In practice, the procedural languages of the EU organization are English, French, and German.
The EU was born out of noble ideals – after the horrors of two great wars in the 20th century, putting together an alliance of countries in western Europe was seen as a way of greatly reducing the chances of any repeat. And building a large trading bloc with access to each other’s markets was very sensibly seen as an instrument to deliver prosperity and development to the people of the countries which joined in the enterprise.
Things did proceed according to those ideals for some years, and when UK held a referendum in 1975, the question was about joining up to those ideals, for what was then a group of 9 countries, with a centre of gravity in the north-west of Europe – though stretching as far south as Italy. The UK voted to join, and I believe rightly so. We are now facing a referendum about membership of a rather different geographical entity of 28 countries. But it’s not just the geographical spread which has changed – it’s the whole ethos of what it’s about.
To understand what I mean, we have to look at how the EU operates. Perhaps you should go and grab a strong coffee before trying to get your head around this – it does seem at first sight somewhat complicated and confusing.
There exists a body called the European Council, which comprises the heads of state or of government of each of the member countries (or “member states” as they’re called in Eurospeak), along with the Council’s own president and the president of the European Commission. It was established at an informal summit in 1975, and later formalized as an institution of the EU in 2009, when the Treaty of Lisbon came into force. The current President of the European Council is ex-Prime Minister of Poland, Donald Tusk.
But the European Council doesn’t run the show. That is the job of the European Commission, the ruling body of the EU. The European Commission is an executive team which operates like a cabinet government, responsible for proposing legislation, implementing decisions, upholding the EU treaties, and managing the day-to-day business of the EU. It comprises one member, or “Commissioner”, from each member country, irrespective of size, so tiny Malta has one Commissioner just as Germany has, and there are 28 in all. These Commissioners are expected not to behave in a factional manner in the interests of their own country: they swear an oath at the European Court of Justice in Luxembourg to respect EU treaties and to be completely independent in carrying out their duties. The leader of the European Commission is the Commission President, proposed by the European Council and elected by the European Parliament – at present Jean Claude Juncker of Luxembourg. The European Council appoints the other 27 members of the European Commission in agreement with the nominated President, and the 28-member body is subject to approval as a whole by the European Parliament. Do you know who the UK’s representative is on the European Commission? It is not a well-publicized role, but the name is Jonathan Hopkin Hill, Baron Hill of Oareford. (Yes, I confess I had to look it up.)
The European Parliament is a directly elected parliamentary body, which together with the European Commission and the European Council, exercises the legislative function of the EU. It comprises 751 members (or MEP’s), since 1979 elected by “direct universal suffrage” every 5 years. Somewhat telling is the rather low voter turnout – in 2014 only 42.5% of the electorate cast a vote. It is huge and unwieldy, the second largest democratic electorate in the world (after the Parliament of India). Although the European Parliament has legislative power that the European Council and European Commission do not possess, it does not formally possess legislative initiative, ie the right to propose new law, unlike most national parliaments of EU member countries. The European Parliament is the “first institution” of the EU, and shares equal legislative and budgetary powers with the European Council (except in a few areas where the special legislative procedures apply). The European Commission is accountable to the European Parliament. In particular, the European Parliament elects the President of the European Commission, and approves (or rejects) the appointment of the Commission as a whole. It can in theory require the European Commission as a body to resign, by adopting a motion of censure.
You might have heard the term European Commission used in a very different sense from the 28-member executive body of the EU, i.e. to refer to the vast and growing band of European Civil Servants (often unflatteringly styled “Eurocrats”). The European Commission is divided into departments known as Directorates General (DGs), roughly equivalent to ministries. Each covers a specific policy area or service such as trade or environment, and is headed by a Director-General who reports to a Commissioner. Around 33,000 people are employed by the European Commission. They are the people who we sometimes like to disparage for costing a lot of money, and making up ever-more unnecessary, unworkable, and nit-picking rules and regulations that drive us to distraction. As I’ll come on to discuss, some of that sort of criticism is unfair, but some isn’t.
Another very important point to make is the distinction between the EU and The Council of Europe. The Council of Europe was founded in 1949, and is a regional intergovernmental organization whose stated goal is to promote human rights, democracy, and the rule of law in its 47 member countries. Its spread is much greater than the 28 countries which comprise the EU – it covers over 800 million people. It is sometimes confused with the EU, in part because they share the European flag, in part because they share the word “European” in their titles, and in part because “Council of Europe” and “European Council” sound interchangeable: they are not; the latter is a body of the EU.
Unlike the EU, the Council of Europe cannot make binding laws. The Council of Europe adopted the European Convention on Human Rights, and established the European Court of Human Rights, which sits in Strasbourg, France. This should not be confused with the European Court of Justice, which is an EU institution, in fact, the highest court of the EU. The European Court of Human Rights is not an institution of the EU, so whether or not the UK is a member of the EU makes no difference whatsoever to its influence on the UK. It hears applications alleging that a contracting country has breached one or more of the human rights provisions concerning civil and political rights set out in the Convention and its protocols. An application can be lodged by an individual, a group of individuals or one or more of the other contracting countries. If you hear anyone arguing “we should get out of the EU because we don’t want our decisions meddled with by the European Court of Human Rights”, they have got the wrong end of the stick. Not surprising, given the plethora of European institutions with similar sounding names, but wrong nonetheless.
Another word that gets bandied about is Schengen. What’s that? Does it give everyone a free pass into the UK from Europe, and there’s nothing we can do about it? As I guess you probably already know, that’s not so.
The Schengen Agreement is a treaty which led to the creation of Europe’s borderless Schengen Area. It was signed in 1985 by five of the ten member countries of what was then the EEC (the European Economic Community – if you’re old enough, you’ll remember that’s what we once had). It got its name because it was signed near the town of Schengen in Luxembourg. It proposed a process towards abolition of checks at borders between signatory countries, so that vehicles could cross borders without stopping, residents in border areas could freely pass back and to, away from fixed checkpoints, and visa policies could be harmonized. In 1990 the Agreement was supplemented by the Schengen Convention, which proposed the abolition of internal border controls and a common visa policy. The Schengen Area operates like a single country for international travel purposes, with external border controls for travelers entering and exiting the area, and common visas, but with no internal border controls. Originally, the Schengen treaties and the rules adopted under them operated independently from the European Union, but in 1999 they were incorporated into European Union law by the Amsterdam Treaty, and are now part of core EU law. This law provides for opt-outs for the only two EU member countries which had remained outside the Area, namely UK and Ireland, but requires that all EU member countries which have not already joined the Schengen Area, and which do not have a an opt-out, do join when technical requirements have been met. There are four such countries: Cyprus, Croatia, Bulgaria, and Romania.
The Schengen area at present consists of 26 European countries: the 28 in the EU, less UK and Ireland who have an opt-out, and less the 4 just mentioned which currently do not meet technical requirements, plus 4 non-EU countries: Iceland, Norway, Switzerland and Liechtenstein.
So, UK and Ireland are not in Schengen, and have no requirement to change that status. We have the freedom to have in place whatever border controls we see fit.
Right, glad we’ve got all that clear!
So what’s my beef with the EU? I’ve disposed of the red herring of the European Court of Human Rights, because it isn’t part of the EU.
Also, haven’t I disposed of two further concerns, the red herring that EU law (or “Schengen”) prevents us controlling our borders, and the oft-alleged “undemocratic” set-up of the EU? I’ve reminded you that the UK has a permanent opt-out of the Schengen agreement, and I have described the organization of the EU as a thoroughly democratic body, exercising the collective will of the citizens of the EU, via elected MEP’s. Well no, I haven’t actually, on these two vital points, and it’s absolutely key to my argument to say why.
Free movement of people
First, I need to address control of our borders and the vexed question of immigration. Whether you or I like it or not, this is bound to be one of the crucial aspects that will affect how people vote on 23rd June. Schengen, which is about free movement without the need for a passport, is not really the point. When you enter the UK, since we have a Schengen opt-out, everyone is required to pass through border control, which means that everyone, whether a UK citizen, an EU citizen, a Commonwealth citizen, or a citizen of any other country, has to show their passport. But requiring to show your passport, and having right of entry with a passport, are completely different things. Right of entry is the crucial point.
A fundamental plank of EU rules is that every EU citizen has freedom to move about anywhere within the EU , and to settle and work there. To come to the UK, all the person needs is to be an EU citizen and to hold a passport of an EU member country. As an EU member, the UK cannot restrict the number of EU citizens who come to settle in the UK, nor can it impose any restriction on employment rights of any EU citizen, eg by imposing a work permit system. That is a great principle, when considered in the context of a group of countries intent on moving towards political union. You might or might not agree it’s a good idea for the UK to be part of that, but it’s not what we voted to join in 1975. It is however a significant part of what we’ll be voting about in 2016, so I do need to comment on the pros and cons of this arrangement from the perspective of the UK.
An important consideration is the motivation to move from one country to another. Without much differential motivation, we would see some general movement of people as they chose to live in a different country, perhaps for reasons of employment, family links, better climate, or whatever, but different countries would see influx and efflux, perhaps not in perfect balance, but not generating a large change in relation to their overall populations. But if differential motivation is high, as we see with big disparity in wealth, quality of life, and employment opportunities, then a free-for-all carries significant risks, and that’s what we observe in practice. It puts stresses on the countries gaining people, as well as on those losing them.
The UK is a particularly attractive destination for a number of reasons. A cold, damp climate isn’t a great draw, but job opportunities are. The UK, being outside the Eurozone, has been able to sustain higher employment levels than most of the rest of the EU, and, compared to some countries, spectacularly so. With a mature democracy, rule of law, a comparatively generous and comprehensive welfare benefits system, a good health service free at the point of use, and job vacancies for a wide range of skills, and for unskilled people too, the draw is obvious. A further factor is language – English is the de facto world language of trade and business, IT, and entertainment– even in France and Germany – so the attraction of living and working where one can learn English is relevant too.
Where the numbers of EU citizens choosing to move to UK is manageable, most would agree it is a good and healthy thing all round. But when the rate of migration becomes too high, a range of problems ensue. Obvious ones are pressure on housing, schools, and services, which cannot develop fast enough to accommodate the influx. Another is a drain of population, wealth creation and skills from the countries from which the migrants come: if most of the best bricklayers and plumbers in Poland work in UK, how do you find a decent plumber or bricklayer in Poland? And when that applies to trained healthcare professionals, problems can become quite serious.
So the question isn’t whether free movement in principle isn’t a good thing – only the most xenophobic would demur. The question is how the pace of change can be managed to prevent the problems outweighing the benefits. I would argue that the rate of influx from other EU countries into the UK has been somewhat too high in recent years, resulting in some depression of wages (a good thing for business competitiveness, but a bad thing for UK employees) and excessive load on schools, housing, NHS, and services. You will find some people arguing that this is not so, and others (typically UKIP and its supporters) arguing that it is a large and difficult problem which we urgently need to deal with. Your own perspective possibly depends on your circumstances, such as where you live and how you earn your living. My own view is that it is a problem which requires a measure of control to get the best outcomes for all, and that the EU has signally failed to address this. It has nailed its colours firmly to the mast of total free movement, and is unwilling to budge on the principle. I would not argue that this is an overriding problem which says we need to vote to leave the EU, but it is a factor weighing the arguments in that direction.
A further and pressing issue on migration is the way the EU is handling the enormous humanitarian crisis of refugees, especially from the conflict in Syria. It is not stretching a point to argue that the EU has not spoken with unity on policy, nor has handled the issue with the efficiency of a huge and wealthy well-governed bloc. In fact, the issue has seen some EU countries scrabbling to protect their own interests, erecting fences and razor wire, and looking the other way when frontier countries like Greece are having to deal with enormous numbers of desperate people. The Schengen principle is at risk of collapse. This lack of ability to address a serious crisis with unity, dignity, statesmanship and speed gives the lie to certain of the claimed virtues of the EU.
The EU: a democratic institution?
If you’re still with me, you’ll recall the second point above which I said I wanted to discuss, the issue of democracy. I described in a bit of detail how the EU is organized– intended to be a thoroughly democratic body, exercising the collective will of the citizens of the EU, via elected MEP’s. I accept that the structure has that nominal intent. But we need to look at what happens practice, and it is very different indeed – and there’s the rub.
First, let’s consider MEP’s, the people who make up the European Parliament. This is the “first institution” of the EU, the EU body which is elected democratically by the electorates of the EU member countries, and which is expected to call the shots. There are 751 MEPs, covering 28 countries. The UK is divided into 12 regions, or constituencies, and each region has between 3 and 10 MEP’s. These regionally elected MEP’s make up a total of 73 for the UK as a whole, just under 10% of the European Parliament.
Do you know who your MEP’s are? Do you know how your region is structured with regard to MEP representation? Do you know if you have one MEP, or several? If you don’t know, you can look it up , but if you had to do that, I think I might already have made a telling point. My own region is North West England, which has 8 MEPs: currently 3 Labour Party, 3 UKIP, and 2 Conservative Party. It’s probably fair to say the 3 UKIP members aren’t there to work on fostering the cause of the EU – they are there because they want the UK to leave. Elections were last held in May 2014. As I mentioned above, the turnout was low, about 42.6% across the EU. The figure for UK was even lower at 34.3%, and this needs to be interpreted in the context that polling was conducted alongside local elections in England, so people there didn’t have to make the effort to go out and vote just for their MEPs. If you’re interested in more detail about turnout trends and their significance, see Appendix 1.
The history of referendums on EU treaties has not been uniformly supportive. For the Maastricht Treaty in 1992, France voted to accept with a slim margin 51.1% in favour, on a turnout of 69.7%, ie an approval of less than 36% of the French electorate. Denmark rejected the Treaty on referendum, and negotiated and received four opt-outs from parts of the treaty (Economic and Monetary Union, Union Citizenship, Justice and Home Affairs, and Common Defence). A new referendum was held in 1993, and the vote was then in favour to accept, with 56.8% in favour, on a turnout of 85.5%.
Famously, Ireland rejected the Treaty of Nice in 2001, with a “no” vote of about 54%. However, the EU asked Ireland to have another go to “get the right answer”, on the somewhat questionable basis that the voter turnout had been low – no re-vote was ever called for, irrespective of low turnout, when a vote was in favour of an EU treaty. Ireland duly held a second referendum in 2002, and this time voted in favour.
There have been few opportunities for countries to vote on EU membership, except for initial votes for new countries joining . In 1972, Norway voted against, and did not join. In 1973, Greenland , having joined as part of Denmark in 1973, gained home rule in 1979, held a referendum on EU membership and voted to leave, exiting the EU in 1984. UK voted in 1975, with a result of 67% in favour of membership – but of course, that was for the Common Market of 9 countries, not the rather different institution, both geographically and politically, that it is today.
There has been considerable controversy over the Treaty establishing a Constitution for Europe, where only four countries in 2005 did vote (Spain, France, Netherlands, and Luxembourg) Referendums were planned but never held in UK, Ireland, Poland, Denmark, Czech Republic, and Portugal.
The track record of the EU seeking and respecting the views of its electorate is not a glorious one. But the main point about EU democracy runs far deeper than that. Despite the theory and the avowed intent , there is no practical way that the European Parliament of 751 MEPs, composed of a myriad of different nationalities, groups, factions, and ad hoc political alliances, could ever exercise effective governance of the EU. So in practice, the European Commission is free to steam ahead with its vision of Europe, a political project, with scant regard for the wishes of the electorates of any of its member countries. The perverse effect is that an institution, ostensibly designed to be the epitome of democratic ideals, behaves in an entirely undemocratic, even totalitarian, fashion.
The evidence of this is seen in the growth of a regulatory machine, which runs on unchecked, generating a mass of regulation which we have to accept, and over which we have no control. Much of the regulation burden is unnecessary, unhelpful, damaging to EU competitiveness, and places a disproportionate load on small businesses who, unlike large corporations, cannot afford specialist departments to deal with compliance. We have all heard of some of the more ridiculous examples, such as the 1995 EU regulation on bananas and cucumbers (sensibly repealed in 2008), but the value of some regulations still in draft is difficult to justify. Did you know that the EU is proposing regulation forbidding the sale of food items by number (eg a dozen eggs, or 3 onions) so that they must be sold by weight? Did you know that the EU is proposing to bring in regulation on prohibition from driving for people with certain diabetic conditions?
Why does it get like this? Part of the problem is the large body of EU civil servants: initially, teams are assembled to create regulations, let’s assume quite properly. But once they’re in place, the incentive is to keep generating the need for more regulation, to sustain and build the “empires” of regulatory employment. Without the reasonable checks and balances and prioritizations which would apply to, say, a national civil service, an insidious ratchet effect applies. There should of course be a financial check in the form of the EU budget, but the evidence is damning. It is scandalous that the EU’s own auditors are not able to sign off the EU accounts, because of error and fraud. You might recall the indignation back in late 2014, when the annual report of the European Court of Auditors was published, admitting that £109 billion of a total of £117 billion of 2013 EU expenditure was affected by material error, and £5.5 billion of the 2013 EU budget was “misspent”. That was the 19th year in succession which the EU’s auditors refused to sign off the EU accounts. The indignation in November 2014 arose because, despite its dreadful record of financial mismanagement, the EU made a demand on the UK for an extra contribution of £1.7billion, payable by 1st December 2014; the rationale was application of EU rules requiring contributions to be increased as a function of a member country’s economic performance. In other words, the EU even by its own measures was wasting billions, yet came insisting that the UK pay in more because of the success of the UK economy. Most voices in the UK, even the most ardent advocates of staying in the EU, concede that reform is required. To say the EU requires reform is an understatement, yet no-one can yet point to any substantive reform taking place, or even being considered. If I’m wrong there, I’d love to hear the evidence.
In case you think I’ve just been making unsupported assertions about EU regulation, there is a lot of information available to provide details. One example is here , from Business for Britain, an organization which speaks for a large number of members of Britain’s business community, who feel they have little voice, but are desperate to see fundamental changes made to the terms of the UK’s EU membership.
Business for Britain’s investigations claim to show that nearly 65% of the laws introduced in the UK since 1993 either originate from the EU, or are deemed by the House of Commons Library to be EU influenced. They recognize that all sorts of different numbers are bandied about in this highly controversial area, so they have attempted to provide a reliable independent assessment, by combining House of Commons research and their own examination of EU regulations. Their key findings are:
- Between 1993 and 2014, 64.7% of UK law can be deemed to be EU-influenced. EU regulations accounted for 59.3% of all UK law. UK laws implementing EU directives accounted for 5.4% of total laws in force in UK.
- This body of legislation consists of 49,699 exclusively ‘EU’ regulations, 4,532 UK measures which implement EU directives, and 29,573 UK-only laws.
- This large percentage is driven by EU regulations. This is important because EU regulations are transposed into national law without passing through Parliament. Hence, they do not appear in studies by the House of Commons Library, which therefore quotes much lower numbers. The figure quoted by the House of Commons library was 13.3%, in comparison the “real” number of 64.7%.
They maintain that analysis of the EU’s influence on British law has often been hijacked for political purposes, leading to disputes over the true number. They do acknowledge that not every EU regulation will impact UK, such as rules on olive and tobacco growing, but the rules remain in force across the UK.
Another example of EU regulation starting out with good intent, and then losing its way, is policy on climate change. The EU’s flagship policy is the EU Emissions Trading Scheme, an area in which I have considerable personal experience. I won’t bore you with the details here, but if you’re interested, please refer to Appendix 2.
An aspect of EU regulation, which I have heard cited recently as a benefit of our EU membership, is the EU Social Chapter. The shadow Chancellor John McDonnell said that while he recognized that the EU was in “need of reform”, the impact of the EU Social Chapter on workers’ rights in UK was a good thing. What was he referring to? The Social Chapter is a protocol tacked on to the end of the Maastricht treaty, which set out broad social policy objectives, without details, on improving living and working conditions within the EU. It enshrined the commitment of Member Countries to the separate Social Charter, signed by 11 of the then 12 European Community leaders (the exception being UK Prime Minister John Major) in December 1989, by giving the European Commission clearer powers to impose social legislation. The implication is that after ratification of the Maastricht Treaty, Ministers from member countries have been able to agree, without fear of a national veto, directives on health and safety, working conditions, consultation of workers, sex equality with regard to job opportunities and treatment at work, and protection of pensioners and the unemployed. If they are unanimous, they can agree directives on social security, redundancy, collective representation, employment conditions for non-European Community workers, and job-creation schemes. This has led to things like the Working Time Directive being imposed on the UK. Whatever your views on the merits or otherwise of particular regulations that have been introduced in the UK as a result of EU social legislation, the idea that we can’t make up our own minds what is appropriate for the UK, and have to have our rules made up and imposed by an external authority, over which we have no control, is inimical to our democracy.
In the UK, if we don’t like what our Government is doing, we can throw it out, and from time to time we do just that. Within the EU, the regulatory machine grinds on, intruding in ever more areas of our lives, and we can do nothing to reverse the tide. We have to accept regulations which we think are fine, those we think are irrelevant, and those we think are counterproductive, indefinitely into the future. For me, this fundamentally undemocratic arrangement is a key argument in favour of exit.
The impact on the UK economy and jobs
So far I’ve talked about two crucial areas of debate with regard to UK’s membership of the EU: free movement of people (the control of immigration), and democracy (the ability to make our own laws, and the imposition of laws over which we have no control). A third area which will be vital to how we choose to vote is impact on our economy. It is complex – it’s difficult to make accurate predictions about the economic impact of leaving the EU. It is also the topic most amenable to scaremongering.
A difficulty we all face in making a judgment here is whose message to trust. We are already hearing doom-laden economic predictions about the consequences of exit, being expressed by politicians on the “in” camp, entailing loss of jobs, loss of access to EU markets, collapse in confidence in the UK economy, and the like. Leaders of big business by and large are lining up on the same side. Yet other politicians and business people, especially those running smaller businesses, are expressing the opposite view with equal vigour, saying how we’d benefit from less regulation, and more freedom to trade with the rest of the world rather than being tied to the huge and stagnating economy of the EU, and all the structural problems with the Euro across the disparate economies of the Eurozone.
It is a statement of the obvious that EU politicians, with a vested interest in their EU political project, will be very worried indeed by the implications of a UK exit, and will propound all manner of arguments to try to paint as unappealing a picture as possible to the UK electorate. Scaremongering is not of course confined to economics: for example, on 3rd March we saw the French President François Hollande, threatening “consequences” if UK voted to leave, hinting that France would wash its hands of working with UK border control, with the implication that migrants near Calais would be “sent” to the UK. Unedifying as such statements are, it is in the area of economic prospects that you will probably hear most of the dire warnings, both from European leaders, and from UK politicians on the side of staying in the EU.
For example, you will probably already have heard claims that if UK exits from the EU, we would still have to pay in the contributions we make now, and even accept free movement of people, in order to have access to European markets. On 4th March, I read a quote from Wolfgang Schäuble, Germany’s finance minister, speaking in London, begging Britain not to vote for Brexit, and warning UK would not necessarily save cash or cut immigration by leaving. His view was endorsed by UK Chancellor of the Exchequer George Osborne, who said leaving Europe would be the “worst of all worlds” for Britain. He said “If we were to leave the EU, over 50 of our trade deals with other countries in the world would automatically fall because they are trade deals with the EU. I would point out that to have the access to the single market that British businesses need, you have to pay in to the EU’s budget and you have to accept free movement of people.”
This sort of claim does not bear scrutiny, as it implies that the EU would hold all the cards in post-exit negotiations regarding the UK’s trading relationship with the EU. Let’s look at some facts: one which is highly relevant is the balance of trade between UK and the rest of the EU. The following chart uses HMRC figures , and shows that the UK is in trade deficit with the rest of the EU, bumping along at about £10billion per month.
So the EU27 (the EU less UK) is selling us a lot more than we are selling into it. There is clearly a strong interest for the EU to seek to maintain trade with the UK, should the UK decide on Brexit. The idea that the EU would be able to hold the UK’s feet to the fire around budget contributions and free movement of people, to “allow” us to continue trading, looks somewhat far-fetched. There would be posturing, no doubt, but economic realities would prevail.
Another relevant fact is the UK’s economic strength in the world. We are the 5th largest economy, as measured by GDP. Within the EU only Germany is larger. The four economies bigger than the UK are USA, China, Japan, and Germany, in that order. (I have included a table of data on major world economies, including the position of all 28 EU countries, in Appendix 3, if you want to look in more detail about sizes of economies, GDP/head, etc.) Independent and successful countries such as Canada (61% the size of the UK economy) and Australia (49% the size of the UK economy) have no difficulty in making their way on their own.
The UK has other economic strengths too. We have an immensely strong position in world financial markets. We also have access to a Commonwealth of 53 countries, across six continents: Commonwealth countries have a combined population of 2.1 billion people, almost a third of the world population.
When we compare economic growth between the UK and the Eurozone, the arguments for staying in the EU are not enhanced. The GDP of the Eurozone in the final quarter of 2015 was still below its pre-crisis peak of early 2008. UK GDP in 2015 was about 7% ahead of the 2008 level, while that of USA was nearly 10% above its peak of late 2007. Whatever the causes, the poor economic performance of the Eurozone is particularly worrying, since it coincides with some favourable economic factors. The fall in energy prices, caused by collapse of the price of oil, had an effect like a tax cut, boosting consumer spending—the main engine of economic recovery. The European Central Bank has implemented quantitative easing since March 2015, and with low / negative interest rates from mid-2014, the Euro has been kept weak, helping exporters, and contributing to a current-account surplus of 3.7% of GDP in 2015. But growth remains stubbornly low.
On unemployment, too, the Eurozone languishes well behind the UK. The most recent figure for UK (February 2015) is 5.4%. For the Eurozone, it is near twice that level, at 10.2%.
Plainly, the Eurozone as an economic entity is not faring particularly well. When one also factors in the unresolved issues with the Euro, particularly with the Greek economy, the notion that the UK’s economic prospects are best served by remaining shackled to the EU looks tenuous at best.
While the above describes the general economic situation, there are also some important economic arguments in specific sectors: if we consider the particular cases of fisheries and agriculture, we see a very worrying picture, and a pressing need for change.
It is a consequence of geography that the seas around UK and Ireland account for about 60% of the EU’s waters. UK grew over the centuries as a maritime nation, with a thriving and economically important fishing industry. A consequence of UK joining the EU has been a devastating contraction of that industry. The Common Fishing Policy (CFP), the EU’s mechanism of implementing pan-European regulations on fishing, has been disastrous  – since the introduction of the CFP in 1970, UK has seen a huge decline in fish stocks, wasteful discarding of fish to comply with EU rules, and the destruction of large swathes of Britain’s fishing industry and communities. As a corollary of membership of the EU, UK’s waters became a shared resource to other EU nations; many UK coastal towns have gone into economic and social decline, through the loss of thousands of jobs. Exit from the EU would provide the opportunity to manage our waters as we used to, and to rebuild our fishing industry.
On farming, the view might be more nuanced, but there is a strong case that the compliance requirements of regulation are seriously damaging our farming industry. I quote from George Eustace, Minister of State for Farming, in February of this year:
“The reality of working within EU law is that trying to do the simplest of things becomes curiously complicated and often impossible. Some 80 percent of legislation affecting DEFRA comes from the EU with about 40 percent of all EU regulations affecting the UK falling within its remit. It is all pervasive: how many farm inspections there must be in a given year; what proportion of those inspections must be random; how much a farmer must be fined if he makes a mistake; how much he should be fined if he makes the same mistake twice; the precise dimensions of EU billboards and plaques that farmers are forced to put up by law; the maximum width of a gateway; the minimum width of a hedge; the maximum width of a hedge; what type of crop must be grown over the hedge; whether a cabbage and a cauliflower are different crops or should be deemed the same crop. The list goes on forever and it’s stifling.”
You can read the full article here . It is unequivocal – we need to exit the EU for the sake of our farming industry and the people who work in it.
Another specific sector which has been struck by huge problems recently is the UK steel industry. This strategic sector is already under pressure because of the strength of the pound, relatively high electricity price in the UK, and the cost of climate change regulation and policies, so is particularly vulnerable to dumping of cheap products into the UK from abroad. China has been dumping surplus cheap steel into the UK since at least 2014, with dire consequences. Tata Steel (the company which took over British Steel) axed 720 jobs in July 2015, a further 1,200 in October 2015, and announced another 1,050 job losses in January of this year. In October 2015, SSI announced it was closing down its Redcar works, with the loss of 2,200 job. Then then parts of Caparo Industries’ steel operations went into administration, putting a further 1,700 jobs at risk. Its boss, Angad Paul, committed suicide. The steel industry has been appealing to Government for anti-dumping action for a long time, but as an EU member, the UK’s hands are tied. It cannot take action on its own– instead, it must use EU channels. Sure enough, the EU Commission has, in February of this year, announced it is opening three investigations into dumping of Chinese steel products, saying it would not allow “unfair competition” to threaten Europe. Great! Except that with the sclerotic pace of EU action, the horse has already bolted, and the UK steel industry is largely destroyed. Once furnaces close, they do not re-open. If UK had not been constrained by the rules of EU membership, prompt action would have been possible, and at least some of the carnage might have been averted.
The proponents of the UK staying in the EU for economic reasons have a very difficult case to make, and vague predictions of doom, without arguments to back them up, should be treated with suspicion. The idea that the UK would be somehow cast adrift to languish economically, if it exited the EU, seems a very negative and defeatist view- I take it with a large pinch of salt.
I’ve taken you on a journey exploring what the EU is, how it is supposed to work, and how it works in practice. I have shown, I believe, that in the key areas of movement of people, democratic control of our own laws and regulations, and economic prosperity, exit from the EU would be a positive and liberating step. Any downsides are likely to be restricted to short term turbulence as we enter a new relationship with Europe, and the world.
My main worry is that “project fear” might succeed. Because people are much more likely to vote for the status quo (“the devil you know”), when they don’t feel comfortable that they fully understand the implications of change, I hope by writing this post I will assist in reducing the mystique and uncertainty, and help you make up your mind as objectively as possible.
I will be voting for exit on 23rd June. I hope you will too.
Appendix 1 Voter turnout trends in elections for the European Parliament
It is interesting to look at turnout trends , and how that has changed with time. I would argue that turnout could be regarded as a measure of the value the electorate places in the workings of the European Parliament, or at least is a measure of the extent to which they feel their democratic right to vote makes a difference in how the EU is run. If that is a reasonable view, then the data is rather disquieting.
Across the EU, the trend in voter turnout is steadily downward, which indicates a worsening disconnect with the EU democratic process. In the UK, we see a “recovery” of turnout in 2004, just after the large expansion of the EU by an additional 10 countries on 1st January 2004. One might speculate about the reason, but when one looks at the UK results, one explanation jumps out. Both the main UK parties, Conservative and Labour, saw a big decline in support, and there was a large surge in support for UKIP.  The evidence doesn’t suggest an increasing UK love for the EU.
Appendix 2 EU Policy on Climate Change
An instructive, if complex, example of EU regulation having poor outcomes is its flagship policy on climate change, the EU Emissions Trading Scheme, or EUETS. I do have extensive personal experience with EUETS, but before I proceed with discussing that, I should emphasize that I’m not a climate change sceptic – far from it. I have already set out my views on this in detail- see my post “Man-made Global warming is/ isn’t real” .
EUETS started in 2005, and is now in its 4th phase. It is the largest such scheme in the world. In case you don’t know much about it, the principle is “cap and trade”, which is essentially a good one: a maximum (cap) is set on the total amount of greenhouse gases (GHG) that can be emitted any installation, such as a power station or industrial process, over a calendar year. A market in “carbon” is created, the unit of currency being 1 metric ton of CO2; greenhouse gases other than CO2, such as methane, are converted to CO2 equivalent. If an installation emits more than its cap, it has to buy “allowances” in the carbon market for the excess; if an installation does better than its cap, it can sell its leftover credits. In this way, the system should in principle deliver the most cost-effective reduction in overall emissions across all installations. The key to it working is an effective price of carbon. If the price of carbon is too high, then EU prices which involve GHG emission (much existing power generation, iron & steel industry, chemical industry, etc) become too high, damaging EU industrial competitiveness, increasing unemployment, and simply “exporting” GHG emissions to producers outside the EU. If the price of carbon is too low, then there is little or no incentive to reduce emissions – the cost of any emissions mitigation outweighs the cost of buying allowances. To make EUETS effective, the carbon price needs to be around €30/ton of CO2. The way the cap is managed is to allocate free allowances to installations, worked out by looking at GHG emissions per unit of production across the whole of the EU in any sector, and setting the free allowance rate to make an installation at the best 10 percentile point to be neutral. So any installation in the best 10% would have surplus allowances to sell in the carbon market, whilst those in the worst 90% would require to buy allowances, the amount depending on how far above the 10-percentile point they are, or else reduce their emissions. This is a logical approach – it avoids in principle penalizing an entire energy-intensive sector, and encourages those with high emissions to work to reduce them towards the level of the best performers.
So what could go wrong? In practice, quite a lot, actually.
- Criminal fraud. There have been various serious issues with EUETS fraud, including VAT fraud; a carousel fraud involving the trade of emission credits in 2008 and 2009 amounted to a loss of €5 billion for national tax revenues. This resulted in the introducing much more arduous regulation on allowances trading. Yet in early 2011, cyber-criminals breached security on EUETS registries to steal and sell around €40 million worth of carbon allowances, which forced the European Commission to suspend EUETS trading on for two weeks so that it could re-examine its regulatory strategy. The vulnerability has not been fixed: in July 2015, the European Court of Auditors reported that a loophole allowing carbon-credit tax fraud, resulting in losses of several billion euros, had not been fully resolved.
- Impact on competitiveness: despite the free allowances arrangement, much EU energy intensive industry is highly capital intensive, operating at low margins, has a lot of aging plant which is uneconomic to modify or renew, and has carbon emissions which are an artefact of the type of plant used and the fuel source they are designed to use, rather than standards of operating practice. In other words, they have little or no scope to reduce their emissions by any significant amount. For such industries, often of strategic economic importance for a member country (eg steel), the imposition of EUETS is the imposition of increased costs without scope to mitigate. An outcome is plant contractions and closures within the EU, sometimes in favour of increased production in facilities outside the EU which have higher unit GHG emissions than the EU operations they are displacing. So the system delivers the worst of all worlds: loss of EU employment, worsening EU balance of payments, and increased global GHG emissions.
- Burden of compliance: the rules for monitoring, reporting, and verifying emissions, and assessment of entitlement of free allowances, are necessarily extremely complex. They take up time and resource of expertise which would otherwise be used in managing and improving plant operations, and place an additional cost on all installations encompassed by EUETS.
- Collapse of the carbon price: following the global recession in 2008, a glut of free allowances and a decline in activity combined to cause a collapse of the carbon price from around €30/metric ton CO2 to near zero. Today it has recovered somewhat, but is still much lower than an effective level, at around €5/t. So the EUETS system is ineffective, yet all the compliance costs remain, plus the cost of carbon allowances for energy intensive industries, albeit at only around €5/t CO2, which simply works as a tax on EU industry which our international competitors do not have to pay – another “worst of all worlds” scenario. The EU has tried various approaches since the price collapse of 2008 to manage the carbon price back up to a meaningful level, including reduction in free allowances, and back-loading /deferment of free allowances, but has been completely impotent to deliver a price recovery.
You will find figures published to show the “success” of EU policy in this area, as measured by trends in total EU GHG emissions. Unfortunately, however, they do not separate out the direct effect of reduced economic activity in Europe since the 2008 recession, nor do they include the global GHG emissions related to activity displaced out of the EU by contraction / closure of EU industry. And of course, for GHG emissions, it is the global total which matters. So what we see is a huge and complex well-intentioned scheme, designed to help address the serious issue of global warming, becoming a very expensive white elephant. As members of the EU, we are lumbered with it.
Appendix 3 Table of Major World economies
- 1 Freedom to Move and Live in Europe: A Guide to Your Rights as an EU Citizen http://ec.europa.eu/justice/policies/citizenship/docs/guide_free_movement_low.pdf
- European Parliament Information Office in the United Kingdom http://www.europarl.org.uk/en/your-meps.html
- Democratic improvements in the European Union under the Lisbon Treaty Institutional changes regarding democratic government in the EU https://www.eui.eu/Projects/EUDO-Institutions/Documents/EUDOreport922011.pdf
- UK Political Info website http://www.ukpolitical.info/european-parliament-election-turnout.htm
- Man-made Global warming is/ isn’t real, http://www.jims1world.com/?p=148