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Lawyers In For Britain: The UK and the EU: Benefits, misconceptions and alternatives banner

It is difficult to quantify precisely the overall impact of EU membership on the UK economy. As the Bank of England has stated,[1] first of all, it is impossible to say with any certainty what the UK economy would have looked like had the UK not joined the EU in 1973. Second, EU membership affects the UK economy in many different ways, and through many different channels, at least some of which are not easy to quantify with any degree of certainty. Third, any quantitative assessment will necessarily depend on a wide range of very uncertain economic assumptions. Some key facts are:

  • The EU budget represents less than 1% of GDP and is shrinking in real terms. It represents a smaller share of GDP than it did in the 1990s.[2]
  • The gross contribution made by the UK to the EU budget in 2014 amounted to €14,072 million. The financial contribution paid out under the EU budget to the UK amounted to €6,985 million resulting in a net contribution of €7,088 million.[3]
  • The UK’s net contribution is less than that of Germany or France[4] and on a per head of population basis is the eighth highest-ranking behind the Netherlands, Sweden, Germany, Denmark, Finland, Austria and France.[5]
  • The UK’s net contribution of about €7 billion[6] to the EU was less than 1% of UK Government’s expenditure of £732 billion in 2014.[7]
  • Some parts of the UK (such as Wales and Northern Ireland) receive more in direct grants from the EU budget than they contribute per head.[8]

Limiting the discussion to the UK’s contribution to the UK budget does not reflect the broader benefits of EU membership to the UK.

  • Several studies, identified by the Bank of England,[9] have attempted to quantify the costs and benefits of EU membership although none of these studies provides an exhaustive evaluation of all the potential economic channels. Moreover, many of these studies tend to focus on the ‘static’ benefits from EU membership (such as increases in market size) that lead to a one-off increase in the level of GDP, rather than the ‘dynamic’ benefits from EU membership (such as technology transfer and innovation) that might lead to a persistent increase in the long-run growth rate of the economy.
  • The estimates of the net impact of EU membership on the UK economy range from anywhere between -4.5% to +20% of annual GDP, largely reflecting the different assumptions and methodologies used. The papers that find a negative impact of EU membership tend to focus on the ‘static’ costs – associated with regulation, immigration or the UK’s contribution to the EU Budget in a given year – summing them up to produce an overall cost. However, these papers fail to take into account the potential ‘dynamic’ effects associated with EU membership. Moreover, the counterfactual scenarios considered in these studies only cover a sub-set of possibilities for the UK’s relationship with the EU and the rest of the world as a non-member.
  • Other recent studies have explicitly assessed the costs, or benefits, of leaving the EU. These studies, which take different approaches, estimate that, if the UK were to leave the EU, annual GDP could be anywhere from 9.5% lower to 1.6% higher (or equivalently, implicitly estimate that the net benefit of EU membership is between -1.6% to + 9.5% of GDP). The wide range around these estimates reflects the uncertainty around the UK’s future relationship with the EU following exit. The -1.6% figure assumes that the UK would be able to:
  • negotiate access back to the single market;
  • enter into liberal trade agreements with non-EU countries;
  • pursue large-scale deregulation in the UK.

As we explore in more detail in the “Alternatives section”, these assumptions appear unlikely to be achieved.

  • The Government has estimated the benefits of EU membership to be in the region of £3,300 per year per household.[10]
  • A recent survey of more than 100 economists by the Financial Times underscored the economic consensus that the UK’s prospects would be damaged by withdrawal from the EU. Of those surveyed, 67 thought the UK’s economic outlook would deteriorate if the UK were to leave, while none thought it would improve.[11]

 

  1. Bank of England, EU membership and the Bank of England, October 2015 – http://www.bankofengland.co.uk/publications/Documents/speeches/2015/euboe211015.pdf.
  2. The Economist, The Budget that didn’t Bark, 13 February 2016 – http://www.economist.com/news/britain/21692883-why-britains-eu-budget-burden-no-longer-valid-eurosceptic-gripe-budget-didnt-bark.
  3. House of Commons Library, Briefing Paper, Number 06455, EU budget 2014-20; Table 5: EU Budgetary Balances by Member State 2012-14, Matthew Keep, 11 December 2015, page 22 – http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06455#fullreport.
  4. The net contributions of France and Germany in 2014 amounted to €7,489 and €17,659 million respectively – House of Commons Library, Briefing Paper, Number 06455, EU budget 2014-20; Table 5: EU Budgetary Balances by Member State 2012-14, Matthew Keep, 11 December 2015, page 22 – http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06455#fullreport.
  5. The Economist, The Budget that didn’t Bark, 13 February 2016 – http://www.economist.com/news/britain/21692883-why-britains-eu-budget-burden-no-longer-valid-eurosceptic-gripe-budget-didnt-bark.
  6. House of Commons Library, Briefing Paper, Number 06455, EU budget 2014-20; Table 5: EU Budgetary Balances by Member State 2012-14, Matthew Keep, 11 December 2015, page 22 – http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06455#fullreport.
  7. The Government’s total managed expenditure in FY2014 was £732 billion (€908 billion) – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf. This calculation is based on an average €/£ exchange rate of 0.80612, based on European Central Bank data, though it unavoidably conflates the annual financial year used by the EU, with the April 1 – March 31 financial year used by the UK Treasury.
  8. See Question 10.
  9. Campos, Coricelli and Moretti (2014); CEP (2014); CBI (2013, literature review); Mansfields – Brexit Prize (2014); Pain & Young (2004); Open Europe (2015); US International Trade Commission (2000); IoD (2000); IEA (Minford et al (2005)); Civitas (2004); UKIP (2010) – Bank of England, EU membership and the Bank of England, October 2015, Annex 1 – http://www.bankofengland.co.uk/publications/Documents/speeches/2015/euboe211015.pdf.
  10. See The EU Benefits UK Consumers.
  11. Financial Times, Membership of reformed EU seen as vital to economic security, Chris Giles, Emily Cadman and George Parker, 3 January 2016 – http://www.ft.com/intl/cms/s/0/38e77ce4-b217-11e5-8358-9a82b43f6b2f.html#axzz42GW4hxEh.