Tony Blair has once again come under attack for misleading the British people, this time over the costs of leaving the EU. He repeatedly claims that 60% of the UK's trade and millions of jobs depend on our EU membership. These claims are contradicted by A Cost Too Far?, a new report from the independent think-tank Civitas by Ian Milne. In fact only 10% of our economy is the result of trade with the EU. And, if we left, it is highly unlikely that there would be a net loss of jobs or trade.

Mr Blair's attempts to exaggerate the harmful consequences of leaving the EU are based on exploiting the complexity of the evidence. To check his claim, members of the public would need to know their way round the Balance of Payments figures and the National Accounts. Two misconceptions underpin Mr Blair's claims:

• Ten per cent of GDP (not 60%) is currently the result of exports of goods and services to other EU members; nearly 80% of our economy is the result of domestic activity, involving buying from and selling to each other; and exports of goods and services to the rest of the world account for another 10% (Appendix II).
• UK exports of goods and services to the EU comprised about 48% (not 60%) of the UK total, after adjustment for distortions (Appendix IV).

Mr Blair contends that we would lose jobs. A Cost Too Far? argues that there would be no net loss of jobs, but there are counter arguments and more work is needed before a final judgement can be made.

A number of authoritative studies have found that leaving the EU would have little impact on jobs, including a report by the National Institute for Economic and Social Research, and a report for the US Congress by the US International Trade Commission. In particular, if the UK left the EU, it is unlikely that UK companies would be denied access to other EU markets. The latest figures are for the period before enlargement and show that the other 14 members exported more to the UK than they imported from us. It might be said that they need the UK more than the UK needs them.

Moreover, now that 20 countries from Switzerland to Egypt have free trade agreements with the EU, and more than 60 other countries are negotiating such agreements, it would be extraordinary if the UK could not negotiate a similar deal. In trading relations, self-interest tends to prevail, but in any event the EU's average external tariff on non-EU imports is down to about 1.5 per cent and the World Trade Organisation would prevent any 'retaliation', however improbable.

The author provides a range of estimates from 'rock bottom', through 'most likely', to 'high'. His rock-bottom figure draws largely on official sources and deploys the most cautious of assumptions. The net costs of EU membership are appraised in five areas: EU regulation, the common agricultural policy (CAP), net payments to EU institutions, the single market, and inward investment. Overall, the net cost of remaining in the EU ranges from the rock-bottom estimate of £15 billion to the 'most likely' of £40 billion.

• EU Regulation: The rock-bottom estimate is £5 billion (rounded down from £6 billion) and the most likely, £20 billion. Based on the Government's own regulatory impact assessments (RIAs), the total cost of regulation between 1999 and 2004, according to the British Chambers of Commerce, was £7.91 billion per year. Based on information supplied by the House of Commons Library in May 2004, 83 per cent of the cost of regulations originated in EU directives. If rounded down to 80 per cent, then about £6.33 billion of the £7.91 billion total cost is due to the EU.
• CAP: The rock-bottom figure is £5 billion (after rounding down from £6 billion) and the most likely, £15 billion. An OECD study put the total cost to the EU in 2002 at 1.4 per cent of GDP (the UK figure today would be £14 billion). Allowing for costs and subsidies not included in the OECD study, and for subsidies received by UK farmers, the most likely figure is £15 billion.
• Payments to EU Institutions: The latest Pink Book shows net payments of £4.3 billion (rounded up to £5 billion).
• Single Market: A study by the European Commission in 1996 is often quoted in support of the claim that the single market raised total EU output by between one and 1.5 per cent. However, a number of independent studies have found no hard evidence of net benefits. For example, the Bundesbank could find no evidence that it has helped German trade. The UK economy is unlikely to be any different. The Institute of Directors reviewed studies from the Commission, the OECD and others and noted the absence of persuasive evidence of the benefits of the single market. In 2003 an Institute of Directors' survey of members found that trading in the EU 14 was on balance unattractive and more costly than before the single market.
• Inward Investment:  Some studies, including one by the National Institute for Economic and Social Research, claim that inward investment would fall if the UK left the EU. The author questions this contention by looking at the earnings on all inward investment made by the main economic sectors. The two biggest are oil and gas (39 per cent of earnings) and financial services (18 per cent). He argues that oil and gas would continue to attract investment because they are high value products in a stable part of the world. Investments in financial services, another global industry, are mainly denominated in US dollars, and will go wherever the best return is to be found. The City has not suffered from the introduction of the euro and would be unlikely to suffer if the UK left the EU. The author accepts that investment in manufacturing of 'chemicals, plastics and fuel products' (10 per cent by earnings) and 'other industries' (11 per cent) might be influenced by our EU membership.

The author questions whether it is wise to link our fortunes to a region of the world with a poor record of economic growth and whose share of world markets is destined to fall. Even the European Commission takes a gloomy view of the EU's prospects. In its December 2002 review it forecast a 44 per cent decline in the EU-15 share of global GDP from 18 per cent in 2000 to ten per cent in 2050. In 2050, as in 1950 and 2000, the three most populous countries in the world are likely to be India, China, and the USA. The working-age population of the EU, even after its current enlargement to 25 members, is projected to decline by between 20 and 30 per cent by 2050.

According to Lord Weatherill, the most respected Speaker of the House of Commons in recent years, 'All our main political parties have denied the British people a full and open debate... Parliamentarians now have a sacred duty honestly to explain the pros and cons of our developing relationship with the European Union.' (p.vii)

A Cost Too Far? An analysis of the net economic costs and benefits for the UK of EU membership by Ian Milne is published by Civitas, 77 Great Peter Street, London SW1P 2EZ, tel 020 7799 6677, www.civitas.org.uk, price £8.50 plus £1.00 postage and packing.

 For more information e-mail CIVITAS on:
    books@civitas.org.uk or call on (020) 7799 6677.

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