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Fact and fiction

Fact and fiction

Combating EU myth-peddlers

by Simon Tilford in London

Fri 10 Jun 2016

Eurosceptics put forward a stream of mainly fictional ideas about the economic costs of European Union membership. The myth-peddlers cling to them doggedly, however many times they are refuted by academic research. These dubious notions provide a form of comfort blanket: the simple act of quitting the EU would inject oxygen into a suffocating British economy and resolve many complex social and economic problems.

MYTH: The costs of EU regulation have become so onerous they outweigh the relatively modest benefits of Britain’s membership of the single market.

FACT: The Organisation for Economic Co-operation and Development indices of regulation show Britain’s product markets are the second least regulated in the OECD. Labour markets are far more ‘Anglo-Saxon’ than ‘continental’. Most EU regulation would need to be replaced by comparable UK regulation. No British government would scrap statutory sick or holiday pay, or tear up environmental laws.

MYTH: Removing EU regulation would raise UK growth.

FACT: Some EU regulation could be improved, such as the working time directive. But by far the most serious supply-side constraints on UK economic growth – an acute housing shortage, congested infrastructure and skills shortcomings – are home-grown.

MYTH: European protectionism saps Britain’s trade and investment ties with the rest of the world.

FACT: The UK has a trade surplus with non-EU markets and a large deficit with the EU. But suggesting Britain should lower trade ties with the EU is the wrong conclusion. Britain’s European trade has certainly been hit by weak euro area domestic demand. But this will be a problem whether or not the UK is in the EU.

MYTH: Britain is a frustrated globaliser inside the EU.

FACT: Opinion polls suggest that ordinary Britons are not much more supportive of free trade than their EU counterparts. There is no evidence that EU membership lowers Britain’s trade with the rest of the world. EU membership has not held back German exports to China; this is likely to be true of the UK, too.

MYTH: Inward investment is not linked to EU membership.

FACT: Britain is home to more foreign investment than any other EU country, reflecting the UK’s liberal product and labour markets, the integrity of its legal system, attractive commercial clusters like the City of London, and the English language. In addition, for many foreign investors, especially in manufacturing and financial services, Britain’s access to the single market is a major pull factor.

MYTH: EU immigration is costly.

FACT: Immigration into the UK from the EU jumped in 2004 following the accession of central and eastern European countries and has remained relatively high since. The share of Britain’s population from other EU countries is roughly the same as in Germany and France, lower than the Netherlands or Spain. EU immigration is on balance positive for the economy. Britain’s EU migrants are young and more likely to be in work than Britons; they pay more in taxes than they receive in benefits and public services. There is little evidence they take jobs from Britons or significantly reduce low-skilled workers’ wages.

MYTH: Brexit would improve Britain’s public finances.

FACT: Between 2014 and 2020 Britain’s annual net contribution to the EU budget will be around 0.5% of GDP – £9bn a year. If the UK were to join the European Economic Area and pay into the EU budget on the same basis as Norway, its budget contribution would not fall by much. If the UK negotiated an agreement outside the EEA similar to Switzerland’s, Britain’s contribution would fall by around half. Under both scenarios the UK economy would suffer and tax revenues would fall. If Britain quit the EU’s orbit entirely, it would save the full 0.5% of GDP. Yet only a modest post-exit weakening of trade and investment would lower Britain’s fiscal position by a similar amount.

Simon Tilford is Deputy Director of the Centre for European Reform. For the CER’s latest Bulletin, click here. This is No.87 in the series – the 100th article will appear on 23 June.

OMFIF’s series on the UK EU referendum presents a wide variety of perspectives from Britain and around the world ahead of the 23 June poll. We are assuring a balance between many different points of view, in line with OMFIF’s overall neutral stance on the issue.

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