Government and Institutions

Economic Effects of EU Membership Marginal
The costs and benefits of Britain’s membership of the European Union are finely balanced say Dr Brian Hindley and Martin Howe QC in a new study for the IEA. There is no foundation for the idea that withdrawal from the EU would have ‘dire consequences for Britain’.

Hindley and Howe make estimates of all the costs and benefits of membership which can be quantified and they discuss alternative trading arrangements. Adherence to the Common Agricultural Policy is, they say, the principal cost of membership and there are also the costs of EU regulation. Benefits include tariff-free access to other EU markets and (possibly) some extra direct investment. Whether there is a net cost or a net benefit from membership is uncertain but, whichever it is, it is likely to be less than 1 per cent of gross domestic product.

According to Hindley and Howe, enthusiasts for European integration

‘…seem able to sustain a belief in large economic benefits without any supporting evidence at all, and in the face of mounting contrary evidence.’ (p24)

In reality, because the net economic effects are so small, the debate about Britain and the EU should turn on politics not economics.

Hindley and Howe do not advocate withdrawal but say it is prudent to know the approximate size of the costs and benefits of membership because the time might come when the EU is developing ‘…along lines which the UK finds unacceptable on fundamental political grounds’. In those circumstances,

‘…fear of adverse economic consequences should not deter a British government from seeking to change the relationship of the UK with the EU,or, in the last resort, from leaving the Union.’ (p99)

Outside the EU, Britain might become a free-standing member of the world trading system, relying on WTO trading rules, More likely, the self-interest of both sides would mean there would be some form of free trading relationship with the rest of the EU.