Last week we had a gloomy report from the Institute of Fiscal Studies about the supposed dangers of Brexit. The IFS has in the past accepted EU funding. The government and the EU haven’t threatened a plague of locusts yet, but don’t be surprised if they do! I doubt that you could buy a locust in Brussels for either love or money at the moment.
The IFS claims that public sector finances would deteriorate if we left the EU. Puzzled, I asked them what values they had ascribed to:
(1) Cost of EU-sourced regulations for British business;
(2) The boost to UK manufacturing from import substitution and
(3) The cost of EU labour dumping on the British labour market.
The IFS report is essentially aimed at economic illiterates like journalists and MPs. For some odd reason it uses the net contribution to the EU. Why? We get minimal say in the way in which EU money (in effect, our money) is spent in this country.
Our rebate by the way is not permanent, as it was never incorporated into the treaties, for a reason.
As a member of the EU the UK is subject to a crushing regulatory burden. Precise calculation of numbers is not easy, but broadly speaking there are about 35,000 secondary instruments, to which must be added a plethora of international agreements to which the EU is a party.
Of course business has to be regulated, but not to this extent. Figures vary on the additional cost to UK plc of unnecessary regulation, but in its internal calculations in 2005 on the cost of EU membership, the Treasury appear to have accepted a figure of around £50 billion a year. The figure now is probably higher.
In addition to this massive, unwanted burden on business there is an additional burden, often overlooked, on central government, including the NHS, and local authorities. The burden on state businesses is probably about £25 billion a year.
Another cost, rarely calculated, is to the railways with a knock-on effect on consumer prices and industry. By reason of an absurd EU directive (91/440/EEC), which works well in Luxembourg, but nowhere else, ownership of railway tracks and trains in Britain has to be separate.
This has caused chaos, accidents and hideously complicated bureaucracy. The sanest way of privatising the railways to bring back the famous ‘Big Four’. Vertically integrated railways would be simpler and safer to run, more efficient and cheaper for the customer. Who knows – after we leave the EU we might even be able to get a proper breakfast on a British train again! (Oddly enough, the only thing the much-maligned British Railways was ever able to get right was breakfast. This was just as well, as you wouldn’t want to have their sandwiches for lunch).
In 2013 Germany exported 16 billion Euros worth of cars to us. In return they probably bought a handful of Jaguars, a couple of Discoveries and put down a deposit on a Rolls-Royce. I exaggerate, but not by much.
Vehicles are the single most important category in UK-EU trade. The imbalance in favour of the EU is massive. Obviously if the EU impose their Common External Tariff on UK imports we would retaliate with a tariff at the same rate. This would damage UK exports to the EU, but since they’re so economically insignificant, so what? Companies like Jaguar Land Rover would see a massive increase in their sales, as inferior products from BMW and Mercedes-Benz became more expensive.
Tariffs would also be a useful source of revenue. The IFS, of course, makes no reference to this new revenue stream.
The point made by EU supporters and economic illiterates is that most EU migrants are in the UK to work, not claim benefits. With mass unemployment in Britain (by mass unemployment I mean over one million on the dole) each unskilled or semi-skilled migrant from the EU displaces a British worker.
The EU migrants may not be claiming benefits directly, but they are not paying enough tax to cover the welfare costs of the workers they are displacing, nor in many cases are they even paying tax. What is more, they are depressing wages and sending much of their earnings back to Europe, a further drain on sterling.
The overall cost of an unemployed worker, including lost tax, is of the order of £25,000 a year. It’s not just unemployment benefit, indeed apart from free NHS prescriptions out of work benefits are usually the smallest part of the costs. Housing benefits tend to be much greater and then there’s the lost tax revenue, including indirect taxes such as VAT.
The human costs of mass unemployment are greater, not that the government or the EU are worried about those. Labour substitution and the economic costs of depressed wages could be costing us as much as £75 billion a year.
[This is a revised version of an article originally published in Michael’s weekly column for www.VeteransToday.com.]