The real cost of the EU ‘reset’

Remain politicians have wrongly claimed that UK GDP took a 4% or an 8% hit from leaving, based on a misinterpretation of forecasts that said no such thing. One said that, over 15 years, we might have 0.25% less growth per year, making 4% less growth in total by 2035, while the UK economy would still carry on growing. The other said that if we had grown like the USA and a few other faster-growing countries, we would be 8% better off. That, of course, would never have happened if we had stayed in the slow-growth EU, which usually manages only half the US growth rate. Neither forecast said GDP would fall after the vote. The Remain campaign wrongly claimed we would see falling GDP, falling house prices and rising unemployment if we voted Out. The opposite happened in 2016.

UK GDP tracked EU GDP fairly closely both from 2016 and after we left in 2020. As in EU economies, there was a sharp fall in UK GDP in 2020 with the Covid lockdown, and a big recovery in the following two years. The UK did not suffer an additional Brexit fall. The UK has been growing faster than Germany and a little faster than France since 2016. Our trade, especially with the rest of the world and in services, has grown well. The majority of our trade is in services, and the majority is with non-EU countries.

Some say we would grow faster if we rejoined the Customs Union. The opposite would be true. We took tariffs off non-EU imports of food and goods we cannot produce for ourselves. We took tariffs off the raw materials and components that industry needs to import to add value and make things here. Rejoining the Customs Union would increase the squeeze on consumers, put prices up, raise industry’s costs and make us less competitive. We would need to give up our free trade agreements with non-EU countries, slowing trade growth with the rest of the world, which now accounts for the majority of our trade.

The Government says we need to reset our relationship with the EU. This is code for rejoining by stealth. It will agree to adopt progressively more EU laws and taxes, sector by sector, until we are more fully back under EU control. The idea is to start with food, where UK exports are small and where the EU is keen to dominate our market, keeping out cheaper non-EU food through regulations and tariffs. The Government is scrambling to avoid the imposition of regulations that would inhibit or ban the great work in the UK on gene editing of crops to deal with pests and low rainfall.

The UK has established higher levels of animal welfare in farm trade, banning the export of live animals for slaughter and setting better standards for animal husbandry. These, too, could be at risk from a poor reset.

The reset will require agreement on a youth mobility scheme. This is an EU attempt to reintroduce much of the freedom of movement of people that applies within EU member states. The problem for the UK is that it is likely to be one-sided. There are many more under-30s on the Continent than in the UK. A bigger proportion of them want to come to the UK to take advantage of our high standards of university education and the jobs available, and to improve their English. A smaller proportion of young people in the UK have enough foreign-language skills to go to a continental university or get a job abroad.

As the UK struggles with its own problem of far too many young people out of work and not studying, the last thing our jobs market needs is more young people seeking work. Our universities are apprehensive that the student deal may include a big discount on the fees European students in the UK currently pay, as the EU presses for the much more favourable UK home-student terms. How will they make up the lost income?

The UK has already sold out on the EU Erasmus student scheme, agreeing in principle to pay a ridiculously expensive £800m a year to a fund that will help far more EU students than UK students. It means ending the successful and cheaper Turing Scheme, which pays out only to UK students and allows them to go to universities all round the world, not just in the EU as Erasmus does. UK students are keener to go to high-quality universities in the USA and other English-speaking countries.

As the UK is made subject to more EU laws and regulations under the reset proposals, it will have to pay an administrative charge to cover EU costs, while also incurring substantial costs for government and business from the laws themselves. Worse still, the EU is threatening to insist on a solidarity charge, under which UK taxpayers would have to contribute to public spending in lower-income member states! The costs of the reset will be billions a year. The Government has no money to spare, so which taxes will it put up to pay these extra and needless EU bills?

The Government sacrificed a large share of our fish stocks by granting EU fishing access for 12 years, giving away around £6bn of value just to get into talks. It showed the EU that if it just holds firm, the UK will give plenty more away. The UK never negotiates as the customer, yet with such a large trade deficit with the EU, we are more customer than exporter. Why don’t we demand payments for access to our lucrative market? Why don’t we set standards for the conduct of this trade? Why don’t we show that our lower tariffs and fewer rules deliver better results? That, after all, is what the Draghi Report, written by one of the EU’s own most famous insiders, is telling it.

Worse comes in the energy sector. The EU wants the UK to join its carbon tax and emissions trading scheme, which would entail even higher costs than our own domestic version. The last thing we need is dearer energy closing down more of our factories. The EU is successfully making the UK dependent on importing energy from the Continent as net zero policies close down the older fossil-fuel power stations that always gave the UK electricity independence. The coming carbon border tax will further raise the cost of industry’s imports of raw materials and other supplies, adding to the lack of competitiveness.

Andy Burnham’s idea that maybe we should go back into the EU is completely absurd. Why would the EU allow it when the two largest opposition parties would oppose it and threaten to pull out as soon as they won an election? The EU would be bound to say there would be no more rebate on contributions, greatly increasing the cost of membership compared with last time. It would want us committed to the euro and preparing to abolish the pound. It sees us as a treasure island, weak enough to pay it large sums and with enough borrowing and taxing power to afford a larger contribution. It should realise that this time the UK has overspent and over-borrowed, despite saving billions from ending its expensive membership. It is doubtful that the UK now has the borrowing and taxing capacity to add large EU bills and debts to its big collection of home-grown ones.

Any attempt to take us back in would need a new referendum. Polling shows people feel let down by the lack of progress after Brexit, but are still strongly against surrendering powers back to Brussels. Membership didn’t work last time. Since then, the EU has become an even slower-growth area, slipping further and further behind US economic and digital success.

This article was first published by the IEA and is reproduced here by permission