In the second of this two-part series on Brexit claims, I now try to provide a critical analysis of the main economic arguments of the Remain camp, ‘Stronger In’.
1) "Over 3 million UK jobs are linked to our trade with the EU: one in every ten jobs in this country"
This statistic comes from South Bank University and National Institute for Economic and Social Research papers written in 2000 estimating that around 3 million UK jobs are directly associated with goods and services exported to the EU. The Treasury updated the numbers to incorporate 2014 data, putting the figure at 3.3 million. Note though, that the statement is NOT about the number of jobs that are at risk if the UK left the EU - clearly even with Brexit, there would still be some trade with the EU. PwC, on the other hand, estimate that 950,000 jobs are vulnerable if the UK left the EU, which arise from lower trade and investment from the EU. Perhaps this is the more pertinent question that needs to be answered. Though not incorrect, members of the public can easily mistake this and believe that 3 million UK jobs are at risk, especially in the heat of the debate. Stronger In, I think, should be more clear here, especially as this is one of their main economic arguments.
2) "Being in the EU will create 790,000 more UK jobs by 2030, creating more opportunities for you and your family"
The source of this claim is a Centre for Economic and Business Research (CEBR) paper. As has been well documented, the EU itself is not a true common market — there is not the free labour and capital flows that was envisaged when the EU was first put together, primarily due to different tax rates, laws and languages. The 790,000 figure stems from a European Parliament Added Value Unit paper which examines the benefit from further deepening of the Single Market, i.e. the benefits of the EU actually becoming a true common market. Given recent history of poor coordination between euro area countries with regard to monetary and fiscal policy, it seems unlikely that this ‘common market’ scenario will materialise in the near future. Therefore, I would argue that this 790,000 can be seen as more of an upper bound, with the more likely number being much lower. To suggest that 790,000 UK jobs WILL be created by EU membership seems, to me, somewhat intellectually dishonest and misleading.
3) "If we left [the EU], overall, your household would be worse off by £4,300 a year"
This was a statement used by Chancellor George Osborn in many speeches, and is based on the Treasury’s assessment of long term impact of EU membership. To get the £4,300, the assumption is that the UK would negotiate a bilateral trade agreement with the EU similar to the EU-Canada trade agreement. Characteristics of the agreement are: 1) no quota- and tariff-free access to the EU, and in some cases permanent exclusions for some agricultural produce and tariffs for key goods 2) continue to be outside the customs union, i.e. more administrative costs 3) reduced access because of tariffs and barriers to entry to EU markets. The report also spells out other scenarios, such as if the UK was, instead, a member of the European Economic Area (like Norway) household income would fall by £2,300. On the other hand, if the UK was just part of the WTO but did not enjoy a specific agreement with the EU, the report’s models estimate a £5,200 fall in household income. To be fair to Stronger In, £4,300 is in the middle of the extreme values. But clearly, the scenarios show just how sensitive the numbers are to the type of deal the UK strike with the EU, so a point estimate is always going to be somewhat misleading without qualification.
4) "If we left [the EU] , the cost of our imports could rise by at least £11 billion–leaving families out of pocket as prices rise"
The £11 billion figure assumes that the UK fails to reach any trade agreement with the EU, and would retain the same tariff regime currently set by the EU. Similarly to the above qualification, it’s important to note that this number massively depends on the nature of the trade agreement. A more liberal trade agreement would likely reduce this number from a direct effect point of view. Moreover, a more favourable trade deal could lead to a smaller fall in the exchange rate, therefore making this number even lower. Given the history between the UK and EU, it is likely that some deal is likely to be made, and hence I would treat this £11 billion figure as an upper bound.
5) "The benefit of being in the EU is worth £91 billion to our economy, whereas the cost is £5.7 billion"
A Confederation of British Industry (CBI) literature review proves the source of this fact, which is actually quite sizeable. The analysts think carefully about the methodology and credibility of the arguments used in each paper. In particular, they take 14 different estimates and decide that 7 of those are credible (i.e are up to date, employ a rigorous structural model of the UK economy, and have well-sourced data). Now clearly, this is where the subjective aspect of the review comes into the fore, but for our point of view, at least the process of elimination is clearly defined! 5 out of those 7 ‘credible’ estimates conclude that the benefits of EU membership outweigh the costs. Of those that do not, the assumptions seem to be ‘ambitious’ to get the desired negative result. Their review is very quick to note that no one study has captured the full effect of EU benefits, as each paper looks at something slightly different. Moreover, these differences, they argue, are complements rather than substitutes and hence the overall benefit is likely to be greater than the sum of the parts. I can empathise with this view - in something as complicated and important as this, the so-called ‘general equilibrium’ outcome is the one that matters. And things such as trade deals (on which a lot of the analysis is based) can have far-reaching consequences. The conclude that the benefits of EU membership are between £73bn and £91bn. Yet again, it seems Stronger In are using the upper bound of this in their campaign materials, so I would estimate that the numbers are somewhat lower than this.
These two posts bring to bear that both camps cite facts and research that best support their causes. This, I think, is natural in any argument, especially in one where the stakes are so high - it is, in some sense, irrational to use facts and evidence that do not support your case in any event. Though I outline and pry into the details of 10 of the main economic arguments in this debate, there are many more that need further qualification. In general, I would urge readers to take each statement with a pinch of salt, discounting any claim made by either side towards the centre. Though quantifiable evidence and numbers should, in theory, increase the transparency of ‘facts’, the reality is that the analyses themselves are very messy, and choosing the right assumptions can get you any result that you wish. Consequently, the important thing is not only the end fact or statistic, but also the assumptions used to obtain them. To paraphrase Mark Twain, we find ourselves facing another example of the indistinguishability between lies and statistics.
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