“There are lies, damned lies and statistics.” Mark Twain
Ever since the campaigns started, both ‘Leave’ and ‘Remain’ groups have emphasised the gravity of the decision we will have to make on 23rd June. More recently, though, there has been an urgent call for higher accuracy of evidence, to provide the public with a more complete and useful information set on which to base their vote. In this two-post series, I try to address this demand. In particular, in this post I take the main economic evidence presented on the ‘Leave’ website and aim to critique these so-called 'facts', suggest their validity, and outline what assumptions underlie the analyses in question. I do the same for the ‘Remain’ campaign in the next post.
To be clear, I choose not to impart my position on the debate in these posts, but instead take a critical view of the evidence presented from both sides.
Some of the information below is cherry-picked from a much larger House of Commons document highlighting the pros and cons of the UK’s EU membership, the rest are from various sources, cited ad hoc.
1) “The EU now costs the UK over £350 million each week”
This is the core of the Vote Leave campaign and has had its validity questioned in the public domain. Simply, all member states contribute resources to the EU, with each state paying a share in proportion to its relative gross national income (similar to economic output). So as the UK is one of the larger countries inside the EU, it naturally pays a larger share than many other countries. But what Vote Leave do not acknowledge clearly is that this £350 million is a gross figure. In fact, when taking into account what we receive in terms of agricultural, public and private sector subsidies, our net contribution is close to £190 million per week, almost half of what Vote Leave have led us to believe. Vote Leave have argued that this figure is not misleading as it still describes the money leaving the borders, so we do actually send £350million to the EU. But this again is incorrect. Contributions are calculated in arrears, so the rebate for 2014 is accounted for in the 2015 contribution, meaning that the ‘rebated money’ never leaves the UK’s borders. Leaving the EU, therefore, doesn’t mean that £350million no longer leaves the UK borders, and hence free to use for other purposes. It is worth noting too that the UK does not receive non-agricultural rebates from member countries that have joined post-2003, as per an agreement signed by the 2005 UK government. This is a point that should have been raised by Vote Leave but, to my knowledge, has not.
2) “Our EU contributions are enough to build a new, fully-staffed NHS hospital every week”
3) “Financial protection for all groups that now get money in Britain”
If the average cost of a NHS hospital is £350million, it should be clear from the discussion above that this statement no longer holds. Moreover, Vote Leave have campaigned that voting ‘Leave’ would put more money into the NHS. Note that, unlike in an election, a win for Vote Leave does not put them in power. Consequently, these savings would be put to use under the direction of the UK Government, who may not want to use them to fund the NHS. The criticism of the second statement follows naturally. Again, unlike in an election, Vote Leave would not have power (assuming the Government doesn’t change) to ensure that these groups (e.g. the agricultural sector) are indeed financially protected. In recent days, Vote Leave have put forward a manifesto for what should happen if the UK does leave the EU, but this doesn’t necessarily mean that the Government will enforce these changes were Brexit to be realised.
4) “EU regulations cost small business £600 million each week”
This comes directly from Open Europe analysis of the cost of EU regulation. In fact, this number refers to a list of top 100 most burdensome EU rules, calculated as part of the UK Government’s Impact Assessment. In reality, the costs could be much larger, which arise from administrative and implementation costs of companies caused by EU regulations. In theory, regulations are implemented with the idea of capturing or gaining some consumer net benefit. Though the costs of regulation are mostly monetary, the benefits aren’t easily quantifiable. The benefits of less asbestos in our ceilings, or higher product standards, for example, are somewhat unobservable, but it by no means suggests that they don’t exist. This is what is missing from the Vote Leave statement. Open Europe note that 95% of the benefits of regulations have not materialised, but when probed about this statement, Oliver Lewis, Director of Research at Vote Leave, said that this only applied to Energy and Climate Change regulation, and the generalisation of this was an ‘honest mistake’. Open Europe have not modified their page reflecting this…
Note that even if the UK left the EU, it would still need to abide by the standards to sell its goods and services in the EU. For example, CRD IV - the translation of Basel III regulations for the UK - will still need to be met if the UK finance sector wanted to trade with the EU. Brexit, therefore, would not rid companies of costs stemming from regulations such as these. Though the statement is somewhat accurate, the subtle implication that leaving the EU would save small businesses £600 million each week is misleading.
Vote Leave would, and have, retorted that the spirit of this statement wasn’t that the regulations were useless, but rather that the UK should have more control of which regulations it chooses to take. I would say that this is reasonable, with the following caveat: some UK regulations are stricter than its EU counterparts, and that is a choice that the UK itself has made. That is to say the EU’s regulations are not so stringent that the UK is battling to keep up with them. Indeed, in some cases they are less stringent than those the UK imposes upon itself.
5) “After we Vote Leave, we will immediately be able to start negotiating new trade deals which could enter into force straight after the UK leaves the EU. As a member of the EU, we are forbidden from striking our own trade deals.”
For the UK to officially leave the EU, it would have to invoke Article 50 of the Lisbon Treaty. David Cameron, in a speech in Feb 2016, implied that Article 50 would be invoked immediately, and the negotiation process would start very quickly. The statement is, so far, accurate.
Sir Jon Cunliffe, Deputy Governor of the Bank of England, noted that ‘immediately’ may well not be in the UK’s best interest, as the UK first needs to know what it wants. Therefore, it might be the case that upon consultation the Government chooses to wait until it knows exactly what kind of deal with the EU it wants. Oxford Economics, Vote Leave, estimate that the average time for trade negotiations is 28 months. A paper by analysts at the CEPR take 88 regional trade agreements between 1998 and 2009 and also conclude that the average time for a trade deal is 28 months, though they are very careful to note that there is a large variance in their sample. They also mention that, unsurprisingly, the more countries that are involved in the negotiations, the longer they tend to last. Following a ‘leave’ vote, it seems reasonable to assume that a UK trade deal with the EU (which has 27 other countries) will significantly take longer than the average 28 months proposed by Vote Leave.
Though there are many more arguments put forward by Vote Leave which also require qualification, they are beyond the scope (and length!) of the blog environment. Those who are interested can find more in the House of Commons document above. These are, I believe, the 5 of the main economic arguments/'facts' that Vote Leave have used to build their case. In the next post, I address the 'Remain' camp's economic arguments in the same vein.
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