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Time is fast approaching to abandon sinking EU ship
RUSSELL LEWIS Russell Lewis is a former general director of the Institute of Economic Affairs. WITH Britain set to be on the receiving end in a bruising EU summit starting in Brussels today, it is time to consider just what this country gets out of the EU budget, the main item on the agenda.
The "bra wars" shambles, earlier this year, reminded us of how policy in Brussels has lately swung against British interests.
Stopping imports of cheap Chinese sweaters and smalls was tough on UK shops and shoppers. But what inspired the Eurocrats to make this daft move?
Merely their urge to please the barracking textile firms and unions in France, Italy and Spain, which – unlike those on this side of the Channel – were too bone idle to adjust.
Of course, it will take a lot more than the present ill-feeling to cause a rupture between Britain and the EU. The very idea of quitting looks remote. Tony Blair is a Europhile, the matter is not on David Cameron's agenda and, as for the UK Independence Party, that's right off the map.
Yet what is wearable today may prove unbearable tomorrow. That is what makes people who think the unthinkable so valuable.
Step forward Professor Sir Patrick Minford, with his book Should Britain Leave the EU?
He claims that Britain's European burden is already far greater than most economic gurus have realised and, as EU regulation and tax creep accelerates, is heading towards the insufferable.
Remember that Minford is no crank, but an outstanding academic and a former member of the Bank of England Monetary Policy Committee. He is, moreover, the leading Thatcherite economist in Britain.
He believes that the centralising, bureaucratic and protectionist policies of the EU are gradually destroying the very Thatcherite revolution which has thrust Britain ahead of her European partners in both growth and jobs.
Surprisingly, his book is the first objective tally of the losses and gains from Britain's membership and, in weighing the economic pros and cons for this country in the main areas of EU activity, his conclusions are alarming.
First, there is agricultural protectionism, the so-called Common Agricultural Policy, which nobody in Britain even pretends to defend. Government Ministers, when asked, readily admit that it needs reform because it takes nearly half the EU budget but distributes it to only five per cent of the EU population.
Quite so. And Minford calculates that it costs the average British family of four around an extra 400 a year on their food bill.
No surprise about the minus signs there, though it is not a lot as a share of national income. However, there it is – the penalty which Britain originally accepted for joining the club which, it was believed, would give us the chance to reap greater gains elsewhere.
What will raise eyebrows, therefore, is Minford's estimate
of the impact on British manufacturing, a sector that was originally supposed to be a clear beneficiary of European Community membership.
The costs arise from the common tariff of the customs union on manufactured imports. These include so-called anti-dumping tariffs, and no less deadly informal agreements, especially in cars, by which exporters to the EU are hustled into raising their prices under threat of otherwise being exposed to anti-dumping tariffs.
This "Common Manufacturing Policy", which is what it should be called, costs Britain three per cent of GDP.
Then there are services – insurance, banking, airlines, etc – in which the Brits beat their EU partners hollow in terms of performance. Unfortunately, this is one area where the EU's internal free trade doesn't apply. So British producers suffer from national protective levies imposed by the other member states.
However, by way of compensation, our own liberal import regime lets our service-suppliers profit through importing and outsourcing from overseas.
On the face of it, therefore, the scheme for EU service harmonisation should be good for us. Alas no, because then, with British-made services sheltering under an EU tariff, UK consumers would lose the benefits of
virtually free trade with America and Asia.
Minford reckons that UK service suppliers wouldn't prosper either. So no joy there.
The really damaging cost of EU policies to Britain comes from economic harmonisation, particularly, pace Tony Blair's assurances, those that align it with the EU social model.
Under the banner of fundamental rights, trade union power, which was destroyed in Britain by Margaret Thatcher, could be resurrected.
Minford calculates that, if the minimum wage were fixed at 50 per cent of male median wages and union power restored to
mid-1980s levels, and if in addition the minimum wage were raised by 50 per cent (to suit the unions), social costs would rise by 20 per cent and unemployment by 5.7 per cent.
That's pretty awful by any measure but one final nightmare remains – the harmonisation of state pensions.
As estimates by the Organisation for Economic Co-operation and Development have shown, many Continental state pensions, which are much higher than in the UK, are potentially insolvent. If Britain were obliged to share the burden of their deficits, the bill would be some seven per cent of the country's GDP.
So to sum up, the ongoing costs to Britain of EU membership are of the order of 3.5 per cent of national income. This is bad enough. Yet potential future costs are several times more.
In Minford's words: "This prospect amounts to little less than ruin for the UK – a return to the terrible 1970s and worse again."
Let me emphasise that this sombre judgment comes not from an extremist or political propagandist but from a sober, front-rank economist who has spent the past three years grinding out the numbers and studying the facts.
His conclusion is inescapable: unless there is a radical change of direction in the EU, Britain's exit is no longer a matter of if but when.
Should Britain Leave the EU? An Economic Analysis of a Troubled Relationship, by Patrick Minford, Vidya Mahambare and Eric Nowell (Institute of Economic Affairs and Edward Elgar, 15.95). To order from the Yorkshire Post Bookshop, call free on 0800 0153232. Postage and packing costs 1.95. Order on-line at www.yorkshirepostbookshop.co.uk
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