Sunday, June 12, 2016
Britain does very well in the EU - we would be daft to leave
Posted by David Smith at 09:00 AM
Category:

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

It is time to put up or shut up. Should we stay in or leave the EU? Those who have been following my pieces in recent months will not be surprised by my verdict. The economic and business case for remaining in the EU is conclusive. We would damage ourselves, potentially badly, by leaving. We should stay in.

I do not want to concentrate on merely avoiding the negative consequences of leaving the EU. Later I shall set out the benefits Britain obtains from EU membership, our “dirty little secret”.

Before that, let me explain my verdict. When I started thinking and writing about the referendum after last year’s general election, it was without strong preconceptions. I always opposed euro membership for Britain and have written for this newspaper about the Swiss, Norwegian and other alternatives to EU membership, often to the intense irritation of politicians.

So what decided me? Three things. Britain’s economy is convalescing from the biggest financial shock in a century. Just a few years ago we came close to the edge of the abyss. We are still living in the shadow of the crisis.

To have one shock was careless; to impose a second, self-inflicted shock before we have got over it would be an act of stupidity. All the credible analysis – even from credible pro-Brexit economists - shows there would indeed be such a shock. Leaving the EU will mean a period of turbulence, and a significant hit to growth and jobs – GDP by 2020 between 2% and 6% lower than would otherwise be the case – and a big rise in public borrowing which can either be ignored (which international investors will not like) or require tax hikes or deeper spending cuts.

There might have been a time when we could happily accept a shock of this kind, with growth strong, the world economy buoyant and interest rates high enough for the Bank of England to be able to cut them aggressively to alleviate the pain. But this is not it.

You can argue that the stupidity was on the prime minister’s part, pledging a referendum in the misguided hope that it would unite the Tory party, but we are where we are.

Second, what I have tried to do in recent months is take an evidence-based approach to our EU membership, something often lacking in the debate. What this has shown is that when it comes to the single market, foreign direct investment and financial services, the benefits of membership are very clear.

What it has also shown, however, is that the deeper you dig, the more the myths about the EU – excessive red tape, migrants taking “our” jobs, the idea that if we left we would have more to spend on domestic priorities – evaporate.

Third, we have had the economic assessments of the consequences of leaving the EU. Had the economic battle between the two sides been a boxing match, it would have been stopped before the end of the second round to limit the punishment the “remain” camp was inflicting. “Leave” has been outnumbered, out-analysed, out-argued and technically out-classed by the Treasury, OECD, IMF, LSE, PwC, IFS and others. The evidence suggests, convincingly, that there will be both a short-term economic shock and long-term economic damage from leaving the EU. Both are best avoided.

I say this with a slightly heavy heart because I count some of the small band known as Economists for Brexit among my oldest friends. But they were out on a limb, in more ways than one. Vote Leave says it would negotiate superior trade deals after Brexit, and be part of the European Economic Area. Economists for Brexit say we would not need any and should unilaterally remove all our trade barriers.

Perhaps a better job could have been done making the economic case for Brexit, but it is too late now. Responding to good and rigorous analysis by saying those who have done it are creatures of the European Commission, is pathetic. The Treasury, remember, was instrumental in keeping us out of the euro. This column is not, I should say, EU funded.

Some readers have said, in spite of this, I should have adopted an “on the one hand, on the other hand” approach to the referendum. No. It would be wrong of me to flatter the “leave” campaign’s arguments. And if I see people walking towards a very deep hole, it would be remiss of me not to warn them.

What about George Osborne’s use of a £4,300 hit to households by 2030, the amount, in terms of GDP per household, GDP would be lower than under a remain scenario? The first use of a GDP per household measure I can find in the referendum came from the free market Institute of Economic Affairs in February, with a publication suggesting staying in the EU would cost households almost £10,000. On the other side it has been used by the OECD, the LSE and others. The Institute for Fiscal Studies used public borrowing per household in its report. It is an explanatory device, nothing more, nothing less.

If economists cannot accurately predict next year, how can they predict 2020 or 2030? This misunderstands what these assessments are all about. They are comparative analyses, not conventional forecasts. They cannot tell you exactly where the economy will be in 2030 – although if they have a good handle on trend growth they can get quite close – but they can tell you that if you do certain things it will be bigger or smaller than in the base case.

Before accentuating the positive, let me say something about the business case. You will have read the business Brexit argument put in these pages, but it would be wrong to think that represents the consensus view, no more than does Sir James Dyson, erstwhile euro enthusiast, who manufactures in Malaysia . Every credible business survey shows a majority of firms in favour of continued membership.

In recent weeks I have travelled around the country and met dozens, if not hundreds, of business people. They range from tiny “micro” businesses, through serial entrepreneurs to family firms and large quoted companies. I can count on the fingers of one hand, with some to spare, those who said they wanted to leave the EU.

They may not love the EU, just as they do not love Whitehall or Westminster, but they know their best interests are served by being inside it. And they recognise snake oil when people are trying to sell it to them.

I said I also wanted to accentuate the positive. One worry for me during the campaign has been that other EU countries would find out how well we have done out of membership and rise up in protest. Fortunately, in that respect, the debate has not risen to these levels.

Since the single market began in 1993, Britain’s GDP is up by 62% in real terms on OECD figures, compared with 42% in France, 35% in Germany and 15% in Italy. Switzerland’s GDP has risen by 48%.

Our own Office for National Statistics shows that we have grown by 69% under the single market, similar to America over that period , 71%, and well above Japan, 19%.

I would be the first to say our growth performance reflects many factors, including the Thatcher reforms of the 1980s and Bank independence in 1997. But the figures give the lie to the widespread notion that we have been held back by EU membership.

Britain has claimed a disproportionate share of foreign direct investment from under the noses of our EU competitors, much of it because we are inside the single market. This investment has been beneficial; indeed essential. In an economy that typically does not invest enough we need that flow of foreign investment to progress.

Finally, let me again mention immigration, which is driving support for leaving the EU . Of course we need to build more houses and increase investment in infrastructure but it is wrong to use immigrants as a scapegoat for our failings in these areas. EU migrants more than pay their way.

EU migration responds to economic conditions in Britain and complements our flexible labour market. In 2008, when the crisis hit, net migration from the rest of the EU halved, fell again in 2009 and did not exceed 2007 levels again until 2014. Replace those responsive arrangements with a system under which parliament decides an annual migration total and the economy will suffer.

So there we are. Britain has been a success within the EU and would suffer from leaving it. Will voters see it that way? You can usually count on the British people to do the sensible thing. Whether the referendum breaks that mould we will know in less than a fortnight’s time.