Sunday, January 26, 2020
Forget the Romans, what has the EU ever done for us?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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

The moment has nearly arrived. Unless something really unusual happens in the next few days, this will be the last column I write here while Britain is a member of the European Union. By next weekend we will be out. And, while there will then be a transition period, at least until the end of the year, from 11pm next Friday, we will be a “third country”, no longer an EU member state.

It is possible, in 10, 15 or 20 years’ time that a future politician will decide that Britain is best served by reapplying for EU membership. But both the UK and the EU will have changed by then, and the current highly favourable terms of membership – including a permanent opt-out from joining the euro – will not be on offer. And I will have long since stopped writing in this slot, should it still exist.

Until the past 3-4 years, EU membership has been in the background, not particularly an issue for the public. Like the weather, it had its good and bad points and, like the weather, it seemed permanent.

But, as we prepare to leave, it is a good time to reflect. The sad death of Terry Jones of Monty Python offers a suitable framing device. In Life of Brian, either the Judean People’s Front or the People’s Front of Judea – readers will tell me which one – ask “what have the Romans ever done for us?” So the question, in tribute to Jones, is what EU membership has ever done for us.

Most people will be aware that the EU is important for UK trade. EU membership, along with successive rounds of world trade liberalisation – broken by the US-led protectionism of recent years - , has made our economy more open, and openness is good for growth.

In 2018, the last full year for which trade data is available, more than 49% of UK exports of goods and over 40% of exports of services went to the EU; a combined 45% or so.

In a clumsy, investment-curbing intervention last weekend, Sajid Javid, the chancellor, said that business should prepare for a future in which UK rules and regulations were no longer aligned with the EU. Businesses, he suggested, had had more than three years to prepare for this.

This is nonsense. Until last summer, government policy was that the UK would be closely aligned with EU rules for trade in goods. And, even if things have changed under the new government, there is a way of doing these things. As one exasperated former cabinet minister said to me, we will be fully aligned with the EU when we leave. “Dynamic” realignment will happen gradually, and over many years. Javid did offer UK business leaders a bit of reassurance in Davos by saying that we will not diverge “for the sake of it”.

Some sectors of the economy will decide to remain aligned to EU rules, whatever the government chooses to do. This will help determine whether there is sharp fall-off in Britain’s EU trade, as some fear, or more likely a gradual weakening.

The government, in seeking to move away from EU rules, appears to have fallen for the myth that its red tape is strangling British business. It is not. When it comes to product and market regulation, the UK is at the flexible end of the spectrum, OECD figures show, alongside other “Anglo-Saxon” economies such as America, Canada, Australia and New Zealand. The red tape that stifles is largely home-grown, in planning, the tax system and domestically-imposed health and safety rules.

As for trade, the former Australian prime minister Malcolm Turnbull put it well the other day when he said a UK trade deal with his country will not be a substitute for EU trade. Indeed, UK exports to Australia are 1.7% of the total. Add New Zealand and it takes it up to 2%. The government hosted an Africa summit last week. Only 3% of UK exports go there. Yes, we sell more to Ireland (5.5% of exports) than Africa and Australasia combined. Some 9% of UK exports go to the Commonwealth, a fifth of the EU share, and the Commonwealth share is lower than it was a few years ago.

The trade picture, perhaps, is familiar, the broader economic record less so. In the aftermath of the Second World War, European countries, including Britain, were in receipt of Marshall aid to rebuild their economies.

Some, the original six of Germany, France, Italy, Belgium, the Netherlands and Luxembourg moved toward closer economic integration in the 1950s, first with the establishment of the coal and steel community and then the European Economic Community (EEC).

Britain responded, in 1960 by being instrumental in setting up the EFTA, the European Free Trade Association. Indeed, it is interesting that if we had stayed with EFTA, and never joined the EEC, we would probably now be facing a closer relationship with the EU than the one we appear to be heading for.

But, and only older readers will understand this reference, EFTA was the Betamax to the VHS of the EEC – the one that did not get widely adopted – and soon it was clear to just about everybody, including business, that in the 1950s and 1960s Britain’s economic performance fell behind European competitors. The clamour to join the EEC followed.

The best overall measure of an economy’s success, and of prosperity, is gross domestic product (GDP) per capita. Growth in Britain’s GDP per capita fell behind the integrating European economies, notably Germany and France, in the 1950s and 1960s. After membership, however, it improved, with the turn occurring in the late 1970s.

Looking at the data, the message is clear, and some may find it surprising. Taking two points, the start of Britain’s membership in 1973 and the launch of the single market in 1993, UK per capita GDP between then and the referendum in mid-2016 grew by 117% and 53% respectively.

How does that compare with other countries? For France, the rise in per capita GDP since 1973 was 84% and since 1993 29%. The longer-term comparison with Germany is affected by reunification, though it does appear that UK real GDP per capita grew faster than the old West Germany from 1973 to 1993. For Germany as it is now, there has been a rise of 37% since 1993.

Beating France and Germany is one thing, but the UK has also outpaced America. US real GDP rose by 109% from 1973 to 2016 and by 43% since 1993.

Now, I would the first to say that this is not all, or perhaps even mainly, due to EU membership. Some would cite the bracing and ultimately beneficial impact of Margaret Thatcher’s reforms on the economy. Indeed, I have done so myself. But the turn in the UK’s performance came before her reforms had had chance to take hold.

And, as is often forgotten, those reforms were carried out in the context of unfettered access to the EU market. Thatcher pushed the single market because she wanted businesses in Britain’s newly flexible and no longer union-dominated economy to be able to take advantage of a larger home market. That was also the pitch to inward investors, most notably the Japanese car firms. The “Big Bang” reforms in the City were, at least in part, about cementing London’s position as the financial capital of Europe.

That was then. Now, or on Friday evening, we will go in a new, if bong-free, direction. If you think, given the history, it looks irrational, I would not disagree with you. If you think that the government does not have a coherent plan for Brexit, having done a withdrawal deal that was essentially Theresa May’s but with an added betrayal of Northern Ireland, I would not disagree with you on that either. But let us see what the future brings.