The UK in the EU

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The Economic Benefits to the UK of EU Membership

Introduction

This paper provides details of the major economic benefits that Britain gains by being a member of the European Union.  A separate paper will consider the wider political and strategic benefits that derive from membership.

Broad Economic Benefits

By being a Member State of the European Union the United Kingdom is part of the world’s largest single market – an economic zone larger than that of the USA and Japan combined with a total GDP of around £11 trillion.  This single market of 500 million people provides a relatively level playing for British business to trade in.  This enables not just free trade in terms of the absence of customs duties or tariffs but a common set of rules so that business does not have to comply with 27 different sets of regulations. 

A European Commission study of the single market in 2007 found that the EU GDP was raised by 2.2 per cent (€233 billion) and 2.75 million jobs were created between the introduction of the single market in 1992 and 2006.  For the UK, that increase in GDP would have been around £25 billion.  The Government’s Department of Business, Innovation & Skills estimates that EU Member States trade twice as much with each other as a result of the single market – which they estimate has meant that increased trade within the EU since the 1980s could have been worth around six per cent higher income per capita in the UK.  Exports to other EU countries account for 51 per cent of the UK’s exports of goods and services, worth £200 billion; trade with the US, by contrast, constitutes 13 per cent of UK exports.

The Business Department in the UK estimates that 3.5 million jobs in Britain are linked, directly or indirectly, to the UK’s trade with other Member States.

The single market has brought an end to many of the non-tariff barriers to trade that used to exist in Europe.  For example, until a ruling of the European Court of Justice in 1987 the rules on the purity of beer in Germany made it difficult for beer producers in other Member States to export their product to one of Europe’s biggest beer markets.  The German beer purity laws were overturned by the Court’s decision because they were a restriction on trade incompatible with EU law.  Similarly, the French ban on the import of British beef was overturned by the Court of Justice because it was contrary to EU rules.  Australia and the US are two countries that continue to ban the import of British beef despite the original reason for the ban in 1996 (BSE) long having ceased to be a problem but there is no effective means to challenge those bans.

Critically, being a member of the EU, the UK is part of the procedure for making the rules and regulations of the single market.  Britain’s seat on the Council of Ministers is essential to enable the UK to put its case on proposed regulations and to argue for reform of existing rules.  Our MEPs in the European Parliament are also important because most of the decisions of the EU require the Parliament’s involvement.  Were the UK to leave the EU but join the European Economic Area (assuming we were admitted to the EEA), we would be bound by most single market rules but have no part in the decision-making process.

A key driver of global economic prosperity since the war has been the gradual reduction in tariff barriers as a result of successive rounds of world trade negotiations.  The UK, traditionally an open, free trade economy, has benefited from the fact that the EU negotiates on behalf of the world’s largest single market – giving us far greater clout in such talks than we would have as an individual nation. 

Another significant benefit to the UK from EU membership is the foreign direct investment (FDI) we receive – that is, investment in our economy from non-UK sources.  Companies often locate in the UK precisely because we are inside the single market – for example, Nissan’s factory in Sunderland exports to the rest of the EU.  FDI has risen considerably across the world since the 1970s.  The UK continues to receive a large share of world FDI, despite the global financial crisis.  For example, the UK was the fifth largest recipient after the US, China, France and Hong Kong ($46 billion in the case of the UK) in 2009.  In terms of the total stock of FDI, the UK is rated third in the world behind the US and France and ahead of Hong Kong and Germany with $1.125 trillion of FDI stock in the UK in 2009.[1][2]

Business Benefits

In addition to the benefits from the single market, there are a number of ways that the EU benefits business more directly.

While it is sometimes controversial the right of free movement for EU citizens (see below) is valuable for employers as it enables them to recruit from a far wider pool.  British employers have made extensive use of this access to a larger potential workforce in order to tackle some of the UK’s skill shortages.

The Community trade mark and the registration of industrial designs are two ways EU law has made life less bureaucratic for business and protected intellectual property.  EU businesses can register a trade mark or an industrial design once and have it recognised in all 27 Member States. 

EU competition law has been of great importance in opening up previously closed markets to new entrants, enabling British companies to expand on the continent.  It has also enabled market monopolies to be tackled in a way not seen before in Europe – such as the Commission’s action against Microsoft. 

Lower telecoms costs (see below) are of great benefit to business as well as to individuals.  Energy costs are a big issue for some business sectors and EU competition rules have helped to keep them down; the establishment of the EU’s single market in energy in 2014 should act as a further brake on energy prices.

A key benefit from the single market is that businesses only have to deal with one set of rules rather than 27 different sets of rules when exporting to or operating in more than one EU Member State.  Although harmonisation has caused difficulties in some sectors, the overall benefits have been considerable.

Personal Benefits

The most obvious benefit to individuals is the freedom to travel, live, work, study and retire anywhere in the EU (this also applies to other EEA states).  No EU citizen needs a visa to visit another EU country for up to three months.  You can stay longer than that provide you register with the host country, have sufficient means to sustain yourself (or a job or course of study) and health insurance (the latter may be available by paying into a state insurance scheme).  Roughly 1.6 million British citizens live in the EU outside the UK.[1][2]   After living in another EU country for five years you have the same rights as its own citizens. 

EU citizens have a vote in local and European Parliament elections wherever they live in the EU. 

Working abroad has been facilitated through the mutual recognition of qualifications, enabling professionals to work in another EU Member State without having to sit further examinations. 

Travelling and working abroad in the EU has been facilitated by the introduction of the European driving licence, with common rules on the requirements of driving tests and minimum standards of fitness to drive.  This has improved road safety and made it easier to drive across international borders. 

Telecommunications were one of the first areas of EU economic activity to be liberalised.  National monopolies were abolished between 1988 and 1998 for fixed line services, leading to a fall in the price of phone calls, as well as more choice of equipment and providers.  Since 2000, the cost of a 10-minute call has fallen by an average of 74 per cent in the EU. 

Consumers are now benefiting from the fairer regulation of mobile telecoms, which, since their introduction were often notorious for high prices, especially when travelling abroad.  The 2007 EU legislation meant a maximum charge of 10p per minute to receive a call when abroad within the EU, no more than 30p a minute when calling home and the price of texts have fallen from around 25p to around 9p.  The EU also agreed with 14 mobile phone manufacturers that there should be a standard design for chargers from 2011 in order to make life easier for consumers and reduce the 50,000 tonnes of chargers thrown away every year.

The deregulation of air travel across the EU has been one of the most noticeable benefits of the single market to consumers.  The number of airline routes in the EU has dramatically expanded, low cost carriers have come into the market, enabling people to travel at lower prices and there is competition on key air routes.  Deregulation has been balanced with measures to protect EU citizens against unfair practices – such as the 2005 air passenger rights which provide some protection for passengers whose flight is cancelled or who are denied boarding and the 2008 law requiring quoted fares to be all inclusive without extra charges being added when you come to pay.  Package holiday travellers benefit from minimum standards that require companies to provide truthful information, notify passengers in good time of travelling arrangements and which protect them from sudden cancellations or prices increases.

British shoppers are now free to shop in any Member State without being charged customs or excise duties on goods for their personal use when they return home.  Consumers have the same rights when shopping as they do when at home and the European small claims procedure makes it feasible for people to make a claim for up to €2000 if necessary.  Rules are now in place to protect consumers against car price cartels, which artificially inflated the prices of both cars and car parts in Europe.  For example, cars can be imported from other EU countries to take advantage of lower prices on the continent.   

EU toy standards mean that parents can buy toys marked with CE symbol and be confident that the toy meets the basic standards of toy safety agreed across the EU.  EU food labelling rules similarly provide consumer protection as they require all ingredients to be listed and potential allergens identified.

Health & Social Benefits

The EU Health Insurance Card is a free card which enables EU citizens to receive emergency healthcare on the same terms as the citizens of the EU country they are visiting (often free). 

In addition to being able to live where they choose in the EU, pensioners can receive their UK state pension wherever they live in the EU. 

The EU provides social protection for workers in three areas: working time; temporary work; and parental leave.  Most workers have a maximum number of working hours, guaranteed breaks and protection against being forced to work long hours.  Temporary workers are guaranteed the same basic conditions of work as full-time colleagues (except in respect of occupational social security) if they have been doing the same job for 12 weeks or more.   Workers have a right to take up to three months parental leave for childcare purposes after the birth or adoption of a child until the child is a maximum of eight years of age (this is different from maternity rights).

Crime and justice

Crime knows no borders today as globalisation, ease of travel and the internet allow criminal activity to move around the world.  The European Arrest Warrant (EAW) has been very important in bringing criminals to justice across Member State borders, preventing the long delays and sometimes politicised extradition processes seen in the recent past.  The UK issued 220 EAWs in 2009, of which 80 were successfully executed.  The average time taken to extradite a suspect within the EU who objects to extradition has fallen from around a year before the EAW to 48 days now.  The UK’s independent review of extradition law in 2010/11, which looked at the working of the EAW, found that criticisms of the system were not well-founded.

EU police and borders co-operation hampers the movement of criminals whilst protecting the movement of law-abiding citizens.  This work is focused on cross-border crime, such as drug and people smuggling and terrorism. 

Environmental benefits

Like crime, pollution crosses boundaries and the sea is shared by all coastal nations.  It isn’t possible to tackle climate change at national level alone.  The EU has been involved in environmental work almost from the outset, not least because of the economic benefits of environmental improvement.

EU measures have raised the quality of beaches by tackling bathing water pollution, to deal with river pollution on the continent and to protect natural habitats.  Tourism has benefited from the clean up of beaches at home and abroad (of the 596 UK beaches tested in 2010, 96.8% met the EU’s mandatory water quality standards). 

The EU has taken a leading role in measures to combat climate change.  Its members have agreed to binding targets of a 20 per cent reduction in greenhouse-gas emissions, a 20 per cent increase in the use of renewable energy over the same period and a 20 per cent improvement in energy efficiency – all by 2020. 

Education

Education is the responsibility of EU Member States but the EU supports cross-border projects with the aim of raising the standard of education and training in the EU in order to improve Europe’s competitiveness.

One of the EU’s most popular programmes is the university mobility scheme ERASMUS, which enables students and staff to study or work at another higher education institution in the EU.  Over 7,000 British students went universities elsewhere in the EU in 2008/09 and 16,000 students from other EU countries came to the UK in the same year.  A similar programme, named after Leonardo da Vinci, enables people and organisations to pursue vocational training projects across borders. 

Research and development is a growing area of EU activity with substantial sums now spent on collaborative and cross-border research projects.  The UK has been particularly successful in winning research grants from the EU - €2.3 billion between 2002 and 2006.

December 2011

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[1]  UNCTAD World Investment Report 2010

[1]  Estimate from, Brits Abroad: mapping the scale and nature of British emigration, Catherine Drew & Danny Sriskandarajah, IPPR, 2006.

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