UK Membership of the European Union | tutor2u Economics
Study notes

UK Membership of the European Union

  • Levels: AS, A Level
  • Exam boards: AQA, Edexcel, OCR, IB

In recent times, the debate over continued UK membership of the European Union single market has become more intense and heated. Here are some of the main arguments on both sides of the debate

The case for British exit from the European Union

  • Free trade
    • Britain could have the opportunity to negotiate new free trade agreements with major EU trade partners and fast-growing emerging countries such as the BRICs, MINTs and Sub Saharan Africa
    • Britain would benefit from freeing itself from many of the EU's complex and expensive laws & regulations
  • Budget savings
    • Leaving the EU would cut our contributions to the EU budget - a UK fiscal windfall
    • Food prices would possibly be lower if we left the Common Agricultural Policy (CAP)
  • Exports
    • The UK is Europe's biggest export market. So Europe needs the UK as a trade partner for both to be successful in the long term
  • Economic policy autonomy
    • The UK would retain greater control over fiscal and monetary policy and also gain more freedom over labour market, competition and environmental policies

The financial services industry contributes a fifth of the UK’s annual economic output and had a £19.1bn trade surplus with the EU in 2013

Financial Times

Some counter-arguments – the case for staying within the EU single market

  • Free trade
    • Risk of losing trade benefits of being inside single market, lower per capita GDP
    • Attractiveness of the UK as a destination for FDI would be diminished
    • Adopting a position similar to Norway (which is outside of the EU) would mean the UK accepting many EU rules without having a say in their formulation
  • Market Access
    • UK will lose tariff-free access to its largest export market
    • London would no longer be the EU's financial hub
    • No guarantee that the UK could negotiate an arrangement to Norway or Switzerland
  • Extra costs
    • Extra costs for businesses as they ajust to new legal frameworks outside of the EU
    • Europe might decide to retaliate and prevent favourable trade deals with UK
    • UK's net annual spending on the EU budget is tiny – less than 1% of GDP (about the same as UK overseas aid) - for small budget savings, the long-run economic cost of leaving the EU will be high
    • EU students can apply to study at any university in the bloc and pay the same fees as nationals - this might change in the event of a UK exit
    • Over 1.8 million UK people live in the EU, it might become harder and more costly for them to live and work in EU countries because the EU single market allows free movement. Some EU countries might introduce an investment visa requirement

According to a report from Business for New Europe, London accounts for 78% of EU foreign exchange turnover, 85% of hedge fund assets, 57% of private equity and 50% of fund management assets.

Europe: in or out? The Debate (Part 1)

Background statistics on the UK economic relationship with the EU

(Source: Parliamentary research briefing paper, May 2015)

Trade

The EU is the UK's major trading partner, accounting for 45% of exports and 53% of imports of goods and services in 2014. The share of UK trade accounted for by the EU 28 is lower than a decade ago. Some argue that the share of UK trade accounted for by the EU is exaggerated by the "Rotterdam effect" whereby trade recorded as being with the Netherlands is actually with non-EU countries. While this effect cannot be quantified, it does not alter the fact that the EU is the UK's main trading partner. Even if all trade with the Netherlands were excluded, the EU would still account for 42.5% of goods exports and 46.7% of goods imports.

Jobs

Both the Coalition government and the previous Labour government stated that over three million jobs are linked, directly or indirectly, to exports to the EU. This is not the number of jobs linked with membership of the EU as some trade with EU countries would still take place if the UK were to leave the EU.

Investment

The EU is a major source of inward investment into the UK. In 2013, EU countries accounted for £453 billion of the stock of inward Foreign Direct Investment, 46% of the total. A 2014 survey by EY found that the UK was the second most attractive destination for FDI in Western Europe.

EU budget

The UK's net contribution to the EU Budget in 2014 is estimated at £9.8 billion, up from £3.3 billion in 2008 and £7.4 billion in 2010. It is forecast to fluctuate between £8.0 billion and £9.9 billion a year between 2014/15 and 2019/20.

BREXIT REVISION VIDEOS: Three videos on the Economics of Brexit

Trade patterns, Customs Union and the Single Market - revision video
Options for the Uk when leaving the EU
Possible micro and macro effects of Brexit

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