EU: UK Membership

Lord Shipley Excerpts

Thursday 24th October 2013 Lords Chamber

Moved by

[Lord Shipley]

That this House takes note of the economic impact of the United Kingdom’s membership of the European Union.

[Lord Shipley (LD)]

My Lords, I am very grateful for this opportunity to discuss the economic impact of our membership of the European Union and I thank all those Members of the House who will contribute to the debate, particularly my noble friend Lord Wrigglesworth, a colleague over many years, who will be making his maiden speech. I thank the Library for its excellent briefing and acknowledge the excellent set of essays launched this week by Regent’s University London which cover extremely well the issues we shall be discussing today.

I am conscious that we have had a number of debates on aspects of the EU in recent months but there are two reasons why I feel that a debate on the economic benefits is very important now. First, over the summer and early autumn a number of companies and professional bodies have been making their voices heard in support of our continued membership of the EU. Secondly, I have been very concerned that discussion in the media about the EU has tended to concentrate on issues other than economic benefit. Immigration, our net budget contribution, state benefits and health tourism, for example, all feature strongly. Each of these is clearly important but some, such as health tourism, are not just an EU matter. All these areas rightly reflect public concern and so they need to be constantly reviewed and debated but, I submit, we should do this as members of the EU, just as they do in the other countries of the EU, so that we understand better, for example, state benefit rules and how they should apply between countries, given the enormous differences that exist.

However, the issue of state benefits is not just a UK matter. I was interested to note reports earlier this week that in Germany more than 10,000 British people are receiving unemployment benefit—some 10% of the British population resident in Germany. That reflects the fact that we live in a world in which national borders have less meaning. Transport is easier and cheaper than it used to be and both employers and employees want mobility of labour across borders. This is a changing world and we cannot opt out of it.

I congratulate the Mayor of London on his leadership on this matter earlier this week and on several previous occasions in explaining London’s role as an international capital. However, perhaps the Government should think further about how they can invest more quickly in public services in areas where private sector employers recruit workers in significant numbers from elsewhere in the EU, because that can strain public services. I believe that that would build support for the EU.

I mentioned a moment ago our net budget contribution, but that is less than 1% of annual government expenditure. A number of other EU states are also net contributors, but the economic benefits of our membership matter a great deal more than how much we pay each year to belong. Of course we should examine closely what we pay and fight our corner, but it is not the central issue. We should never downgrade the overriding reason for our being members of the EU. That reason is economic, because the size of our economy, our growth prospects and the creation of new jobs in a fast-changing world depend fundamentally on our continued membership of the European Union.

I cut my political teeth in the referendum in 1975, in the all-party yes campaign in the north-east of England. The EU has since then proved to be hugely important to the exporting success of the north-east of England, which is the only part of the UK with a positive balance of trade, a high proportion of which is with the EU. For that reason, I want to draw attention to two firms which have committed themselves to the north-east of England as result of foreign direct investment, both of which have made recent public, unprompted statements about our membership of the EU.

First, Nissan has made it repeatedly clear—again, only a few days ago—that the UK continuing as a member of the EU is very important for the company. More than £125 million has been committed to the Sunderland factory. It is a wonderful success story, with more than 6,000 employees making vehicles which are exported into the EU and across the world. The second firm is Hitachi. The president of Hitachi recently confirmed that he met the Prime Minister last spring and said that if the UK pulled out of the EU, it could jeopardise £1 billion of funding for Britain’s railways and nuclear energy. In August, Hitachi Rail Europe said that its investment in an £82 million factory in Newton Aycliffe resulted from its strategic decision that the UK should be its gateway to the EU single market. I also understand that the Japanese Government have warned that UK jobs could be at risk if we leave the EU.

The Engineering Employers’ Federation, which is a trade body for UK manufacturing, recently reported that 85% of manufacturers say that Britain must stay in the EU, leading from within and not putting investment and jobs at risk. They want the single market to work better, but they do not want to exit from it. They say that the UK must remain part of the EU with “no ifs or buts”. They know that the UK’s relationship with Europe and the EU is vital to our economic success because the single market is our largest export market. The British Chambers of Commerce has reported that although businesses want more decisions made in the UK, most members think that withdrawal from the EU would be bad for Britain. A CBI survey published last month of more than 400 businesses showed that almost four out of five firms favoured staying in the EU, including 77% of small and medium-sized enterprises. Just 10% think it is in their interest for the UK to leave the EU; that is 11% of SMEs. The CBI says that despite frustrations over the current relationship and the burden of some regulations, particularly employment law, the survey shows that most businesses feel that the positives more than outweigh the negatives. Those negatives are primarily seen to be unnecessary regulations. The CBI wants to see rules implemented evenly across all member states, with an end to the gold-plating of EU legislation in the UK.

What then of financial services, which contribute £1 in £8 of our tax revenues? The City of London Corporation made it clear in a note this week that the financial sector based in the UK cannot be treated as distinct from Europe. The reason is that London’s role as a financial centre is international. The corporation points out that financial markets in the EU and the UK are intermeshed in a common regulatory structure. Non-European firms come to London because it is both international and within the single market at the same time. Crucially, and I quote directly from the note:

“The UK’s priority must be to oppose policies that could lead to the fragmentation of that Market. Fragmentation of the Single Market in financial services could drastically reduce the efficiency of the Single Market and European businesses’ access to capital. London’s position as the most prominent international financial centre in the world would be put at risk by an imperfect Single Market in financial services in which rules and access differed by level of membership of the EU. This could also damage the interest of euro-area headquartered firms”.

That is very clear advice. The key question we should ask those who believe that we should withdraw from the EU is this: what problem are you trying to solve? Put another way, is the UK being held back by the EU? A million extra jobs have been created here since 2010—inside the EU. The idea that leaving the EU would boost jobs more lacks evidence and credibility.

We hear it increasingly claimed that the future for Britain lies in the emerging economies; that these days, we should fly over Europe because more business can be done further away. But what those who pursue this line of reasoning fail to explain is why we cannot build trade with emerging economies as well as increasing trade within the EU.

Germany exports four times more to China by value than we do. Germany does it as a member of the EU. Norway is often cited as an exemplar for the UK inside the European Economic Area. Norway has no direct power in the EU, no seat at the table, no votes, but it still has to abide by directives and bills just as the full members do. Norway has to implement three-quarters of all EU legislation, including the working time directive, other employment laws, consumer protection, environmental policy and competition laws. It has to contribute to EU budgets. Norway’s per capita contribution is just over £100; the UK’s net per capita contribution is £128. If we joined the EEA there would be little saving.

Switzerland is often cited as another example we might emulate. But being outside the EEA, it has no right of access to the single market and has to negotiate each and every case separately. Even Switzerland contributes to EU budgets at £53 per capita.

What do other EU countries say about the EU and British concerns, particularly regulation? President Hollande said earlier this year that there might be a “differentiated” Europe. The Italian Prime Minister said in July that there might be treaty changes for a more flexible Europe in the interests of the UK but also in the interests of countries such as Italy. The Dutch Government have proposed defining subsidiarity as, “European where necessary, national where possible”. Chancellor Merkel said in May that it could be that some things “could be better done at a local level”.

All these confirm that the long history of flexible integration is alive and well in the EU today and we should build on it. Lots of people across Europe want us to do that and to show leadership in a reform programme. We should not forget that 3.5 million jobs in the UK are linked to our membership of the EU; or that 47.5% of our export of goods and services goes to other countries in the EU.

I am grateful to the French Chamber of Commerce in Great Britain for reminding me that there are 1,500 French subsidiaries in the UK employing 330,000 people, that the UK is at the top of the European foreign direct investment rankings and that the EU accounts for nearly half of foreign direct investment in the UK. With figures like that, the idea that it is somehow in our national interest to quit the EU defies belief.

There are several reasons why firms want to move into the UK, including the gateway to the single market, the English language, the quality of our legal system and our excellent workforce. For many, the single market is the most important. A single market of 500 million people means that they and we benefit from a common set of rules which enables businesses to generate wealth without having to comply with many different sets of regulations. We need to defend the single market and deepen it to drive up UK jobs and growth. We need a continuous process of reform, but completing the single market would further reduce internal barriers to trade, particularly in services, which our Government think could generate a 7% increase in GDP—a great deal higher than the 0.4% of GDP that goes to our net budget contribution. There are many discussions going on around regulation. Some of them may be justified and there are discussions that will be pursued in Brussels and elsewhere about this matter. However, we should note the success of the Government in tackling regulatory issues and their continuing work in that area. Some 1.4 million UK small businesses are now exempt from certain EU accounting rules, which demonstrates that the EU is willing to reduce red tape for small businesses and it is in the interests of all member states that this process should continue.

If we left the EU, we would probably operate within a “most favoured nation” status. That would mean that 90% of UK exports to the EU by value would face tariffs. As well as that, UK consumers would face higher prices on goods bought from the EU and from those countries with which the EU had trade agreements. These increased prices would be counterbalanced only slightly by lower food prices.

If we were in the EEA, trade would be tariff-free and, as with Norway, we would have to implement three-quarters of EU legislation in which we would have no say. We also need to be careful about the rules of origin. Goods imported into the EU via a full member of the EU can move freely once the relevant entry tariff has been paid, but those that come through an EEA country have to apply the rules of origin, a process that will take time and money.

This week we have seen a trade agreement signed with Canada after four years of negotiation. There are now 46 trade agreements in place, with a further 78 pending. If we left the EU, we would lose access to every EU trade agreement with a third party, and each would have to be renegotiated.

Exit would mean no extra funding for the poorer parts of the UK. Between 2014 and 2020, £6.2 billion will be committed in ERDF and ESF to the UK.

In conclusion, problems with the EU can be addressed. Problems related to the eurozone can also be addressed because it is not essential to be in a single currency to be part of a single market, as we have successfully demonstrated over many years.

In a recent speech at Chatham House, the Deputy Prime Minister said that,

“the idea that we can float off into the mid-Atlantic, bobbing around in a new network of relationships without a strong anchor in Europe, while countries around the world ... are working more and more in regional blocks, is clearly not a sound strategy in a fast-moving, fluid and insecure world”.

He is right. We must strengthen our economy, not weaken it, and we can do that only through continued membership of the EU, with the UK at the heart of EU decision-making. I beg to move.

--- Later in debate ---

[Lord Shipley]

My Lords, I am grateful to the Minister for his reply and to all those Members of the House who have spoken in the debate. Mention was made of Roy Jenkins. I am reminded that in 1975, when he was Home Secretary, Roy Jenkins announced when the referendum had been won that it had put the uncertainty behind us. It did for a while, but obviously there is still a debate to be had. On the balance of today’s contributions, those who are in support of continued membership of the EU have the day, but there will inevitably be a continuing debate on that. I thank noble Lords for their contributions.

Motion agreed.