EU: UK Membership

Lord Desai Excerpts

Thursday 24th October 2013 Lords Chamber

[Lord Desai (Lab)]

My Lords, I thank the noble Lord for introducing this debate. He said that he cut his teeth on the 1975 referendum. Fifty years ago, when I was finishing my PhD, my first job offer was to inquire into the relative merits of the six nations that had joined themselves together under the treaty of Rome as against the seven who formed EFTA—so I have lived with this problem for much longer. The debate about whether we should be in or out of Europe will never be over, whichever way the referendum goes. The 1975 referendum did not settle any of these matters, and neither will the 2017 referendum, which will no doubt decide that we should stay in the EU.

I will talk in particular about the topic of economic impact, not about a referendum, because that is the topic before us. In light of what the noble Baroness, Lady Noakes, said, I will take up that question. As the noble Lord, Lord Hannay, said, one thing is certain—that there is no certainty about the economic impact of the United Kingdom’s membership of the European Union. The excellent document that the Library has produced shows the cost to range from between minus 6% to plus 8%; and as the noble Baroness said, the new UKIP document—written by Tim Congdon, for whom I have great respect—says that the figure will be minus 11%. So the figure ranges from between minus 11% to plus 8%. It is probably anybody’s choice. The problem is that each person answering the question grasps a different part of this elephant.

I want to say two things about the figure of 11% arrived at by Tim Congdon. There are two large items in his calculations. The cost of regulation is 5.5% of GDP, and the other major cost is resource misallocation, which is 3.25% of GDP. That comes to 8.75%, which, subtracted from 11%, leaves about 2%. So those two numbers are worth examining in more detail.

As for the larger item—the cost of regulation—let me just list the social directives that are supposed to be costly. They include the safety and heath at work directive, the works council directive, the parental leave directive, the race directive, the equal treatment directive, the working time directive and the gender equality directive. Let us suppose that we were not in the EU. Would we necessarily not have some of those directives? Would we not have the race directive? Would we actually say, “No, we want a racist society”? Would we not have a gender directive of some kind? Do we not already have health and safety legislation? Are we going to jettison that? A proper comparison would be: if we leave, what sort of regulation will we keep, and what is the differential effect of being inside the EU rather than outside the EU?

Similarly when Tim Congdon costs resource allocation, the one definite number he has is that the cost of the common agricultural policy—which I have long opposed—is about 0.5% of GDP. The rest of the cost is computed from a study of tariff and non-tariff barriers in the EU by Patrick Minford which is about eight years old. I have not had time to look at it in detail, nor do I have time to talk about it in detail, but I believe that some of those tariff barriers have disappeared. We ought again to calculate properly whether there are still such tariff barriers within EU trade, and if so, determine whether they are likely to be removed, or whether we will have to live with them. Also, if we leave the EU, what sort of tariff barriers would we face vis-à-vis the remaining EU?

I believe that on all these questions we ought first to calculate the impact costs, and then ask which bits we can remove, examine the counterfactual and allow for the uncertainty of all calculations. I think we will arrive at the conclusion that there is nothing definite to be said about this issue—but then, that is the nature of economics.