Is EU membership worth £3,500 per household?
"To Britain, membership is estimated to be worth between £31bn and £92bn per year in income gains, or between £1,200 to £3,500 for every household."
Letter, Independent on Sunday, 19 May 2013
Ever since UKIP caused a stir at the beginning of the month by winning nearly 150 seats in the local elections, Britain's continued membership of the European Union has been the hot political issue, most notably for the Prime Minister, who has faced calls to bring forward his plan for an in/out referendum.
However not all the commentary has been hostile to Brussels, and this weekend the Independent on Sunday published a letter signed by a number of business leaders - including Virgin boss Richard Branson - which warns against the cost of leaving the EU.
The letter claims that the UK's EU membership is worth up to £92 billion a year, or as much as £3,500 per household.
The letter doesn't give a source for the claim, but the organisation behind it - Business for a New Europe - confirmed to us that the claim draws upon a 2011 study by the Department for Business, Innovation and Skills (BIS). According to the report:
"The Single Market has been a key driver for economic growth in the UK and in Europe. EU countries currently trade twice as much with each other as they would do in the absence of the Single Market. As a result, the Single Market may be responsible for income gains in the UK between 2% and 6%, that is between £1,100 and £3,300 a year per British household."
While these figures are very slightly lower than the ones quoted in the Independent on Sunday, the fact that they are now two years old might account for the difference. When multipled by the 26.4 million households in the UK, we get totals approaching the £31bn-£92bn range mentioned in the letter.
What does this mean?
BIS's estimate of the benefit derived from Britain's EU membership rests on the increase in trade with EU nations that has occured over and above that which would have taken place if we hadn't been part of the Single Market.
But working out how much of our trade with the EU wouldn't have taken place had we not been a member state isn't straight forward. How do we know that increased intra-EU trade hasn't displaced trade with other nations? The Institute of Economic Affairs has argued:
"the more rapid growth of trade with partners in a customs union merely reflects the existence of the union. It says nothing about the fitness of the union or the economic benefits that derive from it."
In fact, the Government itself has said the absence of any data on what might have happened over the past 40 years had we remained outside the UK means that there isn't an official estimate on the impact that membership has had on trade.
So how does BIS get around this? While the department hasn't yet confirmed its methodology to us, the government has previously constructed models which aim to isolate the impact that EU membership has on trade by looking at bilateral trade between the UK and other EU and non-EU countries since 1960, accounting for the relative size of each country's economy and population, the real exchange rate and any trade barriers in place (the full methodology is detailed in the annex).
So does this mean that my family will lose £3,500 if the UK leaves?
As we've seen before, it's impossible to be certain about the exact implications of a 'Brexit' as a lot depends upon what happens in the aftermath. Even if the government's models prove accurate, the estimate suggests that the UK economy has already benefited from EU membership through clocking up £31bn-£92bn since the 1980s. It doesn't necessarily mean of course that these economic benefits couldn't continue to be enjoyed from outside the EU with the right trading agreements in place.
It's also worth bearing in mind that the figures quoted in the letter only represent one side of the ledger: the trading benefits. Critics of the EU point out that there are also attendant costs associated with EU membership which aren't factored in to these figures.
More controversial are the indirect costs which the UK might also incur through it's EU membership. The Eurosceptic think tank the Bruges Group has previously claimed that if you count the cost of complying with EU directives, the net cost of membership is £55.8bn (although this is hotly contested).
While a figure between £31bn-£92bn per year might be the best estimate we have in terms of the additional value created to the UK economy through trade as a result of EU membership, it is important that it is properly understood.
We don't know that the UK would necessarily lose out by this much if we were to withdraw, and there may also be costs associated with our continued membership which aren't factored in to this figure.
Flickr image courtesy of UggBoy//UggGirl