The former chancellor of the exchequer, Nigel Lawson, has called for Britain to leave the European Union.

Coming from a Conservative heavyweight, Margaret Thatcher’s longest-serving chancellor and a man who voted to join the European Union in 1975, it is a stunning intervention.

Lord Lawson’s argument, laid out in a Times article, is mainly economic. He says: “I strongly suspect that there would be a positive advantage to the UK in leaving the single market.”

Nick Clegg quickly responded, saying Lord Lawson was “totally wrong”. Among other things, the deputy prime minister, argued, three million jobs would be in danger if we left the European Union.

Who’s right?

“I think if we were to leave the European Union we would jeopardise up to three million jobs in this country.”
Nick Clegg, 07 May 2013

There are various possible candidates for the source of this claim, none of which really stand up Mr Clegg’s argument.

In 2000 academics at South Bank University published a study that said about 3.5 million jobs were directly or indirectly dependent on exports to EU countries.

As one of the authors, Professor Iain Begg, told us in a previous FactCheck, that doesn’t mean those jobs would be in danger if we left the EU.

We would presumably continue to sell goods to our European neighbours even if we left the club.

In 2000, the National Institute for Economic and Social Research (NIESR) came up with a similar estimate of jobs associated with exports to EU countries as, apparently, did the Department of Business, Innovation and Skills in 2006, although no one seems to be able to find the original research.

NIESR specifically ruled out mass job losses if we pulled out of the EU.

Note that both these studies are more than a decade old now, but the key question remains the same: would Britain be able to negotiate a free trade agreement with the EU after leaving?

Other countries, like Switzerland, have managed to strike trade deals with the EU without joining, but no one has ever tried it after leaving.

Would the snub be painful enough for the remaining members to make life difficult for Britain, even at the expense of their economic interests? Since no one has ever left the EU before, this is an unknown quantity.

On the other hand, Lord Lawson argues that pulling out would force British businesses out of “the warm embrace of the single market” and focus on raising exports to emerging markets, particularly in Asia.

Equally, this is speculation. But there is no proof that jobs which depend on exports to EU countries would automatically be lost in large numbers in the event of a pull-out.

“In my judgement the economic gains (of leaving the EU) would substantially outweigh the costs.”
Lord Lawson, 07 April 2013

Lord Lawson is of course entitled to his opinion, but this is little more than an opinion. There are few hard facts in the former chancellor’s Times article, and as he himself concedes, producing a credible cost/benefit analysis of EU membership is a tricky task.

Lord Lawson writes: “There would indeed be some economic cost, partly transitional and partly as a result of the loss of the modest advantages of being within the single market…the only gain that can be clearly quantified is that we would no longer pay our annual membership fee of some £8 billion.”

He’s right about the membership fee. The UK has always paid in more than it gets out and the Office for Budget Responsibility forecasts are here:

This is only one side of the equation, and many analysts claimed that Britain gets an economic dividend overall from membership.

The 2000 NIESR study mentioned above concludes that UK GDP would be 2.25 per cent lower in the long run if we were outside the EU. This figure is similar to estimates of gains calculated by other countries.

In 2010 BIS said that increased trade in Europe since the early 1980s may have raised income per head by around 6 per cent in this country.

Last year the think-tank Open Europe concluded that “membership of the EU customs union…remains a benefit to UK firms exporting to the EU”.

Other think-tanks like the Institute of Directors and Civitas have disagreed over the years, while Eurosceptic voices like the economist and former Ukip leadership candidate Professor Tim Congdon say the UK is worse off by astronomical amounts.

Like Prof Congdon, Lord Lawson thinks one of the biggest gains of an exit would be freedom from the burden of EU regulations, which he says are hurting the economy in general and the City of London in particular.

Fair enough, although the issue is not as straightforward as it seems at first.

For a start, estimates of the cost of EU regulation to UK businesses range from £8.6bn (BIS) to nearly £20bn (Open Europe).

These are the supposed costs, but they are not net costs. EU regulations are supposed to bring benefits too – improving consumer protection, freeing up markets – all of which are more difficult to calculate.

According to Open Europe’s analysis of government impact assessments, for every £1 of costs imposed by the EU, there is supposedly a £1.02 benefit.

A good pinch of scepticism is probably called for here, but it’s worth remembering that there are two sides to the story of regulation. And we don’t know how many EU laws in force in the UK would have been passed even in the absence of the EU.

Some claims about EU regulation are patently untrue. One story that gets repeated ad nauseam is that former EU Commissioner Gunter Verheugen put the annual bureaucratic cost to EU businesses at €600bn a year in a Financial Times interview in 2006.

But he never used those words and has made it clear that the newspaper misunderstood what he was saying.

The verdict

Evidence for Mr Clegg’s specific point – that millions of jobs would be at risk if we left the EU – is pretty weak.

It’s difficult to imagine British companies having to cease trading with EU countries in the event of a pull-out, although there would undoubtedly be short-term disruption, and the long-term effects are impossible to predict.

As far as Mr Lawson’s claim that the benefits will ultimately outweigh the costs, it’s worth noting that he doesn’t back this up with any detailed analysis.

The official UK government position is that “a formal cost-benefit analysis would be difficult to carry out meaningfully as some of the most important benefits cannot be quantified”.

This must be right. How do you put a price on Britain’s ability to push for EU-wide sanctions against Iran, or work out the economic benefits of increased peace and stability?

The most credible estimates of what happens if we leave the EU tend to show only a very small plus or minus, which suggests people on both sides of the debate tend to exaggerate the significance of membership on the British economy.

By Patrick Worrall

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Category: Europe, Fact, FactCheck, Fiction, UKIP
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