Should the UK stay in or leave the EU: The Costs of Membership

(I had few messages complaining about the length of this post. So I have broken it up into section and will be reloading them in the next few days.)

Should the UK leave the EU or remain? The consequence of the referendum on the 23rd of June will be felt for years and not just in the UK. In this and the related posts, I hope to give a summary of the key economic arguments around the Britain’s membership of the EU. I focus initially on the most commonly discussed economic arguments for and against leaving: The direct costs of EU membership; the impact on trade; the costs of EU regulation; immigration; and impact the EU has on our decision making.

What are the costs of the UK membership of the EU?

The leave campaign often points to the direct costs of EU membership as a reason why we should leave the EU. We are talking here specifically about the direct financial demands the EU places on the UK as a cost of its membership. The fees for being part of the EU club.

The argument from the leave campaign often goes something like this: ‘Each week we spend £350 million on EU membership. That money would be better spent on the NHS etc.’

So is this a valid argument?

To answer that we should consider whether the number is accurate, and then if that amount of money is significant.

Is the £350 million pound a week costs of membership accurate? Well, not really. The UK contribution to the EUs budget is technical £18 billion. (Or £350 million a week). But, and it’s a big but, the UK gets an instant rebate of just under £5 billion. So the actual direct cost of membership is closer to £13 billion. That is how much the UK government actually pays to the EU. Still a lot of money.

However, the EU also sends some money our way. The EU spends about £4.5 billion directly supporting the UK. The poorer regions of the UK, farmers and fisheries being examples of EU spending in Britain.

The direct costs of membership are therefore closer to £8.5 billion. That works out at £163 million a week. A lot less than the leave campaigns figure.

So the real cost if £163 million but is that a significant amount of money? It’s all about perspective. £8.5 billion sounds like a lot to me! But the UK government plans to spend £772 billion in 2016/17 that £8.5 billion is therefore just a little over 1.1% of the UK government budget. That is roughly equivalent to what the UK government spends on the Teacher’s pension scheme each year, and you don’t hear many people calling for that to be scrapped to pay for the NHS.

However, this all rather misses the point. These direct costs are about being a member of the club. They ignore any indirect costs or benefits such as more trade, global influence, immigration etc.  Membership of the EU allows us, for better or worse, to be part of all that the EU represents, free trade, free movement, European decision making etc. The membership fee is just that – the cost of entry. Before we can decide whether that £8.5 billion is worth it we must consider those wider cost and benefits.

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