(10 years, 6 months ago)
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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.
Baroness Noakes (Con)
My Lords, I congratulate the noble Lord, Lord Shipley, on securing this debate. Like him, I am looking forward to the maiden speech of the noble Lord, Lord Wrigglesworth. The noble Lord, Lord Shipley, and I can at least agree that whether there are any economic benefits from the UK’s membership of the EU is an important issue, but there, I fear, we part company. In my six minutes I will not be able to answer all the points that the noble Lord has erroneously raised today.
I have a pretty clear view. There are no net economic benefits of the UK’s membership of the EU. That is, the economic costs of membership outweigh the benefits and I suspect that this has been the case from the very first day that we joined the EU. Successive Governments—including, I regret to say, the current Government—have refused to commission a proper economic cost-benefit analysis of our relationship with the EU. The dominant pro-European bias in Whitehall, which takes its lead from the Foreign Office, can almost certainly take the blame for this, but I have never understood why the Treasury, where economic reason should reign, has gone along with it.
The Library’s helpful note for today’s debate shows the difficulties in estimating the economic outcome from EU membership. The studies quoted in that note show a big range from plus 6% to minus 5% of GDP. However, the Library does not appear to have seen Professor Tim Congdon’s 2013 estimate of the costs of membership which has just come out. He finds that the cost of the UK’s membership is an astonishing 11% of GDP. That is, we are worse off by 11% of our GDP each and every year that we remain EU members.
The largest single element, amounting to over one-half of the total, comes from the cost of regulation: the Social Chapter, financial services regulation, the renewables’ agenda and a host of other regulations. The Prime Minister is in Brussels today, again attempting to restrain these intolerable burdens. I expect this effort to fail as all others before have failed. Regulation is the Commission’s weapon of choice for preserving its hold over member states.
The second largest element of the 11% is the cost of resource misallocation, which accounts for around 30% of the total. The common agricultural policy, with its protectionism and overt subsidy of uneconomic agriculture, has often been seen as the main villain when it comes to resource misallocation, but that is now only a small part of the overall picture. Much more important are the impacts on both basic and high-technology manufacturing from tariff and non-tariff barriers. In 2005, these were estimated by Patrick Minford and others to be of the order of 3% of GDP. Nothing has significantly changed in the intervening years to moderate that estimate.
Professor Congdon is clear that a withdrawal from the EU would not lead to an immediate boost to the UK’s economy of 11% because much of the damage has already been done in terms of killing business enterprise in the UK. It could take a decade or more to recover—but at least it would start to move in the right direction.
There is a lot of scaremongering about what would happen if we left the EU, but one thing that is completely untrue is that 3 million or more jobs associated with exports to the EU would be at risk. We are a net importer from the EU and so more EU jobs depend on trade with the UK than the other way round. If the 3 million figure is correct, we are probably talking about well over 4 million European jobs resting on trade with us. Therefore it is fanciful to think that the UK would not continue to trade with the EU—it is just that we would probably do so via free trade agreements. We would certainly not need to be tied into the unsatisfactory Norwegian and Swiss arrangements which have already been referred to. Just as now, a minority of our trade would be with the EU. The proportion of our exports going to the EU has been declining for several years and, once we eliminate the Rotterdam-Antwerp effect from the statistics, is probably now below 40%. That it is getting less is a good trend. We need to diversify away from dependence on markets which promise low or no growth.
The single market may have made it easier for UK businesses to do business with Europe but that has come at a huge cost, with UK businesses concentrating far too much on markets which have performed badly compared with the rest of the world. UK businesses would now be in a far better position if they had concentrated on the higher growth markets in the world, including the USA, which remains our largest single trade partner. I congratulate the Government on their emphasis on overseas trade and encourage them to do more to ensure that, in particular, our small and medium-sized enterprises get access to the support, finance and advice that they need to grow in markets outside the EU.
The lack of an economic case for membership of the EU is one reason why I support a referendum on our membership of it. I believe there is no economic case for our membership and that, even if we were to renegotiate its terms, that would remain the case. We would be crazy to remain in membership if the economic case were not made.
Lord Watson of Invergowrie (Lab)
My Lords, I, too, congratulate the noble Lord, Lord Shipley, on initiating this important debate. I am absolutely clear that membership of the EU is very much in the best interests of the UK—in economic and social terms, and in terms of the influence that the country can bring to bear both within the EU and globally. I would be very concerned about our isolation in relation to all of those aspects should we walk out on the family that is the European Union.
The EU and our place within it really are too important to be used as a means of dealing with a little local difficulty within the Conservative Party, which is what is happening with regard to the increasingly shrill voices that the PM eventually answered with his plan for a referendum by 2017. The Prime Minister claims that it will be to decide on changes that he hopes—somewhat fancifully, I suggest—to negotiate. However, if that fails to materialise then pressure from within his party would surely mean that we would be stuck with a “Should we stay or should we go?” vote. I would characterise that as the Clash option, for those of a certain age and musical tastes. It is also an uncertain road down which to travel. Fortunately, the Prime Minister first has to clear a certain hurdle in 2015, which gives us some hope of this vital matter being taken out of his hands.
When those of us who are in favour of retaining, and indeed strengthening, our place within the EU cite the dangers inherent in disengaging, we are characterised rather disparagingly as scaremongers, as the noble Baroness, Lady Noakes, has just done. If that is the case, it is a label that sits rather uneasily on some rather significant public figures. Sir Nigel Sheinwald spent five years as ambassador to Washington and three years as permanent representative in Brussels. He has said that a Britain on the sidelines is not in anyone’s interests, and that a Britain on the sidelines of Europe—and even more, out of Europe—would not be in the US interest or in the interests of our other major European partners. The noble Lord, Lord Browne, a former boss of BP, one of the most senior non-executive appointments by the coalition, has warned that years of uncertainty about whether the UK will remain part of the EU will put off investors, leading major companies to place major job-creating projects elsewhere in Europe.
Expanding on that last point, Sir Andrew Cahn, vice-chairman of Nomura, spelled out how a major company might react when considering a billion-dollar investment in Europe. Its advisers, he said, would tell the company that they,
“do not know if the UK will be in the single market in five years’ time and have no idea what their access terms will be”,
should the UK leave, as there would be no way of knowing whether the UK would find a sustainable relationship with the EU or find itself involved in fractious exchanges. He said that those advisers would say:
“Indeed, we have no idea what Britain’s EU strategy is”.
He then said that while the CEO of that company may well still be tempted by Britain, the balance would have shifted and he or she would now,
“examine the European alternatives more closely”.
Moreover, Martin Sorrell, chief executive of the global company WPP, has said:
“At the very best it”—
a referendum—
“will be neutral in impact; at the worst, negative”,
on foreign direct investment. As the noble Lord, Lord Shipley, said, the CBI has also said that it is essential that we stay at the table to bang the drum for businesses and defend our national interest.
These are not insignificant individuals and they are not bound in any way by party political interests. They unquestionably know what they are talking about. Those of us who are in favour need to start making the positive case for remaining within the EU. We should not just counter the negatives of the doomsayers; we need to talk the case up. Indeed, there is a good, solid case to be talked up.
The noble Lord, Lord Shipley, has already quoted the CBI/YouGov survey announced last month, which demonstrated that eight out of 10 firms say that the UK must stay in the EU. Surely that level of support cannot seriously be questioned. Furthermore, significant numbers of those surveyed believed that the current relationship had a positive impact on their own businesses on issues such as the ability to buy and sell products without taxes and tariffs on trade flows in the EU markets and, indeed, outside those markets as a result of trade deals. Having common product standards across the EU was also cited as being of considerable importance. That is hardly surprising because, of course, the EU single market is the world’s largest trading bloc, worth some £10 trillion a year. It is home to 500 million consumers and is the destination of half of the UK’s exports. Surely being part of this large single market makes our entire economy more competitive. Even firms that do not export face more domestic competition, which benefits consumers. In addition, EU membership gives access, through trade agreements, to 37 other economies around the world. If we were to leave the EU, we would have to negotiate each of these deals again, but this time as a country of 60 million people rather than a continent of half a billion people.
Surely the biggest challenge facing the UK today is not Europe; it is the economy, and the priority is to deliver jobs and growth. I repeat my opening remarks that the UK’s interests clearly lie in remaining at the heart of the EU and I believe that that view should be increasingly argued at every opportunity. At the moment in Scotland, we are involved in a campaign to, we hope, keep the UK together. Those in favour of that position are campaigning under the name Better Together. I suggest that that slogan should also be used in terms of the UK’s relationship with the EU.
Lord Hannay of Chiswick (CB)
My Lords, at a time when many are expressing doubts about or are ignorant of the benefits to Britain resulting from its membership of the EU, and others are campaigning with zeal and hyperbole for us to withdraw, it obviously makes good sense for this House to debate the economic impact of our membership even if the economic arguments can never be the whole story—as, indeed, they were not when the British people voted in an “in or out” referendum in 1975. In that context, I warmly welcome the initiative by the noble Lord, Lord Shipley—and, indeed, his introductory speech—to hold this debate and pay tribute to the way in which the Liberal Democrat party has consistently promoted and supported our membership.
Debates in your Lordships’ House provide neither the time nor the appropriate occasion to marshal the whole econometric case relating to the economic impact of our membership. Those in search of that could do worse than study the Regent’s University report on the costs, benefits and options for the UK in Europe, to which the noble Lord, Lord Shipley, also referred and which was launched earlier this week by Mr Peter Sutherland. Even that sort of detailed study of the subject matter of our debate today suffers from one major weakness: it is not actually possible to calculate with precision where Britain’s economy would stand today if we had not joined the European Community in 1973, and where it would be likely to stand were we to withdraw at some point in the future. That is why, personally, I treat with some scepticism the precisely quantified predictions of both supporters and opponents of membership as to its impact. These have to be qualitative judgment calls if they are not to be easily refuted.
Clearly, one has to start with trade. We saw the removal of myriad barriers that used to impede trade between this country and the rest of Europe before we joined the customs union, and then we took the lead in shaping the single market. Imperfect though that market may be, what we now have has led to a huge expansion in mutual trade to the benefit of our economic actors, in both the goods and services sectors, and of our consumers. Outside the European Union, many of those benefits would not have occurred or would be at risk if we were to leave, as we ceased to have any control over the shaping of the regulations governing our trade—the position in which Norway, which has a smaller and much less diversified economy than ours, now finds itself.
The impact on our trade outside Europe has also been important. As a member of the largest trading bloc in the world, which negotiates as a single unit on trade policy matters, we have benefited both from the protection that that provides against discriminatory treatment by third countries and the leverage that it gives in prising open the markets of others. If noble Lords doubt that, they should talk to the Scotch Whisky Association. Those who say that we would be better placed if we promoted our exports outside the European Union need to explain why the Germans, who have been in the Union for longer than us, have fared so much better in their trade with China than we have. The Mayor of London, trailing his Eurosceptic robe through Beijing, should provide some specifics about why he thinks we would do better if we had to negotiate trade policy with the Chinese on our own. Why is it that Canada, Japan, the US and India are all negotiating freer trade deals with the European Union? That is where the benefit lies for them, and where it lies for the members of the Union.
On investment, this country has often lagged behind, and still does, in the investment league tables among developed countries. However, where would we be if we had not consistently been either first or second among the economies that attract overseas investment into Europe? How much of that investment would come here—and would come in the future, if we were unwise enough to leave—if we were not able to provide a base within the European Union and a strong voice in its councils? A lot of British jobs rely on the answers to those questions, even if they cannot be precisely quantified.
In this country, the European budget is usually regarded as a clear minus in any calculation of economic impact. That is understandable, as we are and will remain a net contributor to the budget, albeit mitigated by the substantial rebate won by Lady Thatcher. However, the programmes funded by that budget in agriculture, in regional and sectional support, and in scientific and industrial research are of real value to important parts of our economy, and could not be easily or straightforwardly replaced by national spending. Try asking any of Britain’s leading research-based universities how they would fare if European budget-funded research was not available to them, and you would get a pretty clear answer.
Almost invariably, policymakers overlook the unintended consequences of their policy decisions. Occasionally those unintended consequences are benign, but more often they are negative, often seriously so. Given the degree of integration of the British economy with those of our European partners that has resulted from 40 years of membership, I suspect that any active withdrawal would fall fair and square into that latter category. Let us hope that debates such as the current one will at least put us on our guard as to the risks we would run if we were ever so foolish as to venture down that road.
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.
Lord Wrigglesworth (LD)
My Lords, it is a great honour and a great pleasure to address your Lordships’ House for the first time. I do so with some trepidation as it has quickly become apparent that I have a great deal to learn about the workings of your Lordships’ House, not to mention its myriad nooks and crannies. However, that learning process has been made easier and more pleasant by the warmth of welcome from the staff and from all sides of your Lordships’ House, particularly from so many old friends and colleagues, and also by the excellent induction programme provided by officers of the House and by my noble friends.
I am also grateful to my two sponsors for their support and encouragement. In one sense it was my noble friend Lord Rodgers who first got me into all of this. It was in his victorious by-election campaign in my home town of Stockton-on-Tees way back in 1962 that I cut my political teeth. That process was aided and abetted later in that decade by my noble friend and former student flatmate Lord McNally, with whom I was actively engaged in student politics, among other things. It was a great honour and pleasure later in my life to represent Stockton-on-Tees in the other place. I thought it might be wise, before speaking today, to look up the maiden speech that I made nearly 40 years ago. I have to tell noble Lords that the only thing it reminded me of was my age.
The north-east and its history have been responsible for moulding my politics and my attitudes from my earliest days. From up there, Leeds and Manchester are down south. The scourge of unemployment has left an indelible scar on me and many others over the generations, not least on the first noble Earl, Lord Stockton, who, as Harold Macmillan, served as the town’s MP between 1924 and 1945. The region has been transformed in the past few decades and has many vibrant new industries, but it is profoundly depressing that, after all these years, the unemployment rate still remains the highest in the United Kingdom. I have spent most of my life trying to do something about that, serving on bodies such as the Northern Development Company, the Northern Way, the NewcastleGateshead Initiative, as chairman of the Northern CBI and latterly as deputy chairman of the advisory panel for the Government’s regional growth fund. I am sure that if it had not been for these, and the work of many other bodies such as One North East and the new LEPs, things would have been worse than they are today.
When my electorate passed a vote no confidence in me in 1987, I started a new business career in London and the north-east. After a few years of working in industrial property, a partner and I launched UK Land Estates. It has become one of the biggest investors and developers of industrial and commercial property in the north-east with more than 2,000 businesses now as tenants. I declare an interest in that company and in my own business, the Durham Group. Until last year I also had the pleasure of chairing the Port of Tyne. It supports some 10,500 jobs in the region and contributes £0.5 billion to the region’s gross value added. During my time it has grown to become the largest trust port in the United Kingdom by turnover and profit, overtaking the likes of Dover some time ago. It is one of the major trading gateways of the United Kingdom, connecting United Kingdom businesses to five continents via the major European ports.
That brings me to the subject of today’s debate, introduced so ably by my noble friend and fellow Northumbrian Lord Shipley. The north-east region is the only United Kingdom region showing a balance of trade surplus. A large proportion of that surplus is in the £7 billion of exports handled by the Port of Tyne. Most significantly, it is the fourth largest import/export terminal in Europe. The main reason for that is that virtually all the vehicles exported by Nissan from the United Kingdom are shipped through the Tyne. As my noble friend said, the Nissan plant at Sunderland is the largest and most productive vehicle-manufacturing facility in the United Kingdom. It is now producing more than half a million cars a year, 80% of which are exported. It directly employs 6,400 people plus many more in the supply chain. Since it came to the United Kingdom in 1986 it has invested £3.5 billion in the plant and is investing more today. Its contribution to the north-east and to the national economy is massive. It is not surprising, therefore, that Nissan has said that Britain’s membership of the European Union is very important to it and that it wants to see the United Kingdom remain part of the single market, with its uniform standards and tariffs. I believe that its views very much reflect business sentiment across the United Kingdom. The most recent Chambers of Commerce survey showed that most businesses think that withdrawal from the EU would be bad for Britain, and CBI surveys reflect the same views.
All my business experience tells me that confidence is the most important ingredient in any investment or spending decision. I have worked in two banks, served on the boards of many companies—large, small, public, private and co-op—and I sometimes think that the political community does not understand the vital importance of confidence in business decisions. Nothing undermines confidence more than uncertainty, and there is uncertainty at the moment over our country’s future in the EU. If that uncertainty increases, confidence will be damaged, but the consequences will not be immediate plant closures; instead, decisions will be taken to build the next model in Spain and not in Swindon, Solihull, Halewood or Sunderland. That will lead to the plants gradually declining and the jobs decreasing; and who will suffer? The national economy, of course. But most directly it will be those 6,400 people at Nissan, and others like them. Even more tragically, it will be those without jobs, whose hopes will be dashed and whose families will continue to suffer. Talk of referenda and other issues in Westminster is all very well and may be unavoidable, but I hope that we will never forget the potential consequences for many vulnerable people.
Lord Selsdon (Con)
My Lords, I have the great pleasure and privilege to follow the noble Lord, Lord Wrigglesworth, and to thank him for his most interesting maiden speech. He would not know, and I had forgotten myself, that I began my own industrial activity in the north-east. There was the least business there; as a representative, you got commission in your sales, and there were no commissions to be had in the north-east, until we managed to win a contract at Blyth colliery, which was my introduction to the coal mining industry.
I have listened to the noble Lord, Lord Wrigglesworth, before. It is strange that those who come from the northern parts of the country always speak slightly more seriously, but there is something behind the words they say that pricks. I realised what it is today when the noble Baroness, Lady Northover, spoke, and referred to the balance of power within the House and the different departments. I suddenly concluded that it is probable by my calculations that the noble Lord, Lord Wrigglesworth, now holds the balance of power. I refer him to my great-grandfather, who served in the Lloyd George coalition. Coalitions are not necessarily a good idea, because you have that awful phrase coagulation.
Then you come to the referendums, and things like that. I got a phone call, because I found that I had to give up being in industry because I had been summoned to your Lordships’ House after my father died. I did not know that I did not have to come; I had no writ of summons—I had no knowledge of any of this. I had to change my job. A friend of my grandfather said, “You may not be bright, but you ought to be brighter. Why don’t you do some research in a research company?” I joined it, and one of our clients was JETRO, the Japan External Trade Organisation, which we visited regularly and took to London to encourage it to invest in the United Kingdom. We produced a very good report, but we forgot that the Japanese drove on the same side as we did and that therefore it was much cheaper for them to set up a manufacturer here.
One of the main points that I wish to make today is to ask why are going to have a referendum. I was at one time treasurer of the Conservative Group on Europe, and had a lot of problems trying to raise money for the referendum campaign. I remind your Lordships of some of the background to this. On 28 October 1971, there were votes in the Lords and Commons that,
“this House approves Her Majesty’s Government’s decision of principle to join the European Communities on the basis of the arrangements which have been negotiated”.
In the Lords, there were 88.6% in favour and in the Commons 59.3%—an overwhelming majority. That led on to 1975, when the new Labour Government held a referendum and we found once more to our surprise that in response to the question,
“Do you think that the United Kingdom should stay in the European Community (the Common Market)?”,
64.5% were in favour. So why are we now going to have another referendum? Is it necessary, or is it a matter of internal politics? I congratulate the noble Lord, Lord Wrigglesworth, on his speech. If he has the balance of power, we know which way things will go.
My noble friend Lady Noakes and I agree on so many things, but not necessarily on the things she says. Trade has been my lifeblood and fate. The European Union is our biggest trading partner by far, and it also represents our biggest deficit; with the exception of Ireland, with which we have a big surplus, we have a deficit with practically all the EU countries. Our biggest trading partner is still, just, the United States, followed by Germany. But it is not so much the EU that counts; it is the international development and activity that follows on a global basis.
We have managed to attract, in recent years, a sizeable volume of foreign investment in the United Kingdom, not just in manufacturing or in service industries but in pure investment. Our balance of payments deficit in general, without invisibles, would be very significant indeed. On all areas, we have a manufacturing deficit—but the growth areas, surprisingly enough, are those that used to be those of our Commonwealth partners, where the added value is created, in agriculture, minerals or semi-manufactures. At the same time, we have encouraged successful entrepreneurs from those countries to come and invest in the United Kingdom. It will not surprise your Lordships to learn that much of the investment that has come into the United Kingdom in recent years has come from what we would once have called the third world. We can look at the success of India and the development of China and south-east Asia, and even some of the African countries that are producing growth. Our future does not lie within the EU, but it is those markets that are the closest to us and those that foreign investment companies and manufacturers are looking to serve. When they invest, they are looking to invest not in the limited United Kingdom market but in the markets with which the United Kingdom has the greatest relationships.
It is sometimes a good idea to sit and think. I do not propose that we should have a referendum; it is a complete waste of time and money. If you were treasurer of the Conservative Group on Europe and you suddenly found one day that you had a bill for £323,000 and no money, because you could not raise any, you would feel how sensitive it is. I do not know how strong a campaign will be waged, but I wish that the Government would think again and that the noble Lord, Lord Wrigglesworth, with his balance of power, will make sure that we do not have a referendum. I thank him again sincerely for his contribution. I know that we will hear much from him in future.
Baroness Donaghy (Lab)
My Lords, I congratulate the noble Lord, Lord Shipley, on initiating this debate, and the noble Lord, Lord Wrigglesworth, on his maiden speech. He may not remember that we worked together at Hamilton House in the late 1960s, and it is very good to have the opportunity to work with him again now. I am also glad that we have more than three minutes to speak on this debate; noble Lords who took part in the debate on the Prime Minister’s speech on Europe will remember that we were all rather rushed.
Simply putting a case for the benefits of UK membership of the European Union will not convince many people. It is important to recognise the levers that we have and those that we face, and not to argue this in a vacuum. For instance, we will never have a mass-circulation press that loves Europe. It is a fact and—in the words of the noble Lord, Lord Adebowale, on Tuesday—we should “get over it”. The media are more balanced about Europe, but even that leads to hysterical reactions from some newspapers about pro-European bias in the media. We have also to accept that the UK will never love Europe. Except for Guernsey and Jersey, with huge consequences for those islands, we have not had foreign enemy troops tramping across our borders; we are an island, and proud of it. We can never appreciate the strong emotional element that applies to most of continental Europe about the need to bond on economic and social alliances.
That emotional commitment was palpable when I was a member of the European TUC for nearly 10 years. You have only to visit Jersey or Guernsey on Liberation Day—in Liberation Square, for example—to witness the effect that invasion has on people. We have to accept that our hearts will never be in the EU, and that we can live with that. However, if our hearts are not there, our heads are in Europe and I am sure that they will continue to be.
What are the levers which will effect this? One is the number of countries desperate for entry to the club, which will convince people that there must be perks. Another is the support for social Europe from those seeking to protect workers’ rights, which will win arguments. However, it is the support of significant sections of business which will win the day. Others have already mentioned last month’s CBI survey, in connection with YouGov, which indicated that 78% of companies—both small and large—favour staying in the EU. I will not elaborate on that except to say that the majority of companies believe the EU has a positive impact on their businesses without prohibitive taxes or tariffs, recruiting staff from across the EU and participating in EU supply chains. CBI companies were against attempts to create similar employment laws across the EU, working hours being the least popular. This is hardly surprising, since the UK has a higher proportion of overtime worked than most other countries, with employees working longer hours and all the social consequences we know about.
Businesses believe that the UK has influence on EU policies that affect them: 72% felt there was significant or some influence and 27% felt there was not very much or no influence. So support is not enthusiastic but it is absolutely solid. As I have been involved in negotiations most of my life, I realise that you cannot walk away from difficult problems and you cannot opt out when the going gets tough. As I have said before, the TUC and CBI meet as social partners at European level. They know about tackling difficult issues and, for a while, when some of the employment-related directives were being introduced belatedly into the UK, it might have looked as if the unions were making progress and the employers were not. Since then, the boot has been on the other foot. They will have differences on regulation of the market and workers’ rights but no one can afford to throw their teddy bear down just because a problem is difficult.
We can do some things now, without waiting for a referendum or fresh negotiations; I thank Richard Corbett for some of this information. First, there is already a requirement for EU proposals to go to national parliaments first, with eight weeks’ notice before they are dealt with in Brussels. We should implement this, so that Ministers appear before Parliament, or the specialist parliamentary committee, to explain the issues. Secondly, there is already a procedure to check on subsidiarity, to prevent the EU straying beyond its remit. National parliaments can object to European Commission proposals. Thirdly, the Government have a duty to maximise their impact in the European Parliament and are not doing so. Tory MEPs were trafficked onto the goonish fringes and this was an unworthy move.
We are all calling for more transparency in the EU, yet our own Government have failed to strengthen Commons scrutiny of Ministers and failed to publicise their proposals to safeguard the City of London. I could have mentioned the European arrest warrant or cross-border tax evasion, but there is insufficient time. We should not forget that tax fraud, tax evasion and tax avoidance are of such magnitude as to have an effect on government deficits. Acknowledging that employment protections are unpopular with employers, we cannot have a single market where workers’ rights are diminished in a race to the bottom. Unfairness leads to distrust in institutions and, as I have said before, employment protections have been in place for long enough to have become part of the workplace.
Finally, some have accused the Government of being asleep at the wheel on European issues and completely concentrating on the referendum. They are not, in fact, in danger of being asleep at the wheel but of jumping into the boot and closing the lid.
Lord Maclennan of Rogart (LD)
I begin by congratulating my noble friend Lord Wrigglesworth, who has been a colleague and a friend for many years. He has brought to the debate personal experience of great weight and knowledge from industry and from his part of the country where he has striven so hard to make that region more prosperous. I would also like to thank my noble friend Lord Shipley for procuring this important debate which will put on record opinions and facts which will be of great importance if the country is to make a balanced decision about the future of our relationship with the European Union.
Some of the remarks made in opposition to our membership, particularly by the noble Baroness, Lady Noakes, overlooked some facts that others have raised. In particular, the noble Baroness spoke a great deal about the burden of regulation. I recognise that it is difficult to measure the impact of this, but the OECD has produced tables—a little out of date—which show that the burden of regulation in the product market of selected countries puts the United Kingdom at the top of the list of those which are least restrictive. It was even ahead of the United States of America and way ahead of Australia, New Zealand, Poland and Greece.
Our access to trade is not belittled by our membership of the European Union, as I think the noble Baroness implied. The focus of our trade is, rightly, with the 500 million consumers—rich consumers, by and large —in the European Union. This is a highly competitive market which also improves the quality of our production. Access to other countries is greatly assisted by the work of the European Union in opening trade to no fewer than 37 economies around the world, including South Korea, Singapore, South Africa and Mexico. The recent green trade deal with Canada is likely to see British exports increase by an estimated 29%.
Our country could not expect to have such a high rating in attracting inward investment if we were not members of the European Union. I have seen figures which suggest that we are the third largest recipient of direct foreign investment after China and the United States of America and that the stock of inward investment is equal to half the United Kingdom’s GDP.
I have seen in a report from TheCityUK that 60% of decision-makers specifically cited access to EU markets as a core reason for choosing the United Kingdom over other financial centres. Japan in particular—already mentioned by a number of contributors to this debate—has invested huge amounts of money in this country and created 130,000 jobs. The Japanese Government have been very outspoken and clear about why they are doing this, and we would withdraw from Europe at our peril.
I have to say that the alternatives that have been alluded to, particularly in relation to Norway and Switzerland, would certainly not be attractive in that we would be without influence over decision-making and would have to observe regulations and rules. Switzerland does not even have direct access to the financial markets. The arguments for our remaining in the European Union for economic reasons are overwhelming and I hope that this message gets across to the wider electorate. The figures mentioned by the noble Baroness, Lady Donaghy, about the CBI’s views are telling. At the Glasgow conference the Institute of Directors produced figures showing that 80% of its members were also of the opinion that we should remain within the European Union. That did not mean, however, that there should not be changes and, no doubt, progressive Governments will seek change.
Lord Giddens (Lab)
My Lords, I join other noble Lords in congratulating the noble Lord, Lord Shipley, on having initiated this debate. I especially add my congratulations to the noble Lord, Lord Wrigglesworth, on his maiden speech, which was witty, meaty and suave. By “suave” I do not mean to criticise; I mean that his speech was very assured. When I gave my maiden speech, I was trembling all over and could hardly hold my papers. The noble Lord is a welcome addition to this House.
As this debate has shown, all debates in this country about the European Union now take place in the shadow of a future referendum on Britain’s membership. To me it is of the utmost importance that there should be a full and thorough public debate on this issue and I am worried that this might not happen—that is the burden of most of what I have to say. There is a real danger that Britain could sleepwalk towards exit, with many of the public simply being unaware of the seriousness and complexity of the issues involved.
I am a committed pro-European—indeed, something of a passionate one. My noble friend seemed to indicate that we do not exist. We do exist. Many people like me feel an emotional, not just pragmatic, commitment to the European Union and what it has accomplished for the continent over the past several decades. However, I am not one of those who hold that it would be economic suicide for Britain to quit the Union. There are scenarios in which the country could survive quite well, perhaps even prosper, although its influence in the wider world would be sharply and irretrievably reduced.
Leaving the EU would not be the marginal issue that many citizens appear to think. It would be the most consequential decision that the country had taken for 60 years and involve a protracted and wrenching adjustment. To me, leaving the EU would mean the reinvention of the country. The idea that the UK could simply leave the EU and become the same as it was in 1950, going back to having some kind of autonomy in the wider world, is simply ridiculous. An enormous process of reinvention of identity would have to occur. If it did, the country could in principle be successful, but such a course of action should not be contemplated without intensive and, above all, informed public discussion. I hope that this discussion in your Lordships’ House will be the first of many that will involve the wider citizenry, not just a proportion of people in this establishment.
The immediate economic problems to which Britain would have to respond if it left are easy to state but, as my noble friend Lord Desai said, not as easy to quantify as many on either side of the debate seem to think. I hesitate to disagree with a colleague from the LSE, especially an economist who admits to the fallibility of economics—that is something to behold—but I spent the past six months of my life studying the economic statistics of the EU and I know that some of the assertions that are made are robust and some are not. For example, we know that the single market has made a fundamental contribution to the overall wealth—the GDP—of the EU, including this country. The calculation of a 2.2% net addition as a result of the single market before the 2008 crisis is robust. What are not so robust are the employment statistics. We do not really know. Between 2 million and 3 million jobs here depend on the EU, but the counterfactuals are so difficult to state that no one can simply assert that bluntly. It has been demonstrated, however, that the financial services industry would inevitably suffer if the UK left the EU. One can forget the idea that Britain could become a sort of offshore banking centre like Singapore. London could perhaps do that if it seceded from the rest of the UK, but there is no chance of that happening. There is no doubt that leaving the EU would have a serious impact on the financial services industry.
I wish to make the more subtle argument that most of the important economic losses would stem from factors that are not wholly economic. Here I would reverse the conventional wisdom about Britain losing sovereignty as a result of its membership of the EU. It can be demonstrated that every member of the EU gains sovereignty from being a member and does so when acting alone—not just as a member. This can be done easily by reference to the proposal mentioned by the noble Lord, Lord Shipley, for the EU-US free trade agreement. That will be the single most important source of wealth and job generation for both sides that has ever been established. Could anyone think that Britain outside the EU, feebly knocking on the door and timidly asking to be let in, represents more sovereignty than if we were an active participant in the European Union when it negotiates such an agreement? That would be ridiculous.
I conclude with questions for the Minister that lie behind everything that I have been saying and to which I should like a response. What concretely will the Government do to ensure that the open and informed debate that the country needs will actually take place? What concrete measures will they take to make sure that citizens are directly involved?
Lord Stoddart of Swindon (Ind Lab)
My Lords, I join others in congratulating the noble Lord, Lord Shipley, on introducing this debate, and I must congratulate the noble Lord, Lord Wrigglesworth, on his excellent and telling maiden speech. In another place, when we were both members of the Labour Party, he and I used to spar about this issue in the Tea Room and elsewhere, but time is short, so I must carry on with the debate.
As some noble Lords will know, I never wanted to join the Common Market and I believe now that it would benefit this country if we left the European Union. Noble Lords will recall that when Harold Macmillan recommended that we join the then Common Market, or the EEC, he said that one of the major reasons was that Britain deserved to have the chill wind of competition. We have certainly had that. Our manufacturing industry, which in 1973 represented 32% of GDP, now represents only 10% of GDP.
The noble Lord, Lord Shipley, referred to a number of firms, the CBI and other organisations that desire at all costs to remain in the European Union and warn of the problems, difficulties and injury that will occur to this country if we left. When I was a Member for Swindon and fighting the referendum, Lord Stokes—he was then Sir Donald Stokes, the chairman of BLMC—wrote to all my constituents and said that if we left the Common Market they would all lose their jobs and the car industry in this country would be destroyed. We decided to remain in and, of course, the car industry was destroyed by our remaining in rather than the reverse. I might add that many of the people who have been quoted were the very people who recommended that we should join the euro. It is fortunate that we did not take their advice then. Perhaps we should not take their advice now.
I must quote some figures. We have heard a lot about the benefits of being a member of the EU, so let us now hear about some of the disbenefits. For a start, we pay a contribution of between £10 billion and £12 billion for the purpose of being a member of the EU. That represents £55 million per day and translates into £150 per person every year. In the case of a family, it is £500 per year per family. We are arguing about £100 on energy bills, yet every year each family pays £500 to belong to the European Union.
We have heard a lot about the trade figures, so let us look at some of them. In 2007, our exports to the European Union were £318 billion. In 2012, they were £278 billion. That means that, instead of becoming a better market for us, Europe is becoming a worse one. In 2007, exports to the rest of the world were £370 billion and in 2012 they were £394 billion, so our trade with Europe is declining but our trade with the rest of the world is going up. I think that we should take note of that. Furthermore, the current adverse balance of trade is going up—shooting up, in fact. In 2007, the deficit was £40.9 billion; in 2012 it was an enormous £83.2 million. So there are figures on the other side, of which we should take notice. The EU is a declining market.
Unfortunately, I do not have time to deal with more aspects, but I want to refer to the democratic deficit. Of course, I would like to see this reduced to nil and for us to get our own democracy and central government back. Unfortunately, that is not easy. As the President of the Commission, José Manuel Barroso, said, David Cameron’s attempt to renegotiate Britain’s relationship with the EU was doomed before it began. That really says everything about the centralised nature—almost dictatorship—of the EU.
Lord Davies of Stamford (Lab)
My Lords, I congratulate the noble Lord, Lord Wrigglesworth, on a very confident and able maiden speech. It is great to have someone of that experience and background in our House. We look forward to future contributions. I congratulate also the noble Lord, Lord Shipley, on managing to get time for us to debate this matter today—a lot of time, actually six minutes per person; a good deal better than we have ever had before.
It is almost unimaginable to me that any sane or responsible person would want to take his or her country on economic grounds out of the world’s largest trading bloc; a trading bloc which other countries are queuing up to join, which no one has ever wanted to leave and with which those who cannot join for geographical reasons are desperate to sign a free trade agreement—which is very much a second or third best. But so it is. We have people who are entirely sane and responsible—for example, the noble Lord, Lord Stoddart, and the noble Baroness, Lady Noakes—who have been taking that line today.
I believe it is sometimes useful for these debates to be responsive and reactive so I am going to spend all of my time addressing some of the points that they have made. First, the point of the noble Lord, Lord Stoddart, has already been answered. If this country were to remain as part of the single market in any form, it would, of course, continue to have to make budgetary contributions, so there would be no saving. The suggestion of the noble Lord, Lord Stoddart, that we do not have access to the single market, is a very dramatic suggestion and I think one that he might want to think through.
It is possible to talk all day about how many of the 3 million to 4 million jobs in this country which depend on the single market we would lose if we immediately left the single market. Obviously, there would be some and the number would tend to accumulate over time. We will never agree on what that number might be, but it would be a number, certainly. As the noble Lord, Lord Shipley, said, an even greater threat is the future loss of investment, which we would have if we stayed in the single market, which we would not have if we left the European Union. I think that would be quite dramatic. It would be dramatic in manufacturing. It is difficult to see how we would get any manufacturing at all, where manufacturing is generally producing for more than 50 million to 60 million people. People will want to put in a new facility at great expense only where they can address the single market. They would certainly not come here.
However, the loss is not merely to manufacturing. I want to read to the House briefly from the evidence given by JP Morgan and Goldman Sachs, the two biggest investment banks in the world, to the Parliamentary Commission on Banking Standards on this subject. They are quoted in the excellent note we have had from the Library as saying:
“We believe that a key risk to London’s retaining its status as a financial hub is an exit by the UK from the European Union. In common with financial institutions across the City our ability to provide services to clients and engage in investment activities throughout Europe is dependent on the passport that London-based firms enjoy to operate on a cross-border basis within the Union. If the UK leaves, it is likely that the passport will no longer be available, thereby forcing firms that wish to access EU markets to move their operations to within those markets”.
It could not have been put more clearly. It is also quite clear that what they are talking about is being a full member of the single market—a full member of the regulatory system or structure. That is what they want, otherwise business will move across the water to the continent. If we ignore such a warning, I think that we are being anything but sane or responsible.
How is it that intelligent people such as the noble Baroness, Lady Noakes, come to a different view? She is not one of those people whom one can dismiss as being driven by some sort of primitive emotion—the kind of people who get a kick out of waving flags and telling foreigners to go to hell. There are such people in our country but the noble Baroness is undoubtedly not one of them, so I shall try to address some of the points that she raised.
She made a number of very interesting points. Like many Eurosceptics, she is becoming a little more sophisticated. They are saying, “Maybe we wouldn’t go for a deal like Switzerland or Norway because clearly that would involve us becoming”—my phrase, not theirs—“a kind of satrapy of Brussels. We really would be ruled by Brussels then”. That is the rhetoric you get from the Daily Mail today, but that would be the reality because we would have no role whatever in the decision-making structure and no chance of making our views known and influencing events, yet we would have to implement the legislation that came from Brussels. That would not be an intelligent thing to do, and the noble Baroness, Lady Noakes, thinks that she could do better.
Indeed, a Eurosceptic friend of mine—a former Conservative Minister with whom I have been discussing Europe for 20 years—said to me the other day, “We could do better than Switzerland and Norway”. I asked how and he said something very similar to what the noble Baroness, Lady Noakes, has said. He replied, “We’ve got great power because we have a balance of payments deficit with the European continent—with the other members of the EU—so we could really put the pressure on them and cut off their exports to the UK”. I said, “So what you are actually planning is to declare war not merely on the EU but on the WTO—on the international trading system”. He did not really have an answer to that. I do not think that it is a practical possibility. It is extraordinary to think that we would leave the EU with all the risks involved to go into some uncertain future.
There is a fundamental error in what the noble Baroness, Lady Noakes, said about the rest of the world. She seemed to think that there is a trade-off in our trade with the rest of the world and the single market in the sense that, if you have more of the one, you have less of the other. In fact, there is a negative trade-off: if you have more of the one, you have more of the other. The whole point of the single market is that with a greater specialisation within that market, the greater competitiveness that emerges as a result of that specialisation, the economies of scale and the longer production runs, you are more competitive outside the EU. Therefore, far from the EU being an incubus for us in developing non-EU markets, our presence in it is actually a major gain. That is a very important point which should not be forgotten.
I have very little time left in which to speak but I want to say that it seems that we have a difficult and very risky decision to take. It would be extraordinarily irresponsible for us, as a country, to make a decision which could have enormous costs without being absolutely clear about what we were going forward into. Some of the things that have been said today about the Tim Congdon and Patrick Minford studies simply do not stand up to scrutiny. It is quite clear that we would continue to have some regulatory costs and that is not being taken into account.
I am getting signals from the Front Bench and so I shall wind up. Once again, I pay tribute to the noble Lord, Lord Shipley, for giving us the opportunity to have this debate.
Lord Watson of Richmond (LD)
My Lords, first, I join in thanking my noble friend Lord Shipley for introducing this debate, and I add my compliments on the maiden speech made by my noble friend Lord Wrigglesworth—an old friend. Whether he will actually achieve the holding of the balance of power in this House is open for later debate, but we certainly welcome the contribution that he is undoubtedly going to make. He will bring a sharpness in the sense of realism. He has, I believe, been described as “suave”. I do not know about that but he will make a difference, which is excellent.
I should declare two interests which are relevant to the subject. We have already heard about the impact of EU membership on the funding of university research in the United Kingdom. As High Steward of Cambridge University, I should like to say that the real dependence that Cambridge University, which in many ways is the leading science university in the United Kingdom, has on EU funding is immensely significant and would of course be threatened by an EU withdrawal. Secondly, I chair a number of companies, all of which are deeply dependent on trade within the European Union.
There are many individuals, companies and, increasingly, countries whose good will and decisions are going to be vital to Britain’s future and which have warned us of the consequences of withdrawal. That list is perhaps in some danger of becoming a kind of litany, recited by pro-Europeans such as myself; nevertheless, the list stands and it grows: the US State Department, the German Chancellor, Nissan cars and Hitachi. Earlier this month, a survey showed that one-third of British manufacturers said that they would be less likely to invest if we quit, and a further third said that they would have to make significant changes to their business model were we to do so.
However, in this debate on the economic impact of membership, I should like to focus not on that lengthening list and the current benefits which we might jeopardise but on the vast and new opportunities that we would forgo in world trade; namely—and it has been raised already—the momentum of the EU’s bilateral trade and investment agreements, signed, about to be signed and now being negotiated. Taken together, they represent an extraordinary new landscape of trade, and if we excluded ourselves, we would mar and impoverish our prospects as a trading nation for decades and maybe centuries to come.
The first of these new deals was with South Korea in July 2011. As tariffs have fallen with Korea, exports have soared, giving the EU, for the first time in 15 years, a trade surplus with Korea. On the 18th of this month came the comprehensive economic and trade agreement with Canada. It is actually the EU’s first free-trade agreement with a G8 country and it has removed 99% of tariffs. Let us remind ourselves that the EU is Canada’s largest trading partner after the United States.
Under negotiation is the agreement with Japan—the second biggest Asian trading partner of the EU—which could boost EU exports by a third, creating, it is calculated, up to 400,000 new jobs in Europe. The current round of talks this week in Brussels involves powerful EU pressure on Japanese non-tariff barriers, which is probably the key with Japan. Talks with India are under way, although at a much earlier stage, and then of course there is the really big one: the Transatlantic Trade and Investment Partnership, which was born of the EU-US high-level working group on jobs and growth, involving a great many top people from British multinational corporations. It could add £119 billion to the GDP of the EU. It is not going to be an easy thing to negotiate but it is an imperative for both sides. Let us remember: we focus a lot on Asia but the United States and the EU together represent 50% of global GDP and one-third of all world trade. If we withdrew from the EU, this would place us on the periphery of this new international trade landscape—vitally effective but marginalised. It would be an own goal of monumental consequences.
Finally, the balance that we should be looking at is not just an arithmetic calculation of present benefits and penalties. Underpinning all this is a recognition of change. I should like to end by saying that six years ago when I stepped down as the chairman of the British-German bilateral Königswinter conference, a member of the German Parliament got up and attacked Britain’s attitude towards the EU, saying that we lacked vision and commitment. I said in reply, “Look, we started this European journey from very different places. We started it as the bankrupt victor; you started it as a country which had been disgraced, divided and occupied. We began at a different place”. What matters is where we are now, and the place where we are now is a recognition of interdependence in a globalised economy. We must not jeopardise that.
Lord Haskel (Lab)
My Lords, last week I had the privilege of representing your Lordships’ European Sub-Committee B at the 15th European interplanetary space conference in Brussels. I was delighted to attend, as the space industry is one of the eight growth sectors identified by the Government for special support. Indeed, our contribution to the European Space Agency has recently been increased by 25%. How right we are.
The priority of the European Space Agency is not necessarily to encourage space travel to Mars. It is to encourage growth here on earth. This has been done by helping to create new marketplaces, more particularly in Europe, using the satellites and equipment in space —markets that provide improved services to EU citizens through new communications platforms for the internet, TV, telephone and radio; that help agriculture and fishing with better weather forecasting and better understanding of climate change; and that use observations from space in cities and the countryside for better management of road, rail and air.
You must be asking why I am telling you this. I put it to your Lordships that our membership of the European Space Agency is a microcosm—a miniature—of our membership of the European Union. The obvious economic benefits gained from our membership of the ESA reflect the economic benefits gained from our membership of the European Union. It illustrates the arguments put by the noble Lord, Lord Shipley, whom I congratulate on moving this debate. It also illustrates how wrong are the arguments of the noble Baroness, Lady Noakes, and the noble Lord, Lord Stoddart.
The European Union is not a new institution. Times and circumstances change and so do institutions if they are to remain fit for purpose, creative and beneficial. You do not achieve this change by walking away, or even threatening to walk away. That is how you paint yourself into a corner. Obviously it is now dawning on the Government that that is exactly what they are doing. You change by building on what has gone before. You complete the single market by reviewing the rules, bringing them up to date and making them smarter, not by walking away.
As many noble Lords have told us, including the noble Lord, Lord Wrigglesworth, in his maiden speech, this is not only the view of our large foreign investors in car-making, technology and nuclear industries, it is also the view of 85% of the EEF members, who said that they would vote to remain in the European Union if there were a referendum now. This is because people in business know that it takes months and years of hard work to build up the trust, confidence, connections and knowledge to sell and trade successfully in overseas markets. EEF members do not want to see their years of effort in Europe wasted by the incompetent and uncaring short-termism of some members of this Government. This is why, after listening to his members, the chief executive warned us not to gamble on our future in Europe. “The stakes are enormous”, he said,
“it is naive to think that we can simply pull up the drawbridge and carry on as normal”,
and do the business elsewhere. My noble friend Lord Giddens was also concerned about this.
China has been mentioned as an alternative. The noble Lord, Lord Hannay, asked why Germany has been so successful there. The fact is that their Chancellor has been there some 25 times since the open-door policy was announced in 1978, to emphasise their strengths and commitment. This is not as an alternative to Europe, but in addition to it—and so it should be for us.
It seems to me that, instead of surrendering our capability and strengths in the space industry for the sake of appeasing Eurosceptics, we too must take advantage of our strengths. Our companies, our people and our universities are full of new ideas and technologies for the space industry, as a result of our investment in the European Space Agency. We benefit from our participation and our membership fee. This is a model that works. I put it to the Minister that the same applies to our membership of the single market and the EU.
Lord Stevens of Ludgate (Con Ind)
My Lords, we are here today, thanks to the noble Lord, Lord Shipley, to debate the economic impact of being a member of the EU. I also congratulate the noble Lord, Lord Wrigglesworth, on an excellent maiden speech. In addition, contrary to some comments that have been made, I agree with practically everything that the noble Baroness, Lady Noakes, said. She summed the situation up brilliantly, which is why my speech will be somewhat shorter than usual.
No one could doubt that the impact has been of major importance. The European treaties are the UK’s supreme constitution, over and above our laws, as per the European Communities Act 1972. The UK’s cash contribution to the EU is second only to that of Germany. Since 1973, the UK has paid to the EU some £370 billion and received in return £180 billion—this to an organisation whose own auditors say that 90% of the EU’s entire budget has been materially affected in some way by fraud or unaccounted spending. If sending to the EU some £12 billion net in 2013 is perhaps not of major impact in relation to the total UK budget, the economic cost of regulation is. The European Commission itself puts the EU costs of regulation at £600 billion a year for all the members. Business for Britain, supported by more than 500 business leaders, has told us that since the 2010 general election, Brussels has handed down 3,600 new pieces of regulation or directives—some 13 million words—ranging from banning the union jack on packs of meat to changing the generic name of the tomato.
Let us pause for a moment and look at Open Europe’s report on EU regulations that came out last Monday. It says that the top 100 EU regulations cost the UK economy some £27 billion a year and that the costs of regulation outweigh the benefits in impact assessments of a quarter of the 100 cases. Of course, as has been stated, were the UK to leave the EU, some of these regulations would need to be retained.
The EU was sold to the British public as a free trade area. It has indeed brought trade barriers down, as has the WTO. Some 40% of our trade is with the EU—a declining proportion, partly because EU trade has slowed down since the 2008 collapse, but also because the share of the EU in global trade and outputs has been declining and will continue to do so, if for no other reason than the demographic problems of its ageing and declining population.
As has been stated, we have a trade deficit with the EU of more than £80 billion a year, larger than our surplus with the rest of the world. It needs us more than we need it. As far as economic influence is concerned, the euro members can outvote us in any matter not requiring a unanimous vote. As we all know, EU regulations apply to 100% of the UK economy, but our trade with the EU is less than 10% of the UK economy. Our trade with the rest of the world, in spite of these regulations, is growing much more rapidly than with the EU. How much more rapidly would it grow without EU regulation?
I have not commented on unlimited immigration, handouts to illegal immigrants, inflated agricultural prices and many other matters, because time inhibits it.
The original subject of this debate was “economic benefit”. That has changed to “economic impact”. It seems almost to have developed into a debate over “in” or “out”. We heard in Oral Questions today that the majority of the British public support some control of the press. I declare an interest as a former chairman of Express Newspapers. On this basis, the majority want a referendum on the UK’s membership of the EU: in or out. Is it not time that we had one?
Lord Soley (Lab)
My Lords, I welcome the noble Lord, Lord Wrigglesworth, whom I well remember as a Member of Parliament and his struggle as to whether he should stay in the Labour Party or leave. He chose to leave and I chose to stay, although, like a number of us at that time, we toyed with the idea of murder or suicide instead. However, we got through that phase, which I think was beneficial to everyone.
I particularly welcome the full, considered and convincing introduction to this debate made by the noble Lord, Lord Shipley. I shall not repeat all the arguments he made along economic lines but I should like to emphasise one that was picked up by the noble Lords, Lord Hannay and Lord Watson of Richmond, and my noble friend Lord Haskel. The amount of expenditure on science and technology beneficially made to us through the European Union is enormous, particularly in the university sector. We benefit far more than any other country in the European Union from that expenditure.
Science, research and development will drive growth. We will not achieve growth with a low-income economy. We cannot go down that road. If you are to maintain that level of research and development expenditure, and come out of the European Union, you have to answer the question that I think was asked by the noble Lord, Lord Stoddart, and the noble Baroness, Lady Noakes: where does that money come from? It will not be replaced by the private sector or the public sector in Britain. Inevitably, that would impact on us. My noble friend Lord Haskel gave the classic example of the space industry. Although I have said it on a number of occasions in the House, it is not well known that Britain still has the second-largest and second most-advanced aerospace industry in the world. There is hardly a satellite going around this planet that does not have British instruments on it. Often, they are of major importance. A lot of that expenditure on research and development has come from the money that we have received from the European Union. People have a responsibility to answer that point.
I also want to put this in a political context. I am very conscious that when people making economic decisions do not take into account the political circumstances, they often make mistakes. Politicians who make decisions without taking into account the economic world in which they operate can make very big mistakes. If you look back on Britain’s relationship with the evolving European Union, many people would say that we made very big mistakes in our political calculations. You can go back to the famous headline in the Daily Mail around 1908—I cannot remember exactly when—which said, “Fog in the Channel: Europe isolated”, or perhaps it was “Fog in the Channel: Continent isolated”. Either way, it said everything about a mindset.
I often ask the question: Why are the British so diffident about Europe? One of the reasons is that we are an island nation. Another reason, which was alluded to a few moments ago, is that we have never been defeated and occupied. We are almost alone among the European states and certainly alone among the major states. We have always been the victor. If you ask continental Europeans about the importance of the European Union, often they will put first that it has maintained the peace. The majority of British people do not see it in that way; it does not have the same weight here. That is a very important factor in people’s attitudes to Europe.
In the context of the balance between politics and economics, having had a view of ourselves as being separate and having won the two world wars, in the period after the Second World War we looked at where our market was going to be while the European Union was developing as the European Economic Community. Initially, we had the Commonwealth Party, which argued for the Commonwealth as the market, for which I had great support at the time. As an internationalist in that sense, I rather liked the idea. Having failed on that front, we turned to the European Free Trade Area, which we set up. Again, it did not work. People who are saying that we should come out of the European Union now should look at the long history of this issue and ask why we made those political judgments in the face of such dramatic political change.
Enormous political change is again taking place in the world now. The United States will no longer be the dominant world power as it was after the Second World War. That does not mean that it will decline in importance, fail economically or whatever. I do not think that that is happening but the US will not have the same dominance that it had previously. In many respects, it is rather like Britain in the early 20th century when we had lost our total dominance of the world. People used to say that 95% of goods travelling around the world were in British ships. Now we say that about 88% of the advanced technology of the internet is driven by the United States. However, that is changing rapidly. India, China, Brazil and the newly emerging countries—perhaps to a lesser extent, Russia—are eating away at this, which means that we must change too.
Finally, it is time for Britain to stop the half-in, half-out dance. We are doing ourselves enormous damage. My fear about the referendum—I do not support it and I am not a great fan of referendums at the best of times—is not that it will not be won. I am sure that it will be won, but my fear is that there will be a relatively low turnout. Those people who want to take Britain out will continue to fight on that front. There will be the same problem as there will be if we do not win the referendum convincingly in Scotland, although I hope that we will. People take heart, although often it is because people are not voting in the way that one hopes. I hope that the British people have the wit to see that the politics has changed dramatically and, along with it, the economics of the world. We had better face up to that and become a bit more wholehearted and less half-hearted. We are doing ourselves a lot of damage within the European community and in the wider world by appearing to be so negative.
Baroness Falkner of Margravine (LD)
My Lords, I, too, thank my noble friend Lord Shipley for having secured this debate. It is an important debate and it is an important time for our country to have these discussions. Before I move to the substance of my speech, I could not possibly not congratulate my noble friend Lord Wrigglesworth on his fabulous speech, which, as the noble Lord, Lord Giddens, said, was delivered with such verve and conviction. My acquaintanceship with my noble friend goes back to SDP days when he was one of the grandees and I was one of the workers. It is very nice to see him here on slightly more equal terms, which I have to say are to my benefit.
This debate is hugely significant in the sense that, while most speakers have spoken from more or less the same hymn sheet, some speakers have not. Of course, it is important to mention the contribution made by the noble Baroness, Lady Noakes, as well as that of the noble Lords, Lord Stevens of Ludgate and Lord Stoddart of Swindon. These debates on the other side of the fence to most of us will be hugely significant as we move forward to cross swords over the referendum campaign. I was not surprised to hear what the noble Baroness, Lady Noakes, said. She quoted Professor Congdon and Professor Minford who, distinguished as they are, are also known to be very long-standing critics of EU membership. In a sense, it might have been more fruitful if we had heard from more authoritative and more impartial sources on the other side of the camp. I regret that we did not get that. However, the noble Lord, Lord Desai, illustrated ably why their analysis needs further scrutiny and I am sure, particularly since the paper by Professor Congdon is relatively recent, that research institutes will analyse his findings very seriously.
The Department for Business, Innovation and Skills per capita calculation takes a longer-term look at those figures on the basis that:
“EU countries trade twice as much with each other as they would do in the absence of the single market programme”.
That of course was based on the OECD’s estimates.
The noble Baroness, Lady Noakes, also made a point about EU jobs that are engaged in trade from the EU to the United Kingdom. I think she used the figure of 4 million jobs, rather than the widely accepted figure in terms of UK jobs relating to trade with the United Kingdom. There was a difference of 1 million on her side. I would argue that while we are talking about 3 million jobs that may be lost if we disengage from the European Union, the noble Baroness says that there would be 4 million jobs and that therefore the European Union would be loath to disengage from us, which would give us the benefits of non-tariff barriers, free trade and so on. Of course, 4 million jobs spread across 27 states with a population of 420 million is a very much smaller impact than the impact that it would have on a single country—that of the United Kingdom.
I turn now to recent debates on the cost of welfare through inward immigration, because that has become the flavour of the time and it needs rebutting. There is clear evidence to show that EU migrants pay more in taxes than they receive in benefits and services here in the United Kingdom. The Department for Work and Pensions recently published figures for 2011. Of those receiving working-age benefits, it is true that 25% were from within the EU, but Poland, which had the highest figure of those receiving benefits, was in the seventh slot, behind Asia, Africa, the Middle East and several other countries. Of EU accession countries, only one figured in the top 20 of countries from which people claim benefits in the United Kingdom. That compares to the 10% of Britons who claim benefits in Germany alone, so it goes both ways and we must not allow this debate to run away. The idea that migrants from the accession countries and from the wider EU are coming here for some sort of benefit or health tourism needs to be looked at more carefully.
The free movement of peoples is also enormously significant in terms of its impact for us in the United Kingdom. The Centre for Economics and Business Research estimates that if we curbed EU migration—mostly young people, in terms of demographics, who are coming into an ageing society and who will ameliorate the impact of the demographic changes of ageing here in significant proportions—it would cost our economy something like £60 billion, or 2% of GDP, per year by 2050 and increase public borrowing by something like 0.5%. Moreover, we also benefit from inward tourism from the EU. Some 19 million visits were conducted by EU citizens in 2012 and some £7 billion was spent here.
To conclude, I come to the very important point made by the noble Lord, Lord Giddens, that this is not just a dry cost-benefit analysis, not just about how many pounds in and euros out. What matters to our trade and our economic position is not just money. What matters is the future of our young people, the status of our country internationally and the debt we owe succeeding generations if we do not take the right decisions in the forthcoming referendum.
Lord Liddle (Lab)
My Lords, first I add my congratulations on behalf of the Opposition Front Bench to the noble Lord, Lord Wrigglesworth, and welcome him to the House. I have known him for the best part of four decades, I am afraid to say. For me, he has always been a man of solid principle, unfailing good humour and boundless resilience and it is good to see that those qualities are still much in evidence. When he first got into the House of Commons he was at one stage known as Roy Jenkins’s seat warmer, so that the great man could continue to linger a little longer over lunch before he took his seat in the Commons. I would say, on the basis of his performance in this House today, that he is going to be a Lords crowd puller.
I also thank the noble Lord, Lord Shipley, for putting down this debate. He made a very comprehensive, well argued case for Europe, and I do not disagree with a word. We have heard many excellent speeches. It is a timely debate. No one has mentioned that today the Prime Minister is in Brussels at a European Council meeting which has, as one of its main purposes, the discussion of the digital economy, innovation and trade in services, so it is a very appropriate day to be debating the single market. I should like some assurance from the Government that they are taking this opportunity very seriously, because when one looks at the digital economy, economic estimates are that if we had a proper single market in digital this would add 4% to 5% to European GDP. Looking, for instance, at telephones, whereas the US and China have three or four major operators with a single set of rules for their whole economies, we still have hundreds of operators and 28 different rulebooks.
Similarly, when one looks at internet commerce, there is enormous scope for expansion but we have to have common rules on online content and online shopping. If we are going to have online shopping we have to have rules on privacy and data protection, we have to deal with customer worries—a lot of people will not use the internet for shopping because they worry about making payments and their details being disclosed—and we have to have a copyright system for the digital age. Where do the Government stand on all this? It is a legitimate question.
The Prime Minister has gone to Brussels today on another campaign to cut EU regulation. There is nothing wrong with trying to improve EU regulation, but surely what he should have been doing is emphasising the potential, for Britain and the rest of Europe, that real progress towards deepening the integration of the single market could make. Although it is always very nice to see the noble Lord, Lord Newby, on the Bench opposite, it would be so much better if we had a Conservative Minister there who could tell us where the Conservatives stand on the necessary sacrifices of sovereignty and the compromises that have to be made in the European Union if we are going to bring about that deepening of the single market. There is no point just saying, “Wouldn’t it be lovely if we had a digital single market?” Yes, it would be lovely if we had a digital single market, but we have to be prepared to compromise on sovereignty and negotiate. Are this Government really prepared to do that? In fact, what we get from Conservative Ministers is a skulking away from these issues as they try to sleepwalk out of the European Union.
In the package that the Prime Minister has taken to Brussels today there is a document called Cut EU Red Tape: Report from the Business Taskforce, put together by a very distinguished group of businesspeople with a lot of good ideas about improving regulation. We on this side of the House fully support improved regulation, but let us remember that it is much better to have one European rulebook if you are a business operating inside the European Union, rather than 28 separate rulebooks. It would be much more costly to have to deal with that situation.
The document also raises a lot of questions relevant to social Europe; the social side of the single market. It raises questions about the proposed pregnant workers directive, the posting of workers directive, makes claims about inflexible and unclear rules on working time, raises questions about the agency workers directive and the acquired rights directive—a long litany of complaints about social Europe.
I ask the noble Lord, Lord Newby directly: have the Liberal Democrats signed up for an assault on social Europe or have they not? Where do they stand on this list of amendments to social Europe proposed in the document that David Cameron is taking to Brussels today? Do we have another potential Beecroft here? Have Vince Cable and Nick Clegg agreed to these changes on social Europe? On this side of the House, we would like to know.
Of course, all European legislation needs modernisation, but can we hear from the Government that if we have a single market it has to have some social underpinning? In social terms, we are the most lightly regulated country in the OECD—more lightly regulated than the United States. No one who argues for the dismantling of social Europe explains why the Germans and the Swedes can so successfully compete in world markets, facing the same social burdens that we do. Why is our business uniquely sensitive to those questions? In my view, most good corporate practice supports a high level of social standards. A single market has to have social, environmental and consumer standards dimensions.
It is quite possible that the Prime Minister today will get himself into a silly spat with the French when he should be working out with the French how we can use the research money of the European Union to develop a proper industrial strategy for Europe.
The single market is a vital UK national interest, as many Members have said, but opponents like to think that we can have our cake and eat it, that we can somehow leave Europe but retain access to the single market, and that we have a strong bargaining position because they export more to us than we to them. That is almost certainly rubbish. For instance, take the car industry, which is one of our most successful export areas. We would face a tariff of 9.8% if we were not part of the single market. Still, more than 50% of the car production in the UK goes to Europe. I say to the noble Baroness, Lady Noakes, that the relevant point about bargaining power is that only 2.5% of European GDP is exported to Britain, whereas 14% of our GDP is exported to the rest of Europe, so it is not as she presented it.
The single market is essential. I welcome this debate. As the noble Lord, Lord Shipley, said, there can be no ifs or buts about it. As the noble Lord, Lord Giddens, said, our membership of the EU is the biggest issue that we have faced in this country since the Second World War. As the noble Lord, Lord Watson, said, we have to make the case very strongly that we are better off together.
Lord Newby (LD)
My Lords, I thank all noble Lords for their contributions to the debate today and, in particular, the noble Lord, Lord Shipley, for initiating it. It is a huge pleasure to be able to congratulate my noble friend Lord Wrigglesworth on his maiden speech. As his speech demonstrated, he speaks with great authority about the economy of the north-east, and with great authority more generally. The noble Lord, Lord Giddens, described his speech as witty, meaty and suave. It struck me that these are fitting epithets for him as a whole.
Lord Giddens
My Lords, I do not want to damage the life of the noble Lord in the House of Lords, because the word “suave” might chase him forever, but it was intended as a compliment, so perhaps that subject should be dropped—in a suave sort of way.
Lord Newby
I took it as a compliment.
I first met my noble friend 32 years ago, when I went to work in the Whips Office of the SDP. Like my noble friend Lady Falkner, I was one of the workers and he was a grandee. Therefore, it gives me particular pleasure now to be his Whip and to make sure that he is in every respect a model Member of your Lordships’ House—as I am sure he will be.
The Government are clear that membership of the EU is in the UK’s interest. The EU helps to advance UK national interests, influence and values. It provides freedom for British people to live, work, study and retire in Europe, and supports UK jobs, prosperity and growth through increased trade, both inside the single market and through free trade agreements.
The principal economic benefits of our membership of the European Union can be categorised under the headings of trade through our access to the single market, encouraging investment and promoting competition, thus driving down prices for British consumers. I shall deal with each of those three principal areas in turn.
The UK’s EU membership supports jobs, prosperity and growth in this country through increased trade. Our membership gives UK companies access to the world’s largest single market, with a GDP of about £11 trillion and 500 million consumers, without customs or tariffs. Free trade agreements through the EU lower trade barriers and increase access to markets. If the EU completed all trade deals currently under negotiation, EU GDP could be increased by about £275 billion. In particular, independent analysis commissioned by the Government has found that the net benefits to the UK of the EU-US free trade agreement currently under negotiation could add up to 0.35% to the UK’s economy. I absolutely agree with my noble friend Lord Watson that our ability to conclude such free trade agreements in a world where the WTO is a declining influence is immeasurably enhanced by being part of the EU. The idea that you can go into such negotiations with the same strength as a single country is surely completely mistaken.
Europe remains the main destination for UK exporters, with just over 50% of our goods exports destined for Europe in 2012. That has real benefits for UK businesses: 80% of businesses believe that the single market delivers concrete benefits to them and the Department for Business, Innovation and Skills forecasts that the EU will remain the UK’s most important market for at least the next 10 to 20 years. That strong trade relationship due to our membership delivers clear employment benefits, with one in 10 UK jobs to some degree dependent on trade with the EU.
The CBI study and others which have been quoted show truly remarkable levels of support for continuing EU membership. Underneath the fact that 80% of companies, broadly speaking, say that they wish us to remain in the EU, it is interesting that 47%—almost half—said that without EU membership, they believe that it would be more difficult to hire skilled workers. It is not just access to the market but access to workers.
I say two things about trading elsewhere to the noble Baroness, Lady Noakes. First, as several noble Lords have said, there is no trade-off between trading to the EU and to the rest of the world. The more a company trades in one part of the world, the more likely it is to be good at trading somewhere else. Secondly, we want many more companies to start trading, and the logical place for them to start, particularly if they are small, is with the EU. For a small company thinking about foreign trade, the prospect of doing it in Brazil, China and India is almost a bankrupting prospect. You do not have the time. You do not have the money. You do not have the knowledge to do it. The only logical place to start is the EU. That will continue to be the case.
Secondly, being part of the single market helps UK businesses to attract inward investment from both inside and outside Europe, enabling them to operate on a more efficient and global scale. The UK is the top destination in Europe for inward investment, attracting 21% of all foreign direct investment projects in Europe last year.
Our access to the single market is a key motivation for foreign investment in the UK economy, with half of all foreign investors in 2010 citing access to the single market, among other factors, as a key reason for investing in the UK. A number of noble Lords have dwelt on this point. The noble Lord, Lord Shipley, made the point that Nissan, which provides 6,000 jobs in his region, is there because of our EU membership. If we were to leave, the number of jobs would shrink.
The City of London Corporation, in the representation made to us which the noble Lord quoted from, said that many EU European banks locate in London to access the markets in which London has accrued specialities. Many non-UK EU firms choose to list on the London Stock Exchange in order to access the capital on offer there, directly channelling capital to European businesses from London. If we were not members of the EU, the idea that the City would be able to continue sailing serenely along with no threat from competitor centres in the EU seems implausible.
The single market also encourages competition and innovation across the EU, bringing down prices for consumers and increasing productivity in the UK. We are clear, however, that the EU could do better to become more competitive to deliver further economic benefits. That is in the interests not just of the UK but of all member states. The EU must become more competitive if we are to continue to improve the standard of living which Europeans currently enjoy, firstly by completing the single market in services, particularly in the digital and energy sectors. I give the noble Lord, Lord Liddle, an absolute assurance that the Government are committed to promoting the single market. It has been a centrepiece of our engagement with the EU. When my colleague in another place, Ed Davey, was at BIS he set up a group of like-minded countries, which eventually involved a majority of EU member states, to promote the single market in an effective way. It shows, incidentally, how the UK can take a lead in the EU even though we are not in the eurozone area. The completion of the single market is a central goal of the Government.
The second important role in making the EU more competitive revolves around agreeing the international trade agreements to which I have already referred. Finally, we are committed to cutting red tape to allow the engines of growth in the eurozone and across the EU the space that they need to flourish.
Completing the single market by removing all barriers to trade is estimated to increase UK GDP by about 7% and prices would fall by approximately 5% due to increased competition. In this tough economic climate, this would obviously provide a real boost if we could achieve it for UK businesses and consumers.
On the international free trade agreements with both advanced and emerging economies, progress continues to be made. The landmark deal reached between the EU and Canada, to which my noble friends Lord Maclennan and Lord Watson of Richmond referred, will benefit the UK economy and businesses by over £1.3 billion a year. As I have already said, the potential deal with the US would dwarf that.
Cutting red tape from the EU is crucial to allow small businesses to start up and then expand. Last week, six senior business leaders presented a report to the Prime Minister on reducing the burden of EU regulation; the noble Lord, Lord Liddle, referred to this. Their findings are based on research carried out across Europe. They have found that there is potential to save EU businesses billions of pounds by improving the regulatory environment. Their aim is not to abandon all regulation; they want to reduce the burden on small and medium-sized firms who create the vast majority of new jobs in Europe, and employ two-thirds of the workforce. The Government support their views, and are committed to ensuring that EU regulation does not hold UK businesses back.
The noble Lord, Lord Liddle, referred to a number of proposals in this report. The one which seems to be a classic of the kind of change we need, and which should be achievable, is the proposal to press for an urgent increase in the public procurement thresholds which significantly hold back small businesses in bidding for public sector work.
As the noble Lord, Lord Shipley, pointed out, these views are increasingly being accepted across the EU. The days when greater harmonisation was almost seen as an article of faith by member states are now over. We are in a strong position to take a lead in making EU regulation proportionate and growth promoting.
The noble Lord, Lord Liddle, asked whether the Government were speaking with one voice in terms of the single market and in terms of the report to which he and I have both referred. I can assure the noble Lord that the Government are speaking with one voice. He described the Government’s attitude as an assault on social Europe. This is a grotesque caricature of both the Government’s position and the proposals in the report. It does not reflect the Government’s attitude in any respect.
One question that is commonly asked or implied is whether the UK, given its semi-detached nature, is able to make progress with the kind of reform agenda to which I have been referring. We believe that we are and that we can. For example, we have secured the first ever exemption of micro-businesses from new EU proposals from the start of this year. We have also secured agreement on a single European patent after 23 years of EU negotiation, with the new patent court based in London for key pharmaceutical and life sciences sectors. This will be an important engine of growth for the UK’s R&D sector.
We have persuaded the European Commission to review the body of EU legislation to identify existing obligations from which micro-businesses could be exempted. Finally, we have delivered the first ever real-terms cut in the EU’s seven-year budget while protecting the UK’s rebate.
We had an interesting discussion, principally between the noble Baroness, Baroness Noakes, and the noble Lord, Lord Desai, about—
Lord Hannay of Chiswick
I know that time is short, but would the noble Lord not agree that the word “semi-detached” is an extremely unfortunate one to apply to the Government’s policy? We are talking about instances of variable geometry which have existed in the European Union since the 1980s and which are still continuing to develop. Would it not be better to expunge the word “semi-detached”?
Lord Newby
My Lords, I use the word “semi-detached” because that is in the common parlance. I do not believe that it is an accurate reflection of the approach that the Government are taking. It is only reasonable to deal with the criticism of the Government head on, by explaining that our current position enables us to exert influence and to make significant positive progress.
I was referring to the interchange between the noble Baroness, Lady Noakes, and the noble Lord, Lord Desai, about the quantitative costs of EU membership. The noble Lord, Lord Desai, sensibly in my view, suggested that this was an extremely difficult area, not least because it is impossible to state a compelling counterfactual. Many of the rules and regulations against which costs are attached would almost certainly be required in some form or another were we not members of the EU. To count potential costs of such regulations on the assumption that they would not exist if we were out seems, again, to be pretty implausible. Equally, as other noble Lords have said, the suggestion that we could get a better deal from Norway and Switzerland if we were out seems not to be borne out by any logic. Given the circumstances of a divorce, which would be almost certainly politically pretty unpleasant, it is difficult to see how we would find ourselves in such a better position.
The noble Baroness, Lady Donaghy, talked about the role of national parliaments and the importance of increasing that role. The Government strongly agree with that. We are working with EU partners to increase the role of national parliaments. We welcome moves by both Houses to use the tools that they currently have to hold EU decision-makers to account more effectively. We want to consider possibly extending the scope of the “yellow card” system by introducing a red card. We absolutely agree that getting greater national engagement with this Parliament is strongly to be recommended. In saying that, I of course commend the work that your Lordships’ House already does through its European Union Committee and its sub-committee.
The noble Lord, Lord Giddens, asked me a specific question about the debate on the EU and how to promote it within the UK. Apart from the normal business, as it were, of making major speeches on the subject, which both the Prime Minister and Deputy Prime Minister have done in recent months, the Government have initiated a balance of competences review that seeks to engage with a wide range of people—not just think tanks, academics, businesses and Parliament but also the public—to produce as far as we can an analysis of the effect and effectiveness of the current powers and competences of the EU, with a view to deepening the public understanding of the nature of EU membership and reform. This is a difficult business, as the noble Lord will be aware, because we are doing it against the background of a media that find it literally impossible to treat a story about the EU on its merits. Still, the balance of competences review is a significant process and I encourage all noble Lords with interests in some of these areas to engage with it.
A number of noble Lords, such as the noble Lord, Lord Haskel, mentioned the European Space Agency. This is, as it were, a classic example of where working together within the EU serves our interest, and where trying to do it on our own would almost certainly have ceased because we simply do not have the resources to do so. As we look across the piece, we find many similar examples, as many noble Lords have exemplified in their speeches today.
To conclude, the Government believe that membership of the European Union is in our national interest and that there are significant economic benefits of our membership, from the single market through to trade, investment and competition. We are advancing and protecting the UK’s national interest in the European Union and will continue to do so, ensuring that our voice is heard and our interests are protected in order to promote growth and prosperity, which is the Government’s central purpose.
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.