Saturday, June 25

European Union exit could make British households £933 richer



The typical British household would be almost £1,000 a year better off if Britain is forced to leave the European Union, a new analysis has shown.

British businesses trading with the EU would also be no worse off outside the EU’s free-trade agreement because the Government would save enough money on membership fees to compensate exporters for the higher tariffs they might face.

The conclusions were made in Change, or Go, a major assessment of Britain’s place in the EU and its future in Europe. 

The report says that without fundamental overhaul of Britain’s EU membership terms, the national interest will lie outside the union:

There would be significant potential financial advantages to the UK leaving the European Union. But what could this equate to in terms of the savings that might be generated every year for the average household?

The most obvious saving would come from no longer having to pay membership fees after withdrawal from the EU. The long-term annual figure for net UK contributions to the EU settles in the region of £9 billion net (the gross figure is considerably higher). This remains subject to upward pressures. For the purposes of our calculation, however, we continue to treat £9 billion as the working figure.

For the purposes of this analysis, we will assume that no deal has been reached with the EU on any free trade agreement “successor treaty”; that current levels of grants and payments continue to be made to British recipients of EU grants, but now by UK authorities; that tariffs are being levied by the EU against UK businesses at maximum permitted World Trade Organization (WTO) trade terms; and that money is being set aside by the Treasury at an equal rate to the tariffs levied to support those UK businesses affected.

Additionally, this analysis does not take into account any potential new tariffs levied on imports from the EU. The UK would be perfectly entitled to take such reciprocal action: it would raise additional revenue that could be used to cut specific taxes; and it could act as a deterrent against EU tariffs being imposed on UK goods. However, we assume a continued unilateral free trade approach on the UK side, no reciprocal duties levied, and continued market prices for EU imports in UK shops.

Even with these caveats the UK gains economically. By transitioning from EU membership to ‘WTO-only’ status, Britain would generate annual savings of around £3.9bn.

Potential savings from leaving the EU Potential annual saving per household
Net national payment to EU budget £145
CAP £361
CFP £186
Landfill tax £70
EU burdens passed on through council tax £20
Product shelf price £5
Cheaper clothing £146
Total £933

The CAP is deleterious to the UK. Ending British subsidies to foreign farmers could achieve cost savings for the UK of £1bn a year.

Naturally, a key variable is the extent to which a UK government would seek to protect its farmers, both through continued subsidy (perhaps retargeted) or by maintaining tariffs against cheap imports. The CAP largely does both; the historic British approach after the war was solely the former. Another variable is the world price of food: higher gate prices globally mean competitive gains for UK farmers.

For the purposes of this assessment, we assume that UK farmers will continue to receive current levels of grants from the successor national policy to the CAP, but note the prospect of a shift in the nature of this support that could still end in reduced supermarket prices.

Leaving the CFP allows for the fleet and coastal communities to regenerate, assuming stocks are sensibly managed and foreign access is reduced (probably gradually). The potential gains come to around £2.8bn annually.

The cost of red tape doesn’t just impact businesses. The public sector is equally affected by unduly burdensome regulations covering health and safety, environmental gold-plating, and record keeping. This means that a large portion of what are classified as ‘business burdens’ are actually additional levies on the taxpayer, either directly or as surcharges carried across by contractors. An example is the extra costs arising from the Working Time directive on the NHS.

These are, however, largely invisible, as the Government does not tend to differentiate between the sectors that end up paying. It is, however, possible to begin to separate the extra tax burden that arises as far as councils are concerned.

Councils are affected by all EU laws, and this then gets carried across into council tax bills. A prime example is the tax on landfill. This has led to twin side effects. Councils have attempted to limit domestic waste generation by only collecting bins fortnightly, with obvious implications. When dustbins do get emptied, councils are charged a levy on it, and this cost is paid through the council tax. As at 2015, the charge was £18 per tonne, increasing by £3 per year, Cumbria Council alone has to pay £4m a year in landfill tax. Total receipts from the tax for 2013-14 amounted to £1.189bn, a figure that will only grow.

Other examples of EU costs to councils include directives on public transport and the environment, where implementation costs time and money. EU directives also increase council staff costs and make it harder to save money by imposing stringent rules on buying supplies and equipment and the purchase and rent of buildings. A costly bureaucracy is needed to enforce such regulations.

Local authorities in England and Wales have a combined budget of around £115bn, though this figure is fluctuating due to austerity measures. We take an ultra-cautious estimate of a bankable 0.5 per cent of savings that could be realised by councils outside the EU. That suggests £500m off council bills.

EU rules that add costs to making products have an impact on their shelf price. The Waste Electrical and Electronic Equipment recycling directive (WEEE) is intended to cut waste disposal of used electrical goods. This is a laudable objective, but the cost is passed to the consumer, either at the point of disposal or of purchase if the supplier assumes the burden.

Similarly, the REACH rules – the Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals – impose costs on the development of products.

These rules cost Britain between £325m and £600m a year, on the basis of the European Commission estimates.

On a conservative estimate, the average family could thus save £3.40 a year on furniture and carpets, 89p on household appliances, 36p on kitchenware, and 60p on cleaning materials. Individually they appear nugatory. Collectively (even on the basis of a cautious estimate), the items begin to add up, especially if the full range of purchases is considered.

Tariff barriers hinder access to the EU market by producers of cheap clothing. This is largely done in support of southern European manufacturers, since their northern European counterparts have mostly downsized and shifted to quality products with higher individual mark-ups.

The impact of these tariffs on bills for less well-off households is particularly damaging, pushing up the cost of clothing. The UK could opt, outside the Common Customs Tariff, to slash or remove these barriers. This might be linked with reciprocal action in the corresponding export markets to facilitate higher-end exports by UK producers, on top of agreements to combat local counterfeiting.

Average household annual expenditure on clothing is £1,217. On the basis that many clothing items imported to the EU face a tariff of 12 per cent, that suggests a potential (though speculative) saving of about £146 per year.

From the above examples, it seems clear that ordinary households could see significant reductions to their annual bills if Britain left the EU.

These figures are dependent and variable, and as a result are speculative. They also provide only a partial snapshot, as other potential household savings might be identifiable and quantifiable through other data. On the other hand, they are conservative, excluding potential reciprocal tariff revenue, and assume WTO deals rather than free trade agreement terms are relied on.

These reasons alone should justify the Government undertaking far deeper research into the factors in play, and to generate some counter-statistics of its own.

Extracted from Change, or go, published by Business for Britain. The editorial board: Jon Moynihan (Chairman); Andrew Allum of LEK Consulting; Matthew Elliott of Business for Britain; Luke Johnson Risk Capital Partners; Mark Littlewood of the Institute of Economic Affairs; John Mills of JML Ltd; Helena Morrissey of Newton; and Viscount Ridley. Telegraph Media Group helped fund the study.