The UK is a great success story and is now the fifth largest economy in the world. Our international trading history speaks for itself and English is now the international language of trade. But the global economy of today is very different to what it was when we joined the EEC, now the EU. Export opportunities in Europe are slowing and export opportunities outside Europe are twice as large and growing faster.
It is bizarre therefore to see the Government publish two reports which say opportunities within the EU are so great we would suffer if we left this political union. Under the current arrangement as a member of the EU we cannot enter into our own trade treaties with other countries, we have to do it as a 28 member block with very different interests, or not at all. Not at all is often the result. So the UK is missing out on opportunities it would otherwise have.
All UK companies are also disadvantaged by the increasing mass of EU regulation that reduces productivity, makes us less competitive and puts up prices for UK consumers. 60% of business regulation comes from the EU.
George Osborne and the Treasury have produced a mass of statistical projections. They say they have crunched the numbers and we will all be £4,300 worse off by 2030, that's 15 years away, if we leave, and in the short term interest rates will rise, house prices fall and Armageddon will be upon us! Really?
A forecast into a future 15 years away is at best brave and at worst foolhardy. It is also heavily dependent on the assumptions it is based on. Those assumptions need to be right or the projections will be seriously misleading, and dangerously so if the market takes them as a certainty and acts accordingly. It is also best practice to look at history and the current situation- it's not a predictor but to ignore it is unwise.
Much of the treasury analysis is about Gross Domestic Product which it generally referred to as GDP. GDP is a measure of the output of the country, growth and prosperity. The aim of all governments is to have a growing economy with GDP rising at 2%-3% per annum.
George Osborne's projections for 2030 indicate that growth will be slightly slower during the next 15 years if we leave the EU in which case the total growth over that 15 year period will be 6.2% less and GDP per household £4,300 less. But would history bear this out as a reasonable projection? No - history shows us that in 2015 GDP per household was already £3,947 less due to our Current Account deficit with the EU - and that is a fact not a projection- so we are already worse off by being within the EU! So leaving should deliver a benefit and remaining make it even worse as I will explain!
Over the last 15 years, the UK's trade and other commercial activities with the EU have been very one-sided and the UK has lost out big time. Nowhere is this historical and economic fact included in the Treasury's reports. Instead its reports are based solely on "forecasts" of the future based entirely on negative assumptions. It's a bit like doing a cost benefit analysis on two options but only looking at the benefits of one ( in this case remain) and the costs (in this case of leaving) of the other! The costs of the Remain option and the benefits of the Leave option have been ignored.
Each year the Office for National Statistics adds up all the money we receive for exports of goods and services which we sell to the EU plus dividends and interest on our EU investments and other receipts from the EU. The ONS also adds up all payments we make to the EU for imports of goods and services, interest, dividends and of course our contribution to the EU budget.
The net difference is called the Current Account, an income and expenditure account of the UK with the EU. We benefit from receipts, and payments represent a cost. Deducting payments from receipts leaves us with a net gain or a loss. When our receipts are greater than our payments we have a surplus which adds to our GDP and growth. When our payments are greater than our receipts, we have a deficit, which reduces GDP and growth.
Now it has always been Government policy to encourage the UK to become an export led economy. That is supposed to be one of the primary reasons for our membership of the EU because we are told that we benefit from our access to the Single Market. Unfortunately for George, history tells us a very different story. In the 15 years since 2000, our receipts from the EU have grown by a mere 33% from £211b to £281b. By contrast, our payments to the EU have grown by 86% from £219b to £388b.
The Net effect of those two differences is that our Current Account balance with the EU has grown from a deficit of £8b in 2000 to a massive deficit of £106b in 2015. That means that each week the UK pays the EU as a whole just over £2 billion pounds.
When we look at our trade with the rest of the world we see that a deficit of £14b in 2000 has been turned into a surplus of £10b in 2015 indicating that our trade with the rest of the world has been very successful and has contributed to our GDP and growth often without free trade agreements. The graph below shows the Current Account position with the EU and non EU countries since 2000.
Isn't it remarkable that, in a 200 page report on what is going to happen if we leave the EU, George Osborne failed to make any reference to these figures? Of course the reason is obvious. It totally undermines his argument that the UK has benefitted from being in the EU and that leaving the EU would damage the economy.
A Balance of Payment surplus increases our GDP whilst a Balance of Payment deficit is a reduction. In the graph below, the lower blue line shows what GDP has actually been since 2000 and the higher red line shows what GDP would have been had we not suffered from this growing deficit with the EU.
Our GDP was £106b less in 2015 than it would have been if we hadn't suffered from the growing deficit with the EU. What is more, without the EU deficit, the UK economy would have recovered to its 2007 pre-recession peak in 2011 rather than being delayed by two years until 2013. If we look at this in percentage terms we can see that since 2000, the deficit with the EU has grown to 6% of GDP. In other words the UK economy would be 6% larger today than it would have been had we not had the deficit with the EU.
So what has happened to GDP per Household since 2000 due to the deficit with the EU? The Loss per Household has increased from £300 in 2000 to £3,947 by 2015. So we are losing nearly £4,000 per household now due to the EU deficit and yet George wants us to believe that we will lose another £4,300 by 2030 if we leave!
Needless to say, George is a politician who tells you what he wants you to know and he doesn't tell you anything that would undermine his argument.
What's more, isn't it interesting that when Christine Lagarde, the Managing Director of the IMF came to the UK in early May to support George Osborne in his Remain Campaign, she referred to the UK Current Account deficit and what a big problem it was for the Country. Yet, surprise, surprise, she just happened to forget to mention that all of that deficit and more was with the EU which is where Britain's problem actually lies.
So maybe the stories of a stitch up by the Establishment are true after all. We have not one but two Treasury reports which have been widely criticised for the quality of argument, and frankly of the economics contained in them!
So to summarise:
- During the last 15 years the UK's Current Account deficit with the EU has grown by £96b from a deficit of £8b in 2000 to a massive £106b in 2015.
- That Current Account deficit reduced GDP by £106b in 2015, equivalent to 5.9% of GDP.
- GDP per household would have been £3,942 higher in 2015 if the UK had not suffered from the Current Account deficit.
- The UK sends over £2b each week to the EU to fund the deficit.
- During the same period our trade with the rest of the world has been profitable and has contributed positively to our GDP and growth.
The inescapable conclusion is that in 2015 alone the UK's relationship with the EU cost the UK £106b. We have not benefited from being in the EU - they have!
When you go to the polling booth on 23rd June, think about these figures and say to yourself: "Do we still want the UK economy to suffer from this massive deficit with the EU?", and "Do we believe the Government when they tell us that we benefit from the EU?"
History tells us that we don't benefit from the political and economic constraints of the EU. We should all vote to leave and be free once more to build our future with the rest of the world where our trading relationships are successful. We will still of course trade with Europe, and on favourable terms. We are their biggest market for products -so why wouldn't they! You don't have to be a member of a political and economic union to be a good European - or a successful one!