Chair of the Vote Leave Business Council, John Longworth, offers the business case for Britain to leave the EU
There is no area of Britain’s EU membership that has been quite as mis-sold as the Single Market. The europhiles in the referendum Remain camp have been deliberately confusing it with free trade, claiming that if we were to leave the EU we would no longer be able to do business with Europe.
The Single Market was indeed supposed to turbocharge trade across Europe and transform the prospects for British business. The Common Market had already torn down tariffs and Britain did quite well as a result. The idea was that the Single Market would multiply these benefits by removing the remaining barriers that made it more difficult for people to trade across borders.
The results, you would say if you were being charitable, were seriously deficient. If you were being less kind, you would call the nirvana of the Single Market a mirage, especially from the standpoint of the UK.
Over the past 10 years, the value of British exports to the EU has actually fallen by 18% in nominal terms, a worse performance than any other member state except Luxembourg. Our European trade has grown more slowly in the 20 years since the Single Market was introduced than in the 20 years before.
Even Margaret Thatcher, who played such a vital part in forcing through the Single Market, came to regret it bitterly, realising that it had become an adjunct to a political project. She agreed to national vetos being replaced with qualified majority voting (QMV) so protectionist countries could not block liberalisation of trade. But Thatcher was hoodwinked. The EU, then under Jacques Delors, used Single Market QMV to centralise more power and sovereignty and smuggle through red tape that had everything to do with that dread word ‘harmonisation.’ It had little to do with genuinely opening markets, which Delors cheerfully confessed was of little interest to him compared with the political goal of integrating Europe. “We got our fingers burned,” Thatcher later admitted.
We can largely blame the Single Market for the ridiculous burdens the EU puts on business, with the top 100 rules alone imposing £600m of costs every week. The Treasury’s own figures suggest that the cost of EU regulation for the UK economy is at least £125 billion a year. Brussels regulates everything from how we build schools and aircraft carriers to the power of vacuum cleaners and the free movement of people.
Although only 6% of our businesses export to Europe, all 100% are bound by EU rules. Some of these Single Market regulations have the perverse effect of making open trade harder rather than easier. SMEs have been hit hard by changes to the rules on VAT. Soon, businesses selling to Europe will have to collect sales taxes before they export rather than, as now, leaving the companies they sell to on the continent to handle the bill.
This may not present a major problem for multinationals with large finance departments, but it is a bureaucratic nightmare for smaller businesses. Some have now decided they would rather stop trading with Europe because it is becoming so complex. They are instead increasing their trade with places like America where they are more welcome. As one entrepreneur said recently: “I do not see why I should act as an unpaid tax collector for the French government.”
This all makes our £350m per week EU membership fee look like an appalling rip-off. The burdens of the Single Market have exceeded the worst fears of SMEs, while its supposed benefits are largely illusory. A Civitas study published earlier this year found that the greatest beneficiaries of the Single Market have been multinationals based in non-European countries like America and Japan, while Britain in particular has gained little. The repatriation of our net contribution alone would be worth another half a percent of GDP.
Over 90% of the private sector British economy is services, but the Single Market barely exists in this area, except for a few fields such as wholesale banking. There is no appetite in Brussels to liberalise services trade. That is because the Single Market was designed above all for German manufacturing and French agriculture and food.
Even that Single Market in goods is now unravelling, with the non-tariff barriers to genuine cross-border trade growing not shrinking. The EU’s Directorate General for the internal market told me last year that they were receiving more than 1,000 complaints annually about member states illegally putting up barriers to free trade. One third of these are categorised as serious alleged breaches of the rules. But the most the Commission ever does is write a stern letter because it has so few resources to stop countries putting up barriers. Not a single member state, including the UK, has an office responsible for enforcing the Single Market.
Is it any wonder that the UK has a trade surplus in services with the USA, with whom we have no trade arrangement, which is almost twice as large as the surplus with the EU with whom we have the much vaunted Single Market?
Of course the EU is a customs union, an inherently protectionist arrangement. Its tariffs prevent the UK from buying cheaper food from elsewhere and impose unnecessary costs on many low-income people in Britain. We must design a smarter system of support for British farmers than the Common Agricultural Policy, but for food we cannot grow in this country we should be able to buy it from the best place at the most reasonable cost.
In summary, the Brussels red tape machine is in overdrive, while liberalisation has sputtered to a halt. The Prime Minister’s EU renegotiation, which he once said our membership would depend on, contained the same hollow words about “competitiveness” and “better regulation” that Brussels has spouted for decades, but nothing of consequence.
It is no wonder support for EU membership among SMEs is crumbling. Opinion is now in favour of Leave amongst business owners who are no longer being cowed by multinationals and big business lobby groups like the CBI. A recent survey by my old employer, the British Chambers of Commerce, showed a 7% increase in the number supporting Leave to 37%. Of the firms which trade only in the UK, a majority are now in favour of leaving, as are those who export only outside Europe. Almost 19 out of every 20 British businesses fall into one of these two categories and 87% of the economy is not associated with exports to the EU in any way.
It is spin and fantasy to suggest that we can change the system from the inside. The much-vaunted British “influence” in Brussels has failed for decades and if we stay in after this referendum, our bargaining power will be spent.
I have no doubt that Britain will be liberated and will thrive outside the EU. We will be able to design sensible regulations that suit the British economy and for which we can hold our elected representatives to account. Businesses will benefit from less red tape and from our control over borders, which will make it easier both to manage the current chaotic immigration from Europe and to welcome skilled people from the rest of the world.
Europe will want to continue trading with us. Our deficit with the Union is at record levels – £68bn last year and £24bn for just the first quarter of 2016. Businesses in France, Germany and the Netherlands will not allow the eurocrats to shut the door on their best customer. Bearing in mind that the average external tariff for goods in the Single Market is just over 3%, a rounding error in the context of currency movements, leaving would not have much of an effect even if the EU were to take the unlikely step of imposing duties.
We will be in a superb position to reach trade deals with other countries like America, Australia and India rather than have to depend on the sluggish Brussels machine which has to cobble together a lowest-common denominator negotiating position among 28 countries. Others have concluded trade deals with the largest economies in the world in quick time, less than 24 months.
We will also be free from the enormous risk posed by the avalanche of regulation which will come from Brussels in the next few years as the Eurozone consolidates. The risk and uncertainty created by an unstable Eurozone would be the greatest brake on growth if we remain in the EU. We do not want to be in that organisation if and when the single currency implodes. If Germany is determined to prevent this outcome at any cost, we do not want to be sucked in, which is what remaining would inevitably lead to.
If our businesses want a successful global future, we will be better off if we leave the EU. Voting Leave on June 23 is the way to secure a prosperous future for Britain.
John Longworth is Chair of the Vote Leave Business Council. Further information can be found at the Vote Leave website.
Read Stronger In‘s argument for remaining in the EU here.
Weber Shandwick is hosting a debate on Brexit on 7th June. For more information, visit: http://webershandwick.co.uk/the-weber-shandwick-brexit-business-debate/