Can the UK afford to turn its back on Europe?

EU single market benefits to UK are between five and 15 times Britain's net EU budget contribution, argues Jonathan Faull.

By Jonathan Faull

22 Oct 2013

The European Union's single market covers all of the EU's 28 member countries, but actually includes many more. In fact, the single market can be said to be the main organising principle of modern economic Europe. All European countries, big or small, position themselves in relation to the EU market. 

Norway, Iceland and Liechtenstein are all in the "European economic area", which brings with it EU law and membership of the single market. By virtue of an array of agreements with the EU, Switzerland also has access to the EU market and follows most of its rules. 

Countries queuing up to join the EU, are adopting EU rules as fast as they can to modernise their economies and gain access to the single market: it is highly likely that the former Yugoslav Republic of Macedonia, Montenegro, Serbia, Kosovo, Albania and Bosnia and Herzegovina will all be future EU members.

Turkey, with a trade volume of €9bn per year with the UK, is in a customs union with the EU and is negotiating to join as a full member, although no one can say if and when it will finally join. Meanwhile, it is busy adopting EU rules and is increasingly tied into the European economy's supply and distribution systems.

Even the smallest countries and territories of Europe (Andorra, San Marino, Monaco, the Channel Islands and the Isle of Man, even the Holy See) devote time and effort to ensuring that they are closely linked to the single market. The EU alone has a population of more than half a billion people. Ten of the twenty most competitive countries in the world are in the EU or closely tied to its market. But the single market is not perfect. 

A lot has been done, particularly in relation to the free movement of goods, capital and people, but services and the digital economy require a lot more effort. The expansion of the EU as well as the financial and economic crisis, has increased both the difficulty and the potential gains of getting the job done.

So what about the UK in all of this? Can Britain really afford to turn its back on its continent and every other country in it? Some facts: the British government estimates that the single market benefits the UK to the tune of between €31 and €92bn every year. That means between €1200 and €3500 for each and every single UK household. 

Around 3.5 million British jobs are linked to the single market. German firms alone operating in the UK employ 400,000 people. Those single market benefits are between five and 15 times the UK's net EU budget contribution.

The EU gives the UK access to a huge market. Arguing successfully for free trade as a single entity at the WTO, the EU as a trading bloc, accounts for €10.9 trillion worth of trade, more than the United States. The EU is the UK's most important trading partner by far: eight of the top 10 destinations for UK exports in 2010/11 were in the EU. The EU provides 49 per cent of UK imports and buys over 50 per cent of UK exports (54 per cent of goods, 40 per cent of services).

For exports by small and medium-sized companies, the share is even higher: 69 per cent of exports by UK SMEs go to other EU countries. The shares of the US and China are much lower: The US provides eight per cent of imports and buys 12 per cent of exports. China provides eight per cent of imports and buys only three per cent of exports.

Over 300,000 British companies and 74 per cent of British exporters operate in other EU markets. UK exports of goods and services to the 12 EU member states which joined the EU in 2004 and 2007 were worth over €11.6bn in 2009, almost three times the figure 10 years earlier. 

The UK also has a balance of trade surplus in services with the rest of the EU (+0.88 per cent of GDP); by way of comparison, Germany has a deficit of -1.05 per cent. Around 2.4 million citizens of other EU countries live in the UK, while 1.4 million Britons live abroad in the EU. 

They do not come for welfare: in February 2013, 16.4 per cent of working age UK nationals claimed a working-age benefit from the department for work and pensions, against only 6.4 per cent of nationals from other EU member states.

Anecdotal evidence suggests that agriculture, horticulture, construction, hospitality and healthcare would suffer enormously without workers from other European countries. Look around you in the pubs, restaurants and building sites. 

Similarly, when you are abroad, listen out for people with British accents and admire the British clubs, societies, churches, and sports clubs. British companies do business and warm beer and nice cups of tea are sipped all over Europe: this is the single market at work.

Some will say that we can leave the EU and stay in the single market. Probably we can. It can be negotiated. As we have seen, there are many countries attached to the single market outside the EU. But the single market has rules, like any modern economy, to ensure a level playing field and fair competition. 

Consumers need to be informed and protected; producers need to know how to present and label their products far and wide in the same bottles, tins and packets; distributors need to know what they can sell when, where and to whom; the inventors of tomorrow's economy need a big market for their experiments and the protection of the law for their intellectual property. 

The reality of modern Europe is that economic rules of this sort are made in Brussels. And that will not change. The only question is whether Britain will be at the table shaping them or just receiving them by email after some form of consultation, without the active involvement of its ministers, MEPs, and stakeholders. That is the real choice.


The views expressed in this article are those of the author only and may not be interpreted as stating an official position of the European commission.