Why both sides of the debate must up their game on Europe

 
Allister Heath

FACTS are often scarce in the great European debate. It is possible for fair-minded people to come down on either side of the question. But it is incumbent on everybody to be as precise as possible – and not to exaggerate too much – when debating the pros and cons of the EU.

On the pro-EU side, take the strange claim that 3m jobs would be lost if we weren’t part of the EU (there are softer variants of this argument, but the figure never seems to change).

This is nonsense. If it refers to anything, the number may represent the number of people who produce goods and services for the European market, or whose livelihood depends on trade with other EU countries.

But even in the worst case scenario of a trade war following withdrawal, all commerce with Europe would not suddenly end. Thus claiming (implicitly or explicitly) that the 3m figure would be a cost of exit is illegitimate.

The most likely outcome following any renegotiation or exit would be some sort of free trade pact, or perhaps we would even remain full members of the single market (and there is always the World Trade Organisation and its important, but not comprehensive, set of rules). In any case, one doesn’t need to be part of a political union or club to trade with another country.

Under such circumstances, it is entirely possible that there would be no effect on trade at all. Of course, it is also possible that some trade would be damaged if some tariffs are reintroduced – and big City firms are extremely worried that they would be hit by non-tariff discrimination, for example – but it is also possible to create scenarios under which overall UK trade would actually grow by reducing the distortionary impact of the EU customs union. A proper debate would examine all of these logically possible outcomes, not fixate on imaginary numbers.

There is another reason why the 3m figure is wrong. It is static, not dynamic. Reduced trade (if it were to happen) could cut the demand for labour, push wages down, increase the demand for jobs and end up having zero impact on the number of jobs but leave everybody a little worse off. Of course, if leaving the EU were to trigger freer trade and a deregulatory and supply-side revolution, the demand for labour could go up, and so could wages. It is always a mistake to fall for the lump of labour fallacy.

Eurosceptics also often get it wrong. It makes a lot of sense to try and calculate the cost of EU regulation – and it is indeed vast – but it is not right to assume that it would all vanish if we weren’t members. In theory, it could even get worse. Take financial regulation: some rules would presumably be repealed if we weren’t part of the EU or if we had a looser relationship; but far from all. In a few City regulatory areas, the UK government has actually been tougher than the EU. So it isn’t fair to assume that leaving the EU would eliminate all EU-inspired regulation – that would depend on the kind of government the UK had, and on the policies it chose to implement. A free-market one would improve things; a protectionist or statist one could make things worse.

The EU debate is complex. Over-simplifying helps neither side.

LIGHTS MUST STAY ON
ENERGY markets need to be made to work better. One key answer is to empower consumers, as I argued yesterday, and develop group switching. Another is to focus on cheaper forms of energy. By contrast, yesterday’s decision by Ofgem to refer the sector to the Competition and Markets Authority is unlikely to do much good and will inflict some short-term damage. The enquiry will drag on, create lots of uncertainty and its conclusion could be overtaken by events. Worried firms will slash their investment, as Liberum Capital points out. We are already due for a generation crunch in 2014-15 and 2015-16; this looming crisis might now last another two years. In extremis, we could face blackouts, at least for industrial users. Very disappointing.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath

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