The European Union (hereafter EU) is an organisation which currently contains twenty eight countries, all of which operate in a single market, which means there is free trade between each member state. It is significant to us because the EU sets rules and regulations member countries must abide by, and therefore has a huge economic impact on the UK. When I talk about the economic effect in this essay, I am purely considering the effect of leaving or staying on the overall living standards of the average person in the UK, as well as the potential impact on the Gross Domestic Product, (total value of goods and services), produced in the UK economy. For this reason, I aim to find out whether we would be better or worse off outside the EU, in order to make a judgement on how I personally believe we should vote in the in/out referendum soon to be held. I chose this topic because I wish to further my understanding of the subject area, as it is a topic I am very interested in. However, I do not expect there to be a defined answer, as there are arguments for both leaving and staying, and there are many things it may depend on, but I do hope to make a personal decision on what I believe to be the best outcome for the UK in the conclusion of this report based on the information I have gathered. Furthermore, whether we leave or not may have specific positive or negative effects to certain people or groups within the media; I must be careful to check the reliability and validity of all sources I use and check they are not biased. Some of the key topics I will need to consider are exports and imports, economic influence, immigration, businesses and jobs. If the UK were to leave, there is a possibility it could lose some significance globally, but could open new doors to trading with developing countries like Brazil and Indonesia. Finally, if ultimately the UK chose to leave the EU, is there any chance that an agreement could be made where the UK could still experience some positive aspects of membership within the EU, (such as free trade) but not be held to other, potentially negative regulations, (such as free movement of labour) similar to the affiliation of Switzerland within the EU.
Potentially the most significant factor as to whether or not we leave the EU is jobs. http://www.betteroffout.net/the-case/10-eu-myths-about-withdrawl/suggests that if the UK left the EU we would preserve free trade with EU nations by imposing a UK/EU free trade agreement. Free trade means a lack of trade barriers such as quotas (a limit on the amount of an import entering the country), tariffs (a tax on the entry of an import into the country) or an embargo (a complete ban on the entrance of a particular good or service into the country). This would sustain the current jobs which depend on being a member of it. Moreover, as accounted for by the source, the EU sells a lot more to us than we sell to them. In 2014 there was a trade deficit exceeding £50bn with a current account deficit of nearly £100bn-a current account deficit being a situation where the value of our imports exceeds the value of our imports-therefore the EU would like to maintain such trade with the UK, and therefore be willing to allow us free trade. The website goes on to say that the EU must make a trade agreement with a country that leaves the EU. Lastly, the website points out that the World Trade Organization, (hereafter WTO), would guarantee the trade upon which most of the jobs which could have been lost rely on. However, after researching this website, I cannot see it as a valid source due to its biased and persuasive nature; therefore I see this as unreliable. Imposing a free trade agreement would be a long process, and other EU nations may decline that proposal, as they may think we cannot pick and choose which rules the UK wants to follow. Similarly, even though the EU must make a trade agreement with a country that leaves, it appears unlikely that we would be granted free trade without the other regulations that come with it. Finally, it is true that the WTO would protect most jobs in the short run, but in the long run most of those jobs would become unsustainable due to reduced investment and eventually be lost. If this were the outcome, many jobs would be expected to be lost and the UK could potentially even fall into another recession. A recession is a decline in economic growth for two consecutive quarters of the year, and would mean further job losses to the UK economy which would affect the welfare of almost every UK citizen, as more people would be placed on benefits. In addition, those people who successfully maintained their jobs may have to pay higher taxes in order to fund the increased benefits needing to be paid. In fact, as seen on the BBC website, http://www.bbc.co.uk/news/uk-politics-20448450, millions of jobs could be lost as global manufacturers move to lower-cost EU countries. Britain’s large foreign-owned car industry might shift into the EU and sectors linked to EU membership would also suffer. Conversely, there is a chance leaving the EU could actually create jobs. In fact, small and medium sized firms freed from EU regulations could cause a jobs boom. Pulling out of the EU could create a million jobs, and I see this as a reliable source because it gives both sides of the argument. However, I personally think this is unrealistic if we can’t maintain free trade, as many jobs dependent on the EU would be lost.
Overall, from a jobs perspective, it is uneasy for me to see whether the UK leaving the EU would have a positive or negative impact on jobs. It depends on whether we would be guaranteed free trade with EU nations despite not being in the EU. If we were, then I believe the number of jobs in the UK would increase, as we would be free from EU regulations. For example, were we to reduce minimum wage, employers would probably employ more workers, and perhaps more companies would have greater productivity (output per worker), due to the reduced business costs of lower wages which would increase the welfare of people inside the EU. However, were we not able to ensure free trade, I believe this would be pretty damaging to the number of jobs in the UK, as big businesses would move to other EU countries in order to maintain that free trade which currently exists. Whether we retain free trade or not, though, there will still be an element of risk to what happens to jobs in the UK. As seen in the diagram below taken from https://www.gov.uk/government/news/record-breaking-number-of-people-in-jobs, the UK employment level has risen pretty consistently as of 2010, reaching over thirty million in the third quarter of 2013. The website, which I trust to be a reliable source due to it being run and maintained by the government, also states that wages are increasing by 1.3 per cent annually, whilst inflation is at 1.2 per cent annually, there’re the real income f the average person is increasing. At such a time for the UK where jobs are increasing and less people are claiming unemployment related benefits, it appears to me that such a risk as leaving the EU is an unnecessary one to the UK, and therefore in terms of jobs, I do not think the UK should leave the EU.
Using, my primary research, I have found out one of the main reasons we wish to leave the EU is the increased legislation and so called “red tape.” When the UK first joined the EU, the main reason was for free trade. However, since then, it has become increasingly about legislation and workers’ rights put in place by the European parliament, which a lot of businesses feel that if we weren’t in the EU we wouldn’t have otherwise put in place. For example, our membership has affected the workers’ minimum wages, and whilst this may be good for the workers themselves, as they have a great deal more rights than they used to have, businesses argue that this has gone too far, and that there is now far too much legislation. It could be argued that the increased legislation is preventing the UK from remaining competitive with countries outside the EU, who might have much lower minimum wages than those which we must currently offer. This means non-EU countries may be able to produce more goods or services at a lower average cost, therefore gaining a greater rate of economic growth. For example, newly-industrialised countries growing at a rapid rate such as China and South American countries don’t have the same restrictions, and this is one of the main reasons we would want to leave.
I am in agreement over this issue, and I think if we left the EU we would be in a much stronger position to control the rules and regulations we put into practice within society, which would greater benefit the country as a whole and most likely make people living here better off. This is one reason why the UK would want to leave the EU.
On top of this, it could be argued that leaving the EU would give us more control over our borders. This is because a rule of membership of the EU is the free movement of labour between all EU countries, this means that a resident of any EU nation can move to different EU nation and work there. But over the past years we have been a member of the EU, it has been seen that the UK experiences a lot more immigration than it does emigration. This is mainly due to its high wages and generous benefits system. However, many British people find it unfair that foreign people can come to the UK and attain a job. It is thought that if we left the EU it would give us greater control on the type and amount of foreign people entering the country. On the other hand, the British government may point out that many unskilled jobs need to be filled and not all British people are prepared to do them, and many immigrants will fill those spaces. Furthermore, immigration could be seen as a good thing for the economy. In an article by the guardian, http://www.theguardian.com/uk-news/2013/nov/05/migration-target-useless-experts , it shows a study has taken place that suggests since the year 2000, migrants have contributed £25 billion to the UK economy. The study goes on to say that migrants are less likely to receive benefits or use social housing than people already living in the UK, However the article goes on to say that since the year 1995, migrants have claimed more in benefits than they have paid in taxes. Then again, many think you should put more emphasis on the last 10 years as it is more recent and so is more relevant. I see the Guardian as a fairly reliable source because it is a British daily newspaper. However, it is known to be fairly left wing so I feel this source may be a little biased as staying within the EU is a mainly left-wing standpoint.
My opinion on immigration is that from an economic standpoint, immigration is a good thing for the UK economy. As suggested by the source shown above, if immigrants are paying more on taxes than they are receiving in benefits, while participating in the labour market, then they are making a positive contribution to the UK economy and therefore the average person living in the UK will be materially better off. The UK must be careful with the amount of people that immigrate to the UK to ensure there are not too many people for the amount of jobs available, and that the immigrants have the suitable skills to fit those jobs, but as long as the UK does that I believe that the free movement of labour is a good think for the UK, therefore we should stay in the EU for this reason.
Exports and Imports:
Another reason the UK might seek to stay within the EU is because the EU is the UK’s biggest export market. The UK has a high proportion of its international trade with EU nations, so the EU is heavily relied upon to bring about international trade for the UK, in order for companies in the UK to grow bigger and potentially become multi-national companies. The reason why the EU is so important for this type of international trade is because the EU puts in place regulations which mean no tariffs or quotas for trade between EU nations. This allows a UK good or service to be more competitive with foreign goods or services, because there are fewer taxes they have to allow for when setting a price. If we leave the EU we may lose this right to free trade with EU countries, which is seen as imperative because for a number of years the UK has operated under a current account trade deficit. This means that the value of goods and services imported into the UK exceeds the value of its exports, therefore representing a cash flow out of the UK economy. This is specifically because the UK is such a highly developed country that its residents have a high disposable income, and consequently demands a high variety and quality of goods and services from outside the UK. For example, the Apple iPhone is an import highly-demanded by UK residents, and the purchase of one leads to money going out of the UK economy and to the United States of America. For this reason, the UK being a member of the EU is seen as crucial in order to increase our exports to try and compensate for this balance of trade deficit which the UK currently has. In addition, from a consumer standpoint, membership within the EU is exceptional at providing a greater choice in goods or services than without international trade. The free trade means businesses from different countries can sell their good or service in other EU countries at the same price (ignoring the exchange rate), giving them greater incentive to work more efficiently and productively in order to gain a greater profit. As it is more competitive, we would also expect to see a greater quality, and at a lower average cost. However, from a firm’s point of view, cheaper foreign imports could drive UK businesses out of the market. The UK is known to work predominantly in the service sector; most of our exports are services to foreign countries, in particular financial services. Consequently, we import a lot of goods from other countries, and our membership in the EU will only make it harder for a UK company which produces a good to grow. Furthermore, it could be said that too many firms in one market will prevent any one market growing large and benefiting from lower average costs and making greater profit. From an economic standpoint, whether or not we should leave the EU ultimately depends on our current account. If we are importing more from EU countries than we are exporting, perhaps it would be better if we were to leave the EU. Then again, as mentioned earlier, a lot of UK exports are to the EU. Furthermore, even if we left the EU, it probably would not affect the amount we import, we would probably continue to pay but at a higher price. Ultimately, exports are a component of aggregate demand, so a decline in exports if we left the EU would see a decline in aggregate demand, provided all other things stay the same. A reduction in aggregate demand would see a smaller economic growth within the economy. This would be expected to affect everybody within the economy, perhaps in the form of lower material living standards. Then again, leaving the EU could open new doors for trade for the UK economy. As mentioned earlier, perhaps we could trade more with the rapidly growing economies such as China and India. It has been thought that recently the UK has not chosen wisely who it trades with. In order for our economy to become richer many think we need to trade with these growing economies rather than the likes of Germany and France which tend to be slowing down somewhat. Membership within the EU could be off putting trade with developing nations which we could import more from at a cheaper expense, but maintaining a high quality. Finally, another option the UK has in order to increase exports without leaving the EU would be to change the exchange rate in order to make the pound weaker. Making the pound weaker will make UK exports appear cheaper to foreign markets, so the ability of our exports to compete abroad is better. However, making the pound weaker would make imports appear more expensive, so if the UK continued to export as much as it already does, the amount of money we spent would override all increased money gained through increased exports.
In summary, I think the UK does need to do more to encourage trade links with the rapidly emerging markets, the likes of China, India and Brazil. Whether the UK needs to leave the EU in order to achieve this trade tough, I am not so sure. I think the UK should be able to balance trade with these emerging markets alongside the positive free trade it already has with EU countries, therefore it should stay in the EU.
Foreign Direct Investment:
Furthermore, if we left the EU, it is widely thought that the amount of foreign direct investment (FDI) would decrease. The UK is known to receive a large amount in FDI, due to people having confidence in the economy and it being a hotspot in Europe. https://www.gov.uk/government/news/uk-wins-a-record-number-of-investment-projects-and-maintains-position-as-top-investment-destination-in-europe shows how the UK is the number one destination for FDI in Europe, and in 2014-2015 it resulted in over 100,000 jobs being created, and the value of the accumulated stock passed £1 trillion, the highest in Europe. I trust this to be true because it is a statistic from the government so I am fairly sure it can be relied upon, but I am still cautious as they might try to slightly spin the figures to make the information sound more believable. Moreover, the current government is Conservative, who tends to want to stay in the EU, in order to protect this FDI, which is so valuable to the economy in order to balance our current account deficit we currently operate in. Then again, the source gives evidence of three of the four top foreign direct investors in the UK are the United States, India and China, with 564, 122 and 112 projects set up in the UK respectively, creating over 50,000 new and safeguarded jobs between them. These are non-EU countries which suggests leaving the EU might not have a huge impact on FDI in the UK. On the contrary, the UK’s membership within the EU attracts this foreign direct investment, mainly because non-EU countries wishing to gain access to the single market through the UK are likely to invest in the UK. However if the UK left the EU those countries such as the USA, India and China might move to a different EU country in order to maintain access to that single market.
This is a clear reason why the UK would want to stay in the EU, and is certainly a significant one, due to the serious amount of money foreign countries are spending, mainly to get access to that single market the EU brings us.
If the UK were to leave the EU, it is accepted that the government would have more control over the country’s rules and regulations, there would be less “red tape” as mentioned earlier. The UK has been identified as one of the countries with a relatively low productivity over the last few years, therefore if they had more control over regulations they could, for example, lower minimum wage and therefore have a higher productivity, (output of a worker in a given time period), which would contribute a positive effect to the economy in the form of lower average costs. Our exports would become more competitive, where we have also struggled over recent years, which would lead to an increase in aggregate demand and consequently an increase in real GDP within the economy, meaning everyone on average would be materially better off. Furthermore, if minimum wage was lowered then businesses would feel more inclined to employ more workers, leading to a lower unemployment level, meaning we would be closer to full capacity (everyone in work in the economy), which would be very good for the economy.
This is a strong argument for the UK to leave, as there is a belief that outside the UK we would be more able to change things and do things better without having to make sure it follows the rules, in which case our economy would be expected to work more efficiently and so we would all be, on average, better off. We would have more freedom to do what benefits the UK alone, rather than what affect it will have on all the countries within the EU, therefore this is a reason we should leave the EU.
Perhaps one of the biggest arguments is that the UK needs greater control over who can actually migrate into the UK. As it currently stands, anyone from an EU nation can pass easily from their home country to the UK. The UK therefore is one of the countries which experiences a lot of this immigration. This means some people are concerned others have come from foreign countries just to claim benefits, and this has even led to social frictions and sometimes violence in the UK. If the UK could put in place some sort of points system, similar to that of Australia, where only workers with specific and required skills were allowed to enter the country, then it is thought that might work better as they would contribute more to the economy. Once again, this is dependent on the EU making negotiations with the UK, which is no guarantee. Conversely, perhaps immigration is fine for the UK as it is. The source shown earlier suggested perhaps only a few immigrants claim benefits, and the others are penalised due to the actions of only a few. Many immigrants are of working age, and so their potential contributions should not be underestimated, and furthermore, as mentioned before, the UK needs people who will perform low paid jobs. This information about migrants paying more in taxes than receiving in benefits will be crucial for the UK in an attempt to increase its austerity, (cuts in public expenditure) in order to bring down its high national debt, (the money it owes to foreign countries from borrowing). A high national debt is fairly dangerous for an economy as businesses are notorious for getting nervous in these times and reducing their investment, which in turn we would expect to reduce gross domestic product, (the total value of goods and services produced in an economy). Furthermore, the UK has to pay interest on its debt, so more taxation from migrants could be crucial in trying to clear some of that debt. On top of that, many migrants may be willing to do jobs others wouldn’t be prepared to do and so help businesses to grow. This is an argument for immigration as it would benefit the economy and therefore perhaps we should stay in the EU.
The other thing to consider is that an agreement could be made. The UK often looks to the system which Switzerland adopts, where they still have the benefits of free trade but people cannot easily go and live in Switzerland. The UK may look to conduct a similar agreement, as many people in the UK do not like the fact that anyone living in an EU country can come and move to the UK. But the EU countries, however, might argue we must continue to have free movement of labour, and insist we cannot choose the rules we do and do not want to abide by, because that is unfair. They might be able to forfeit our trade completely, and therefore force us into making a difficult decision. However, this appears unlikely, because the trade between the UK and the EU is so profitable to the EU, so they may be willing to make a deal.
As seen in http://www.telegraph.co.uk/finance/11233188/The-EU-is-good-for-business-says-Siemens-UK-boss.html, the head of Siemens believes the EU is good for business in the UK, and that instead of simply leaving the EU, reforms need to be made. The article goes on to say how this uncertainty over whether the UK is going to remain in the EU is causing several negative consequences for the UK economy. In the article, it gives the examples of businesses planning investment, small business considering exporting to a new market and entrepreneurship all giving being endangered by uncertainty about continued membership of the EU. This suggests the situation the UK currently finds itself in is quite problematic to the economy because it is diverting attention away from benefiting the economy, so could be damaging.
Very recently in the news, a meeting took place between David Cameron and European Council President Donald Tusk, to discuss an agreement with the EU. http://www.bbc.co.uk/news/uk-politics-32810887 explains the new regulations. One of the main ones is that child benefits paid to migrant worker will now reflect the cost of living in their home country rather than the UK. Another change is that the UK can limit benefits to migrants in their first four years of living in the EU. Along with others, these polices will persuade many people we should stay in the EU, and reducing the amount of benefits migrants receive is a change which many people will be pleased about. On the other hand, some people expected more drastic changes; the changes taking place are not expected to save the UK that much money relative to total GDP within the economy. However, the changes will help, and most likely convince many people we should stay in the EU.
Even though it depends on a lot of things; not all the statistics and figures I have used in this project can be seen as completely trustworthy and accurate, I personally believe that the UK should stay in the EU. The UK is a member of countries, where it is given a status in world politics that cannot be ensured outside of the EU. If it were to leave, there is a general consensus that the UK would become more and more irrelevant and lose its power, and therefore may not grow and be left behind by the much faster growing economies. I think it is important to stress I have come to this conclusion purely from an economic standpoint. For example, I argued that the free movement of labour is a reason for us to stay in the EU, as figures showed that immigrants were paying more in taxes than they were receiving in benefits. I did not, however, consider potential social costs to the UK of immigration, such as those of language barriers and potential disharmonies within communities of having a different culture of people.
Another aspect of this decision is the longevity of it. If for whatever reason leaving turned out to be a mistake, it would not be a fast process to re-join the EU. On top of this EU countries could vote against us re-joining, as they may have reservations that we could just leave again. Following the reforms made recently I expect the UK to vote to stay in the EU, from which point I believe businesses will be able to work more efficiently and invest more knowing the situation the UK places itself in. Ultimately the risks of leaving outweigh the potential positives if we left; it is such an enormous decision that is simply too damaging a gamble to the UK economy if it turns out to be the wrong decision to leave.