Do the UK's European ties damage its prosperity?

Do the UK's European ties damage its prosperity?

Essay
Philip Whyte
30 April 2015

Eurosceptic claims that EU regulation and the protectionism of other member-states are holding back Britain's economy – and that withdrawal would be a liberation – are nonsense.

Philip Whyte was the CER's chief economist until September 2013. He died on April 15th 2015, 18 months after being diagnosed with incurable cancer.

Eurosceptics claim that EU membership has become a major drag on British prosperity. If the country left the EU, they argue, it would be freed of irksome continental influences like regulations and protectionism – and would thus become freer, more prosperous and truer to its globalising nature. In this CER essay, Philip Whyte demonstrates that these claims are profoundly misleading.

Whyte argues that eurosceptics misunderstand the nature of regulation and exaggerate the damage done to the UK economy by individual items of EU legislation; they pay insufficient attention to domestic regulations that damage growth more than EU ones; and they tend to reduce all supply-side issues to an excess of red tape:

* The OECD's indices of regulation show that EU membership has not turned Britain into a highly regulated place. Despite EU membership, Britain's product markets are the second least regulated in the OECD, and its labour markets are far more 'Anglo-Saxon' than 'continental' (see chart 1 and chart 2).

* Opponents of the EU pay insufficient attention to domestic policy failures. The most serious constraints on UK economic growth – namely the absence of a functioning housing market, poor infrastructure and a comparatively poorly educated adult population – originate at home rather than in Brussels.

* Britain is not a frustrated globaliser inside the EU. Opinion polls do not suggest that Britons are more supportive of free trade than their French or German counterparts. Nor are Britons more in favour of immigration. Freed of the obligations of EU membership, the need to assuage public concerns about immigration would trump economic logic and evidence.

Whyte concludes: 'The British economy would not collapse if the country were to leave the EU. But the opposite claim – that leaving the EU would be a supply-side liberation for the economy and that the UK would be more open to the world outside the EU than inside – is nonsense. The reality is that the EU keeps its members ‘honest’ by anchoring their behaviour. In this regard, Britain is little different from other member-states'.