As the UK voted to leave the EU in a referendum held on 23 June 2016, we are mothballing Sceptic.eu for now. While the website will remain online for reference purposes, it will not be updated unless the 'Brexit' process falters.

For richer, for poorer

Please accept my resignation. I don't want to belong to any club that will accept me as a member.
Groucho Marx, on resigning from an exclusive club

The question of whether the United Kingdom wins or loses economically from its membership of the European Union has never been adequately answered, as no government has ever completed a proper cost-benefit analysis of EU membership since the UK joined in 1973. The coalition government's Review of the balance of competences was conducted between 2012-2014 and stopped short of this too. Although the task is indeed complex, it is unacceptable that the benefits of membership have simply been deemed "self-evident" by successive governments. What is certainly clear is that the total cost calculation must take into account very much more than just the UK's direct payments to the EU's budget. The EU coyly says that its budget is "very small ... at about 1% of the EU countries' gross domestic product". This supposedly modest sum still amounts to the massive sum of €960 billion over the next budgeting period of 2014-2020. But as you will see below, the budget contribution is only around a tenth of the total financial burden incurred by the UK.

Despite the UK government's negligence and various independent attempts to assess the value of the EU's single market, studies of the full direct and indirect economic impact of the EU's operation are rare. The two most comprehensive works are those of the respected economists Tim Congdon and Patrick Minford et al. The following table shows the breakdown of what the EU really costs the UK according to Congdon's analysis for 2015, in terms of gross domestic product (GDP):

Nature of cost% of GDPRationale
Direct fiscal cost The basic "fees" for EU membership, comprising direct payments to EU institutions over which the UK government has no further control. Can be derived accurately.
Costs of regulation The EU's huge and complex acquis communautaire is sacrosanct, and its directives and regulations must be obeyed by every member state. Resultant costs also include: reduced employment due to 'Social Chapter'– type legislation, cost of renewables agenda and financial regulation, and businesses closed because of substance and procedure regulations. Also note that UK regulations are estimated to be 2½ times more cost effective than EU laws.
Costs of resource misallocation Between ½–1% caused by the Common Agricultural Policy (CAP). Remainder of at least 2½% arises from other EU protectionist policies which prevent the UK from trading freely with the rest of the world. Protectionism, especially regarding agriculture and manufactured imports, raises prices for UK consumers and reduces output from producers.
Cost of lost jobs Around 700,000 Eastern Europeans took advantage of the UK's labour market opening from 2004, losing the jobs of over 100,000 UK-born people. The labour market opened further in 2014 to Bulgarians and Romanians.
Costs of waste, fraud and corruption Includes, for example: the Common Fisheries Policy (CFP) causing fish discards and the effective gifting of UK fishing rights to other nations; waste under the Common Agricultural Policy (CAP); waste of over-prescriptive water standards; and abuse of the UK student loan system.
Potential costs of contingent liabilities ¼ Costs of 'health tourism' and 'benefits tourism', plus some allowance for possible recapitalization of EU institutions.
Total cost 12 Conclusions:
The UK is about 12% of GDP, namely an astonishing £190 billion per year, or £520 million a day, worse off because of its membership of the EU. The EU is costing the average household in the UK over £7,000 a year, or almost £3,000 for every citizen.
The basic EU "club membership" costs the UK about £54 million gross per day, or around £30 million net when the UK rebate (negotiated by Margaret Thatcher), subsidies and EU-approved project funding are taken into account.

So, the UK is today about a tenth worse-off than if, like Norway and Switzerland, it had never joined the EU. Congdon has also evaluated how the UK would benefit from leaving the EU. There would be immediate advantages to stopping membership payments and stemming the haemorrhaging of welfare, healthcare and education resources. Then in addition, living standards would steady benefit from greatly reduced regulatory costs, lower food bills, lower energy and utility prices, cheaper clothing, greater ease of employment, and so on. As truly free trade was established again with the world as a whole, the economy would move to a higher growth path.

Not so free trade

The 'single market' was the original raison d'être of the EU, but it has never been a free trade area. It is a highly regulated internal market and a customs union based on the notion of European "harmonisation". The UK cannot negotiate trade deals for itself - we have to leave it to the EU. The EU may be big enough to have negotiating clout, but the UK has only 8% of the votes that decide EU trade policy, so our priorities and best interests are often overridden. While member states of the EU enjoy tariff-free imports and exports among themselves, the rest of the world is subject to import tariffs and other protectionist measures which severely hinder the freedom of trade and genuine competition.

The EU sells to the UK far more than they buy from us, resulting in a longstanding trade deficit with the EU and especially with Germany. The deficit in trade in goods with the EU was a massive £66.4 billion in 2013. The UK's trade deficit with the EU is currently about double that with the rest of the world, and it is worsening. UK exports to the rest of the world are already worth a third more than UK exports to the EU and are growing twice as fast too. But of course, the UK cannot fully exploit the developing markets because it is hamstrung by the EU customs union.

There are numerous multilateral and bilateral free trade agreements throughout the world which an independent UK could seek to rejoin or use as a basis to develop new arrangements. In addition, the EU's economy is declining relative to the rest of the world, and that of the eurozone has already been overtaken by the growing Commonwealth with 16% of the world's GDP. The freedom to directly negotiate trading partnerships with the Commonwealth, comprising 53 member states over 5 continents and 2⅓ billion citizens, would be hugely advantageous to the future economic prosperity of the UK. Further, it is estimated that shared language, legal and accounting systems in the Commonwealth could reduce trading costs by up to 20% for UK businesses.

As over 6.5 million EU jobs depend on trade with the UK, the EU has every incentive to continue its highly profitable trade with us, regardless. Although around 3-4 million jobs in the UK nominally depend on EU exports, they depend primarily on trade and not on EU membership. All the evidence is that employment, so far from being threatened if the UK left the EU, would revive strongly with the liberalisation of commerce and the relief of enterprise from the burden of excessive EU employment and business regulation. The EU has at least one and a half times as many jobs 'at risk' as the UK in the unlikely situation that they choose to initiate a full-scale (and illegal) trade war if we exit the EU. Recent studies such as that by the Institute of Economic Affairs investigated the myth of EU-dependent jobs and firmly concluded that: "We can say with certainty that 3-4 million jobs are not at risk if the UK leaves the EU." Also, see The Scaremongers report on this topic.

Wasting away

The politicians and bureaucrats which constitute the euro-elite are one stage further removed from the democratic processes which hold national governments and their civil servants in check. This remoter accountability and a feeble European Parliament have allowed the EU to develop into an inefficient and profligate leviathan which squanders vast sums of taxpayers' money. With flabby self-discipline and an enduring inability to recognize or learn from its own mistakes, it is inevitable that the EU has also encouraged fraud and corruption on a grand scale. Even when our elected politicians do wake up to the need to stem the EU's financial incontinence, we see only token improvements implemented. The European Court of Auditors has admitted that there are "too many cases of EU money not hitting the target or being used sub-optimally". What follows is only a handful of examples of how the EU squanders your money; there are many others worth researching (for example, see Open Europe's 100 examples and another 50 examples of waste and fraud).

  • Enshrined in treaties and fiercely defended by the French, the monthly relocation of the European Parliament from Brussels in Belgium to Strasbourg in France costs over €200 million per year. The cost of the extra buildings needed cost €457 million, and the travelling circus of around 766 MEPs, 3,000 staff and 25 trucks generates an estimated 20,000 tonnes of carbon dioxide every year. Although an increasing majority of MEPs in favour of ending this pointless expenditure, the French remain unabashed, and any change would require the unanimous decision of the European Council.
  • The EU's Common Agricultural Policy (CAP) has become notorious, and rightly so, with the budget for farming subsidies and rural development taking the largest bite - 43% or €57.5 billion - of the total EU budget in 2013. Despite some reforms, CAP spending remains irrational and grossly disproportionate to the EU's GDP. CAP payments mostly benefit large agri-businesses and rich landowners, with the French receiving the lion's share of 17% (compared to the UK's paltry 7%). In the UK major corporate interests, public sector organisations and charities benefit rather than small, marginal farms. Rural development spending is particularly vulnerable to abuse, according to the auditors, with almost 8% of the money being mismanaged, embezzled, used improperly, or otherwise "mistaken". Over half the rural development transactions checked were dodgy or iffy in some way. It has been estimated that the CAP inflates the average UK family's food bill by somewhere between £400 and £1,000 per year.
  • Every year since 1994, the European Court of Auditors has refused to fully sign off the EU's accounts because of "errors of legality and regularity". Independent studies of fraud levels in the EU estimate a figure of between 10% and 20% of the EU budget. However, the Commissioner for Home Affairs recently revealed that the best estimate is that €120 billion is lost each year to corruption in the member states of the EU, almost the equivalent of the whole annual EU budget. In public procurement, around 20% to 25% of the public contracts' value may be lost to corruption. A Court of Auditors report in 2006 found that over half of EU funded projects in Bulgaria and Romania were "not operating as intended", eurospeak for "the money has been stolen". The situation does not appear to be improving, since in 2008 the European Commission suspended €487 million of aid to Bulgaria because of concerns about corruption, and in 2009 a senior World Bank figure described Bulgaria's level of corruption as "mind-boggling". But never mind, one family business is doing splendidly with EU support: the mafia in southern Italy. A Court of Auditors investigation concluded that the mafia made €60 million profit from EU tobacco policy, and Europol warn that the mafia's increasing investment in wind farms allows them to launder criminal earnings and benefit from generous EU subsidies. In 2012 police confiscated €350 million worth of assets from one of Europe's largest wind farms in southern Italy, after it was linked to the mafia. A VAT scam within the EU's Carbon Emissions Trading Scheme was even funnelling money - probably £millions - to Al Qaeda terrorism.
  • The Common Fisheries Policy (CFP) has been one of the most dysfunctional of all the EU's policies, causing appalling damage to fish stocks and the fishing industry, especially in the UK where it does an estimated £2.8 billion of damage annually. Discards - fish thrown back, usually because they are of an unwanted species or size - account for around a quarter (others say a half) of total EU catches. Most of the discarded species die. With an estimated 80% of Mediterranean stocks and 47% of Atlantic ones overfished, the EU is finally trying to reform the CFP, too late for the decimated UK fishing industry.
  • Europa BuildingThe unsightly edifice of the Europa Building in Brussels will house the European Council and the Council of the European Union, with halls for summits and meetings of EU officials and diplomats. Built as a state of the art glass and wood wing to an existing Art Deco building, the complex is focused around a bizarre womb-like central structure. It will cost at least €315 million, including 15% contributed by the UK, and the project is running 4-5 years late. This may possibly be the ultimate vainglorious example of the EU's extravagance.
  • Galileo is the EU's global satellite navigation system, intended to be an independent rival to the USA's GPS system. Now running eleven years late, shunned by the private sector, and severely censured by the European Court of Auditors and the UK House of Commons Transport Committee, its total cost to the public purse is likely to exceed €20 billion. Recent tests hint that Galileo may prove particularly useful for guiding the missiles of France's independent nuclear deterrent, while cocking a snoot at the Americans.
  • Through its public relations, the EU is always careful to appear to offer value for money in the ways it manages its affairs. However, it has been reliably estimated that the European Commission actually spends €5.8 billion on administration, or over 75% more than its advertised budget (using 2012 figures). Further analysis of the budgets for 2013 and 2014 suggest that recent cost-saving pledges by the EU may be rather illusory.

All aboard the EU gravy train

UKIP has researched the remuneration and benefits of EU officials in detail, compiling a 'rich list' which reveals that:

  • The top 200 EU officials (and an estimated 10,000 in total) are all paid more than the UK's Prime Minister.
  • The average rich list official receives 10 times more money every year than the average UK worker.
  • On average, officials on the rich list each pay £50,000 less tax than they would in the UK.
  • In total, just the top 200 EU officials cost the EU taxpayer over £50 million yearly.
EU salaries are not subject to national income tax. Instead, a 'Community tax' is levied progressively at a rate of between 8% and 45% of the taxable portion of the salary. On an average salary, the EU tax due is around half that which would be levied in the UK. Staff who have left their home country to work for the EU enjoy a tax-free 'expatriation allowance' equivalent to 16% of basic salary. Other tax-free perks include: household allowance, dependent child allowance, educational and pre-school allowances.

The impressive earnings of some of the EU's leading lights are discussed elsewhere. The table below shows the yearly cost (salary + benefits + allowances + pension) to the taxpayer of certain categories of EU officials. Note that most of these are minimum costs for the category; a good many individual post-holders cost considerably more.

PositionInstitutionCost
Advocate-General / JudgeCourt of Justice of EU£284,238
CommissionerEuropean Commission£276,942
ChairUK Referendum Task Force£274,083
JudgeEU Civil Service Tribunal£262,646
MemberEuropean Court of Auditors£244,284
DirectorEuropean Investment Bank£236,582
Executive Board MemberEuropean Central Bank£213,496
Director GeneralDirectorates-General (various)£204,678
Member (MEP)European Parliament~ £200,000

The above costs are based on the last available figures for 2014/2015, and will be even greater now as all 55,000 EU civil servants have benefited from a 2.4% salary rise, backdated to July 2015. This is despite the EU's poor performance in dealing with the inundation of illegal migrants and the continuing eurozone crisis.

Bailouts bend the rules

The eurozone crisis has badly affected several EU member states, particularly southern countries such as Greece, Italy, Portugal, Spain and Cyprus, plus Ireland. The continuing inability of some of these states to pay back their sovereign debts still threatens the stability, nay the very existence, of the euro and the future of the EU's Economic and Monetary Union (EMU). Determined to save the euro at any cost, the EU indulged in some serious bending of its own rules - the articles of the Lisbon Treaty - to bail out the debtor states. Christine Lagarde, former French finance minister and now head of the International Monetary Fund (IMF) admitted: "We violated all the rules because we wanted to close ranks and really rescue the euro zone ... The Treaty of Lisbon was very straight-forward. No bailout."

Although the UK is not in the eurozone, the cost to the UK of bailing out euro debtor states has been estimated at £22 billion (£900 for every family in the UK), contributed either directly or through the IMF. Ireland, Portugal, Spain and Greece have all benefited from our largesse, and the EU-led bailout of Cyprus is costing the UK over £38 million. Ironically the eurozone crisis and subsequent bailouts are widening the rift between the rich and poor member states of the EU, as some northern eurozone countries such as Germany, Finland, Austria, Netherlands and France have actually profited from lower borrowing costs.

In 2012 the European Stability Mechanism (ESM) was launched to provide a permanent financial 'firewall' for the eurozone. Its shareholders are the 19 eurozone member states, so the UK is not directly involved. €500 billion of funds are available for sovereign bailout loans, bank recapitalisations, precautionary financial assistance, and so on. Between 2008-2016 a total of €488 billion has been/will be paid to prop up the euro, and no doubt the ESM will continue to add to this grand sum.