In brief: UK-EU economic relations key

statistics
Standard Note:

SN06091

Last updated:

15 October 2014

Author:

Daniel Harari, Matthew Keep and Dominic Webb

Section:

Economic Policy and Statistics

This note sets out, in brief, some of the main indicators of the UKs economic relationship
with the EU.

Contents
1

Cost-benefit analyses of EU membership

Trade and investment

2.1

Trade

2.2

UK jobs associated with EU trade

2.3

Investment

UK contributions to the EU Budget

Cost of EU regulation to the UK economy

Appendix: data on UK trade with Europe

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Cost-benefit analyses of EU membership

There is no definitive study of the economic impact of the UKs EU membership, or

equivalently, the costs and benefits of withdrawal. Framing the aggregate impact in terms of
a single number, or even irrefutably demonstrating that the net effects are positive or
negative, is a formidably difficult exercise. This is partly because many of the costs and
benefits are, in certain respects, subjective, diffuse or intangible; and partly because a host
of assumptions must be made about the terms on which the UK would depart the EU, and
how Government would fill the policy vacuum left in areas where the EU currently has
competence.
Any estimate of the effects of withdrawal will be highly sensitive to such assumptions, and
can thus be embedded with varying degrees of optimism. This perhaps helps to explain why
the wide range of estimates from the EU cost-benefit literature can appear influenced by the
prior convictions of those conducting the analysis.

Selected estimates of the net benefits to the UK of EU

membership
annual recurring cost/benefit as a proportion of GDP
N.B. the conclusions from the studies are not precisely comparable; see notes
below for further details

Civitas, 2004b
UKIP, 2010a

US International
Trade Commission,
2000e

IEA, 2005c

European
Commission,
2002f
BIS, 2010h

NIESR, 2004g

IOD, 2000d

0.8
-6%

-4%

-2%

0%

2%

4%

6%

8%

a UK Independence Party How much does the European Union cost Britain? Based on conclusion that for 2010, the combined
direct and indicrect costs of EU membership will amount to... 77 billion net
b Civitas A cost too far? Most likely estimate of annual cost is put at 4% GDP per year
c Institute for Economic Affairs (Minford et al) Should Britain leave the EU? Midpoint of estimated range of 3.2-3.7 per cent of
GDP in ongoing costs
d Institute of Directors EU membership whats the bottom line? Estimated net cost of 1.75% GDP per annum
e US International Trade Commission The impact on the US economy of including the UK in a free trade agreement with the
US, Canada and Mexico Estimate refers to the impact on UK GDP (-0.02%) of the UK withdrawing from the EU and joining
NAFTA
f European Commission The internal market ten years without frontiers. Estimate refers to the impact on EU GDP of the
existence of the internal market
g National Institute of Economic and Social Research The macroeconomic impact of UK withdrawal from the EU. Estimate
refers to the permanent impact on the level of GDP of the UK withdrawing from the EU
h Department for Business Innovation and Skills, written evidence to Lords EU Select Committee inquiry into Re-launching the
Single Market. Estimate refers to the trade benefits of EU membership since the early 1980s and refers to impact of
membership of income per capita. Based on argument that EU countries trade twice as much with each other as they would do
in the absence of the Single Market programme and OECD estimates of the impact of trade exposure on income per capita.

Most studies that find a significant net cost to membership take a static approach, calculating
the various impacts fiscal, regulatory, trade-related etc. in a given year and summing

them to produce an overall cost. Those that look forwards generally judge that the process of
harmonisation and integration taking place in the EU will exacerbate the costs identified in
the static analysis. Those studies that find a net benefit tend to look at the longer-run effects
of the UK being a member of the EU versus some more restrictive trading arrangement, with
gains accruing each year in the form of higher trade flows and foreign direct investment
serving to offset the clear fiscal cost. No recent study has seriously tested the sensitivity of its
findings to alternative assumptions or counterfactuals, or attempted to model the impact of
alternative policy scenarios or trade relationships following the UKs withdrawal.
Whether or not the UK would benefit economically from being outside the EU, withdrawal
would have significant impacts on certain sectors (e.g. farming, which currently receives
subsidies under the Common Agricultural Policy) and in certain areas (e.g. west Wales,
which is currently eligible for the highest level of regional funding from the EU budget). How
the UK Government of the day filled the gaps in economic policy left by withdrawal from the
EU would have an important bearing on its consequences.

Trade and investment

2.1

Trade

Goods trade
In 2013, the UK exported 155 billion of goods to other EU member states. This is equivalent
to 50.5% of the total. Goods imports from the EU were worth 221 billion (53.1% of the total)
in 2013. The UK had a deficit in trade in goods with the EU of 66.4 billion in 2013.1
Goods and services trade
Looking at trade in both goods and service, the EU remains a major trade partner for the UK.
The EUs share of UK exports and imports has, however, fallen over the last decade. In
2013, 45.1% of the UKs goods and services exports were to other EU countries. This share
has fallen from 54.8% in 2002. 50.6% of the UKs goods and services imports came from
other EU countries in 2013, down from 57.5% in 2012.2

EU 27 share of UK exports and imports

Goods and services
70%
60%

Imports

50%

Exports

40%
30%
20%

10%
0%

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: ONS Pink Book 2013, Table 9.3

1
2

ONS Statistical Bulletin, UK Trade, August 2014, 10 October 2014, Table 3

The data behind the chart are in the Appendix at the end of this note.

Overall, the UK had a balance of trade deficit of 44 billion with the EU in 2012. The UK had
a deficit in goods trade but a surplus on trade in services.
UK trade with EU 27 (goods and services)
2012, billion

Goods
Services
Total
Source:

2.2

Exports

Imports

Balance

150.1
72.0
222.1

206.4
60.2
266.5

-56.2
+11.8
-44.4

ONS Pink Book, Tables 9.3, 9.4 and 9.5

UK jobs associated with EU trade

Both the present and the previous government have stated that over 3 million jobs are linked,
directly or indirectly, to the export of goods and services to the European Union. For
example, in a speech in June 2014, the Chief Secretary to the Treasury, Danny Alexander
said:
Indeed, the latest Treasury analysis shows that 3.3 million British jobs are connected to
Britains place in Europe.3

Under the previous Labour Government, a figure of 3.5 million was quoted:
Mr. Clifton-Brown: To ask the Chancellor of the Exchequer what estimate he has made
of the number of UK jobs which are contingent upon UK exports to the EU. [180268]
Angela Eagle: The Government estimate around 3.5 million jobs in the UK are linked,
directly and indirectly, to the export of goods and services to the European Union. 4

The methodology behind this estimate was explained in the following PQ:
The estimate of 3.5 million jobs linked to trade with the European Union is based on
the assumption that the share of UK employment linked to trade with the EU is equal to
the share of total UK value added (GDP) generated in the production of goods and
services exported to the EU.
The calculation uses data from UK Input-Output tables to estimate the proportion of UK
value-added content generated in exports of goods and services and applies this to the
values of UK exports to the EU. This is then divided by total UK GDP and the resultant
proportion then applied to the total UK labour force to estimate the proportion of the
labour force linked to EU exports on a value-added basis.5

It is important to note that this estimate is the number of jobs related to trade with other EU
member states. This is not the same as saying that over 3 million jobs are dependent on the
UKs EU membership, since some trade with EU countries would take place even if the UK
withdrew from the single market. In response to a Freedom of Information request, the
Treasury made this point, telling Open Europe that the 3.3 million figure was not an estimate
of the impact of EU membership on employment.6
3
4
5
6

Speech to Centre for Transatlantic Relations, 26 June 2014

HC Deb 21 January 2008 c1565W
HL Deb 10 February 2014 c96WA
HM Treasury, FoI response to Open Europe on jobs related to trade with the EU, 24 July 2014

2.3

Investment

In 2012, EU countries accounted for around half the stock of foreign direct investment (FDI)
in the UK (467 billion out of a total of 936 billion). The EU accounted for 49% of the flows
of inward FDI into the UK. The EU accounted for 47% of the stock of UK FDI abroad. 7

UK contributions to the EU Budget

The UKs net contributions to the

EU Budget since 1973 are
shown in real terms in the chart.
Gross and net contributions, and
receipts from the Budget are
shown in the table below. More
details on the EU Budget can be
found in the Library Standard
Notes EU Multiannual Financial
Framework (MFF) 2014-2020
and The EU Budget 2007 2013.

UK annual net contributions to EU Budget

bn, real terms, 1973-2013 and OBR forecasts 2014-18
10

As with other Member States,

1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
2017
the UKs gross contribution to
the EU Budget is a function of -2
VAT receipts, gross national income, customs duties and sugar production. Uniquely among
the Member States, the UK has benefitted from a rebate (abatement) on its EU Budget
contributions since 1985. This is calculated according to a formula which in essence means
that the UKs net contribution is reduced by 66%, relative to what it would be without the
abatement. However, certain elements from the Budget are excluded from the 66%
deduction, including EU overseas aid, and from 2009 non-agricultural expenditure in new
Member States. This latter development, the effect of which has been phased in up to 2011,
largely accounts for the sharp increase in the UKs net contribution.
UK net contributions to the EU Budget 2007-2013
million
Gross
contribution

2007
2008
2009
2010
2011
2012
2013

12,456
12,653
14,129
15,197
15,357
15,746
17,184

Negotiated
refunds

Abatement

Total contribution
(after abatement
and refunds)

Public sector
receipts

8,933
7,791
8,737
12,150
12,214
12,636
13,861

4,332
4,497
4,401
4,768
4,132
4,168
5,237

3,523
4,862
5,392
3,047
3,143
3,110
3,324

Net Contribution
(Gross contrib ution refunds and ab atement pub lic sector receipts)
4,601
3,294
4,336
7,382
8,082
8,468
8,624

Note: 2013 are estimated, all other data based on outturn

Source: HM Treasury, European Union Finances , latest edition published November 2013, Cm 8740

ONS, Foreign Direct Investment Involving UK Companies, 2012 (MA4), 6 February 2014, Tables 6.1, 5.1 and
3.1

Forecasts of the UKs future net contributions under the EU Budget are given in the table
below.

Net contribution to the EU Budget, Financial Years, 2012/13 to 2018/19

billion

Net contribution

Outturn
2012/13

2013/14

2014/15

Plans
2015/16

2016/17

2017/18

2018/19

9.7

9.0

9.1

9.4

9.5

8.5

9.3

Source: Office of Budget Responsibility. Economic and fiscal outlook supplementary fiscal tables - March 2014, Table 2.21

Cost of EU regulation to the UK economy

This is not readily quantifiable. The British Chamber of Commerce Burdens Barometer
attempts to estimate the costs of EU regulations. The 2010 edition suggests that the
recurrent annual cost to UK businesses from EU-origin regulations implemented since 1998
is 7.5 billion, and the cumulative costs (since 1998) have been 55 billion.8
The figures are based on the Governments impact assessments, which are produced for
each new regulation. By the BCCs own admission, the benefits associated with these
regulations are not fully accounted for because these are only rarely quantified in the impact
assessments: such benefits might arise, for instance, through having one set of rules for the
common market, through improved safety standards or through enhanced environmental
protection. Moreover, it is arguable that many of the EU-origin regulations would have been
implemented at national level anyway in the absence of a parent EU directive.
In November 2013 the CBI published a report on EU membership. On the issue of regulation,
this said:
Business is clear that any Single Market needs commonly agreed rules, to allow full
access to the market on equal terms. Removing non-tariff and regulatory barriers
between member states is one of the most important features of the European Single
Market, and the UKs ability to influence and improve these rules increases the ability
of British firms to compete. Competitive and respected EU rules can also open up new
markets to UK firms without having to duplicate standards as other regions often
design their own rules around EU benchmarks. Despite frustrations, over half of CBI
member companies (52%) say that they have directly benefitted from the introduction
of common standards, with only 15% suggesting this had had a negative impact.
However, the impact of poorly thought-out and costly EU legislation is a major issue for
businesses: 52% of businesses believe that, were the UK to leave the EU, the overall
burden of regulation on their business would fall. Areas where UK firms are frustrated
with EU regulation include labour market regulation, highlighted by nearly half of
businesses as having had a negative impact with particular frustrations around the
Temporary Agency Workers Directive and Working Time Directive.
The EU needs to make sure that all regulations (new and revised) will support Europe
and the UKs growth working in a global context and for businesses of all sizes and
be adequately assessed and well evaluated to ensure they deliver against their
objectives.9

8
9

British Chamber of Commerce, Burdens Barometer 2010 Accessed 31 January 2013

CBI, Our Global Future The Business Vision for a reformed EU, November 2013, p11

Appendix: data on UK trade with Europe

UK trade with the EU (goods and services)

UK exports
to EU
billion

Total UK
exports
billion

EU share of
UK exports
%

2002

153.4

280.0

54.8%

177.9

309.3

57.5%

2003

154.9

293.1

52.9%

183.2

319.0

57.4%

2004

159.6

305.8

52.2%

191.3

338.8

56.5%

2005

176.1

339.8

51.8%

211.5

375.4

56.3%

2006

209.9

387.6

54.2%

237.4

422.8

56.2%

2007

191.1

380.5

50.2%

225.4

417.2

54.0%

2008

213.0

429.8

49.6%

241.2

462.3

52.2%

2009

193.6

402.2

48.1%

220.3

425.5

51.8%

2010

210.7

447.3

47.1%

244.2

480.1

50.9%

2011

232.0

492.9

47.1%

260.7

516.1

50.5%

2012

222.1

492.8

45.1%

266.5

526.7

50.6%

Source:

ONS Pink Book 2013

UK imports EU share of
from EU UK imports
billion
billion

EU share of
UK imports
%