The validity of UKIP’s argument that Britain should leave the EU and become “independent”

Today's post will focus on the definition of ‘independence’, as provided in a speech delivered by David Bannerman Campbell,[1] deputy leader of the United Kingdom Independence Party, as well as debates in the House of Lords surrounding the European Union (Implications of Withdrawal) Bill.[2] The argument presented in favour of independence from the EU by the UKIP peers, Lord Pearson of Rannoch and Lord Willoughby de Broke, focuses predominantly on the democratic deficit inherent in the EU, overregulation, the possibility of applying the Swiss model to Britain, the potential conflict between NATO and the European Security and Defence Policy, the economy and the costs associated with membership. It is therefore necessary to assess each argument in turn in order to appropriately assess the feasibility of British independence from the EU.

The Democratic Deficit
Lord Pearson has argued that British democracy has stealthily been removed from domestic control and surrendered to the European Court of Justice and the EU legislature. Lord Willoughby de Broke has elaborated this point by stressing that because Community regulations simply pass through Parliament without the need for transposition into the legal system or prior debate in either House, the 2,100 regulations adopted in 2006 constitute a part of the destruction of British parliamentary democracy. Furthermore, Lord Vinson argues that “the mechanism which enables change” is effectively being handed over to Brussels, as the electorate’s power to directly influence the legislative process or to seek redress from a local Member of Parliament has been eroded. However, these arguments suggest that the only way to ensure the legitimacy of the EU is through processes at the supranational level which are equal to those found within the nation-state. This alone may invalidate the argument as the EU deals disproportionately with issues which modern democratic states often delegate to other national bodies in order to efficiently achieve more effective outcomes. Furthermore, it can be argued that the democratic deficit exists at the level of the member states, as any country would normally regulate its internal market without taking into account the preferences or concerns of the millions of potential consumers beyond its national boundaries. As such, the EU’s free movement rules coordinate the laws of all member states by integrating the concerns of non-nationals into the national regulatory framework, as they oblige host-states, the recipients of imports from other member states, to justify their regulatory preferences against a background “which includes appreciation of their impact on affected constituencies who are not otherwise represented in domestic political processes.” The creation of a transnational economy therefore requires a form of governance which restricts harmful regulation at the national level, to prevent the partitioning or fragmentation the Common Market, but also supplements the democratic activity of the member states at the European level to accommodate the entire market. Therefore, as members of a transnational economy of scale, the parliaments of all member states must accept regulations and directives, yet they still retain the ability to justify barriers to free trade in terms of meeting a public interest requirement, as stated in Article 30 EC. It is therefore apparent that UKIP’s arguments concerning the democratic deficit and the dismantling of British parliamentary democracy are largely exaggerated.

Overregulation
However, whilst it may be said that directives and regulations affecting issues such as the evaluation of statistics or the access of poultry to open-air runs have a relatively low salience in relation to domestic issues for the majority of the public, the overall effect of overregulation may be detrimental to the competitiveness of the British economy. Lord Howell of Guildford has said that the cost of compliance with regulations to British businesses since 1997 has risen by £55billion, three-quarters of which originate from the EU. Furthermore, David Campbell Bannerman has stated that the EU has imposed over 120,000 directives and regulations on the UK, with a further 3,500 added each year. He argues that the EU Financial Services Action Plan currently costs the City of London £23billion annually, and risks burdening the financial market to the extent that it may become unattractive for companies to invest in Britain. The Lord Mayor of London also agrees that convergence with Europe will increase prosperity nation-wide, but only if over-regulation is avoided. The changes to be enacted through the EU reform treaty, such as extending qualified majority voting to new areas, reducing the number of commissioners and empowering the European Parliament, may prove detrimental to the City, as unlike other major sectors such as telecommunications, manufacturing or chemicals production, which are evenly distributed across the Union, the European financial sector is heavily concentrated in the UK. Inevitably therefore, the changes brought about by the reform treaty will make it more difficult in the future for the British government to ensure that the financial market remains loosely-regulated by forming a blocking minority, due to the fact that 55% of Europe’s wholesale financial markets are located in only two member states; the UK and Germany. As such, it is in the British national interest to ensure that the economic reform agenda adopted by the EU remains the UK-backed agenda which is designed to produce a more dynamic, liberalised and competitive market. Baroness Rawlings has argued that Britain aims for the EU to become an open, outward-looking and internationalist organisation, which should focus on building an alliance with the members of the North American Free Trade Agreement in order to tackle global free trade by 2020. Furthermore, she states that Britain must lead the EU to develop a programme of deregulation to become a flexible market, with low tax and free enterprise. However, Britain would lose all ability to influence the evolution of the Union if it were to leave and follow the example of either Norway or Switzerland, as advocated by UKIP.

The Swiss Model
In response to a recent interpellation, the Swiss government revealed that as a non-member of the EU, it is restricted to merely seeking to influence formation of new Community legislation which affects the sectors involving Swiss bilateral agreements with the Union. However, when legislation affects Switzerland, experts from the Swiss government may participate, in a limited manner, in certain working groups and committees of the Council of Ministers. On the other hand, in areas where the participation of Swiss experts is not allowed, the Commission pledges to consult them before the legislative act is created. Nevertheless, in both cases, even though Switzerland contributes financially to the EU budget, Swiss government officials are denied any voting rights.

According to Baroness Ludford, having realised that they have no say in the development of policies affecting immigration, asylum, internal security and foreign policy, as well as the single market, Switzerland is likely to join the EU by 2010. However, recent disputes between the Commission and the Swiss government are likely to prevent Switzerland from seeking accession to the Union. The Swiss Federal Council has declared itself opposed to any laws which may damage the country’s appeal as a location for businesses. A low tax burden, simple tax system and special fiscal status have allowed Switzerland to attract over 20,000 holding companies, which employ approximately 150,000 people. This advantageous system has lead to concerns from the Commission about capital flight, as the constitutional right of each Swiss canton to set its own corporate tax rate has triggered intense competition at the cantonal level, causing cantons such as Obwalden to lower their corporate tax rates to 6.6%, and thereby attract 376 new companies in 2006. One such company was Kraft, the world’s second largest food manufacturer, who relocated its European headquarters from London and Vienna to Zurich. It is therefore apparent that the Swiss economy is highly dependent on niche markets, as well as its highly competitive tax system, which is regulated by the cantons and is not subject to the free trade accord established in 1972. Switzerland also argues that its low corporate taxes cannot infringe EC competition laws as it is not a member of the Union. Arguably therefore, comparisons with Switzerland are misguided as they would simply not benefit from membership of the Union. Consequently, this scenario of independence applied to the British case would suggest that, with extremely limited British influence and no voting power, the City of London would risk becoming subject to “the more heavy-handed regulatory style of continental countries and... greater political influence.” Moreover, it has been acknowledged by eurosceptics that if the City were to become unattractive to foreign investors, jobs would migrate out of London. As such, it can be said that withdrawal from the EU would not only greatly reduce the ability of Britain to govern itself, but could be detrimental to the British financial sector; a sector worth 10% of the national economy, which has been “responsible for 30% of overall GDP growth over the past three years.” It has also been said that the City of London’s importance as a major global financial centre has allowed British politicians to “punch beyond Britain’s weight.” Clearly therefore, membership of the EU is the most effective way to protect the UK economy from the adverse effects of regulations designed by member states with a far smaller portion of the European financial sector than Britain. Moreover, Swiss citizens may be deterred from voting against core EU measures in national referenda, such as extending the freedom of movement of persons to citizens of the newly recently member states, due to the so-called ‘guillotine clause’, which would force either party to terminate all seven bilateral agreements if core provisions are not incorporated into domestic law. Therefore, Campbell Bannerman’s intention for the UK to become like Switzerland and then begin removing the 120,000 directives and regulations which originate from the EU would inevitably mean mimicking Switzerland, or even maintaining any trading relationship with the EU, would be impossible. Arguably, lower competitiveness would also cause a decline in Britain’s role in the world.

The Enlarged Union
Lord Triesman acknowledges that the EU is the world’s largest trade bloc, and therefore a driving force in World Trade Organisation negotiations, as the member states act with a single voice, thereby amplifying their collective preferences on the world stage. He also states that working in collaboration with the other EU members greatly improves the efficacy of measures aimed at tackling international problems, such as climate change, terrorism and energy security. Lord Dykes also noted that the EU is a regional manifestation of globalisation, in which the members gain strength internationally through collective action, and thereby actually gain sovereignty. However, eurosceptics have argued that following the recent rounds of enlargement, as a member of the EU of 27 states, the UK’s votes have been reduced to 8.5% of the total voting strength. Whilst this is true, the UK has gained both politically and economically from the enlarged Union. It can be said that enlargement has reduced the dominance of the Franco-German axis and may therefore allow the UK to steer the course of the EU more towards its national interests. Furthermore, perhaps as a result of the few restrictions applied on migrant workers from new member states, the UK received more migrants than any other member state. As a direct consequence, there was a negative impact on GDP per capita in Britain for the first four years following enlargement. However, this trend is expected to reverse in the long term, with the greatest GDP increases expected in the British and Irish economies.

In economic terms therefore, enlargement was expected to boost the British economy by approximately £1.75billion. In contrast to the UKIP argument, commentators such as Timothy Garton Ash have observed that enlargement also eliminated any possibility of the EU ever becoming a federal superstate, and that following the rejection of the Treaty Establishing a Constitution for Europe, a more British Europe has emerged whose new preferences call for a deregulated, looser and free-trading Union. Moreover, the EU does not have the administrative capacity or legal mandate to undertake the fiscally demanding competences of the nation state, which remain the areas of greatest public concern and therefore national competences. The argument delivered by Lord Pearson of Rannoch that the process of integration will most likely result in the EU becoming a totalitarian state, should therefore be discounted as it is highly improbable that 27 sovereign states would wish, and agree, to relinquish all forms of self-determination in favour of supranational governance, especially as no common demos exists across the continent. Furthermore, it can be said that the twelve new member states also favour a more flexible Union, and that Poland and the Czech Republic in particular are opposed to any desire of France and Germany to continue to dominate the Union as they did before enlargement. Moreover, Baroness Symons has recognised that a lack of British influence in negotiating reforms concerning the common agricultural policy would lead to consequences felt not only domestically, but around the world. In addition, a lack of influence within the EU would arguably reduce the value of Britain as an ally to the United States of America.

NATO
An area which is of great importance to Britain’s international role is the European Security and Defence Policy. Members of UKIP have argued this policy will lead to the duplication or undermining of NATO. However, duplication is not entirely counter-productive and would in fact be beneficial to the whole alliance in areas such as air transport, in-flight refuelling, global positioning system guided ordnance, or conventional air launch cruise missiles. Nevertheless, concerns of a possible clash grew on both sides of the Atlantic following the rift between the US and France in relation to the Iraq War. The governments of France, Germany, Belgium and Luxembourg were in favour of establishing a core European Defence Organisation which appeared to both exclude Britain, who had played a leading role in this area, and undermine NATO. The EU mission to Bunia in the Democratic Republic of Congo raised further concerns that the NATO alliance was being weakened, as EU ministers acted without holding discussions with NATO to establish which organisation was better equipped to deploy troops. Although American opinion had turned against the common defence programme, the compromise established between Britain, France and Germany was able to alleviate concerns about a developing rivalry to NATO. Alterations made to the draft constitution ensured that ‘structured cooperation’ could not be construed in a way which may allow a group of states to establish new institutions or headquarters. Furthermore, the mutual defence clause was substantially watered down and re-drafted to refer to NATO as “the foundation of members’ collective defence and the forum for its implementation.” Charles Grant, director of the Centre for European Reform, considers that the role of Tony Blair in the revival of the European common defence programme was vital, as he was able to reassure the US that the defence programme would not harm NATO or US interests. He states that in the area of European defence, British participation in the EU policy making process can steer member states onto a pro-NATO course in order to avoid the creation of a new multinational defence organisation which may rival NATO. It is therefore apparent that rather than jeopardising the UK’s ‘special relationship’ with the US, the British role of leadership in the area of the common defence policy, as revived by Tony Blair, ensures strong cooperation with the US by upholding Europe’s commitment to NATO.

Costs of Membership
The most sensationalised of UKIP’s arguments are perhaps those regarding the costs of membership of the EU. According to David Campbell Bannerman, the EU costs Britain a total of £52billion each year, of which £14.2billion is the membership contribution. Lord Pearson however states that the overall annual cost may be as high as £160billion, taking into account the CAP, transatlantic trade barriers and overregulation. He later claims that leaving the EU would create millions of jobs and allow the British economy to flourish. Furthermore, he has denied that 60% of British trade and 3million jobs depend on membership of the Union.[ However, according to the Treasury, the UK’s net contribution in 2006 was £3.9billion, which is estimated to rise to £4.7billion in 2007. Furthermore, for the first time, the current Financial Perspective provides the UK with an abatement which rises in value while the size of the budget decreases, thereby ensuring that the UK’s net contributions are approximately equal to those of France and Italy. It is therefore apparent that UKIP’s estimations, for example, that the CAP costs the UK £15bn a year, are exaggerated.

The Treasury has also stated that 40% of the EC budget is spent on CAP every year. This suggests that the 2007 EC budget of £85billion will allocate £34billion to the policy’s budget. This therefore, further demonstrates that UKIP’s figures are exaggerated, as they calculate the annual UK contribution to CAP as £15billion, which alone is over three times the actual net contribution of the UK to the EC budget. Furthermore, by 2013 the proportion of the EC budget to be spent on agriculture could rise to 55%, which according to the Treasury would prevent the Union from addressing the challenges associated with globalisation. Lord Pearson has argued that the EU’s share of world GDP is expected to halve from 22% in 2000 to 12% in 2050, while NAFTA will maintain its share. The Treasury also confirms that the share will decrease.

Lord Pearson attributes this decline to a technology deficit in relation to the US and demographic decline in continental Europe. In contrast, the Treasury believes it is due to the rapid growth of the Chinese and Indian markets and the outsourcing of goods and services from Europe and America to Asia. Whilst it is true that the eurozone’s workforce is ageing more quickly than elsewhere in the world, the Economist reports that the overall population will fall by seven million people, as opposed to Lord Pearson’s estimate of “the entire present working-age population of Germany.” Nevertheless, it is believed that the fall in the workforce will hamper the eurozone economy and “add to its fiscal pressures”, but this may not lead to a decline in wealth, as UKIP would suggest. However, withdrawal from the Union would, as Baroness Ludford has commented, lead to a 2.25% decline in GDP, which would force wages to fall in order to avoid a surge in unemployment. According to the Department for Business, Enterprise and Regulatory Reform, the EU GDP is 1.8% higher than it would have been without the common market, boosting the EU economy by £588billion over the period of ten years. This has lead to increased foreign direct investment (FDI), rising from £15.4billion in 1992, to £106.5billion in 2005. It has been said that Britain received approximately 30% of the total FDI in the EU, thereby creating two million jobs in the UK. By the end of 2003, the UK attracted 19% of the total FDI in the EU. Furthermore, around seven thousand American and Japanese companies have taken advantage of the UK’s access to the common market by establishing firms in the UK.

Furthermore, the investment made by British companies in the EU has also risen from £11.5billion in 2004 to £17.3billion in the EU in 2005. The Foreign and Commonwealth Office has stated that 57% of total British trade is with the EU, which equates to 62% of British exports. The intention of David Campbell Bannerman to remove all EU directives and regulations, re-establish the primacy of Westminster and review all cases judged by the ECJ, apart from being extremely costly and time-consuming, would risk jeopardising not only the economic benefits, but also benefits to private citizens which are founded upon the four freedoms. Liberalisation policies, such as the EU’s air transport liberalisation programme, have removed restrictions to national markets, opening them up to enhance competition and thereby equip them to avert crises and global challenges. David Miliband has also noted that the UK can respond better to global challenges for its citizens by collaborating with the EU. Whilst criticised by UKIP, the European Arrest Warrant is an example of such beneficial collaboration. According to the European Commission Justice, Freedom and Security Department, seven thousand arrests have been made under the warrant during the past year, which clearly demonstrates the increased ability of the EU member states to respond to threats facing their citizens. Cooperation with single member states will also allow Britain to suggest important themes for discussion at EU summits. Such an example of this collaboration can been seen in the recent joint letter written by Gordon Brown and Romano Prodi, calling on all EU leaders to increase cross-border cooperation on issues such as terrorism, global warming and immigration. This also suggests that if the UK were to leave the EU, it would deprive itself of any significant input into an effective forum for determining international responses to global threats facing itself and its allies.

In conclusion, ‘independence’, as defined by David Campbell Bannerman, would most likely make any trading relationship with the EU impossible. Adopting the Swiss model, as advocated by UKIP peers, would on the other hand allow trade to continue between Britain and the EU, but would expose the UK to regulations which, as a result of having no say on their content, may prove detrimental to the City of London and the UK economy as a whole. The removal of all regulations and reviewing the judgments of the ECJ would inevitably eliminate the possibility of trading with the Union. Furthermore, as a member, the UK benefits politically, from the Union’s collective voice, as well as economically, as it consistently receives the largest portion of FDI in the EU. Leaving the EU would jeopardise these benefits and hinder deregulatory reforms which would work in favour of the country. Britain should continue to contribute positively by leading EU-level reforms to create the outward-facing, flexible Europe that Europeans require to face the challenges of globalisation, as advocated by Gordon Brown, rather than leaving and thereby surrendering its economy to regulations and directives in which it has had no input. It is therefore apparent that, in today’s interdependent world, the UKIP argument is outdated and unrealistic.

[1] Campbell Bannerman, D, ‘Britain’s Relationship with the European Union’, Speech to the International Affairs Forum, Leeds University, 22nd February 2007

[2] UK HL, Parliamentary Debates, European Union (Implications of Withdrawal) Bill, vol. 692, col. 1359, 2.27pm – 5.22pm (8 June 2007) and vol. 650, col. 535 – 590 (27 June 2003)