Are the Single Market’s benefits imaginary?

One of the more curious aspects of UK membership of the Single Market is that successive governments have declined to monitor and measure its impact on the UK economy. Hence the Treasury’s study during the referendum was unable to cite a single source that had traced and analysed the benefits of the Single Market over time. Instead, it relied on a model to calculate retrospectively what these might have been, as the basis of fanciful predictions about the loss of GDP by 2030 if the UK left this market and traded under World Trade Organisation (WTO) rules.

Its final estimate was that EU membership had increased members’ trade in goods by 115.1 per cent, and in services by 24.1 per cent, benefits which it unwisely assumed the UK had also enjoyed. Actually, the Treasury had itself conducted an analysis in 2005 which is known only because of a freedom of information request. That had found that membership of the Common Market had initially boosted UK trade with the EU by 7 per cent. To this, the Single Market added “a further 9 per cent” for the UK, but a 38 per cent boost for some other EU members. Understandably, the Treasury report for the referendum chose not to mention this.

All the attempts over the years, and during the referendum campaign, to persuade the British people of the benefits of the Single Market were not based on hard evidence showing how it had helped UK exports, GDP, productivity, FDI or employment. Instead they referred to the evident convenience of intra-EU trading and its uniform product standards, to the benefits of the EU’s world-wide trade agreements, and claimed that these things boosted employment and foreign investment in the UK. All those now insisting that the UK should somehow remain in the Single Market continue with the same generalities, and decline to give hard evidence.

This may, however, be easily found, by anyone with access to the internet, in the databases of international organisations such as the OECD, UNComtrade, the IMF, the WTO, UNCTAD, the ITC and the World Bank. One key question is whether UK exports have benefited from the Single Market on the scale estimated by the Treasury. The databases of OECD, UNComtrade and IMF say they haven’t. UK exports to EU members grew at their fastest rate shortly before Britain’s accession in 1973, continued to grow rapidly—at a compound annual growth rate (CAGR) of over 6 per cent—during the Common Market years 1973-1992, and exceeded in value those of any non-member country. Since the Single Market came into being, by contrast, the growth of UK exports to other founder members has been decelerating, to 4 per cent by 2008 and just 1 per cent by 2015, and has been overtaken in total value by both the US and China. Those of 32 other non-members, meanwhile, have been growing at a faster rate.

Non-members trading under WTO rules do not appear to have been especially disadvantaged. The exports to the EU of 14 of the largest of them, excluding China, grew at a CAGR of 1.93 per cent over the years 1993-2015, or nearly twice the UK’s rate of 1 per cent. And trading under WTO rules has not hindered UK exports to the rest of the world over these years. They grew at 2.88 per cent.

Before searching for its benefits on services, one first has to ask whether a single market in services exists. By the EU’s preferred measure, the ratio of intra- and extra-EU service exports as a proportion of GDP, the answer is: barely. It peaked in 2007 and has been declining slowly since, so the services half of the Single Market is more rhetorical than real.

Limitations in the available data make it difficult to conduct a comprehensive analysis of this segment, but a comparison of the services exports to the EU of 27 members and 27 non-members over the years 2004-2012 suggests non-members have benefited from it as much as members. Their exports grew at a CAGR of 3.7 per cent, while members’ exports grew at 3.2 per cent. The UK’s extra-EU services exports also perform better than its exports to the other 14 founder and long-term members of the Single Market. Over the years 2000-2014, they grew twice as much, twice as fast and ended more than three times larger than UK services exports to fellow members.

International databases provide a continuous succession of similar rude and painful reality checks for those who think that the Single Market is an endless stream of economic benefits while trading under WTO rules would be a disaster. They consistently show that the Single Market has been of little or no benefit to the UK. Anyone can check the figures for themselves.

Michael Burrage is the author of the Civitas report "It’s Quite OK to Walk Away: A review of the UK’s Brexit options with the help of seven international databases"