21 October 2015

The latest CBI report on the UK’s EU membership is a bit of a mixed bag. There are some signs of improvement but its remains superficial and prone to clichés. Compared to research from the British Chambers of Commerce and the Institute of Directors the push for reform sounds rather hollow, with the report itself lacking depth and insight into what businesses actually believe or want to see from the EU. It also falls foul of a number of questions Open Europe posed for the Remain campaign last week. Overall reading it you are left rather underwhelmed and with the distinct feeling that the Remain camp will have to broaden out beyond the CBI if it is to bring new, hard hitting analysis to the campaign and convince undecided swing voters. Below are some of the key points, both good and bad, in the report.

  • Reiterating flawed figures – As Open Europe pointed out in its 10 questions for each side of the EU referendum campaign last week, the stat that on average UK households benefit by £3,000 per year thanks to EU membership is based on limited and selective analysis. As such it is disappointing to see the CBI reiterate this figure. It is indeed hard to estimate the value of EU membership but that does not mean that weak figures should be bandied around by either side. A organisation of the size of the CBI with the resources it has should invest some real time and effort in credibly estimating the value of the single market or just admit it doesn’t know and focus on more general points.
  • Highlights need for reform – This has been a positive shift in the CBI recently and not just confined to this report. It is at least being more frank about the need for the EU to reform and refrained from giving the EU an unqualified endorsement. Nevertheless, it also has to acknowledge that calls for reform remain a bit hollow if you have already committed all your members to backing staying in.
  • False choice on Europe – While it is clear the CBI was trying to be pithy, one of the more infuriating lines in the report is: “But just as ‘more Europe’ isn’t the answer to every question, neither is ‘no Europe’”. This referendum is not about yes or no to Europe. It is about the nature of the UK’s relationship with the EU and to an extent, as the British Social Attitude survey noted today, “about what kind of country Britain can and wants to be”. I don’t think anyone is arguing for no Europe or no relationship with Europe.
  • Life outside the EU – The CBI is right to highlight the challenges outside the EU and the exact relationship which the UK would have with the EU outside. As we pointed out last week, this is one of the main questions for the Leave side. As we also noted in our Brexit report, none of the off the peg models look to work particularly well for the UK. However, this line is undermined somewhat by the statement above – it is confusing to talk of no Europe but then also highlight that outside the UK would have a trading relationship with the EU. Similarly, there is also talk of tariffs applying outside the EU, though it is later specified this would only happen if the UK decided to fall back on the World Trade Organisation rules.
  • Nuanced line on immigration – The CBI has traditionally been an unashamed advocate of immigration and while it makes a strong business case for immigration it also notes that the free movement of people “should be a freedom to work”, “not a right to claim benefits”. It also “recognises” that increased migration “can put pressure on public services”.
  • Swallowing EU lines on the EU budget – While the CBI calls for EU budget reform it comes across as awfully hollow. For example, it repeats the EU line that “45% of the EU budget was spent on ‘growth and employment’” last year. ‘Growth and employment’ here is defined by the EU and actually refers mostly to spending on regional funds. As we have explained in detail, these funds largely amount to a huge recycling of cash amongst richer member states and even when they are deployed in areas where needed, they can be poorly targeted. This is doubly poor from the CBI, not only does it underplay the huge reform of the EU budget needed and its continued waste, but it also swallowed lines from the European Commission without any critical analysis or thought.
  • Right that the EU should focus on trade – I agree with the sentiment that “creating jobs should be the EU’s raison d’être”. So far on the Remain side there has been a bit too much focus on the role of the EU securing peace and harmony in Europe. While this may well be true, it has been secured and the implied alternative is that without the EU we would return to war. This is clearly nonsense, so greater focus on defining a new reason for being for the EU, with trade and economic growth being the obvious one, is welcome.
  • Mixed messages on services – The report strikes bit of a confused line on services. On the one hand it praises the single market for allowing firms to sell their goods and services to 500m people but then also (rightly) notes that the market for services  “is not complete and progress has been disappointingly slow”. Improving the single market on services could bring a big boost for the UK and if done via the country of origin principle (as proposed by Open Europe) would not require a significant harmonisation of standards. Even just implementing the Services Directive (which the UK largely does already) would deliver a significant boost and therefore be in the UK’s favour.
  • Role of Foreign Direct Investment (FDI) needs more examination – As many do, the CBI also mentions the role EU membership plays in driving FDI into the UK. This is an important area but it needs much more investigation. How big a role does EU membership play in driving FDI? Furthermore, how does FDI feed into economic growth and does it crowd-out domestic investment? These are important questions on which there has been little research.  On top of this the CBI warned last year that even holding an EU referendum would put investment at risk. Yet as its own paper notes, FDI is at record highs in the UK, so there is little sign of the uncertainty filtering through.
  • Safeguards for non-Eurozone countries matter to business – We have long argued the importance of safeguards for non-Eurozone states due to the Eurozone caucus. The CBI has finally picked up on it and seems to have realised that the Eurozone writing single market rules for all EU 28 would probably not be positive for the UK. Having the backing of some businesses should help push the case in the EU negotiations.