In's Sins

CBI’s £3,000 figure should not be taken as gospel

by Sam Ashworth-Hayes | 05.02.2016

Are British households £3,000 better off each year from being in the EU? The Confederation of British Industry (CBI), which originally produced this figure, has now reaffirmed it in updated research. This conclusion will no doubt be welcomed by Stronger In, for whom the figure has become totemic in its campaign to keep Britain in the bloc.

While £3,000 is a reasonable ballpark estimate of the benefits of membership, it should not be used by Remain campaigners as a precise measure of what we gain from the EU. Nor should it be used to predict the cost of Brexit.

In some ways the CBI’s new paper is better than the original publication, which was justly criticised for being opaque. To many observers, it looked like the business lobby group had plucked a figure out of thin air. The new report shows exactly how the £3,000 figure was put together.

The latest research also, to a large extent, deals with another criticism of the original report: that it was spuriously precise. The CBI’s review of 12 studies (compared to five in the original review) led it to the conclusion that the net benefit to the UK of its EU membership has been 1%-9.5% of GDP – or “around 4%-5%”.  The middle of that range in turn translates into £3,000 per household.

The CBI adds: “There is an unavoidable degree of uncertainty over this judgment, and the benefit may be smaller, but it could also be considerably larger.”

If people read the full report, they will realise that the £3,000 figure is a ballpark, not gospel truth. It’s difficult to see how it could be anything else, not least because it’s hard to work out what Britain might look like if it had not joined the EU in 1973. The snag is that many people who use the CBI’s estimate are likely to treat £3,000 as a magic number.

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Another risk is that campaigners may use the figure as an estimate of the cost of Brexit. On this score, the new CBI report is again better than its predecessor which left the meaning of the £3,000 number ambiguous. Its own president used it earlier this year to indicate the cost of quitting the EU.

The new report doesn’t pretend to measure the cost of Brexit. But it would have been more helpful if the CBI had categorically stated that this wasn’t an indication of what Britain would lose by leaving the bloc.

We simply don’t know what the UK would look like outside of the EU. So much would depend on what trading relationship it cut with its former partners and how acrimonious the divorce was. Given that these are points the Remain campaign has been making effectively, it wouldn’t be to its advantage to muddy the waters and suggest that there is a precise estimate of the cost of Brexit.

There are still questions over exactly how strong the CBI’s methodology is. It seems that it may have included some of the benefits of being in the EU, such as attracting foreign direct investment and boosting competition, twice. On the other hand, the business lobby group may have over-estimated the cost of regulation. These errors may roughly balance one another out.

As Professor John Van Reenen, Director of the Centre for Economic Performance at LSE, whose research was cited in the CBI’s review, told InFacts: “5% isn’t an unreasonable estimate of the benefits of UK membership of the EU, particularly once the dynamic effects of competition and investment are taken into account. It’s slap in the middle of the range we found in our 2014 Report which we are currently updating”.

Edited by Hugo Dixon