A quick summary

1. Presentation to CSFI lunchtime seminar ‘Should the City worry if the UK left the EU?’ by Tim Congdon CBE – 12th November How much does the European Union cost Britain?

2. A quick summary • Direct fiscal cost • Costs of regulation • Costs of resource misallocation, and • Miscellaneous insults • 1% of GDP • 5% • 3 ¼% • ¾% I will spend a lot of time here talking about ‘Cost of regulation’, particularly as they affect ‘the City cluster’ of industries.

4. Civitas Blog Classical liberal comment on the news and current affairs Mandelsonadmits that EU regulation costs 4% of GDP In a speech to the CBI Peter Mandelson, the EU Trade Commissioner designate, said that EU red tape cost about 4% of GDP. It was partially offset by a 2% addition to GDP, which he attributed to the Single Market. Having admitted that the EU is a drag on our economy, he then goes on to say that the solution is to give the European Commission even more power!Postedby David Green on November 9, 2004 3:36 PM | Thank you, Lord Mandelson!

5. Evolution of UK financial regulation • Self-regulation under the law, associated with functional differentiation (i.e., banks are banks, brokers are brokers, jobbers are jobbers, etc.), few conflicts of interest and a large mutual sector. Bank of England an informal lobbyist for City interests in Whitehall, but bank credit subject to severe restriction. • Self-regulation under statute – 1986 Financial Services Act with the SROs, coincided with ‘Big Bang’ and functional conglomeration in international financial services (i.e., ‘the City’) (i.e., the capital of one organization supports commercial and investment banking activities, ‘bancassurance’, etc.), extensive demutualisation.

6. Evolution of UK financial regulation • Comprehensive regulator for all activities from 1997 at UK level, with Financial Services Authority, modelled – loosely – on the USA’s SEC. Marked functional conglomeration (emergence of HCFIs, or ‘highly-complex financial institutions) and increased internationalization of the regulatory framework. Internationalization partly because of boom in cross-border inter-bank lending. Bank of England a large-scale economic research department rather than a bank.

8. Evolution of UK financial regulation • Crisis from 2007 marked by extreme uncertainty, but with two apparent trends, • Further internationalization of regulation, with national regulators often surprised by extent of loss of power, and • Reaction against conglomeration, with a realization that conglomeration creates conflicts of interest and (so it seems) perverse cross-subsidization within HCFIs.

9. Evolution of UK (?) financial regulation • Lisbon Treaty specifies three regulatory ‘pillars’, with • European Banking Authority in London, • European Securities and Markets Authority in Paris, and • European Insurance and Occupational Pensions Authority in Frankfurt.

10. Evolution of UK financial regulation • Meanwhile law and tax relating to the financial sector remain – to a considerable extent – ‘national’ across the EU. Tax, in particular, is local – and the design of financial products is heavily influenced by tax arrangements. • ‘English law’ used in many international contexts, outside the EU, and keeps its ‘common law’ character, e.g., in such places as Hong Kong and Singapore.

12. ‘The City’ as a financial centre • In the early 1960s American banks began to open representative offices and then branches/subsidiaries in London to escape Fed’s cash requirements and Regulation Q, while ‘Eurobonds’ invented by…, well, someone. • In 2012 Chinese banks decide not to develop business in London, because of costs of regulation, including various balance-sheet controls, while ‘Eurobonds’ under attack by EU authorities (understandably) for many years, as tax evasion.

13. But who is to blame? And isn’t the City wicked anyway? • But is the EU to blame for the end of the City boom? Or is it largely self-imposed? • My point is that – inside the EU – the British government does not set the rules for the conduct of financial business in the UK, and cannot do so. • I realize that many people – journalists, plumbers, industrialists, archbishops and so on – see the financial sector as inherently wicked and unproductive, so that nothing is lost by restricting it. • Well, quite.

15. The insults • Destruction of jobs because of immigration from the EU8 • Common Fisheries Policy – ‘do you know what a tonne of discarded fish looks or smells like?’ • Boom in spending on Euro-politico jollies, via pan-European political parties (‘brass-plate political parties’) • ‘Benefits tourism’ • ECJ fines because our government breaks the acquiscommunautaire

16. A quick summary 1. • The total cost to us of our membership is about 10% of what we produce and receive in income each year. If we had been independent and sovereign over the last 40 years, that is how much better-off we would now be. • The average British household is over £5,000 a year worse-off because of our EU membership than if we were independent and sovereign, like Australia or Canada, or Norway or Switzerland. (The direct fiscal cost is much less, at about £750 a year.)

18. Hence, ‘A quick summary’ 2. • Direct fiscal cost • Costs of regulation • Costs of resource misallocation, and • Miscellaneous insults • 1% of GDP • 5% • 3 ¼% • ¾%

19. Economics of our EU membership basic in the public debate My hope/intention is that this will become an annual publication; it is to be a statement of the economic case for withdrawal, constantly updated to allow for the extra cost of the latest batch of directives and regulations from Brussels and Strasbourg, and to reflect the latest research.

20. Some conceptual problems • The problem of the ‘counter-factual’ • The ambiguity of the notion of ‘cost’

21. The nature of the exercise • I am not claiming to have the final answer. • I don’t in fact think that there is a unique ‘final answer’. • Nevertheless, I believe that my answer has emerged from a fair sample of the best available evidence, and can be defended readily on the bases of logic and fact. (The paleolithic fruitcakes are on the other side.)

22. The paleolithic fruitcakes are on the other side.