BRIEFING PAPER Number 07213, 12 February 2016 Exiting the EU: impact in Edited by Vaughne Miller key UK policy areas Inside: 1. Introduction 2. Trade relations 3. Other economic impacts of EU-exit 4. Employment 5. Agriculture 6. Common Fisheries Policy 7. Environment 8. Energy and Climate Change 9. International development 10. Transport 11. Immigration 13. Human rights 14. Social security 15. Pensions 16. Health policy and medicines regulation 17. Higher education 18. Culture, copyright, broadcasting, sport 19. Consumer policy 20. Foreign and defence policies 21. The devolved legislatures www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary Number 07213, 12 February 2016 2 Contents Summary 5 1. Introduction 11 2. Trade relations 13 2.1 How does it work at the moment? 13 2.2 Statistics on UK-EU trade 13 2.3 Scenarios for EU exit 18 3. Other economic impacts of EU-exit 26 3.1 Foreign direct investment 26 3.2 EU Budget contributions 29 3.3 Immigration and the labour market 31 3.5 Restructuring and Insolvency 44 3.6 Public procurement 45 3.7 Financial services 45 3.8 Taxation 48 4. Employment 51 5. Agriculture 53 5.1 Common Agricultural Policy 53 A reduction in subsidies? 54 EU CAP simplification process 56 6. Common Fisheries Policy 59 6.1 Effectiveness of the CFP 60 6.2 CFP reform, 2014-2020 61 6.3 Balance of competences fisheries report 61 6.4 EU Exit 62 7. Environment 64 House of Commons Environmental Audit Committee Inquiry 65 8. Energy and Climate Change 73 9. International development 76 9.1 Development cooperation and humanitarian aid 76 10. Transport 80 11. Immigration 84 11.1 Controlling EU immigration 84 11.2 Border controls, non-EU immigration and asylum 87 13. Human rights 98 13.1 Overview 98 13.2 What are the EU’s human rights obligations? 98 13.3 Does the Charter of Rights give additional rights or remedies in the UK? 99 13.4 What if the UK withdraws from the European Convention on Human Rights? 102 Contributing Subject specialists in the House of Commons Research Service, Scottish Authors: Parliamentary Information Centre, National Assembly for Wales Research Service and Northern Ireland Assembly Research and Information Service. Cover page image copyright: Drapeaux, palais de Rajoy by Bernard Blanc. Licensed under CC BY 2.0 / image cropped. 3 Exiting the EU: impact in key UK policy areas 14. Social security 104 14.1 Welfare benefits 104 14.2 Access to social housing 107 15. Pensions 109 State Pensions 109 Workplace pension schemes 110 16. Health policy and medicines regulation 112 17. Higher education 116 18. Culture, copyright, broadcasting, sport 118 19. Consumer policy 122 20. Foreign and defence policies 125 20.1 Foreign policy 125 20.2 Common Security and Defence Policy 128 21. The devolved legislatures 138 21.1 Scotland 138 21.2 Wales 146 21.3 Northern Ireland 153 Number 07213, 12 February 2016 4 5 Exiting the EU: impact in key UK policy areas Summary UK policy areas and the impact of a UK exit from the EU Trade The EU is the UK’s most important trading partner. In 2014 it accounted for 45% of UK goods and services exports (£230 billion) and 53% of UK imports (£289 billion). The share of UK exports going to the EU has declined in recent years. In 2002 the EU accounted for 55% of UK exports. As the Review of the Balance of Competences put it, the central argument is whether the benefits of membership of a large trading bloc exceed the costs. Some argue that membership of the EU allows the UK to benefit from better trade deals than it would be able to negotiate on its own. On the other hand, EU membership entails some compromises and limits the UK’s ability to prioritise its own interests. Leaving the EU would allow the UK to set its own trade and investments policies but there could be costs in doing so on its own rather than as part of a group of countries. Overall economic impact The impact of withdrawal would be most felt in areas such as foreign direct investment (FDI), the UK’s contribution to the EU Budget and the effect of immigration on the labour market. There is disagreement as to the severity of the impact on FDI of a UK withdrawal. On the whole, it can be concluded that membership of the single market is one of a number of important determinants of FDI; but outside the EU, the UK may be able to establish a regulatory regime more favourable to overseas investors, which could offset the effect of its departure. The Government contributed an estimated £8.5 billion to the EU in 2015, around 1% of total public expenditure and equivalent to 0.5% of GDP. Although the UK is a net contributor to the EU, certain regions where living standards fall short of the EU average receive significant levels of support from the budget through the European Regional Development Fund and the European Social Fund, boosted by matched funding from government or the private sector. Withdrawal would leave a policy vacuum which the Government would have to fill to avoid certain regions and sectors losing out. Immigration and labour market If the UK wished to remain in the single market but outside the European Economic Area (EEA), like Switzerland, it would probably have to accept certain EU rules by arrangement. Whether these would include the free movement of people would depend on the outcome of UK-EU negotiations. Most studies on the impact of migration on the UK economy have found weak or ambiguous effects on economic output, employment and wages on average. However, impacts vary according to the characteristics of migrants and wider economic performance at that time, and across different groups of workers. Research on the impact of immigration on the public finances generally suggests the overall effect is small. Studies indicate differing impacts for migrants from inside and outside the EU, and for recent migrants compared to those who have been in the UK for longer. Business and financial services Number 07213, 12 February 2016 6 The argument centres on whether the benefits of having a more tailored and flexible national regulatory regime outweigh the loss of access to the single market that may come with pursuing an independent agenda. A huge amount of existing financial services regulation is derived from the EU. The UK has frequently led reform in this area. It is likely therefore that a significant amount of this legislation would remain post-withdrawal, though not necessarily in the same form or to the same extent. The majority opinion of City firms is that the UK should remain within the EU. Employment An EU exit could foreshadow significant change to UK employment law, much of which flows from Europe. The Government would face pressure from employers’ associations to repeal or amend some of the more controversial EU-derived employment laws, such as the Working Time Regulations 1998 and Agency Worker Regulations 2010. But trade unions would probably strongly oppose any perceived rowing back on rights originating from the ‘Social Chapter’. Withdrawal from the EU would allow for change to the following areas of employment law, which stem largely from Europe: annual leave, agency worker rights, part-time worker rights, fixed-term worker rights, collective redundancy, paternity, maternity and parental leave, protection of employment upon the transfer of a business and anti-discrimination legislation. Agriculture Departure from the EU and the Common Agricultural Policy (CAP) and its subsidy and regulatory regimes would have an impact on UK farms and their income. The CAP represents almost 40% of the EU budget and the largest element of the UK’s EU costs. Leaving the regime would probably reduce farm incomes, as past Government positions on CAP reform have indicated UK Government and Devolved Administrations may be unlikely to match the current levels of subsidy and/or would require more ‘public goods’ in return for support, such as environmental protection, which the UK Government views as the overarching market failure in this sector. However, it might bring wider benefits to the economy as a whole, as the UK would be free to negotiate bilateral trade deals with countries outside the EU and at the World Trade Organization (WTO), and would have more flexibility on pricing. Fisheries The failure of the Common Fisheries Policy (CFP) has led some to suggest that fisheries management would be more effective if the UK withdrew from the EU. One issue that would have to be determined from the outset of withdrawal is whether the UK would allow access by foreign vessels to the UK Exclusive Economic Zone (EEZ). If so, the UK would have to maintain a very close working relationship with the EU to enable the monitoring of landings and to co-ordinate on wider regulation in the sector. It would also have to agree some kind of mechanism for agreeing catch limits. If the UK decided to exclude foreign vessels and assume full responsibility for fisheries in the UK EEZ, there would be a number of implications for the UK and the management of fisheries in the area. Environment The environment is an area in which UK and EU law have become highly entwined. The effects of an EU exit would depend on whether the UK decided to lower, raise or maintain current environmental requirements in areas such as air and water quality, emissions, waste, chemicals regulation or habitats protection. If the UK left the EU, it would have 7 Exiting the EU: impact in key UK policy areas more scope for changing environmental objectives in the UK and there would also be a less far-reaching judicial process to enforce the implementation of environmental policy and challenge its interpretation.