The UK’s economic policies carry a strong family resemblance to EU policy generally. That does not make them wrong, but it is worth examining similarities, both where they might help and where they will hinder.
The EU correctly thinks high government deficits are unsustainable and need to be brought down. It recommends a 3% ceiling on annual borrowing, and a 60% ceiling on the stock of state debt, as proportions of National Income. This is prudent and sensible. It will take the UK a long time to get back to these levels on current forecasts, but the intended direction of travel is clear.
Most EU countries are embarked on deficit reduction policies. One of the most popular ways of doing this is through increasing VAT. In the last couple of years the Czech republic and Estonia have lifted their rates to 20%, as has the UK. Latvia, Lithuania, Finland, Greece, Spain, Ireland and Hungary have also raised their rates. VAT is of course an EU required tax, and the EU draws a stated proportion of the VAT revenues from each country to support its own expanding budget. Cutting public spending at the EU level, which would be a better economic option for deficit reduciton, is not on the agenda, despite the UK government’s attempts to pursue this.
The EU has put in place a dear energy policy, requiring expensive developments of renewables and imposing carbon penalties on energy users. The EU as a whole will find increasing amounts of heavy industry investment go elsewhere, as energy costs are an important part of total manufacturing costs, expecially in cases like the steel industry, foundries and castings. There is a danger that the EU’s energy policy will not succeed in curbing world carbon dioxide emissions, but will succeed in accelerating the transfer of heavy industry away from Europe.
The EU is advocating more trans European rail investment, preferring rail links to other forms of air or surface transportation. This makes hitting deficit reduction targets more difficult, as railways are extensively subsidised throughout Europe.
The EU advocates European level bank and financial service regulation, in addition to global regulatory standards and national regulatory activity. The Uk may find that bringing more of its successful financial service industry under EU control makes London a less desirable location for such businesses, helping the transfer away to Hong Kong, Singapore, Shanghai and other emerging centres.