The October figures for our balance of payments published last week were disappointing. Once again we ran a large deficit. Such deficits have to paid for by either selling UK assets to foreigners, or by borrowing from abroad. There are limits to how much of this a country can and should do.
I know advocates of staying in the EU want to keep us running a very large balance of payments deficit. They always say we need to run high levels of inward investment = which means we need to keep selling assets to foreigners. They want us to stay in on current terms to keep the trade at current levels, which of course means keeping our imports far higher than our exports to the rest of the EU. When it comes to EU/UK trade the UK is the customer and the rest of the EU is the supplier. That’s why some of us think we can get a better deal, and need a better deal.
Using the 2014 annual figures, if we left the EU we would immediately be £10 billion a year better off. In 2014 our transactions with the EU institutions required by our membership cost us a net £10 billion. That was money we had to send to them. That was money that cost us a loss of £ 10 billion on our balance of payments. All that contribution had to be funded by borrowing from abroad or selling more of our assets.
In 2014 the UK ran a current balance of payments deficit with the rest of the EU at the whopping level of £107 billion. Fortunately our trade with the rest of the world was in surplus, so that cut back the overall deficit a bit. £30 billion of that was our trade deficit in goods with Germany, who sells us twice as many goods by value as we sell her. We also run large goods deficits with Italy, Spain and Belgium amongst others.
I will in future posts look at how an independent UK could narrow its balance of payments deficit. But first we need to get people to understand that far from helping the UK, the EU relationship itself is a major cause of the big balance of payments deficit we run. Coming out would immediately make a very positive contribution to correcting it. We have run a large balance of payments deficit with the rest of the EU for most of the time we have been in it, as the EEC/EU liberalised trade in the things Germany is good at more than the things we are good at.