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In brief: UK-EU economic relations

Published Monday, June 13, 2016

This note sets out, in brief, some of the main indicators of the UK’s economic relationship with the EU, including trade, investment, employment and the UK's contribution to the EU Budget.

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On Wednesday 15 June, MPs will take part in an Opposition Day debate on the “economic benefits of UK membership of the EU.” This note sets out some basic figures on the UK’s economic relations with the EU.

This note includes figures on UK trade with the EU and estimates of the number of UK jobs associated with that trade. It also includes data on foreign direct investment, the UK’s contribution to the EU Budget and some estimates of the cost of EU regulation to the economy. It also includes some estimates of the overall cost or benefit to the UK of EU membership. This note does not seek to cover all aspects of the UK’s economic relations with the EU. For example, the effects of immigration on wages, employment and the public finances are not considered.

The EU, taken as a whole, is the UK’s major trading partner, accounting for 44% of exports and 53% of imports of goods and services in 2015. The share of UK trade accounted for by the EU 28 is lower than a decade ago. Some argue that the share of UK trade accounted for by the EU is exaggerated by the “Rotterdam effect” whereby trade recorded as being with the Netherlands is actually with non-EU countries. While this effect cannot be quantified, it does not alter the fact that the EU is the UK’s main trading partner. Even if all trade with the Netherlands were excluded, the EU would still account for 41% of the UK’s goods exports and 47% of goods imports.

Both the current and previous governments have stated that over three million jobs are linked to exports to the EU. This is not the number of jobs linked to membership of the EU as some trade with EU countries would still take place if the UK were to leave the EU. The methodology behind this estimate has come under scrutiny.

The EU is a major source of inward investment into the UK. In 2014, EU countries accounted for £496 billion of the stock of inward Foreign Direct Investment, 48% of the total. A 2015 survey by EY found that the UK attracted more FDI projects than any other European country in 2014.

The UK’s net contribution to the EU Budget in 2015 is estimated at £8.5 billion, up from £4.3 billion in 2009 and down from £9.8 billion in 2014. It is forecast to fluctuate between £11.2 billion and £7.3 billion a year between 2016 and 2020.

Various studies have attempted to quantify the economic benefit or cost to the UK of its membership of the EU. This is a very difficult exercise and depends on a wide range of assumptions. Estimates vary significantly. The Institute for Fiscal Studies (IFS) has commented that “there is an overwhelming consensus among those who have made estimates of the consequences of Brexit … that it would reduce national income in both the short and long runs.” Supporters of Brexit argue that the economic consensus has often been wrong in the past.

A 2015 study by Open Europe found that the cost of the 100 most burdensome EU regulations was £33.3 billion a year. The Treasury Committee has pointed out that this is an estimate of the cost to firms of compliance with the 100 most burdensome EU regulations. It is not the net economic cost of regulation or the savings to business arising from Brexit.

Commons Briefing papers SN06091

Authors: Matthew Keep; Dominic Webb

Topics: Economic policy, EU budget, EU external relations, International economic relations, International trade

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