Why bring up Europe? It will be largely irrelevant five years from now – Telegraph.co.uk

There is therefore good reason to be suspicious of the CBI’s latest
contribution to the debate over British membership of the European Union,
which a survey of members has – surprise – found to be overwhelmingly the
most effective way of maximising the benefits of global trade.

I don’t necessarily disagree with the conclusion, timed to coincide with
Monday’s annual CBI conference: if the UK has a chance for sustainable
growth, it is via the openness of its economy. To be pulling back from
treaties designed to bring about an economically integrated Europe is an odd
way of pursuing the goal of a more international economy, regardless of
Europe’s manifest failings and unwanted intrusions.

Yet there is also something faintly irrelevant – given the increasingly global
nature of economic activity – about the whole in/out debate. Europe is
changing before our eyes. By the time we get to a referendum, much of the
present shouting match will be rendered meaningless. Putting numbers on the
supposed costs and/or benefits of membership, as the CBI tries to in its
call to arms, is a fatuous and largely subjective exercise. It won’t
convince anyone.

A study for the CBI inevitably concludes that EU membership is net positive
for the UK economy, worth between 4pc and 5pc of GDP a year – in round
numbers, £62bn to £78bn, or about £3,000 per household. Hmmm… The
methodology behind these numbers is frankly no more convincing than that
used by the UK Independence Party, which in a recent report costed EU
membership at 11pc of GDP, or £176bn a year. You pays your money, you takes
your choice.

What’s for sure is that the EU can no longer be regarded as a shining example
of economic and political success. The single currency has been an
unmitigated disaster, and the policy response to the turmoil of recent years
has proved an utter shambles that has created deep popular hostility to the
entire European project.

The show has been kept on the road, just about, but policymakers have also
hard-baked a seemingly permanent depression into some of Europe’s proudest
economies. On any rational basis, you would not want to be part of such a
club. In any case, for most people the economics of EU membership is neither
here nor there any longer. It’s the democratic deficit that alienates
people, or the imposition by Brussels of bad policy.

Fortunately, there are more positive things for CBI members to contemplate
than the Bedlam of Europe.

With virtually no assistance from the Continent, the British economy is at
last reviving. Rather less fortunately, this is so far an unbalanced
recovery – and one, moreover, that seems to require Britain to support
ultimately unsustainable levels of internal demand to compensate for the
absence of it in large parts of the rest of Europe.

To be locked, by accident of geography, into a deflationary eurozone,
apparently hell-bent on replacing China as exporter-in-chief to the rest of
the world, is a potentially disastrous position to be in. The standard view
of this predicament is that eventually things will naturally self-correct.
Helped by a weak pound, manufacturing will revive, closing the current
account deficit.

Well, it hasn’t happened so far. True enough, there has been a little
“onshoring” to take advantage of a more competitively priced pound, but
evidence of a major structural shift remains thin on the ground. In some
respects, the economy today is even more unbalanced than it was before the
crisis began.

Beneath this somewhat worrying narrative, however, the biggest part of the
economy by far, services, has continued to perform quite well, with output
up by a fifth since 2009 even though two of the biggest areas of service
activity – financial services and public administration – have contracted
substantially.

As Andrew Sentence observes in an article for the November edition of PwC’s UK
Economic Outlook, health, professional, business and support services have
all grown strongly and are now well above pre-crisis levels. “The
rebalancing of the UK economy appears to be taking place primarily within
the services sector… [with the] private sector expanding relative to the
public sector and non-financial services growing while the contribution from
finance to output and employment shrinks.”

It’s easy to dismiss this phenomenon as just low-paid “Mcjobs”, but there is
more to it than mere burger flipping. Britain is also seeing high levels of
growth in the creative, media and digital industries.

On the Continent, it is often dismissively said that Britain no longer makes
anything. There is obviously some truth in the charge, with manufacturing
down to barely more than 10pc of the economy.

Yet in services, Britain is streets ahead of virtually everywhere else. Since
the early 1980s, when Sir Terence was promising a “bare-knuckle fight”,
Britain’s trade surplus in services has more than doubled to 5pc of GDP. At
roughly 12pc of GDP (all numbers from Mr Sentence), export of services is by
far the highest anywhere in the G7.

What’s interesting about these industries is that they are not particularly
price sensitive, and are therefore unlikely to benefit very much from a weak
pound. Sterling depreciation, on the other hand, has been a big part of
Britain’s “cost of living crisis”, helping stoke relatively high levels of
inflation and a consequent, prolonged squeeze on disposable incomes.

Success in private sector service industries has come despite the Government,
not because of it. The upshot is that public policy may be barking up the
wrong tree in deliberately putting its weight behind the “march of the
makers”. I’m not particularly knocking it; a manufacturing revival would be
very welcome. But it is not ultimately where salvation lies.