The claim
“The average person in Britain saves around £450 every year because trading with Europe drives down the price of goods and services.”
Britain Stronger in Europe website
The background
Will prices in the shops go up or down if Britain votes to pull out of the EU on 23 June?
Both the Leave and Remain campaigns have made contradictory claims on this. And sometimes they disagree with themselves on the detail.
The claim that the average Brit saves £450 because trade lowers prices is one that Britain Stronger in Europe have been repeating for some time.
Confusingly, the official Remain campaign group also endorses an alternative analysis which says prices have been lowered by £350 a year per household – a much lower figure.
And it has been promoting an online calculator tool which comes up with a third, completely different, number for “how much more you and your family could pay for everyday goods if Britain leaves Europe”.
On the other hand, various Brexiteers have said prices could come down by hundreds of pounds a year if we leave. How are voters supposed to make sense of this?
The analysis
We think the most dubious number here is the “£450 per household per year”.
This is an estimate of what economists call “variety gains”. The idea is that as countries open themselves up to trade from abroad, you get a wider variety of products on the shelves. Increased consumer choice is supposed to drive prices down.
This very precise number of £450 a year comes from this European Commission paper. The analysts estimated “European consumer benefits…in the range of 600 euros a year”. That’s about £450.
But they arrived at that figure by looking at research on United States trade from 1972 to 2001, and translating the estimated increases there to the economy of the EU.
In other words, the analysis that backs up this figure is at least 15 years old, and doesn’t even come from Europe. And it does not purport to be an estimate of the total effect of free trade on prices – just part of the jigsaw.
Interestingly, when FactCheck spoke to Professor David Weinstein, one of the authors of the US study, he told us: “They are essentially assuming that the effects on the US were general. There is good reason to believe that this is not a bad assumption.
“While there are some differences in how each country has experienced the gains from variety, it is not inappropriate to get a general sense of the magnitude by doing the calculation they did.”
But how do we know that trade liberalisation would not have happened anyway if the European Union never existed? If the same process happened in America and elsewhere, could it have happened in Europe anyway?
What about the other numbers claimed by Britain Stronger in Europe?
The price rise calculator tool is based on the idea that Britain would have to pay £11bn of new tariffs on goods imported from the EU after Brexit.
This only applies in a worst case scenario where Britain leaves Europe and does not manage to negotiate continued access to the single market or a new trade deal with the EU.
The £350 per household figure comes from independent research by the LSE’s Centre for Economic Performance.
The economists looked at free trade agreements negotiated by Brussels with many other countries between 1993 and 2013. If the EU does a deal with South Korea so that both cut deals on fridges, the price of fridges in the shops ought to fall.
The research concludes that consumer prices fell by about £9.5bn a year, or about £350 per household.
That is obviously much less than £450 per person, and includes a much lower estimate of the effect of “variety gains” on prices.
Still, the CEP’s overall message is clear: trade agreements negotiated by the EU have lowered prices in British shops.
But this research does not take in several important EU policies which affect prices, including the notorious Common Agricultural Policy.
Business for Britain, a campaign group calling for a Leave vote, claims that leaving the CAP alone could lead to a potential saving of £361 per household per year thanks to lower food prices.
Attacking EU agricultural policy – once notorious for its wine lakes and artificially high prices – sounds like an easy win for the Leave camp, but the experts aren’t so sure.
Alan Matthews, Professor Emeritus of European Agricultural Policy at Trinity College, Dublin, who now campaigns for reform of the CAP, estimates that EU policy only increases prices in the shops by about 2 to 3 per cent.
Brexit could raise the price of food imports from the EU, he said, and there would be extra admin costs for producers, all of which could cancel out the effect of the CAP, or even lead to higher food prices.
The verdict
The EU referendum debate has seen both sides come up with very precise numbers to try to justify their case, but most of the big headline figures we have seen so far are highly questionable.
The Treasury says Brexit could cost each family £4,300 – but its predictions have been criticised for unrealistic assumptions about immigration and the cost of regulations, among other things.
Vote Leave says Britain sends £350m a week to Brussels as the price of membership. But the Institute for Fiscal Studies has whittled the real net cost down to a much smaller figure.
While a number of economists think prices would rise after Brexit, it’s hard to see how any of the various figures quoted by Britain Stronger in Europe on potential price rises can be definitive.
That £450-a-year number seems particularly shaky. It’s a claim about the EU based on research that does not even come from the continent of Europe.
We asked Britain Stronger in Europe for a response and a spokesman told us: “There is a huge body of evidence which shows prices would rise if Britain left the EU.
“The EU’s single market increases competition and variety and eliminates tariffs, all of which drives down costs for consumers.
“This study is the only which has looked at the impact of open trade and prices and experts agree that it is applicable to the single market.”
