The Daily Telegraph, 13th October 2006

By Ruth Lea

Stalemate prevailed last week in the negotiations about Britain's opt-out of the maximum 48-hour week. Finland, holding the EU presidency, had proposed retaining the opt-out but with a new ceiling of 60 hours.

Such a compromise would have involved British employers implementing monitoring systems for hours worked that, arguably, could have been worse than the ending the opt-out. However, France insisted the Finnish proposal did not go far enough and blocked any deal that did not set an end-date for the opt-out. Hence stalemate.

This little vignette is but one example of how the EU hampers enterprise. For all the talk about the EU "going the British way" with a programme of reform to aid competitiveness, nothing could be further from the truth. Another example is the REACH (registration, evaluation and authorisation of chemicals) directive, which is a bureaucratic gem. It will quite unnecessarily oblige manufacturers to show that about 30,000 substances already in use are safe. It will add to costs and undermine the competitiveness of the EU's chemicals industries. Little wonder that the single market's costs are calculated to be at least three times as great as the benefits and its regulations impede rather than assist business.

In addition, the financial costs of the UK's membership of the EU are substantial and rising. Last year Britain's gross current account contributions to EU institutions jumped to £15bn - a sum of money that could be used for reducing public sector borrowing, cutting corporation tax or building more hospitals. Of course, part was "returned" but, inevitably, was strictly allocated according to the EU's priorities and policies and not Britain's. For 2007-2013, Britain's contributions are set to rise further.

Arguably, the net budget contributions are but a small part of the total net costs to the British economy of EU membership. In the shameful absence of the British Government's agreement to provide fair estimates, knowing they would be all too embarrassing, there have been several private estimates. Some estimates run as high as a quarter of GDP. They are a very high price for continuing political membership of the EU club.

I have, of course, already written that the UK should renegotiate its relationship with the EU to one of free trade area along with mutually beneficial inter-governmental agreements, while opting out of political union.

This would, of course, involve major revisions, if not repeal, of the 1972 European Communities Act.

Switzerland has a similar relationship already and a recent report from the Swiss Federal Government shows just how cost-effective it is¹. According to their estimates, the EU will cost about SFr550m (£232m) a year for the period 2007-13.

If they were a member of the European Economic Area (EEA), as Norway is and which involves membership of the single market, the annual costs could rise to well over SFr700m annually. But if they joined the EU, Switzerland's net contributions could jump to SFr3.4bn annually and their gross contributions to SFr4.9bn.

Full EU membership would cost more than six times as much as their current relationship in net terms and nearly nine times as much in gross terms. It is hardly surprising the report concludes that Switzerland's interests are best served by developing the current relationship.

This all raises the question of why the UK entered the European Communities in the first place, especially as it involved a major dislocation of relationships with the Commonwealth countries. But it is difficult to appreciate now just how poor Britain's economic self-esteem was in the late 1960s and early 1970s and how uncertain Britain felt about its international role.

At that time the UK economy was persistently underperforming the EC economies. Between 1960 and 1972 Britain's annual average GDP growth rate was less than 3pc (not so bad in retrospect), while West Germany, France and Italy all clocked up average growth rates between 4½pc and 5½pc. During this period the US grew at 4pc and in Japan, the true wunderkind of the age, GDP was rising at an average of more than 10pc a year - much as in China now. There is no doubt that one of the main reasons for the UK's decision to join the European Communities in 1973 was to act as a dynamic stimulant to the British economy.

The economic situation in the 21st century is very different. Not only has the British economy out-performed the major economies of the EU recently but, of crucial significance, the global economy is fundamentally changing. China and India are now in the ascendant and the EU has an inexorably shrinking share of world GDP.

Britain needs to change its relationship with the EU in order to meet the opportunities of the 21st century. Switzerland leads the way.

• 1. Swiss Federal Departments of Foreign and Economic Affairs, Europe 2006 Report, available on www.europa.admin.ch