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HomeBrexit WatchRory, you’re wrong. We can thrive under No Deal

Rory, you’re wrong. We can thrive under No Deal


THE Government, as we all know, is desperate to push its deeply flawed ‘deal’ through Parliament. And we now have the extraordinary development of the Government’s negotiating with the Opposition in the hope that they will, at the end of the day, support the Withdrawal Agreement and save the day. Whether this ruse works is anyone’s guess.

We also have an endless drip, drip, drip from loyalist Ministers trying to persuade us that the Withdrawal Agreement, along with the Political Declaration on the future relationship, really ‘delivers Brexit’ in a meaningful sense rather than being Brexit in Name Only (BRINO) and a grotesque sell-out. Moreover, we are being offered only the binary choice of the ‘deal’ or No Brexit, which has long been part of Number 10’s entrapment strategy, with the No Deal option ruled out. Note also, No Deal has been cunningly ‘rejected’ by the anti-democratic Remainers in the Remainer-majority House of Commons. But it is worse than this. The No Deal option has not just been ruled out, it is persistently rubbished as economically damaging.

The campaign against No Deal

There is, in short, a concerted campaign against the perfectly feasible, and infinitely preferable, No Deal option. One recent participant in the debate has been Rory Stewart, newly promoted to Secretary of State for International Development, in an exchange of letters with Briefing for Brexit’s Robert Tombs.  He dismisses Professor Tombs’s suggestion that we would be more prosperous with a No Deal Brexit, claiming such a belief is ‘against the overwhelming majority of professional economic opinion’. This ‘economic opinion’ includes, of course, the usual suspects – the Bank, the Treasury, the OECD and, doubtless though not mentioned, the IMF. They have, in Mr Stewart’s words, ‘long argued that the economic impact would be negative’. Indeed they have, Mr Stewart, indeed they have. And it has not just been about a No Deal Brexit, but about Brexit itself, if not the Referendum. They have form.

It cannot be said too many times that the independence of these august institutions was seriously tarnished by their commentaries ahead of the 2016 Referendum. In the run-up to the Referendum, they were all energetic promoters of Project Fear Mark 1, intended to frighten the electorate into voting to remain in the EU. Let us not forget that the Treasury said ‘a vote to leave would represent an immediate and profound shock to our economy. That shock would push our economy into a recession and lead to an increase in unemployment of around 500,000’. Well, the economy did not go into recession, unemployment has fallen by about 300,000 since mid-2016 and employment has risen by nearly 1 million. This ‘analysis’ seriously undermined observers’ confidence in the Government’s integrity. Moreover, the Governor of the Bank of England, the IMF and the OECD all chipped in at the time, saying Brexit would have negative consequences for the economy, possibly throwing it into recession. They were the backing group to the Treasury, the lead singer.

One can be forgiven for being very cynical about the more recent utterances from these institutions, given the mutation of Project Fear Mark 1 into Project Fear Mark 2, about the horrors of a No Deal Brexit.

The Government’s November 2018 analysis absurdly claimed that GDP could be down over 9 per cent by 2035 in a No Deal scenario, as if projections 15-16 years ahead have much value. Similarly, the Bank’s November 2018 speculation that GDP could fall by nearly 8 per cent in 2019 in the event of their ‘disorderly’ No Deal scenario was literally incredible, though the Bank has since modified its ‘scenarios’; see here and here.

And, as I discussed recently in The Conservative Woman, the IMF recently chipped in with some very pessimistic figures if No Deal happened, claiming that the economy would sink into recession. But their analysis partly relied on an implausibly large increase in the cost of regulatory, non-tariff barriers (NTBs). It was, therefore, probably far too pessimistic. However, my key criticism of the IMF’s analysis was that it gave the impression that its forecasts were more robust than they really were. Economic forecasts are vulnerable. This was not to ‘rubbish’ the IMF’s economic forecasts but to emphasise the need to treat their conclusions with caution. Their forecasts needed a ‘health warning’.

Mr Stewart may believe that the ‘majority of economic opinion’ has dismissed the notion that we could be more prosperous in a No Deal Brexit. But their analyses should be treated with utmost caution. And there are many of us who are far from convinced by them.

Benefits of No Deal Brexit

But what about the other side of the coin? Is there any evidence that we would be more prosperous in a No Deal Brexit? Well, at this stage we cannot ‘know’, of course, because so much will depend on Government policies after Brexit. But assuming a globally minded, pro-competition, pro-business Government, there are convincing reasons to be optimistic.

The Brexit dividend would, firstly, include the freedom to negotiate our own trade deals (impossible in the EU’s Customs Union), with the fast-growing parts of the world economy. It clearly makes sense to align our future economic links with buoyant countries, including the US and the Commonwealth. It is significant that UK exports to non-EU countries have grown much quicker than to EU countries in recent years, despite the supposed allure of the Single Market and the Customs Union. Total exports over in the period 2007-2017 grew by over 60 per cent, whilst exports to the EU and the non-EU expanded by around 40 per cent and 80 per cent respectively. Commercial opportunities drive trade and the EU is a relatively slow-growing and mature market. The share of our exports to the EU is now 45 per cent and falling.

Secondly, regulatory freedom would enable a pro-business Government to modify and modernise the most irksome regulatory burdens, giving a boost to business. Thirdly, there would be scope for the Government to pursue a bespoke immigration policy suitable for the country’s social and economic needs. Fourthly, tariffs could be cut to give a boost to living standards (also impossible in the Customs Union). And, finally, we would save on our EU budget contributions, which, net of the rebate and receipts, is about £9billion a year. There are also potential advantages specifically for the fishing and agriculture sectors as we would repatriate fishing policy and exit the Common Agricultural Policy (CAP). And let us not forget the £39billion leaving bill if we leave on the terms negotiated under the Withdrawal Agreement.

There are, moreover, well-researched analyses which have quantified these benefits. Mr Stewart appears to be rather dismissive of these, claiming Professor Tombs’s ‘evidence [of the benefits of No Deal] is based on a single paper by an academic at University of Minneapolis’. This does not strike me as fair.

There is, for example, a comprehensive and succinct article on the benefits of No Deal by Briefings for Brexit’s Graham Gudgin. Dr Gudgin estimated the benefits at around £80billion a year. He includes the trade, regulatory and budget benefits as well as the impacts for fishing and agriculture. The trade benefits were, indeed, based on research by the Minneapolis Fed (sic). They had concluded reducing trade and investment barriers with the rest of the world by 5 per cent could raise UK welfare by £25-30billion a year, even with increased restrictions on trade and investment with the EU.

Dr Gudgin’s paper is not, however, the only analysis available. Economists for Free Trade, for example, estimated that total benefits of a clean No Deal Brexit, outside the Customs Union and the Single Market, could lead to gains of 7 per cent of GDP, some £135-140billion a year; see here and here. Their research assumed the adoption of free trade, possibly with subsequent bilateral trade agreements, possibly unilaterally, and deregulation.

Now, of course, the studies by Briefings for Brexit and Economists for Free Trade rely on assumptions, which may turn out to be too optimistic or too pessimistic. That is the nature of economics. But their research is perfectly coherent and defensible. One only wishes the same could be said about the Treasury’s pre-Referendum horror.

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Ruth Lea
Ruth Lea
Ruth Lea CBE is economic adviser at the Arbuthnot Banking Group

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