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Fear of leaving the EU without a deal, and of trading with the EU thenceforth under WTO terms, has been created primarily by the much-cited series of predictions of severe adverse economic consequences by HM Treasury. It is therefore of some importance to decide whether their predictions are credible. One set of their pre-referendum predictions […]
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Fear of leaving the EU without a deal, and of trading with the EU thenceforth under WTO terms, has been created primarily by the much-cited series of predictions of severe adverse economic consequences by HM Treasury. It is therefore of some importance to decide whether their predictions are credible.
One set of their pre-referendum predictions referred to the adverse consequences within two years of a vote to Leave the EU rather than leaving itself. Since we have now lived through the period they covered, we now know that apart from one minor point, the fall in the value of sterling, they were all false. Every other prediction they made, on GDP, (which was predicted to fall rapidly by between 3.6% and 6.0%) on employment, house prices, wages, inflation, FDI and public finances, was wrong, often by risibly large margins, and always in the same direction. This suggests they were deliberately manipulated to give a politically helpful result for the then Government-backed Remain campaign. They naturally raise questions about the Treasury’s other three sets of predictions about the long-term consequences of Brexit itself.
These cannot be tested by reality until 2030 or beyond, but since they rely on a number of highly improbable assumptions and estimates, they are no less contrived than their short-term predictions, and no more credible. These assumptions and estimates cannot all be examined here, but we can identify the most improbable and incredible, the ones that have contributed most to the Treasury’s characterisation of trading under WTO terms as the worst possible post-Brexit option.
Their first set of long-term predictions was published in April 2016, and depended to a large extent on the assumption that future UK intra-EU trade in goods would increase at the same rate as that of all other members. This was followed by the estimate that by 2030, if it remained a member then, UK trade in goods would have grown by 115%. If, by contrast, the UK left to trade under WTO rules, it would not enjoy any of that 115% growth, and primarily for this reason, its GDP in 2030 would be 7.5% smaller than it would have been if it had remained a member.
This seems to have prompted Remain supporters to describe the transition to a no-deal exit as a cliff edge, a car crash, or a leap in the dark, and trading under WTO rules as chaos, catastrophe and Armageddon. Since most of world trade, and much of UK trade, is routinely conducted under these self-same WTO rules, the aptness of these metaphors is questionable, but what matters here are the assumptions on which the Treasury prediction was based.
Questions about it might first have been raised with the Treasury itself since a rare piece of in-house classified research conducted in 2005 had shown, like more recent studies, that the rate of growth of the UK’s intra-EU trade during the Single Market has differed greatly from that of other members, most especially from those in Eastern Europe. This HMT research also showed that over the 31 years from 1973 to 2004 it had grown by only 16%, while later IMF/DOTS figures showed that over the 22 years from 1993 to 2015 UK exports to the EU 14 had grown by 25%. To then ‘estimate’, as the Treasury authors do, that over a mere 15 years to 2030 UK-EU trade in goods would suddenly increase by 115%, may be reasonably called absurd, or even a deliberate manipulation to produce a highly misleading prediction. A recent re-examination of the same evidence, using the same gravity approach as the Treasury, but referring to the UK alone, estimated the likely increase of trade in goods with the EU by 2030 to be ‘in the range 20-25%’.
The Treasury was a contributor to the second set of predictions, the EU Exit Analysis Cross Whitehall Briefing of July 2018. Its wildest assumption was that UK goods trading with the EU under WTO rules would immediately incur tariff, non-tariff and customs charges with a total tariff equivalent value of 30%. It qualifies as wild because the total tariff equivalent value of the goods exports of United States and Japan to the EU have been reliably estimated to be just 20%, or only two thirds as much as those the Treasury predicts for UK exports after a no-deal Brexit, even though its product standards are identical to those of the EU.
Patrick Minford analysed these non-tariff and customs charges in considerable detail, and pointed out that some of the barriers conjured up by the authors of these predictions would be discriminatory and therefore illegal under WTO rules, which the EU generally respects. Why UK civil servants should assume that their EU counterparts would deliberately ignore them post-Brexit is unclear. However, with the help of the 30% total tariff equivalent value, leaving with no EU deal and trading under WTO rules again emerges as the worst post-Brexit option, resulting in a shortfall in UK GDP by 2030 of about 7.7% versus what it would have been had the UK remained an EU member.
The third set of predictions was published in November 2018 specifically to inform Members of Parliament about the long-term economic consequences of various future relationships with the EU in advance of their fateful ‘meaningful vote’ on the agreement negotiated by Mrs May. It contrives, as Andrew Lilico observed, to show the ill-effects of trade under WTO rules by the simple ploy of exaggerating all the future gains of EU membership and minimising all the possible gains that might follow the UK taking back control of immigration, regulation and trade policy.
The outstanding example of the latter is the 0.2% gain to GDP that it estimates would result from FTAs that the UK might conclude with the US, Australia, Canada, India, China and 12 other non-members. It qualifies as an absurdity because the European Commission had previously estimated that the gain to EU GDP of concluding agreements with a similar set of countries would be 1.9%, almost ten times as much therefore as agreements negotiated by the UK alone which would, one imagines, be better tailored to British exporters.
By repeatedly making other estimates in a similar manner, the report arrives at the desired prediction. Indeed, the final prediction that made the headlines, a 9.3% shortfall in UK GDP by 2035-36, was reached simply by assuming that there would be zero immigration from EEA countries until 2035-36, a proposal that no one has ever made. The recently published White Paper suggests it is far removed from any likely future government policy.
The remarkable thing is that any of these Treasury predictions have been given any credibility whatever and were not dismissed with a laugh, just as the predicted immediate consequences of a vote to Leave have often been. Part of the explanation must be that specialist publications like The Economist and the Financial Times, and specialist correspondents of other media such as the BBC, Sky, The Guardian and The Times did not check and flag these and other questionable assumptions and estimates on which these predictions depend.
Perhaps they did not have the time or maybe they welcomed Treasury support for the Remain cause, but a further reason one suspects, is that, like the rest of us, they wanted to trust Treasury mandarins. They saw them as honest, upright, non-partisan experts performing their duties by providing entirely trustworthy and reliable evidence to inform ministers and public debate.
Unfortunately, on European issues at least, this image is woefully mistaken. The Treasury has never regularly and dutifully conducted impartial research on the impact of EEC/EU membership on the UK economy. And it has never been asked to do so by any government since 1973, probably because ministers were usually engaged in persuading the ever-sceptical British public of the merits of European integration and doubted that empirical research would be an altogether reliable ally.
Since 2000, the Treasury has, like other departments, been obliged to conduct impact assessments of proposed legislation derived from EU regulations and directives, but it never sought to translate them into a meaningful national cost/benefit analysis. In 2003, at the time of the debate on joining the euro, Treasury mandarins searched the world for experts on optimal currency areas and debated and published their differing views shortly before the Chancellor announced his decision. The research conducted in 2005 and mentioned above was a one-off, and remained classified until an FOI request in 2010.
When they were asked to make the case for Remain, Treasury mandarins therefore had no historical analyses to draw on, apart from the 2005 one they wanted to forget. And they did not instantly assume a quasi-judicial impartiality. Apart from the one month purdah periods before the 1975 and 2016 referendums, they had never been asked to be impartial on this issue, and they evidently felt under no obligation to be impartial with respect to the division of opinion in the country at large. Hence, they immediately showed themselves to be fervent, unabashed advocates for continued EU membership and produced predictions to delight their all those who shared their view.
All of us have paid, and are still paying, a high price for the Treasury’s failure to conduct and publish impartial analyses of the impact of EU membership on the UK economy over the preceding forty-plus years in accordance with our image of them, and with their own core values and rule books. Had they done so, the referendum debate would have been rather more informed and enlightening than it was. Instead of constructing Project Fear for the Remain side, they might have tried to match Business for Britain’s superbly documented case for Leave in Change or Go.
In the course of such research, they would necessarily have had to understand and explain why the exports of countries trading with the EU under WTO rules, like the United States, Canada, Australia, Singapore and a host of emerging societies have been growing so much faster than the supposedly frictionless ones of the UK over the life of the Single Market. American exports to the EU, for example, grew by 68% from 1993 to 2015, and the smaller British exports by just 25%. If trading with the EU under WTO rules has proved so successful for others, why would it be the worst possible option for the UK after Brexit?
They might also have been able to explain why it is that UK exports to 111 countries around the rest of the world under WTO rules have also grown so much faster than its exports since 1993 to the EU itself, and to those countries with which the EU has negotiated trade agreements from which the UK was supposed to benefit. These are questions that the Treasury mandarins have preferred not to address.
Much relevant evidence to determine whether or not trading under WTO rules is the worst post-Brexit option could be obtained from UK companies which currently trade with the EU from a member country and with the rest of the world under these rules, since they are able to make direct comparisons. The Treasury is well-placed to conduct such research via HMRC but this is more evidence that it has decided it, or the government, or the country does not need. Some companies have, however, spontaneously testified about their experience of trading under both systems. It directly contradicts the sharp contrast between them which the Treasury has sought, with some success, to make the centrepiece of the debate about the UK’s post-Brexit options.
Lord Bamford, Chairman of JCB, the UK’s largest manufacturer of construction equipment, for instance, recently felt ‘compelled to say this about a no-deal Brexit: there is nothing to fear from trading on World Trade Organisation (WTO) terms… Trading with Australia on WTO terms is as natural to us as trading with Austria on EU single-market terms. John Mills, founder of JML, which sells to ‘80 countries at the last count’, said that ‘about 80 percent of all our international trade is on WTO terms, so we know what the paperwork’s like. Once you’ve done it half a dozen times, you’ve got it all on the computer, it just isn’t that difficult.’
Even more emphatically, Alastair MacMillan, whose company exports to 120 countries in the world including every EU member, points out that ‘there is little difference in the way we handle freight going to the EU compared to the rest of the world. The United States is our biggest market and we compete directly against US companies in their own market, in part, because we deliver next day to anywhere in the United States by 1pm their time, customs cleared. That, to me, is frictionless trade and it is at a cost that is not dissimilar to the same service to customers in the EU’.
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The Party has not yet cultivated a formal relationship with the Irish community in Britain and this is an opportunity to reach out to what can be a powerful network.
Alan O’Kelly is Executive Director of the Conservative Ireland Association, an organisation that has just been recently established to create links with the Irish community, and is Deputy chairman (Political) of Putney Conservative Association. Hugh Byrne is a Wandsworth Borough Councillor.
The relationship between Ireland and the UK is as complex as ever. But regardless of any current political differences, the UK has provided jobs and homes for hundreds of thousands of Irish people over the last century. Today, nearly 400,000 Irish-born people currently reside and work in the United Kingdom. This represents a huge number of people who can vote in the United Kingdom, thanks to agreements that pre-date the EU by several decades. It is also estimated that six million people in the UK can claim Irish citizenship by virtue of having at least one Irish grandparent.
It is estimated that 35,000 Irishmen died fighting for Britain in the First World War and, since then, Irish people have played an important role in helping to develop the British economy: supplying labour to help to rebuild our cities after the Second World War and by contributing to the development of the NHS. Much of this immigration was driven by economic necessity, though newer waves of Irish immigrants to the UK are now more likely to work in the technology and business sectors. As a result, their aspirations tend to be aligned with the values of our party.
However, for historical reasons the Irish community has tended to show an antipathy or ambivalence toward the “Conservative and Unionist party”, and the “Irish vote” is usually claimed by Labour. This is at odds with the natural tendency of Irish people to be socially and economically conservative in their thinking, with a strong focus on the family, work, and home ownership. It is more than possible to be a proud Irish person and a Conservative at the same time, despite the Party’s full name. In the years following the Acts of Union until the War of Independence, over 100 Irish MPs sat in the commons, a fact frequently noted in the novels of Anthony Trollope and personified by one of his most famous characters, Phineas Finn.
The Party has not yet cultivated a formal relationship with the Irish community in Britain and this is an opportunity to reach out to what can be a powerful network. Analysis which we have conducted shows that in several key marginal constituencies the number of Irish-born voters is greater than the margin needed to win the seat. The Party is missing an opportunity to engage with this community who could and would support it, given the right support and encouragement. Many are already involved in the Conservative Party, whether in local government or as constituency officers or volunteers, but we believe that the time has come for the Conservative Party to acknowledge the Irish diaspora on more formal level, which is why we have established the Irish Conservative Association.
This new group will seek to build a bridge between the Irish community in the UK and the Conservative Party. We will be a member-led organisation promoting the values and ideals of the Conservative Party across the UK. This new group is open to anyone with an Irish background or an interest in Ireland. We believe that participation and inclusion will be key to our success going forward and we are proud that Maria Caufield has agreed to act as our Chair.
The relationship between the UK and Ireland will always be important one, and one that has changed dramatically over time. While the debate over Brexit has increased tensions, we believe that our two countries still have much in common, not to mention our economic ties and shared border. Our aim is to foster and deepen the relationship between the Irish community here in Britain and the Conservative Party. Establishing this group will have many benefits for the party and over the coming weeks we hope to announce a variety of initial events that will take place in the new year.
If you would like to get involved, please drop us a line at firstname.lastname@example.org.
What follows is an open letter to the Prime Minister written by a businessperson who backed Leave at the referendum but who for professional reasons is currently unable to enter the political fray. Dear Prime Minister, I have watched with a sense of appalled inevitability your recent unsuccessful visit to Brussels, characterised as it was […]
What follows is an open letter to the Prime Minister written by a businessperson who backed Leave at the referendum but who for professional reasons is currently unable to enter the political fray.
Dear Prime Minister,
I have watched with a sense of appalled inevitability your recent unsuccessful visit to Brussels, characterised as it was by a lack of ideas, an absence of combativeness and a reckless and relentless desire to cling on to every rotten element of the vassal state deal that you and your small Remainer clique of advisers in Downing Street have concocted with the EU. Harsh words? Perhaps, but they are words that are endorsed – sometimes in more polite phrases, sometimes in less polite phrases – by the vast majority in our country and even of our Parliament.
Why are you so recklessly clinging to every suspect element of this ‘Brexit in name only’ deal? Many believe the problem all began with your still-secret promises made to Nissan, the car manufacturer in Sunderland, shortly after you took power in 2016. You have never published those promises. Many of us guess that it was partly as a result of those promises that in your talks with the EU you then gave away – whether in ignorance or because you never truly meant to leave the Customs Union – every possible negotiating element that would allow the United Kingdom to pursue its own independent economic and trade policies. Was that so? Can you not come clean with the electorate and tell us what those Nissan promises were, how much they are now constraining you and how much your desire to cling to your secret agreement with one company, Nissan, has led you to all this foolishness? Because if that is the case, then the honourable thing for you to do would be to resign and let someone else – someone not burdened by that promise – create a way forward for our country that is not shackled by that apparently all-constraining Nissan cursed promise.
If there was no such promise, then I am puzzled by your insistence that a WTO-terms deal – what is most truthfully termed a ‘Sovereign Brexit’, the thing that 17.4 million people actually voted for – must be ruled out by you. Your Remainer friends who dominate the media have managed to spin non-facts into a general belief that a Sovereign Deal would be catastrophic. Your grid in Downing Street has, month after month, delivered to a credulous press and public a remorseless stream of doom-laden statements by those rent-seeking members of the business community on whom you have chosen to rely to spin your message. Yet neither you, nor the spinners, nor your business allies, actually ever credibly articulated what the specific negatives of such a deal would be (the contemptible catastrophe forecasts by your discredited Treasury modellers, and by your apparently politically motivated Governor of the Bank of England, are no longer believed by anyone – as I am sure you must know).
What could go wrong, and what would go right, in a Sovereign Brexit? The claims of your Remain-loving enablers as to what might go wrong are economic. They relate first to exports from the EU into this country and second to exports from the United Kingdom into the EU. Once even the briefest analysis is conducted, both sets of claims are quickly seen as hogwash.
Exports from the EU into the UK – no disruption threat there
There have been the most extraordinary and juvenile claims of potential (albeit very short-term) shortages in this country after 29th March 2019. Even you, lamentably, mentioned your diabetes and your desire for being sure of your supply of insulin. Who persuaded you to say that? Did you give the slightest thought to how ridiculous that scare story was? Insulin is sold under a wonderful system we call private enterprise, from one company to another. In the UK’s case, it’s mostly a Danish company selling insulin to companies in Britain. The insulin is put on a plane or a boat and comes over to our country. What, do you assert, would prevent this from happening after a Sovereign Brexit? Come on, what? Are you saying that the EU would somehow seek to prevent insulin being placed on a ship or a boat and exported to us? You aren’t saying that, are you? Such an action would be illegal. Or, OK: let’s even say that, however unlikely, the EU indeed decided on 29th March to start acting entirely illegally (again: for a short period of time only, which is all they could possibly ever do). Then the UK would get its insulin from the US, or the Danish company would sell the insulin to Norway, or some other non-EU country, which would then export it on to the UK. Businesses successfully deal with complications of this sort all the time. All that the EU’s (highly, highly unlikely) illegality would result in is the Danish company losing money, one way or another. But you and I know that the EU wouldn’t shoot itself in the foot like that.
So, were you claiming instead that Britain would somehow put up barriers against Danish insulin coming into the country after 29th March? We wouldn’t, would we? Come on, you know that, don’t you? So why did you raise a false scare story, that would have had tens or hundreds of thousands of diabetics worried that their supply of insulin was suddenly going to dry up, when you know it’s hogwash? Isn’t that the sort of rabble-rousing nonsense that we try not to do in the Conservative Party?
Insulin is just an example of any other product that comes into the UK from the EU. We would not prevent any product from arriving; the EU would have no legal locus (or indeed any physical ability) to prevent any product from being sent; can you please just stop being silly and admit that there would be no supply shortages in the UK? (And please, can we in particular try to keep our Conservative ministers from making fools of themselves, in their eagerness to support you, by escalating the level of ludicrousness of such scare stories from a possibility of momentary disruption of a day or two, through to six-week problems, through to six-month problems? The more outlandish their claims get, the less anyone believes them – though some Remainers tactically pretend to. We will actually need to have a set of ministers who are seen as competent by the UK electorate after all this settles down, if the Conservatives wish to remain in power.)
The UK’s exports to the EU – not credible to assert any long-term or even short-term disruption
Let’s turn to the second set of scare stories running against a Sovereign Brexit. We keep being warned about “lorry parks in Kent”. The idea is that Calais will somehow impose restrictions on us, so that we won’t be able to get our goods speedily into France and through to the rest of the EU. Of course, we send just 6% of the UK’s exports through Calais, and those exports can swiftly be diverted to go through other ports, were Calais were to seek to prevent the easy flow of UK goods into Europe. But we needn’t particularly worry about anything like that happening, because every local official from Calais, and the Pas de Calais region, has said that this will not happen. It would take an edict from President Macron – an edict that would be entirely illegal, whether in EU law or in the WTO agreement – to impose such a blockade (Indeed: if you really were to believe – and I for one don’t think you do – that Macron would truly seek to impose an illegal blockade, then it would be utterly abject of you, and unworthy of the Prime Minister of our sovereign nation, to bow to a perception of a threat of this sort).
In any event, let us assume that the worst happens and that Macron does indeed seek some way of blocking British exports into the EU. The French did that once before, when they for a while diverted Japanese VCRs to Poitiers, so that EU manufacturers could win in the VCR market. They were very swiftly brought to court by the WTO and made to stop. Japanese VCRs continued to dominate the world (and the EU) market. France have never tried that trick again. And what would be the result for the French, were they to try it on us? Well, within a couple of weeks, as their just-in-time-systems were affected, thousands of French and German auto workers – possibly tens of thousands, in the unlikely event that the French were successful for more than a few days – would be thrown out of work, as French and German car manufacturing plants had to shut down. Do you really think, Prime Minister, that this would be allowed to happen? Or is your assertion, that somehow the EU would inflict such a monstrous act of self-harm upon itself, just a stance that you are pretending to believe in, so as to insist on this foolish deal that you and the EU are trying to impose upon the British people?
In either case – exports or imports – the very wildest claims are of a possible disruption that would last for, even your wildest claims allege, only a few months. Why, then, should this be the dispositive consideration, when we are talking about Britain’s future for many decades to come? Why would you shackle the country permanently to a lordly EU, in order to avoid a very temporary (and, if you read my above arguments, not going to happen anyway) disruption? Why would you abandon even the threat of a WTO terms deal – and in so abandoning it, allow us to become the hapless prey of what everyone now knows are entirely ruthless EU negotiators?
The Irish Border and the Backstop – a Hoax
On the Backstop, and its claimed urgency and importance, the trick is to look at your language, where one finds your people always using the passive mood – a classic giveaway. You say you are worried about a hard border “being imposed” (passive mood). You do not offer a noun in front of the verb, to show who it is, exactly, that is predicted to be going to do this “imposing”. That’s because, in fact, nobody wants to, nor do they intend to, impose such a border. You have said that Britain will never impose a hard border. The EU has said that it will never impose a hard border. The Irish have said that they will never impose a hard border. The Revenue of the UK has said that imposing a hard border will in all circumstances be entirely unnecessary. Talk of a hard border is nonsense, and you know it. Plan after plan has been published showing how the Irish border question can easily be dealt with, away from the border. To assert that this issue might bring back the IRA, that there will be one disaster or another if we don’t have the Backstop, is irresponsible. Which brings us back to what many aver, that the Backstop is just a cover for implementing some promise you made to the auto industry in 2016, that we would be in some form of Customs Union with the EU – precisely the thing that 17.4 million people voted against.
(And by the way, could you please get your people to stop briefing the credulous media as to how the EU don’t like the Backstop? To believe that – if indeed you do – would be a colossal, monumental piece of self-delusion. The EU love this Backstop, created as it is without an exit clause, with the EU entirely in control as to when – if ever – the backstop is removed. And Leo Varadkar is of course – and rightly – terrified of a Sovereign Brexit because the Irish economy would, unlike the UK’s economy, drastically contract as soon as we stopped buying Irish agricultural products and started buying cheaper, alternative produce from New Zealand and Argentina, were the EU to fail immediately to agree a free trade deal with the UK.)
As constituted in your proposed deal, the Backstop turns Britain into a permanent, shackled vassal state of the EU, subject to all its laws, on which we’d have no say; gradually reduced to a pathetic vestigial outcropping of the EU, with German goods and French produce increasingly defined under EU laws as the only sources that we will be allowed to accept. If the EU wishes – and why should they not? – that Backstop would be for good. Our manufacturing, already half destroyed by our membership of the EU, would continue to shrink, and our farmers and fishers would continue to be at a disadvantage – forever.
The positives of a Sovereign Brexit
So much for the specious arguments that a Sovereign Brexit would be problematic, and that your surrender deal is therefore necessary. But what about the positives for a Sovereign Brexit? I sometimes wonder what Downing Street’s grasp of numbers is like. Do you have any true feel for what £39 billion, so insouciantly promised to the EU in return for illusory favours, could do for this country were we to spend it on ourselves, as we could if we opted for a Sovereign Brexit, rather than giving it away?
For a start, were there any sector (including your much-loved auto sector), but let us say, for example, the agricultural or the fisheries sector, that indeed for some (unlikely) reason suffered during any years of further negotiations, then just a small fraction of this £39bn would be enough to keep those industries whole, for the (in the scheme of things) short period it took to get a free trade deal with the EU. We do not owe this £39bn to the EU. It’s possible that the EU could make an argument for us paying over a small fraction of that amount as one or another obligation, that we might eventually agree, but we certainly wouldn’t pay it any time soon, were the EU to keep on playing the sort of hardball with us that they have adopted so far as their negotiating posture; it would take them years, possibly decades, to establish legally that we owed the money.
Regardless, there is no way that the UK would ever have to pay anything but a small fraction of the full sum. Don’t you think, Prime Minister, that the EU are rather keen to have that money? Do you not see that by ruling out a Sovereign Brexit, and by promising to pay the money before you have agreed a trade deal with the EU, you have taken two enormous bargaining chips off the table? Wouldn’t keeping that money in a Sovereign Brexit scenario make a huge positive impact for the UK?
So, for a start, we’ll have that £39 billion (a sum that in your deal, as we pay it to the EU, will massively and worryingly increase this country’s debt – for no clear return). But a Sovereign Brexit will give us so much more than just that money; we’ll retain our ability to do free trade deals with that part of the global economy from which 90% of future global growth will be coming (you may know this as the ‘not the EU’ world. I hope you sometimes think about it?); we’ll keep our ability to unshackle our entrepreneurs from EU regulation (so that, as just one random example, we can regain the 12% of the global clinical trials industry that we used to have, until EU regulations in 2002 suddenly collapsed our share to around 2%); and above all, the clothing, food and other essentials that the people of the United Kingdom buy in the future being far cheaper as we move outside the protectionist barriers of the EU’s Customs Union and Internal Market.
You know very well, Prime Minister, how all of your allegedly neutral and objective advisers have ostentatiously ignored all of these benefits. You know they have failed to seriously review the many analyses that show that far from a Sovereign Brexit being negative for the British economy, it is likely instead to have a significant positive effect. You know that the insistence of your Treasury officials on publishing neither their models, nor the assumptions they put into those models, make an absolute nonsense of the credibility of those models and a mockery of the alleged impartiality of those officials. Please, Prime Minister: you are juggling with the future of this country. At the very least, you should be honest with the people of this country – both in acknowledging the above points, and in forcing your officials to own up to the way they have jammed their thumb onto one side of the scales of public opinion.
Prime Minister, you are offering us a deal where you propose to break up the Union and hand Northern Ireland over to the EU. You intend to hand over money ahead of any trade deal, thus assuring that whatever is agreed in that deal will be even more horrendous than what you have come up with so far – Gibraltar threatened, our fisheries destroyed, our people deprived of their chance for the benefits of free trade and subjected to semi-permanent, quite likely perpetual, enshacklement to the EU. You have gone back on every single promise you made when the Conservative Party made you their leader, when you gave your Lancaster House speech, when you said “Brexit means Brexit”.
The sorry band around you are desperate for your deal to go through because if we went for a Sovereign Brexit instead, they, and their enablers in the media and big businesses, would be exposed as the complete charlatans that they are, when a WTO terms Leave is implemented (the Leave that those 17.4 million voters expected to happen). This is why your myrmidons are fighting so hard, because all of them – your advisers, the civil servants involved, the Treasury forecasters, your small clique of Remain ministers, The Economist, the FT, the BBC, and on and on – would have no choice but permanently to disappear from public life once we implemented a Sovereign Brexit and all their egregious negative spinning and outrageous scare stories were proved as false as their original 2016 Project Fear was.
You, however, Prime Minister, have a glorious chance to escape their fate, by doing one thing: you can still, now, and energised by Juncker’s utterly disrespectful behaviour to you in this past week, turn around to the European Union and say, finally:
“Fine. I understand you don’t want to do a deal. We’re now going to go full bore for a Sovereign-terms Brexit. Let’s sort out some administrative things like us allowing you to fly your planes over the UK, but other than that, let’s see each other in Geneva at the WTO. Do come back to us if you want to discuss some kind of Canada-plus deal, but otherwise, let’s all spend our time constructively in the next three months preparing for Britain’s Sovereign Exit from the EU.”
For the sake of our country Prime Minister, please take this chance. Now.
There is no cliff edge when we leave the EU. There will be no economic cataclysm as Remain forecast. How many more absurd scare stories are they going to run? They have suggested Airbus will be selling planes without wings as they will not be able use the ones we supply; that planes will be […]
The post Those scare-mongering about trading with the EU on WTO terms misunderstand how modern factories operate appeared first on BrexitCentral.
There is no cliff edge when we leave the EU. There will be no economic cataclysm as Remain forecast. How many more absurd scare stories are they going to run? They have suggested Airbus will be selling planes without wings as they will not be able use the ones we supply; that planes will be grounded on the continent without permits to fly to the UK; and that all factories requiring imported components from the continent will suffer from some unspecified blockade which will stop the parts getting through.
All of these are based on some foolish misunderstandings of how trade functions and how modern factories operate. UK suppliers of Airbus wings are locked in by contract to carry on supplying, and every plane Airbus delivers after March 2019 will need those same UK wings, already certified as good to fly. It was particularly odd to read that they might switch to Chinese ones, as China still has not become a member of the EU – even though they say we have to be in order to sell such products. Continental airlines are busy selling tickets to fly to the UK after March in the knowledge that arrangements will be made to allow them to continue to use UK airspace and to land at UK airports. Their wish to do this ensures the continental countries will make reciprocal arrangements for UK airlines going to France or Germany.
Just-in-time supply chains currently use both EU and non-EU components without special problems if they come from outside the EU. I do not expect the UK authorities to create extra delays at our ports for such imports, but if they did the factory ordering the parts would just require the supplier to send the parts by an earlier truck or train to combat the longer transit time.
It is time the Treasury and the wider government swept aside its stupid gloom about Brexit, and set out just how it will use the new freedoms and the extra money it will have to spend as soon as we leave the EU. If we leave next March without signing the penal Withdrawal Agreement we could give a welcome boost to UK factories. Why not announce zero tariffs on all imported components for assembly, cutting the cost of non-EU items currently taxed? Why not take control of our fish, and more fish in UK ports and build a bigger fish processing industry at home? Why not promote more home-grown food, imposing some tariffs on the continental competition where they pay no such tax at the moment? We could at the same time cut tariffs on non-EU food to limit price rises.
Stopping large contributions to the EU budget will immediately improve our balance of payments account, as all that money has to be sent abroad as if we were paying for imports, though we get nothing for it. It would also release large sums to spend at home. Let’s have tax cuts to boost home ownership, help the car industry, and encourage work and enterprise. Let’s also boost the economy by hiring more teachers, doctors and nurses, and improving our transport systems with new investment.
The overall impact would be to boost national income and output by 1% next year and 1% the year after if we spent the £39 billion over the time period.
Could they blockade our exports? Under WTO rules, as they are and we will be, they are not allowed to charge tariffs on us which they do not impose on others, or impose new non-tariff barriers to trade. I don’t believe the stories that Calais will go slow to damage our exports, as our trade through Calais is crucial to that port’s jobs and success. Were they to do so, Rotterdam, Antwerp and other Dutch and Belgian ports would love to take the business off them.
It is time the Government moved on from seeing Brexit as some problem to be managed, to seeing it as full of opportunity for more jobs, more growth and more prosperity. That is why many of us voted Leave. The Treasury should back us and go for growth based on new freedoms we will win on departure.
John Redwood’s How to Take Back Control: Trading Globally Through the WTO is published today by Politeia
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The Treasury and Bank of England are at it once again, trying to terrify us into abandoning Brexit. The Treasury has just produced its new report on all forms of Brexit including Theresa May’s Withdrawal Agreement and lo! They are all worse than staying in. The Bank has run a ‘stress test’ on its ability […]
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The Treasury and Bank of England are at it once again, trying to terrify us into abandoning Brexit. The Treasury has just produced its new report on all forms of Brexit including Theresa May’s Withdrawal Agreement and lo! They are all worse than staying in. The Bank has run a ‘stress test’ on its ability to cope with a ‘worst case scenario’ for the UK economy; and lo! This is a ‘disorderly Brexit’ where the economy plunges into a deep 8% recession, unemployment surges to 7.5%, and house prices and sterling collapse. But God be praised, under good old Captain Carney the Bank can still cope!
What is one to make of this return of the bizarre circus duo?
Let us start by dismissing the Bank’s rodeo performance. The Bank’s latest warning of potential short-term Armageddon has no probability attached to it by the Bank. This is just as well because it is made up of absurd assumptions, each of which is highly improbable. Jointly their probability drops to virtually zero. The Bank might just as well have forecast what would happen if we went to war with the EU. It wants it both ways: as anti-Brexit propaganda and yet fully deniable. Let us waste no more time on a dangerous and irresponsible manoeuvre.
Move on to the Treasury. It has form on these awful forecasts. They said that in the year and half after the referendum the economy would contract by between 0.1% and 2.1%. In fact it grew by 2.8% and has continued to perform quite steadily, hitting what looks like over-full employment and causing the Bank to raise interest rates at last.
Now it has launched a second Project Fear. Apparently our economy will be badly hit under Brexit, whether we leave (worst case) with No (Trade) Deal on WTO rules or with a Canada+ Trade Deal. All this plus warnings of serious ‘disruption’ and ‘possible recession’. Poor Theresa May’s deal too will reduce GDP ‘in 15 years’ time by 1.4%’.
But as Mrs May agrees as she must, these forecasts are no better than the assumptions the Treasury have put into them.
Those assumptions are incredible in the extreme. The Treasury has spelt them out for us finally in full, after the past ten months of targeted leaks and some scribbled-on powerpoint slides extorted from it by the House of Commons. They are much as we expected.
First, they assume free trade deals around the world will yield only tiny gains to our economy – only 0.2% of GDP. Yet current EU protection is so high that on the Treasury’s very own model, eliminating it in a full set of trade deals for better access to all other countries would give a gain of 4% of GDP. The Treasury wriggles out of this by assuming that this protection is only about 8%, that only a quarter of it will actually be abolished, and finally that anyway the deals will cover half or less of our non-EU trade. To find this astonishing denial of the Government’s ‘bold plan to strike out for free trade with the world’ you have to trawl through the technical appendix paper; Mr. Hammond has not exactly confessed it on the Today programme, and nor will you find it out from the main report. Thus has the Treasury got rid of the biggest positive factor for Brexit.
Second, we come to the big negatives. The Treasury assumes that large costs will arise at the EU border for UK-EU trade even if we negotiate ‘free trade’ with the EU. One is pure ‘border costs’; such as extra paperwork and lengthy inspections. However, computerisation means that almost all cargoes are now cleared before reaching port; and this is now mandated by WTO rules.
Another new border cost according to the Treasury would be costly EU claims that our exporters do not satisfy required product standards. However, under WTO rules this is illegal since existing product standards are already exactly obeyed.
How does the Treasury rebut this point? It does not; it mentions it in its appendix but then sidesteps it, relying on an econometric comparison of EU trade correlations with countries outside the EU versus ones with EU countries. This finds not surprisingly that on average there are more barriers with the former. Of course: the EU deliberately makes its standards such that the US and other non-EU countries cannot sell some of their products inside the EU. But this misses entirely the point that to do this with the UK which exactly meets those standards is completely illegal under WTO rules. Having been in the EU, our situation is not reversible into that of a country that has never been in the EU.
Put in sensible assumptions into the Treasury’s own model in place of this nonsense and out pop big gains from a proper Brexit.
The Treasury says lots of institutions agree with its negative assessment of Brexit. What it fails to do is any analysis of just why they agree. It is for two reasons. First, most of them used the trade correlations the Treasury itself used before the referendum: but, as it has now agreed with critics like us, such correlations could not reveal causation and should be replaced by a full new trade model such as it has now moved onto. Second, for the minority which do use such a model, they put in much the same assumptions as the Treasury.
The last fear factor invoked by the Treasury is the ‘disruption’ and ‘recession’ from ‘crashing out with no deal’. But in practice No Deal would incorporate by administrative cooperation all existing agreements that are quite uncontroversial – on electricity in Northern Ireland, on aviation and so on. When the current deal is voted down in our Parliament, as it surely will be, the Government will need to move rapidly so that when we leave, these practical cooperative actions are in place. And if it can negotiate Canada+ so much the better.
As we look ahead, we will need to have a properly informed debate on the meaty question of how to work out the effects on our trade and welfare of different trade deals. We have our own World Trade Model which we have tested and found to do a good job of matching the facts of UK trade. Its details are published and anyone can find out what it says. The Treasury has rightly moved on from the misdirected ‘gravity correlations’ it used in the referendum and has now subscribed to the big GTAP World Trade Model from Purdue University in Indiana. This has some weak ‘gravity’ elements and is far too large to test; but at least it is logical and transparent. As taxpayers’ money has been used to acquire it and get it running, Parliament should insist that we taxpayers can access it and find out exactly how it behaves in response to different trade policies and assumptions.
The Treasury has finally given us a full report and appendix on its views. For this much, thanks. Now the citizens must have access to redo its flawed analysis, so that we know what its own model truly says about Brexit as properly conceived.
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Theresa May has achieved the remarkable feat of uniting the nation. Leavers and Remainers of all stripes have come together to condemn the Withdrawal Agreement she has negotiated with the EU. This should not really be a surprise: she has committed the country to a semi-permanent colonial state in which we stay in the Customs […]
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Theresa May has achieved the remarkable feat of uniting the nation. Leavers and Remainers of all stripes have come together to condemn the Withdrawal Agreement she has negotiated with the EU. This should not really be a surprise: she has committed the country to a semi-permanent colonial state in which we stay in the Customs Union and Single Market but without having a say in the rules. There is a way out but only if the EU agrees, something they are unlikely to do unless any future trading relationship works to their advantage.
Far from taking back control, the Prime Minister has agreed to the UK being a rule-taker from the EU for the foreseeable future, under the supervision of the European Court of Justice. And the icing on the cake is that, in return for these ‘privileges’, she has also agreed to hand over £39bn of taxpayers’ money to the EU with absolutely no guarantee of any long term agreement on trade. Even the right to take decisions over fishing in our water has been left up for grabs.
The Agreement is so demonstrably bad that barely any MPs outside of the Government payroll have come out in its support. Rather than accepting that the Agreement is unlikely to be passed by the House of Commons, Number 10 seem to be focusing their strategy on making the alternative, namely leaving without a trade deal, sound as terrifying as possible. The hope is that, if MPs and the public are sufficiently unnerved by the prospect of ‘no deal’, they will come round to reluctant support of the flawed Withdrawal Agreement.
The scary predictions made by the Treasury and others during their campaign of Project Fear during the referendum proved to be an embarrassing failure of almost legendary proportions. So the decision to embark on Project Fear Mark II is, should we say, brave. But this does not appear to holding anyone in the Establishment back.
Last week, that once-respected periodical The Economist published a leader going all out to support the Prime Minister’s line of attack. We are warned that no deal could lead to “food rationing”, “medicine shortages”, “the demise of farming” and the “collapse” of manufacturing. The planes will all be grounded of course but (Hallelujah) the leader writer thinks that the EU might graciously allow us to operate a few flights to “carry stranded citizens home”. The Economist seems to have gone ‘full Project Fear’ and as Robert Downey Jr might have said in Tropic Thunder, ‘you should never go full Project Fear’!
To some extent, such emotive nonsense deserves only ridicule. But despite The Economist’s recent reputation as being the lapdog of the Remain establishment, its influence cannot be underestimated and it is important to engage with its arguments about the risks of no deal, so let’s consider a few of its claims:
1. “Reneging on the £39bn in obligations to the EU would devastate Britain’s international credibility”
Even under no-deal, the UK will of course honour its obligations under international law. However, it is clear that our strict liabilities are very significantly lower than £39bn and, if there is no Withdrawal Agreement, we will be under no obligation to fork out such a sum as even the Remain-dominated House of Lords EU Financial Affairs Committee concluded. The exact amount due could end up being decided by independent arbitration, something that would take a number of years. In practice, the UK may well be willing to make a generous settlement once a reasonable trading relationship with the EU has been agreed. The EU desperately needs the UK cash to avoid a huge hole in its budget. So, far from ruining our relationship, leaving with no deal and no payment will help to focus EU minds. They will certainly have every incentive to avoid creating more difficulties for the UK than necessary. From the UK’s point of view, savings on the £39bn bill can be put to good use in the months leading up to and immediately after Brexit with the aim of minimising the short run disruption that may occur as we re-work our systems to cope with new arrangements.
2. “Britain has slipped to be one of the slowest growing members of G7”
Surely The Economist could at least have got basic statistics like this correct? It does not take much to look up the latest OECD data which reveal that the UK is the third fastest growing G7 economy this year, ahead of all the major EU economies. At the same time our employment rate continues to be at a record high, wages are growing again, and in a good sign for future growth, foreign direct investment into the UK in 2018 has been by far the highest of any European country. This is all a far cry from the doomsday scenarios predicted by the Treasury in the first round of Project Fear. There is a great deal of confidence in the long term prospects for the UK economy, irrespective of whether we strike a formal trade deal with the EU.
3. “No deal would swap membership of the EU’s single market for the most bare-bones trading relationship possible”
World Trade Organisation rules are certainly not “bare bones”. They are designed to facilitate trade and they already provide the basis for about half of UK exports and imports. Further, leaving without a deal would allow us to embark straight away on independent trade deals with some of the fastest-growing countries in the world. Remember that we operate a trade surplus with the EU of close to £100bn per year. Once we have left the EU on 29th March, the EU will face heavy pressure from member states such as Germany and the Republic of Ireland to ensure that they strike a trade deal with the newly-independent UK as soon as possible. There is no reason why, like other countries such as Switzerland, Norway and Canada, the UK should not end up trading freely and tariff-free both with the EU and with other countries around the world.
4. “WTO rules require the enforcement of a hard border between the Republic of Ireland and Northern Ireland”
The Economist is being particularly irresponsible in perpetuating this myth. WTO rules do not require border checks on goods – that is a matter for each country to decide. Currently, ‘intelligence led’ inspections by the UK affect only 4% of non-EU goods shipments, Ireland only 1%. The remainder are cleared immediately by computer-based procedures. There is no WTO requirement for these checks to involve physical infrastructure at a border and they can be carried out away from the border. Time and time again in Select Committee hearings, Jon Thompson, Chief Executive of HMRC, has told MPs that there is absolutely no need for the UK to erect a hard border under any scenario, including leaving without a deal. Either The Economist is ignorant of this or, even worse, they know the truth but refuse to report it.
Responding to Project Fear arguments is a bit like playing whack-a-mole: no sooner has one claim been demolished than another – equally implausible and twice as bizarre – surfaces. The Economist leader is no different in this respect and it is impossible to respond to every point in just one article.
The key point is that virtually all Brexiteers would prefer to leave the EU with a trade deal in place and most are willing to agree to a transition period to help achieve this. However, no-one can force the EU into a deal and if they are unwilling to countenance a sensible withdrawal arrangement then we must implement the result of the referendum without one. Doing so will certainly not be the economic disaster suggested by Philip Hammond and The Economist.
The trouble with the EU negotiations is that Theresa May never really believed her mantra that “no deal is better than a bad deal”. The deal she wants us to sign up to is a very bad deal indeed so leaving with no deal is looking increasingly like the best option available. The UK should embrace the economic opportunities it will bring, even if that means doing so without Theresa May at the helm.
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The UK Treasury has published another set of estimates of the impact of Brexit on the UK economy, claiming that in a ‘no deal’ scenario, UK GDP will be around 8% lower in the long term than it would have been if the UK remained in the EU. If this looks to the casual observer […]
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The UK Treasury has published another set of estimates of the impact of Brexit on the UK economy, claiming that in a ‘no deal’ scenario, UK GDP will be around 8% lower in the long term than it would have been if the UK remained in the EU.
If this looks to the casual observer like a big number, that is because it is. But can it be taken seriously? Simply put, no. It is a figure that fails to pass the most elementary ‘sniff test’. Below we show just how silly this projection is with reference to the UK’s experience in the Great Depression of the 1930s.
The 1930s depression was the most severe shock to hit the UK economy in the last century, featuring:
- A huge demand shock to exports: world trade volume fell by 30% from 1929-32. UK export volume fell 40% from 1929-32.
- A huge rise in trade costs: protectionist actions drove up the average world tariff by seven percentage points from 1929-31 to over 20% (this would have applied to around half of UK exports at the time). This understates the degree of protectionism because many countries brought in import quotas and restricted access to foreign currency (to buy imports with) too.
- A massive financial shock: the UK stock market fell by 40% from 1929-32
- A bad policy response: the UK authorities initially reacted to the slump by tightening fiscal policy and raising interest rates. Real interest rates (interest rates minus inflation) rose from 5% in 1928 to an eye-watering 10% by 1931.
How big an effect did this shock have on long-term UK GDP, e.g. by 1938? To answer this, we need to guess what GDP ‘might have’ been in 1938 by projecting GDP in 1929 (before the shock) forwards using plausible ‘no depression’ growth rates. We choose three possible growth rates to do this projection –
- Average UK growth from 1922-29 (2.9% per year)
- Average UK growth from 1900-29 excluding WWI and the period just after it (2.2% per year)
- Average UK growth for all years from 1900-29 (1.1% per year)
The results are visible in Chart 1. If you compare actual UK GDP in 1938 with the projected values using these growth rates, you can get an estimate of what the long-term effect of the depression was on UK GDP.
If we assume UK growth would have been 2.9% per year from 1929-38, then UK actual GDP in 1938 was around 8% below the ‘projected’ level. If we instead assume UK growth would have been 2.2% per year in a ‘no depression’ world, then actual UK GDP in 1938 was around 3% below the ‘projected’ level. Finally, if we assume UK growth would have been 1.1% per year in 1929-38 without the depression then actual UK GDP growth was actually about 8% higher than the projected level (see Chart 2).
So, in the first scenario we get a similar negative effect on UK GDP as the Treasury is now forecasting for a no deal Brexit. But this scenario used a very unrealistic estimate of what UK GDP growth would have looked like in the 1930s without the depression – the 1922-29 period was not only a global boom period but also saw the UK recovering from a deep recession after World War 1. The middle scenario, which yields a 3% long-term GDP loss by 1938, is far more realistic.
Moreover, the scale of the economic shock suffered by the UK in the 1930s was much bigger than any plausible Brexit-related shock could be. The depression tariff shock alone was double the equivalent shock the UK would suffer from moving to trading with the EU on WTO terms.
So, the Treasury’s 8% GDP loss for a ‘no deal’ Brexit is equivalent to the worst estimate you can make for long-term UK GDP losses after the worst financial and economic shock of the last century, and more than double more realistic estimates of the long-term GDP loss the UK suffered in the 1930s. It is very silly indeed. Many will think that it is worse than silly: that it is a deliberate attempt to mislead and alarm.
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This is the text of a speech delivered by David Davis to Economists for Free Trade on 28th November The cliché that Britain stands at a crossroads is, for once, true. The decision we take in Parliament in a couple of weeks’ time will shape the future of our country for decades to come. To […]
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This is the text of a speech delivered by David Davis to Economists for Free Trade on 28th November
The cliché that Britain stands at a crossroads is, for once, true. The decision we take in Parliament in a couple of weeks’ time will shape the future of our country for decades to come. To borrow a line from the Prime Minister, Brexit is within our grasp but perhaps not as she intends it.
If we reject the Prime Minister’s proposed agreement, we can take back control and set ourselves on the path to reclaiming our independence.
If we accept her agreement, we would repudiate the declared wishes of the majority of the British people. Wishes expressed in a referendum in which more voted than at any time in our history. The damage that would do to our democracy is incalculable. Trust in the political process and politicians would be dealt a cruel, crippling blow.
It will come as little surprise to you to learn that I will be voting against the agreement. From the beginning of the year there has been a long struggle, in government, between two views of Brexit. On one side, there are those who hope that extreme conciliation would buy a cooperative response from the EU. On the other stand those of us who take a more robust view of the economic freedoms needed to crystallise the benefits of Brexit. Much of this surfaced in the first clash at Chequers, in February, when the Cabinet Committee agreed we should insist on the “right to diverge.” I strove for a deal that would respect the outcome of the referendum.
After the decision at Chequers in July – Chequers 2 if you like – I knew that was not possible. I resigned to continue the fight on a different battleground. I acted to ensure that Brexit did indeed mean Brexit, and that Britain would resume her place in the world as an independent nation state free to shape its destiny.
I do not dispute that Theresa May has fought tirelessly and genuinely for what she believes is a good deal for Britain.
But the Government’s favoured road away from this crossroads is a denial of the restoration of sovereignty that underpinned the vote to Leave. It keeps us in the customs union potentially indefinitely. It makes us subject to the rules of the EU’s single market while denying us any power to influence those rules. It annexes Northern Ireland, part of our sovereign territory, into the Single Market regulatory structure. It will cost us £39 billion and rising. It sets the European Court of Justice, a foreign court, superior to our own.
It deprives us of one of the chief economic benefits of Brexit by preventing us striking free trade deals with fast-growing countries and markets across the globe.
Worst of all – it makes us prisoners of a Hotel California customs union. We can check out any time we like but we can never leave. This gives them unbelievable negotiating leverage on every single issue – as the EU negotiators have bragged to Brussels ambassadors.
And the other road? I will not pretend it is free of bumps and turns. But these are essentially short-term obstacles. We should press for an exit on a Canada-plus-plus-plus free trade basis. If that is denied to us by the intransigence of Brussels, we will have to leave on World Trade Organisation terms.
At this point all the choking tentacles of the EU fall away. No customs union. No backstop. No single market. No denial of new trade deals. No money paid over. No threat to the integrity of the Union.
These are the two main choices facing Members of Parliament as they prepare to pass judgement on the Government’s proposals next month.
Today, I want to look into the critical few weeks ahead, offer my view to the British public and to my parliamentary colleagues of what to expect, and urge them to stand firm in the face of the propaganda onslaught that is about to be unleashed.
The Government cannot currently expect to win the meaningful vote on their deal. To date, over 90 Conservative MPs have publicly declared an intention to oppose the agreement. With Labour, the SNP and the Liberal Democrats also lined up against – and with the DUP infuriated by the threat to the Union – defeat for the Government seems inevitable.
This may be so. But a couple of weeks in politics are a long time. And as Charles Moore observed in The Daily Telegraph at the weekend, parliamentary rebellions have a habit of melting away.
And, of course, Downing Street, the whips, the Treasury and the rest of the establishment have yet to do their best – or worst.
We are on track for a condensed version of the referendum campaign of 2016, along with all the lies, half-truths, exaggerations, spin and scare tactics.
Ultimately, this time, the decision rests with Parliament. This includes a Commons and a Lords that was overwhelmingly for Remain a couple of years ago.
Nor are the public to be left out of the propaganda operation. Downing Street has noticed that many of its troops are deserting to the Brexit camp, so the Prime Minister has headed for the airwaves. She’s doing more phone-in programmes than Nigel Farage.
Her aim is to appeal over the heads of recalcitrant Tory MPs in the hope that the public will pressure dissidents into backing the deal. The first shots came at the weekend with headlines about a new post-Brexit crackdown on unskilled migration from the EU.
Maybe, or maybe not, I think. Migration policy is a matter to be decided after the Withdrawal Agreement has been enshrined in law. It is covered by the non-binding – and decidedly woolly – Political Declaration. It is also almost certainly destined to become a bargaining chip, used by the EU after the legally binding part of the deal comes into effect.
“Want to protect your fishing grounds? Then relax the cap on Romanian workers.” This is the kind of haggling we can confidently expect.
In any case, I have my doubts about the wisdom of Downing Street’s strategy. Of course, our inability to control EU migration was a significant factor in the vote to leave. But it was not the fundamental reason – that was all about reclaiming national independence from Brussels. This was never just about immigration. It was always about control. It was always about democracy.
Like last time, the decisive battle will be fought on the economy. The bullets will fly fastest when we come to argue about the relative merits of the Government’s Brexit in Name Only approach and the Clean Brexit favoured by those, like me, who are determined to respect the referendum result.
Downing Street and the Treasury believe that they are on their strongest ground when they are lined up alongside Big Business and the City. These multinationals and big corporations, led by CEOs with multi-million pound bonuses riding on the next couple of years performance, unsurprisingly favour absolute stability in the short term over long-term opportunity. And, of course, they find that the current EU arrangements work splendidly for them – not least because they help to freeze out competition from smaller, more nimble firms.
Project Fear is set for a last hurrah.
The Treasury and the Bank of England will later today be issuing new forecasts comparing the Government’s Fake Brexit deal with a WTO exit.
I don’t often quote the FT, but I will do it this time: “Theresa May is preparing to use an economic assessment of her much-criticised Brexit deal to try to win over sceptical MPs.”
The FT makes no comment about the reliability of the Treasury’s last attempt at playing Mystic Meg.
My point is simple enough. The Treasury’s forecasts in the past have almost never been right and have more often been dramatically wrong.
The Treasury forecasts for the effects of a Leave vote made in May 2016 are these. They said that in the 18 months after the referendum the economy would contract by at best 0.1 per cent and at worst 2.1 per cent. What happened? It grew by 2.8 per cent.
The Treasury was wrong to the tune of between 2.9 – 4.9 per cent. This is a sum of up to £100 billion. Quite a lot of money. Quite a big mistake.
Of course, not all of us are brilliant at computing percentages of GDP, so George Osborne spelled out the numbers in starker terms. Unemployment would jump by 520,000 under the “cautious” projection and by 820,000 if the exit was on WTO terms. Voting to leave the EU would, over time, render the average UK family £4,300 a year worse off.
Osborne also used a visit to B&Q’s head office to predict a “Do-It-Yourself” recession as a result of a Leave vote. He prophesised falling house prices and severe damage to the public finances. A “punishment Budget” featuring tax rises and spending cuts was on the cards immediately after a Leave vote. Astonishing idea, of course, to respond to an expected downturn by clamping on a tight fiscal squeeze.
Needless to say, none of this spine-chilling nonsense came to pass. Families are no worse off and the economy has since grown by around 4 per cent. Unemployment has fallen by hundreds of thousands.
Earlier this year, the Treasury leaked its “Cross-Whitehall Brexit Analysis” in the shape of 24 PowerPoint slides to the website Buzzfeed. It caused quite a buzz – not least because it now predicts a huge 7.7 per cent of GDP hit to the economy in the event of a WTO exit. An exit with a Canada-plus deal was forecast to be painful, too, with GDP 4.8 per cent smaller than would be the case if we stayed in the EU.
Quite why the Treasury and its offshoots get things so wrong is an intriguing question.
The truth is that the Treasury is more often wrong than right. And the same goes for the OBR. They missed reality in 2009 by almost 6 per cent. That is equivalent to a miss of £120 billion today.
George Osborne was initially predicted to be more than 50 per cent likely to eliminate the deficit. The productivity growth forecasts of 2010 were 6 times larger than reality. The UK was supposed to enter a recession if there was a vote to leave the EU.
And just this year it emerged that the OBR’s previously predicted borrowing for 2017/18 would be £16 billion more than the out-turn. It is amazing the amount of money Whitehall finds down the back of the sofa.
Unsurprisingly, the dramatic numbers take the headlines, and people fail to notice that they are caused by forecasting errors.
Take Osborne’s £27 billion windfall in 2015, for example. The Chancellor hurriedly moved to spend it on tax credits and departmental budgets.
But, just a year later, he had to take it back. The OBR had undershot their borrowing forecasts by some £58 billion. As the OBR boss, Robert Chote, said at the time, “what the sofa gives, the sofa can also take away.”
But don’t take my word for it. I see from the Prime Minister’s interview with the Sun that she also has doubts about the Treasury and its forecasts. After all, and I quote, “they don’t always reflect every factor that can be taken into account… these things are always based on a set of assumptions.”
And it is notable – and frankly disgraceful – that the Chancellor has done his studio round today without publishing the underlying assumptions. Remember: forecasts are not facts: and theses are just polemical projections.
Professor Minford, of the Economists for Free Trade, has sought to explain the forecasting errors. First, he believes that the Treasury’s past reliance on the gravity model of trade has led it astray. A word on the gravity model, this assumes that trade flows are highest – and the economic benefits are greatest – when trading partners are in close geographical proximity. Europe is on our doorstep, ergo trade deals with the EU are of more value than those with more distant lands. This was possibly true when the commodities were bulky, heavy and of moderate value – coal, steel, wheat, sugar, for example – and the cost of transport was a significant proportion of the product cost. But not today.
The alternative model, the classical one developed by Ricardo in the 19th Century, assuming high competition across world markets, better fits the modern facts and predicts bigger gains from global trading on WTO terms. Transport costs are a tiny fraction of the cost of, say, an iPhone – or a near zero fraction of trade in services. This has the effect of making the entire globe the market in which we exercise comparative advantage.
Other things matter more than distance – a common language, for example, or communication links.
The good news is that – following strong criticism – the Treasury claims to recognise the limitations of its gravity model and has now switched to an improved alternative. But it has undermined its own work. If they are the same as previous work this year the assumptions it has fed in to this new model are faulty for three crucial reasons.
Firstly, the Treasury’s Cross-Whitehall analysis has made pessimistic assumptions about the positive effects of free trade on UK growth. If the UK were to adopt global free trade, the forecast predicts modest long-term gains of as low as 0.3 per cent of GDP.
This is extraordinary. One of the few things upon which economists agree is the great beneficial effect of free trade. Australia’s trade liberalisation delivered a 5.4 per cent long-term boost to GDP. This figure corroborates the Economists for Free Trade calculation of a 4 per cent boost for the UK.
The Treasury seems to assume that free trade matters when it is with the EU, but not when it is with anybody else.
The second flawed assumption in the Whitehall analysis is that there will be high border costs, from processing customs declarations and rules of origin certificates. They believe there will be extensive physical inspections at the border, even under a UK-EU free trade arrangement. This belies the way modern computerised pre-declared border procedures actually work. After all, only two to three per cent of goods are ever inspected.
Unlike the 6 per cent cost assumed by Whitehall, modern border costs are typically well under 1 per cent of the value of goods – and Switzerland measures its actual cost to be only about 0.1%.
Finally, Whitehall’s third flawed assumption is the belief that various non-tariff barriers will spring up immediately after Brexit. But after decades of integration, it’s absurd to suggest the EU will suddenly decide that our regulations aren’t good enough.
Whitehall assumes the cost of such NTBs will be equivalent to a 16 per cent tariff if we have a free trade agreement and 20 per cent if we leave under WTO rules.
These figures are truly massive. The total effect of Whitehall’s assumptions is that the UK – beginning with identical product standards and regulations – would face an effective EU tariff of about 30 per cent under WTO rules. This is about one and a half times the actual tariff faced by the US. Of course, given that we currently have shared product standards, this would be illegal under WTO rules.
These flawed assumptions have led to Whitehall’s central forecast – a 6% loss of GDP under WTO rules. Using the same modelling approach but with more reasonable assumptions, Economists for Free Trade calculates a GDP boost of about 3 per cent.
This helps to explain why the Treasury’s latest stab at forecasting produced a result fully in line with the 2016 version of Project Fear.
The Treasury insists that leaving the Single Market and customs union would do grave damage to the economy due to the loss of trade. However, it also insists that signing FTAs with other major world economies would do little good. Talk about facing two ways at once.
There is another problem with the Whitehall analysis that must be considered. There is a consistent overestimation of the positive impact the Single Market has on the British economy.
The Single Market was touted as a “vital national interest” during the referendum campaign. Project Fear constantly pushed doom-laden messages of economic ruin following a Leave vote.
However, this belief has no basis. The Single Market’s regulations are much less beneficial than assumed for the British economy.
Its rules are rigged in favour of big corporations. It suppresses innovation, competition and growth.
Sober analysis of the trading relationship between the UK and the EU spectacularly dispels the myth that the Single Market is vital for the British economy.
The researcher, Michael Burrage demonstrates that growth of UK exports to the EU has been lower during the era of the Single Market than it was during the common market decades between 1973 and 1992. Our export growth to the EU lags far behind much of the world. We are surpassed by many countries that trade with the EU on WTO terms.
Moreover, UK exports to non-EU countries under WTO based rules have grown four times faster than UK exports to the EU.
As Burrage’s work shows, EU-UK trade has been steadily declining whilst UK trade with the rest of the world has been rapidly increasing. The future of the UK economy does not lie with the European Union but with the wider world.
Contrary to the Whitehall dogma, the Single Market has not been the accelerator claimed for the British economy. We must stop worshipping at the altar of false gods.
Everyone supports evidence-based policy-making, but only the Treasury supports policy-led evidence.
Of course, apocalyptic Treasury forecasts of the grim effects of leaving the EU’s orbit are only part of Whitehall’s armoury of intimidation.
Plenty more will be hurled in the direction of MPs considering voting against the Government’s deal. Cheered on by the establishment media, we will be warned against “crashing out” of the EU and tumbling over a “cliff edge”.
They’ve claimed that planes will be grounded, and hauliers will suffer unprecedented delays. There’s been vehement insistence that Kent will become a lorry park, and hysteria over the rationing of food and medicine. Even Mars Bars will apparently become a thing of the past.
For example, the Healthcare Distribution Association has claimed that the UK will run out of insulin. However, when Channel 4’s Fact Check spoke to the UK’s leading suppliers (Sanofi, Novo Nordisk and Lilly) the companies all said that they don’t expect significant problems in the event of a no-deal Brexit.
Another foolhardy claim is that the UK will run out of food “within days”. Allegedly this would be because of a paralysed Port of Dover. Nothing, apparently, would be able to get into the country.
We’ve had long-term stoppages before, such as 26 days through the summer of 2015. Whilst this was costly, it was not as crippling as the wilder claims have inferred.
As my colleague John Redwood has pointed out, this is all nonsense. The EU is running a near £100 billion a year trade surplus in goods with the UK. The implication of this is just as we work to eliminate problems at the border, so will our European colleagues in Calais, Zeebrugge, Antwerp and Rotterdam.
If Parliament rejects the Governments’ current proposal, then the Government can press for a Canada-plus free trade deal backed by technical solutions on the Irish border. If intransigence from Brussels denies this, we should announce an exit on WTO terms and accelerate preparations for such an outcome.
I am afraid we must be ready for Project Fear 2.0. In a desperate attempt to reverse the result of the 2016 referendum, we are undoubtedly going to hear the most hair-raising stories and improbable forecasts.
Let’s remind those who might waver that we have heard this all before. Let’s expose the glaring weaknesses of the Government’s Fake Brexit. Let’s highlight alternative analyses showing that a World Trade Deal can work for us as it does the vast majority of countries.
“Trust the people” is an old Tory adage. Well, the people were right in 2016 and they are right today.
The task facing the Conservative Party, the governing party, is to deliver the will of the people as set out in June 2016. That means Brexit – and it means a clean Brexit that ensures a decisive break from the influence of a foreign power.
Downing Street and the Treasury will argue they are delivering a clean Brexit. But the facts point in the opposite direction. The Withdrawal Agreement and the Political Declaration are a bogus prospectus. They will keep Britain in orbit around the EU. We will be nothing more than a satellite state ruled from afar.
It is our duty to reject that prospectus and genuinely take back control
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