Vicky Pryce is an economist and commentator and former joint head of the UK Government Economic Service.
Jeremy Hunt in his interview with Andrew Marr on Sunday morning was unable to articulate any positive economic benefits from leaving the EU, focusing on issues of sovereignty instead. When pressed on whether the current deal will make us better off than staying in the EU, the best he could offer was that it would mitigate some of the negatives. That says it all.
The Bank of England (BoE) and the Treasury are meant to be producing impact assessments on the deal in the coming days. But today sees the first independent assessment by the well-respected think tank NIESR, on behalf of the People’s Vote campaign, of the economic implications of the deal signed at the weekend. It finds few comforting words for the prime minister.
The NIESR report estimates that the government’s proposal – a free trade agreement (FTA) which assumes no tariffs for goods traded with the EU, and which may emerge, if lucky, after two or more years of further negotiations – will lead to GDP by 2030 being some 4% below where it otherwise would have been if we stayed in the EU. This is equivalent to a loss of some £1,100 per person in the UK in 2016 prices.
The main reason is the increased costs to consumers from greater restrictions to trade with the EU, which is our main trading partner. In particular, with services not covered satisfactorily by the proposed FTA, non-tariff barriers will discourage services trade and inward investment and adversely affect UK productivity. Remember productivity is some 20% below what it was before the financial crisis and got worse due to lack of business investment since the referendum.
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The NIESR has modelled several scenarios. If the UK triggers the so-called “backstop” at the end of the transition period, keeping it in a customs union with the EU, the figures improve to a loss of just 2% of GDP compared to if there was no Brexit. But the loss widens to 5% if the UK leaves in March 2019 with no deal.
These calculations are not very different to what the government and others have calculated over the last few months. But the findings seriously question Theresa May’s assertion that her deal aims to help the economy and jobs.
The NIESR focuses most of its work on what happens after the expected 21-month transition is over. But as it points out, the BoE and others have calculated that the economy has already grown by some of 2% less than it would otherwise have done since the referendum. And there would almost certainly be added costs to the economy from further uncertainty during trade negotiations in the transition period.
There have also been additional and distorting Brexit costs to the public purse: the need to hire a large number of extra civil servants; preparations for the creation of new regulatory agencies to replicate EU ones; the £3 billion no-deal contingency preparations; the extra money allocated to the DUP and more. Add to that the higher public sector debt levels resulting from the huge amount of liquidity injected into the system by the BoE to secure financial stability after the markets wobbled dangerously when the referendum result was announced – which will at some stage need to be unwound.
No one voted to be poorer. But it’s clear that Brexit has already cost us, and will continue to do so into the future. MPs should think hard about what that means for their constituents before they back May’s deal in Parliament. And if the public don’t like the damage Brexit is doing to the economy, they should be given the chance to say so in a People’s Vote.
Edited by Luke Lythgoe
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