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Theresa May guilty of believing in her own magic money tree

by Hugo Dixon | 05.06.2017

The Tories have blasted Jeremy Corbyn for believing money will keep growing on a magic tree if we clobber the rich and companies with higher taxes. They are guilty of believing in their own magic tree – one that will produce enough money for the NHS, schools and care for the elderly even if we crash out of EU.

Amber Rudd first used the magic money tree jibe against Corbyn in the debate last week that Theresa May refused to attend. The prime minister liked it so much that she repeated on BBC Question Time on Friday after a nurse complained about no pay rise for eight years.

The Tories’ critique against Labour has some validity. If companies are taxed more, they’ll invest less. If the rich have to pay more, some may go elsewhere.

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But Labour’s belief in a magic money tree pales by comparison with May’s beliefs. The prime minister pretends that the economy will just keep on churning out taxes if she proceeds with her plans for a destructive Brexit.

Quitting single market bad enough

Even in the best scenario, we will be quitting the EU’s single market and its customs union. Of course, May hopes to agree a new trade deal with the bloc without any tariff barriers. But this will not be as good as our current deal.

For a start, there will be hassles at customs’ controls – to check that goods quitting the UK really originate here and haven’t come from some third country, such as China, that doesn’t have a special deal with the EU.

Our services industries, which are responsible for four-fifths of our economy, will face an even bigger problem – not tariffs, but so-called “non-tariff” barriers. Membership of the single market has lifted many of these restrictions. For example, our largest industry, financial services, has a “passport” to operate freely across all the other 27 countries.

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If we quit the single market, we will lose this passport. Other industries will lose similar freedoms – and will, instead, be ensnared by a thicket of regulatory constraints when they wish to operate across the Channel. Why would the EU could let us keep our privileges? After all, May is saying she will put an end to free movement of people (which they want) and will no longer accept the jurisdiction of EU courts to police their regulations.

How will the prime minister’s magic tree blossom when she denies it special access to a market responsible for half our trade?

Chaotic Brexit

But things could be much worse because May is threatening to quit the EU with no deal at all if she doesn’t get what she wants. This would mean driving the economy over a cliff and provoking a new recession. Such a “no deal” scenario would be more destructive than merely pulling us out of the single market and customs union.

With no deal, there would be no legal basis for much of our European commerce. There would be chaos at our borders. Lorries would be backed up at Dover waiting to get customs clearance to go to France, where tariffs would have to be paid on agricultural produce and some of our manufactured exports.

Car makers, aerospace companies and other industries would find their supply chains would seize up. These involve components criss-crossing Europe’s currently invisible frontiers. Lots of companies, including our world-leading drugs industry, wouldn’t be able to export their products because they would no longer be accredited for sale in Europe. Airlines wouldn’t immediately be able to fly.

Some of these problems would eventually be resolved because the EU would have an incentive to avoid chaos. But, with no deal, the solutions would be patchy and unsatisfactory.

How does the prime minister expect her magic tree to keep producing fruit in the midst of such an economic freeze? Perhaps she hasn’t thought about the matter. Or maybe she knows about the risks and isn’t owning up to them. Either way, she is threatening to take us on a mystery tour more nightmarish than magical.