Allister Heath – It’s a complete myth that a no-deal Brexit would cripple the Brittish economy
6th Mar 2019, 5:00 pm
If the Treasury was being honest, it would admit that EU membership has made little difference to our prosperity
Like almost everybody who voted for Brexit, I wanted to leave the EU with a trade deal. I certainly assumed that we would: it is in both sides’ interests, and EU manufacturers and farmers do especially well from the present arrangements.
I thought the Government would negotiate robustly and sensibly, following Vote Leave’s advice not to trigger Article 50 until the outlines of a deal had been agreed, all the while preparing for a hard exit. I expected the EU to realise that a refusal to play ball would mean a calamitous financial, defence and security hit.
It wasn’t to be. The abject lack of leadership provided by the Prime Minister, the Government’s staggering refusal to leverage the UK’s strengths, its bovine nastiness on the rights of EU citizens and, of course, the fact that so many on the UK side were trying to reverse Brexit, all combined to deliver the greatest failure of British statecraft since Suez.
The EU was emboldened into laying a series of traps into which we jumped enthusiastically, with what ought to have been the minor issue of Northern Ireland’s border turned into a case study in technocratic sabotage.
What now? Tory Remainers are in full swing, threatening either a delay or permanent membership of the customs union and single market – in other words, no Brexit – if MPs don’t sign up to the Prime Minister’s appalling deal. We must hope that, against all the odds, Parliament doesn’t fall for this madness.
Like most Leave voters, my position has hardened. I still don’t relish the idea of leaving without a deal, but I’m now, for the first time, reconciled to doing so. As matters stand, a so-called no-deal (in reality, we’ve already agreed lots of mini-deals) would be our least bad option. It wouldn’t be pretty, especially for one or two industries, but would probably cost just 1-2 per cent of GDP.
Ifo, the German think tank, is even more optimistic: it believes the cost of a no-deal accompanied by radical tariff cuts would be only 0.48 per cent of GDP. Indeed, the Government’s reported plan to eliminate 80-90 cent of tariffs, maintaining protection in only a handful of sectors, would dramatically reduce the net costs of departure. There can be no contest between a Hotel California Brexit or the greatest unilateral reductions in tariffs since the repeal of the Corn Laws.
Even the Bank of England believes the side-agreements it has signed and other preparations have halved the cost of no deal compared to three months ago (and that is before tariff cuts and other, as yet unannounced, palliative measures). The downsides of a clean Brexit have been massively exaggerated, as have the benefits of single market and customs union membership.
We have been led up the garden path, in the worst campaign of official disinformation since Tony Blair’s dodgy Iraq WMD dossier.
The foundational lie that underpins the myth that no deal would amount to economic hara-kiri, remains the Treasury’s preposterous claim that EU membership increased trade with member states by 68-85 per cent, or 115 per cent for goods and 24 per cent for services. Such numbers are bogus: the reality is that EU membership did boost trade with Europe, but not by much. As a liberalising venture, the EU has been a flop since the launch of the single market and euro.
Britain’s exports of goods to the EU’s 11 founder members have grown by 2.65 per cent a year since 1973, according to an analysis by Michael Burrage published by Civitas; exports to the rest of the world went up by 2.35 per cent. Does anybody really believe that our goods export growth to the EU would have collapsed to just 0.79 per cent a year, far less than to any other developed market such as the US or Australia, had we not been part of the EU, which is what the Treasury model implies? Of course not.
Between 1960 and 1972, before we joined the Common Market, UK exports to what would become the EU were growing strongly. Why would such growth have suddenly collapsed if we had remained outside the EU? The Treasury numbers are a gigantic con. They are not merely orders of magnitude wrong: they are a disgrace to the economics profession.
Gordon Brown’s Treasury, for all its flaws, was more honest about the EU than George Osborne’s and Philip Hammond’s. In 2005, it conducted early (and now conveniently forgotten) research, EU membership and Trade, a 21-page note released in December 2010 after a Freedom of Information request.
Our trade with the EEC grew significantly after we joined in 1973, it notes, but then, as the years went by, the impact dimmed, especially after the single market came into force in 1992, the very time when it should have accelerated.
The paper concludes that Britain’s trade with EU members increased by 7 per cent as a result of EU membership, but that this came at the cost of reducing trade with non-EU countries by 4 per cent.
By contrast, EU member states boosted their trade with each other by 38 per cent. “This may reflect the fact that the UK was more open to trade than some member states before accession, and therefore the relative impact may have been less,” it says.
The rest of the paper is equally fascinating. The Common Agricultural Policy (CAP) cost EU citizens roughly €100 billion (£86 billion) a year, it calculates.
“The UK, as a net food importer, suffers particularly from higher food prices, impacting both on the consumer and on the food processing industry,” it argues.
It then – oh, happy days – goes on to cite the great free-market economist Patrick Minford, who estimated that the CAP costs the UK 0.5 per cent of GDP, “and in economic and budgetary terms is probably the most costly factor of EU membership”.
So, this is my plea to Tory and sensible Labour MPs. Listen to your voters. Opinion among Leave supporters has changed radically. There is much greater support for no deal. Don’t kill Brexit. Don’t force us into an anti-consumer permanent customs union, or keep us stuck in the overrated single market.
In the absence of a miraculous breakthrough in the talks, there is only one sustainable solution: a clean break with the EU.
I write this with reluctance, and much trepidation, but it’s no deal or the Tory party will be finished.