As more Project Fear myths are debunked, we must look forward to the benefits of global trade
In the spring of 2016, the then Chancellor of the Exchequer, backed by the Treasury, said unequivocally that a vote to leave the EU would produce a recession and unemployment would rise by half a million. In fact, employment has risen by 400,000 to the highest rate on record and unemployment is at an all-time low – in stark contrast to the appalling levels of unemployment of the Club Med countries, which are under the yoke of the EU.
Defying the predictions of the British trade associations and of the IMF and the EU itself, UK economic growth in 2016 boosted and in 2017 was 1.8% compared to the predicted levels varying between 1.5% at the top end and as low as 0.6% predicted by a US Bank, which shall remain nameless, lest you would want to switch your funds. At the same time, UK export order books are at a 30-year high according to the CBI and domestic orders at a 20-year high. The current account deficit has been narrowed by two percentage points (although still not enough) and the balance of trade has substantially improved (although still massively in favour of the EU).
The Deutsche Bank Chief Executive recently said that the talk of relocation of staff from London to the EU had been exaggerated and only a few were at risk. The head of the central bank of France said that the so-called threat to the City of London was greatly exaggerated. Direct foreign investment into the UK grew in 2017. In short, the UK economy is strong and in rude good health. Even the strongly-Remain Economist magazine acknowledges that the predictions were wrong.
In the vernacular of Shakespeare, those who contributed to “Project Fear” running up to the referendum and into 2017 were either fools or knaves. They either showed extraordinary bad judgement and poor economic modelling (in which case it calls into question their reliability on forecasting in general) or they were deliberately lying as part of the campaign to keep Britain in the EU (in which case can they be trusted in future?).
The importance of all this is to be clear about the basis of what I am going to say next about the post-Brexit economic future for the UK and the EU, the vision of which is so much tied up in the assumptions made and the politics as played out. One of the problems of much of the erroneous economic modelling was not just that the models are not fit for purpose but, even more, that the assumptions used were erroneous – “garbage in, garbage out!”
The logical positioning of the EU is to place the interests of the 27 above those of Britain. It has taken Her Majesty’s Government some time to appreciate this, as the working assumption was that the process of leaving would be a cooperative venture amongst friends who share a mutual interest in prosperity and security. This is not to be. The EU, France and, particularly, Germany have made it clear that it is their objective to make sure Britain is worse off, made to suffer in order to discourage the rest and to extract as much money as possible to maintain the integrity of the EU “project”. Any means will be used. Witness how the Republic of Ireland was used as a block until Germany got the payment promise it wanted in the first round of negotiations, at which point the block was removed without anything actually changing for Ireland. Cynical or what?
It is crystal clear to me that the EU and Germany (backed by their business leaders) are quite prepared to sacrifice businesses and workers in Germany, the Netherlands, Denmark, Sweden, Spain, Italy and Ireland amongst others, in order to preserve the long term EU “project” – the inexorable march towards an EU supra-national state with France and, particularly, Germany at the centre.
This leads us to an inevitable conclusion: Britain will leave the EU and adopt global trade based on WTO terms.
There is, of course, a possibility Britain will offer a trade arrangement with the EU prior to leaving. A simple trade arrangement for goods would, of course, obviate the need for a transition period and thus affect the timing of benefits. It would also benefit the EU. This does not change the central thesis for Britain, but would help obviate losses for the EU.
Under global trade, Britain will do well as it will have a competitive currency for some time and be able to leverage its newly-won economic freedoms, giving it a highly-competitive economy. The repatriation of fisheries and reform of the Common Agricultural Policy will be a boost. The savings from the net contribution, no longer paid to the EU, can be invested in healthcare, infrastructure and digital while providing tax breaks for business and individuals, boosting growth and overall tax receipts.
Better regulation will provide a competitive edge and the removal of external tariffs, either unilaterally or through trade deals, will be a major fillip.
The effect on exports will be marked as UK goods and services will be cheaper. In the domestic market, goods from the EU will be more expensive relative to the competition, either because tariffs are levied post-Brexit, or because tariffs are removed, creating more competition from the rest of the world. The net effect of all this is that the UK economy will benefit and the EU economy will suffer.
The economic freedoms in aggregate would yield additional GDP growth of around 6% to 7% which would be the equivalent of boosting UK growth by a third every year for the best part of a decade.
Economists for Free Trade (EFT), whose Chairman is the famous economist Patrick Minford, have done some work on the relative cost/benefit that will accrue as the UK leaves the EU and adopts global trade. It is worth noting that Minford has been correct in his forecasts of the major economic changes in Britain over the last 35 years, unlike the economic forecasters mentioned earlier.
EFT estimate that the effect of the boost in growth accrued from leveraging our economic freedoms combined with the impact of tariffs would produce a startling outcome. Calculated on the basis of Net Present Value (NPV) over 10 years, the EU economy will lose by £507 billion while the British economy will gain by over £650 billion.
The measure of success of Brexit, as set out by the British electorate, is whether we take control of our laws, money and borders. However, the above calculations might help explain why so many entrepreneurs and business owners are committed to the Brexit cause.
January 2018: BrexitCentral