Leaving four-fifths of our economy outside Europe’s single market could leave previous recessionary policy errors in the shade, writes BARNABY TOWNS
With the government losing its foreign and Brexit secretaries and suffering a string of lower-rung ministerial resignations, the fragile ‘Chequers truce’ did not last 48 hours. Backbench Brexiteers literally waited in turn to pile on criticism in the House of Commons, and Phillip Lee, who resigned last month, called for Article 50 to be suspended to allow time to negotiate a satisfactory deal with the European Union, shattering the temporary truce.
And after two days of turmoil, this ‘veneer of unity around a set of unachievable goals”, as one pro-Remain Tory MP described it, has yet to experience the fall-out from publication of the government’s White Paper or its impending collision with Brussels’ scepticism.
Spun as a ‘soft’ Brexit compromise, this plan would in fact cost a fortune by wrenching the service sector—which comprises 80% of our economy—out of the world’s largest transnational free trade area, a market of half a billion people
However well or badly this particular blueprint survives ministerial mutiny, parliamentary scrutiny, European Union counter-offers, the unmerciful court of public opinion and the veto power of 36 European legislatures, this latest iteration of ‘Brexit means Brexit’ would severely slice back gross domestic product, according to the government’s own impact assessments. It would hit living standards, and the tax revenues and social provision they fund, hard.
Shrouded in secrecy, the three scary scenarios analysed in the reports calculate the collateral damage of transitioning to the single market and customs union outside the EU, a free trade agreement and no deal respectively. To date, these studies have been available only for members of parliament to view, sealed and supervised, despite being leaked and calls from the prime minister’s ex-deputy to make them public.Shockingly, only 6% of some 1,450 members of Parliament have availed themselves of the right to view these most important documents, according to the Department for Exiting the European Union, a Freedom of Information Act request from Tories Against Brexit, a new pro-European group, found.
Alarmingly, the government finds that absent single market and customs union membership but with a ‘free trade agreement,’ the UK would be 5% worse off over 15 years, distributed unevenly. The north-east faces an 11% growth deficit, the West Midlands and north-west would experience 8% lower growth. Northern Ireland, already the Republic’s poor relation, would also be undermined by an 8% downgrade it could ill afford.
Scotland, which like Northern Ireland voted Remain, would suffer a 6% decrease, a figure confirmed by the Scottish Government’s own analysis, which concluded that single market membership outside the EU was ‘the least worst option”. Wales, which voted Leave, would see a 5.5% GDP drop over 15 years, UK government figures report.
In fact, only the relatively prosperous — and closer to the continent — south-east and south-west, as well as London, with its highly diversified, dynamic, world-city economy, would endure less harm than the average.
The carnage foretold by these depressing documents is even worse for the no-deal scenario, which is still very much a potential outcome of Brexit given the government’s slow-lane path to negotiations and the intransigence of many Brexiteers. Estimates for this end-state entail the economy shrinking by 8% nationally over a decade and a half; twice that — 16% — in the north-east and similarly savage cuts it in the West Midlands (13%) and the north-west and Northern Ireland (12%).
This judgement is confirmed by the independent Institute of Fiscal Studies, described by one national newspaper as ‘the British umpire’ for its widely-used and respected data. Its director, economist Paul Johnson, succinctly states: ‘What Brexit is essentially about is making trade more difficult with our nearest, biggest, and richest neighbour”, adding ‘that just has to make us worse off.’
Tragically, some of the nation’s most vulnerable areas would be hurt hardest by Brexit, including many disadvantaged communities in England outside London and Wales that voted Leave — bad news for those falsely sold a ‘Brexit dividend” by repatriating EU membership funds that constitute 0.37% of UK public spending.
In fact, a 5% blow to economic growth would leave the average Brit only 91% and 81% as well-off as their French and German counterparts respectively. This compares to today’s near-parity with France and 89% of the current German level, heralding a return to the bad old days of lagging behind peer nations.
This is a curious detour for the Conservative Party, which has long prided itself on resisting costly schemes it deems the nation cannot afford and which pushed hard to build the EU’s single market and add to its members, as is its decision to casually discard the City of London’s indispensable, lucrative ‘passporting rights”.
Less surprising perhaps than these dramatic U-turns is the fire and fury that came forth following the latest compromise as Brexiteers mourned imaginary trade deals, which avoiding massive customs backups and preventing a hard-Irish border put into question. In reality, as opposed to fantasy, trade deals take years to achieve, and the UK already enjoys 65 of them thanks to the EU’s greater negotiating clout. Indeed, the EU recently completed such an agreement with Canada, which took seven years to negotiate, with Australia and New Zealand to come.
The EU’s chief negotiator, Michel Barnier, was more muted, telling the Financial Times, that ‘all the models are available. Customs union, customs union plus, Norway, Norway plus’ — repeating the reality that market access requires reciprocity.
The government has walked away some from the prime minister’s hardline Lancaster House, Florence and Mansion House speeches but fallen far short of even the European Economic Area compromise backed by arch-Brexiteers Dan Hannan and Douglas Carswell, and enraged its own fundamentalists.
Leaving four-fifths of our economy outside Europe’s single market, which is responsible for half our trade, and ending free movement, upon which London especially critically depends, could leave previous recessionary policy errors — like 1925’s return to the pre-war gold standard or 1990’s Exchange Rate Mechanism peg — in the shade. If so, you might even say we’re f***ed.
Barnaby Towns is a former Conservative Party government and political adviser. He tweets @barnaby_towns 22.214.171.124