Brexit impact analysis is the stuff of nightmares
PUBLISHED: 16:00 01 February 2018
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An increasingly ruffled David Davis finally had his department draw up a Brexit impact analysis. And it is nightmarish.
Now we all know the reason why Brexit Secretary David Davis looked such a shambles when he appeared before the House of Lords European Union committee at the start of this week.
He had seen his own department’s analysis on the impact of Brexit and it was giving him nightmares.
The Department for Exiting the EU’s secret dossier of just how bad things could get is in many ways similar to Project Fear, except in this huge respect. While Project Fear was put together by George Osborne’s Remainers in the Treasury, the DEXEU documents were prepared by people who have been working closely with and are led by the Brexiteers.
This makes the prediction that Britain will be left worse off under all Brexit scenarios a much more credible document.
The paper, revealed by BuzzFeed, was quickly dismissed by the Government as an “early draft” and incomplete. Arch-Brexiteers like Iain Duncan Smith called it “highly suspicious” in its timing.
If this is Theresa May or Philip Hammond’s way of saving their skin, as Tory donors queue to express their frustration with the way they are steering the Brexit project, then it has not enhanced their popularity with Brexiteers one jot. Nor has it increased their reputation with Remainers.
Who wants to be known as the driver of a vehicle that is knowingly, but determinedly, heading straight off a cliff?
The leak may have been intended to shock the Tory party into supporting the Prime Minister and Chancellor’s belief that a softer Brexit is preferable. But its timing, just before phase two of negotiations with the EU start, could make the Brexiteers even more determined to make their voices, and their condemnation of Theresa May’s leadership, heard.
Dated January 2018, the analysis looks at three of the most plausible Brexit scenarios and concludes that financial services, chemicals, clothing, manufacturing, food and drink, cars and retailing would all be among the worst-hit sectors.
Only agriculture would see any positive impact.
Under the worst scenario – where the UK crashes out of the EU and reverts to World Trade Organisation rules, growth would reduce by 8% over the next 15 years.
Under a comprehensive free trade agreement with the EU, UK growth would be 5% lower over the same period compared with current forecasts.
If it were achievable, the softest Brexit option of all – a Norway-style deal where the UK retained single market access through membership of the European Economic Area – growth would be 2% lower. Of course, this option has already been ruled out by Theresa May.
Just to recap, the figures that George Osborne produced in 2016 were that growth would be 7.5% lower, if we were forced to revert to WTO rules, 6.2% lower if there were a free trade agreement and 3.8% lower under a Norway-like arrangement.
These latest documents also make some heroic assumptions that mean the figures are not quite as bad as Project Fear’s. Under all scenarios tested, a trade deal with the US is a given. This, the analysis suggests, will make up for only some of the lost trade with the EU.
Yet it will not be possible for the UK to agree trade deals with other states until it has finally left the EU which – given the two-year transition period – will not be until 2021.
It is clear from these predictions that trade deals, as so many Brexiteers claim, will not make up for the lion’s share of lost sales between the UK and its biggest market.
For those who argue that Brexit might finally begin to help rebalance the economy away from London and financial services, there was also grim reading.
The report states that every UK region would be negatively affected in all the modelled scenarios, with the North East, the West Midlands and Northern Ireland facing the biggest falls in economic performance.
London’s pre-eminence as a financial centre would also be severely affected, the analysis suggests.
So what of the prospects for trade, if Liam Fox and Boris Johnson pull off their global flattery project? Even here, the upside is slim. A trade deal with the US is reckoned to add only about 0.2% to GDP in the long term.
Trade deals with other non-EU countries and blocs, including China, India, Australia, the Gulf and the nations of Southeast Asia will add only 0.1% to 0.4% to GDP growth in the long-term.
So there we have it. The stuff of Davis’s nightmares. This Government is knowingly taking a route that will make every one of us worse off.
The Brexiteers will shout that Project Fear was just this bad and none of that came to pass.
Of course it is difficult to predict the future and to get it right.
Economic forecasting is darned difficult for even the most competent of experts and there are not many of those left in the Government. But at least spreadsheet Phil, for all his inability to convince his party, seems awake to the imminent danger that the UK is facing.
This leaked document, alongside plenty of other public economic studies including a recent one by the SNP, show that it is most certainly not in Britain’s economic interests to crash out of the EU.
Theresa May has said she would like a bespoke deal when there is no sign that one is on offer. Nor can she argue convincingly that this will be more beneficial – since no assessment of her fantasy deal has been done.
Some Conservative voices, the former Chancellor among them, are using this opportunity to press for the UK to join EFTA, the European Free Trade Association – whose current members are Norway, Iceland, Lichtenstein and Switzerland.
Maybe this is another route to a softer Brexit but the current membership does not look like a convincing set of allies for an economy as big or as diverse as ours.
Theresa May jetted off this week on a three-day trade delegation to China, with around 50 British business people in tow.
Given her desperate need to assert her authority over her party and pull some good news out of a hat, she’ll be itching to pull a hastily-assembled Anglo-Sino deal.
With her track record as a dealmaker, I bet the Chinese can’t wait.