There is some confusion over the size of these savings. The Graun says £24bn, The Telegraph £40bn, and Change Britain, um, £10bn, the press reporting of what is, in actual fact, a press release, has been appalling. Papers and news sites, which ever way they lean politically, have blandly trotted out the figures as if they were gospel. Does no one know how to critically scrutinise numbers any more?
Needless to say, Change Britain's figures describe what they describe, but nothing else. As with a great many things, it's what they don't say that counts. I've had a look at their workings so you don't have to, and what's there is little more than wish fulfillment and, in a few cases, some worrying positions.
First off, they make the easy claim that Britain will save paying membership subs, which works out as a saving of £10.4bn. Presently, countries outside of the EU but are members of the European Economic Area, like Norway post a contribution, but at a significantly lower level than the subs the UK presently pays. Change Britain's clean Brexit, however, has us lying outside the EEA completely. We would have to pay no more into the EU pot than Canada is set to do through their trade treaty. i.e. Nothing at all. Sounds attractive, but there is a problem. In October, exports to the EU were worth £26.8bn and imports £39.6bn. There are significant interests both sides of the channel for trade to continue uninterrupted, but that doesn't necessarily mean cool heads will prevail. There is every danger a deal cannot be negotiated in two years, hence the open talk of a bridging arrangement that would extend the negotiations into the never-never (a move entirely in the Prime Minister's character). However, Change Britain want none of that - they want tariff-free access, but without the rigmarole of the complex negotiations that will get us there. In short, if they want to hop out of the EEA, Britain will face tariffs, no ifs, no buts. The wrexit crew might say that will harm the EU more than that harms the UK, but in the real world that would be small comfort to the millions of jobs placed at risk and the damage done to the economy. So yes, we might save £10bn in subs, but how much disappears as the economy takes a hit? How many people have to have their livelihoods ruined until a inferior Canada-style treaty comes along?
Change Britain's second moment of dishonesty regards the freedom Britain will have to negotiate trade deals elsewhere. One of Leave's strongest suits during the campaign was playing up Britain's strength. The economy has serious, long-term problems the Tories don't seem at all fussed about, but yes, Britain is one of the richest economies in the world and, of course, people from all over will want to do business here. Pulling out a list of countries that have already expressed an interest in trade deals, or are likely to, they estimate an increase of between £8.5bn and £19.9bn worth of exports once we enter into arrangements with them. How Change Britain arrived at these figures are mathematically reasonable (though their link for 2016 trade balances leads to 2013's), they are economically suspect. Suspect because a trade deal doesn't generate exports, economic activity does. The tearing down of tariff barriers does not create jobs or boost productivity, it relieves costs borne by exporters and importers. It can improve profitability, but as we've seen in almost a decade's worth of a capital strike here in Britain, boosting profit rates doesn't necessarily equal more investment and greater productivity. Secondly, tariff-free access can harm economies, or does Change Britain need to read about the consequences of cheap Chinese steel again - that is until the hated EU put a hefty tariff on it? And thirdly, these trade deals aren't going to get struck overnight. Working out something with Mercosur - the Brazil-led economic bloc of Latin American countries - is not going to be a simple head-to-head between governments. And as for the deal with the USA, well, there might be a problem. Until we get those deals, there will be no economic benefit whatsoever. For years.
Lastly, let's look at the bonfire of red tape. Apparently, British business is getting choked by Brussels bureaucracy. A strangulation to the tune of £1.2bn, which is very small beer in the context of a £1.8tn (or thereabouts) economy. But still, let's play Change Britain's game. Going through the 100 most burdensome EU regulations as identified by Open Europe, Change Britain are at least honest enough to acknowledge that only a small proportion of EU regulations would be repealed because of international treaties and continued policy commitments. Nevertheless, they've earmarked some pretty interesting regulations for the chop. These include the Data Protection Act, genetically modified food regulations, non-road gaseous and particulate pollutant regulations, registration and restriction of chemicals rules, waste batteries and accumulators regs, and farmed animal welfare rules. In short, irony of ironies, their Clean Brexit would result in more airborne pollution - a filthy Brexit, if you will. As well as a free for all in hazardous materials, and an abandonment of farmed animal standards. And greater freedoms for those who hold personal data to abuse it. I guess it hadn't occurred that their repeal might create unforeseen externalities, like monies lost through fraud, added costs to health care, the cost of cleaning up environmental damage, it goes on.
In all, Change Britain's bean counter's approach to a Clean Brexit amounts to politics of the dirtiest kind. This is not an exercise in cost/benefit analysis. It's a balance sheet of dishonest thinking and convenient forgetting, and deserves branding as such.
There's a further issue with the assumptions over UK-EU trade. Assume a free trade deal is agreed. That still means that the UK is disadvantaged because of non-tariff barriers, and because even without tariffs, larger-scale EU capitals will have a range of economies of scale, and lower costs in selling within the single market than will the UK with merely access to it. The EU's trade surplus with the UK would grow, requiring the UK to send capital to the EU to cover the difference. The Pound would fall meaning that UK workers become poorer, and have to work longer and harder to pay for the things they need to live, compared to the EU counterparts.
ReplyDeleteSecondly, assume that the EU whacks tariffs on UK goods. That means that fewer UK goods would get imported to the EU. The UK trade deficit with the EU grows again, with the same consequences as described above. The EU can easily substitute for the UK imports, because it is a capital nearly ten times the size of UK capital. So, suppose the UK whacks an equivalent tariff on EU goods. The same consequence does not follow. The UK cannot so easily or cheaply replace the commodities it buys from the EU. British consumers will still want to buy BMW's, Mercedes, and VW's etc, as well as French Champagne or Italian Prosecco, and a 10% tariff is not likely to stop them doing so. It will simply cost them more, and so British workers living standards would fall again.
Moreover, if car companies producing in the UK find that they face say a 10% tariff to export to the EU, those car companies, all of whom are foreign owned, will simply shift their production to the EU,w here they will face no such tariffs. The result will then be that BMW/Bentley/Mini, VW/Rolls Royce, along with Nissan, Toyota and Honda etc. leave the UK for the EU. UK workers will lose their jobs producing those cars, but UK consumers will still want to buy cars, but there will then be none produced in the UK. The UK's trade deficit widens again, and so on.
Given the UK's huge existing trade deficit - which I heard some so called expert journalist on a TV Press Preview confuse completely with the budget deficit! - and the fact that it is financed by lending from foreigners, its likely that this reliance on the kindness of strangers, will be deadly for the UK economy under such conditions, so that UK borrowing costs go through the roof, at a time when global interest rates are rising anyway.
No amount of lowering of UK Bank Rate or money printing can change that fact, which means that as interest rates rise the capitalised value of shares, bonds and property falls. All those old folks who read the Daily Express, and thought Brexit would be a good idea will find that the other thing they share with the Daily Express, the idea that house prices can keep rising, will be sorely disappointed, as that crash decimates and more the paper value of their property - a fact that will most severely affect those that became buy-to let landlords, or who were foolish enough to think that property could act as some form of pension.