The Effect Of Brexit On The UK Economy Depends On What We Do After Brexit

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We have yet another report that Brexit is going to kill the UK economy, waifs will stray in search of bitter crusts and all will be woe with the world. We’re even told that Brexit will shave 4% of the British economy.

This is not, in fact, so. For what happens to the UK economy does not depend upon Brexit itself. It depends upon what policies we follow after Brexit. Brexit simply being the event which leads to the possibility of us radically changing our economic policy. We could, of course, elect Jezza and Venezuela ourselves into that waifs and crusts scenario. We might cling to Nanny’s skirts in the form of maintaining customs union membership and EU regulation and become that 4% poorer. Or we could take the opportunity to do the right thing and thereby make ourselves richer.

This prediction is therefore a cautionary tale:

Prime Minister Theresa May’s Brexit plan will make people worse off than if the UK remained in the EU, the government’s own assessment of the agreement concluded on Wednesday. Officials did not model an exact representation of the deal agreed with Brussels, but the published variant closest to the deal, including restrictions on migration and some new trade frictions, suggests a 3.9 per cent hit to national income in the long term compared with staying in the EU.

Note that the statement is not that Brexit will do this. It’s that the specific deal will do this. And it’ll do it by limiting out ability to change policy:

The UK will be poorer economically under any form of Brexit, compared with staying in the EU, Treasury analysis suggests. Official figures say the UK economy could be up to 3.9% smaller after 15 years under Theresa May’s Brexit plan, compared with staying in the EU. But a no-deal Brexit could deliver a 9.3% hit, the new estimates say.

That though is flat out wrong. Again, it’s not Brexit, it’s what policies we adopt afterwards which matter. As Patrick Minford has been saying for near two decades now. The latest version of his argument is here. Quite simply, burn all trade restrictions, declare unilateral free trade and become 3% better off rather than the 4 and 10% declines being threatened here.

We’ve even good empirical evidence – the people of the UK did become richer after the abolition of the Corn Laws and Britain’s acceptance of that unilateral free trade. So, why don’t we do it again? You know, given that it’s only freedom from EU restrictions that even allows us to do this?

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Q46Samarkand TonyRhoda Klapp Recent comment authors
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Rhoda Klapp
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Rhoda Klapp

Is there only one no-deal brexit in this prediction? Surely there would be a range of options available to some future government? How many of those options were looked at? How do they make out that food will be more expensive?

Samarkand Tony
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Samarkand Tony

The problem is that our politicians are going to decide what we do, so any form of Brexit will involve needless pain to punish the electorate for voting wrong.

Q46
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Q46

‘…some new trade frictions, suggests a 3.9 per cent hit to national income in the long term compared with staying in the EU.’ Everything about Brexit is about exporting and exporting only to the EU. There is no account taken of importing and the increase in that that a no deal Brexit can bring. The increased economic activity because of more choice, more competition, lower prices, more money for consumers to spend will more than compensate for a few lost export sales to the EU. And what about increased exports to non-EU made possible with new trade deals? Won’t they… Read more »