We’ve another of these reports which insists that Brexit is going to impoverish the nation, have us all succumbing to phossy jaw as matchmaking becomes our only option. There is just the one little problem with it. They’ve missed – or rather imported from an earlier report – that WTO tariffs are a ceiling on what could be charged upon imports, not a level which must be charged upon anything at all. Thus, sadly, their fourth option is wrong:
Each of the government’s four Brexit scenarios, including a bespoke deal, would leave Britain poorer and cost the taxpayer hundreds of millions of pounds each week, analysis has shown.
The study for the thinktank Global Future by Jonathan Portes, a professor of economics and public policy at King’s College, London, found that a bespoke deal, the government’s preferred option, would have a net negative fiscal impact of about £40bn a year.
One useful answer is so what? Cuban socialism has impoverished the place but just feel the width of the free health care! And yes, there are substantial numbers who argue this is a good deal for the place.
However, the error is really here:
After looking at all four options available to the prime minister, the study established that in the long-term, the amount of money available for spending on public services would fall. Under the so-called Norway option, there would be £262m less a week, under the Canada model it would be £877m, while under a no deal it would be £1.25bn.
No deal leads to WTO tariffs. These are not rates which must be charged – they are maximums which may be charged. Given the current misunderstandings about trade we can imagine that they will be charged to our exports to other countries. But note who pays tariffs – consumers in the country levying them. So, sticking WTO maximum tariffs upon what we want to buy ourselves, taxing ourselves for buying foreign, is ludicrous. Therefore we shouldn’t do it. But the assumption is that we will at the maximum rate possible:
To insist, meanwhile, that we must raise tariffs on the imports we desire is to misunderstand the WTO system. As a source in Geneva explains, Britain is a WTO member in its own right and will still be so even after Brexit happens. This means that we have promised not to charge higher than the allowable ceilings in tariffs upon imports from other WTO members. The Most Favoured Nation clause also states that whatever we do decide to charge ourselves, we must apply the same rate to the same products from all different WTO countries.
But not charging higher than the allowable ceilings does not commit us to charging anything at all. We can apply a 0 per cent rate (yes, I checked) if we so wish.
That is, being outside the EU means we do not have to charge the EU external tariff rates upon anything and can insist that we pay ourselves nothing on all sources of food from everywhere. Economists are reasonably certain this is going to lead to lower food prices in Britain.
By the way, just about every Brexit report makes this same mistake. Or, in at least some cases, deliberate error. Correcting for it gives us Patrick Minford’s estimate of Brexit making us 3% richer, quite a long way from it having a cost really.