Brexit could boost UK economy by £135 billion, say top economists

Brexit could boost the UK economy by as much as £135 billion a year, according to a comprehensive new report by a team of leading economists who argue that it is time to abandon the gloomy forecasts of Project Fear and embrace Project Prosperity – the mounting evidence that quitting the protectionist EU will transform Britain’s prospects over the next decade.

The surge in national output – worth about £5,000 a year to the average UK household – should also be accompanied by an 8 per cent fall in prices – which would add an average of £40 a week to such households, raising living standards, creating new, better paid jobs and cutting unemployment.

They include a reduction in their bills of £2.50 a week triggered by savings in benefits currently paid to unskilled EU immigrants.

The glowing assessment of Britain’s post-Brexit future comes in a 50-page report to be published in full in the autumn by Economists for Free Trade (EFT), a 16-strong group of experts, which includes Patrick Minford, Professor of Economics at Cardiff University and Roger Bootle, Chairman of Capital Economics, Europe’s largest macroeconomics consultancy.

In an introduction released in advance of publication of the full report, From Project Fear to Project Prosperity, Professor Minford rejects so-called “Soft Brexit”, saying that the benefits of quitting the EU will only be realised by a combination of global free trade for Britain – outside the single market and the customs union – plus opening up the UK economy to the positive effects of full competition.

Such moves would generate the massive £135 billion a year uplift to the economy outlined in the report without counting any ongoing dynamic effects on growth (see table below).

GDP (%) Cash (£ pa) Cash Per UK Household (£ pa)
Free Trade Gain 4 80 billion 2960
Deregulation Gain 2 40 billion 1480
Immigration Gain 0.2 3.5 billion 148
Budget Gain 0.6 11.1 billion 518
Total 6.8 135 billion 5106

Assumptions: Total GDP at market prices: £2 trillion 2017 (ONS +EFT forecast); 27.1 million households in the UK (2016, ONS); OBR estimates for EU budget

Professor Minford also takes issue with Chancellor Philip Hammond over his insistence that a post-Brexit Britain would still follow the high tax/high spend/high regulation European economic model. “To do that would risk simply throwing away our hard-won freedom from EU rules that reduce our competitiveness as a nation; we would be throwing away the very gains from Brexit that we enumerate above! If the EU does not like our new UK rules then it is free to adjust to them as it likes”, he says in his introduction.

Professor Minford declares: “’Hard Brexit’ is good for the UK economically while ‘Soft Brexit’ leaves us as badly off as before…’Hard’ is economically much superior to ‘Soft’.

“Backers of ‘Soft Brexit’ say it would preserve jobs, but what they really mean is that it would preserve existing jobs by stopping competition from home and abroad.

“As every schoolboy knows and every politician ought to know, this aborting of competition reduces jobs in the long run…Competition increases productivity and so employment because higher wages paid for by higher productivity makes work more attractive. Competition also increases our general welfare because we are producing more.”

Professor Minford goes on to argue that the ideal solution would be a free trade deal between the UK and the EU plus new free trade deals with other major economies such as the USA. But this might not prove possible. The solution, radical as it might seem, would be for the UK to announce that it would unilaterally eliminate trade barriers, such as tariffs, for the EU and the rest of the world, so making the UK the driver of global free trade. The UK would then still reap the same trade gains as shown above.

“This is unilateral free trade (UFT) whereby we simply abolish our trade barriers without asking others to do the same. The most famous example of this was in 1846 when Sir Robert Peel abolished the Corn Laws, greatly reducing the price of food and helping to stimulate the Industrial Revolution.”

The very threat of UFT would also put huge pressure on the EU to offer Britain a free trade deal because, if it did not, its producers, such as car makers and farmers, would find themselves trying to compete in a UK market flooded with less expensive goods from all over the world, Professor Minford argues. Much the same would happen even if the UK simply obtained FTAs with key world suppliers of food and manufactures that are keen to do so such as the US, Australia and New Zealand.

Free trade with others – whether via FTAs or UFT – “is a strong incentive for the EU to do a trade deal with us – which is what we want politically. This is the origin of the political soundbite – ‘No deal is better than a bad deal…”Free trade “acts as ‘the club in the closet’ to bring the EU to a proper trade agreement with us.”

Professor Minford adds that post-Brexit economic prospects for Britain are excellent because the drop in the value of the pound is acting as a powerful economic stimulus, switching demand away from consumers to net exports and business investments while boosting company profits. This virtuous cycle will assist the transition to higher productivity and wages from free trade, deregulation and migration control.

Commenting on the paper, economist Michael Burrage said:

“Project Fear failed yet many Remainers are trying to resurrect it. 

“Instead of making wild untrustworthy predictions about withdrawal from the Single Market, look at the evidence its impact on the UK economy over the past 23 years. Its benefits have grossly exaggerated.                     

“Numerous countries’ exports to the EU have grown faster than those of the UK, even though they have no free trade deal with the EU.

“UK trade with other countries under WTO rules has grown much faster than its trade with the Single Market.

“The Government should embrace a clean, swift Brexit – avoid the uncertainty of a long drawn out transition and embrace the opportunities of Brexit.”

Roger Bootle, Chairman of Capital Economics said:

“The Government must abandon the restrictive, protectionist economic strategy that has dominated British economic policy while shackled to the EU.

“Britain needs an ambitious plan to ensure Brexit creates prosperity and this is what Economists for Free Trade will do in this paper.

“This is a once in a generation opportunity to raise living standards and create new employment opportunities across the country.”

In a separate paper, Mr Bootle says the UK will enjoy a faster rate of economic growth after it leaves the EU – faster than it has enjoyed in the past and faster than the remaining members of the EU. He says that the EU’s decision-making – over regulation, the misuse of funds, harmonisation of EU laws, and the euro – has been poor and has reduced efficiency.

“On the basis of its record, the EU is likely to make cack-handed decisions about (the issues of the future).”

ENDS

NOTES TO EDITORS

For media enquiries please contact Matthew Walsh at Media Intelligence Partners on matthew@mippr.co.uk or 07754 786789.

More information about Economists for Free Trade here.

The full report, From Project Fear to Project Prosperity, will be published in the autumn. Over the next few months, EFT will release some of the separate chapters of the report covering topics such as EU governance and regulation, trade models, trade negotiations, the City, Migration, post-Brexit spending and forecasts for the UK economy.

Economists for Free Trade comprises 16 leading economists and is the largest of its kind in the UK bringing together experts in trade, macroeconomics, monetary policy and forecasting, together with extensive experience advising Governments on economic policy. The group includes six former economic advisers to government and eight university professors.

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