The Civil Service has recently produced a ‘Cross-Whitehall Brexit Analysis’ arguing that a Brexit in which the UK leaves the EU Customs Union and establishes Free Trade Agreements with the EU and around the world will damage the UK economy by between 1.2% and 6.2% over the next decade and a half (this excludes the assumed effects of migration and regulation changes which do not concern trade).
To generate these estimates it used a well-known World Trade Model, the GTAP model based at Purdue University Indiana, which is used regularly by analysts all around the world to produce estimates of substantial gains from Free Trade Agreements. Why is it that this model is now producing decidedly negative results for our Civil Service?
In what follows, I will show that the Civil Service has used assumptions in the GTAP model that are incredible and unsustainable in order to produce these negative results for Brexit. When credible and sensible assumptions for these Free Trade policies are fed into this model, the results are substantial and positive, as anyone would expect from policies that extend free trade.
Using credible and sensible assumptions turns the Civil Service analysis on its head. Where the Civil Service analysis says a Customs Union with the EU will be beneficial to the UK, to the tune of 1.2-6.2% of GDP, and so we should not leave it, the report – if based on correct assumptions – would say that remaining in the Customs Union is damaging to the UK, to the tune of 3-4% of GDP, and we should leave it. This would allow us to pursue general free trade with the whole world and not merely the EU within a protectionist Customs Union. The maximum discrepancy in these two assessments of the EU Customs Union is 10.2% of GDP. No wonder so many people in our national debate are confused.
Thus, the Civil Service effectively is arguing for the reversal of Brexit in one major dimension, namely the EU Customs Union. This argument has gone hand in hand with the argument that senior civil servants have apparently made for a New Customs Partnership that, in practice, amounts to the EU Customs Union in all but name.
To read Patrick Minford’s piece for BrexitCentral in full, click here.