‘We now face a series of choices about the kind of Brexit we want,” said George Osborne last week. “And when it comes to leaving the EU customs union versus what we might gain from doing a trade deal with America … the sums don’t stack up.”
The “sums” the former chancellor cites were contained in an early draft of an internal civil service document, “EU Exit Analysis – Cross Whitehall Briefing”, that was leaked last week.
Written by Treasury and Cabinet Office officials, the report painted leaving the EU in the worst possible light. The leak was also timed to inflict maximum damage – as the Lords were debating the EU Withdrawal Bill and the PM was 5,000 miles away in Beijing, ahead of this week’s crucial Cabinet meeting on Brexit.
Three post-Brexit scenarios were examined: a close “Norway” deal with the EU, a “Canada-style” negotiated trade deal and the “WTO option” with no EU trade deal but including freetrade agreements struck elsewhere. All three give terrible results – with 2pc off GDP over the next 15 years under the Norway option, rising to an alarming 8pc GDP loss under WTO rules. As such, even the slightest deviation from EUmembership apparently would be a terrible blow.
The UK retains tariff-free access to the single market under the Norway model, but large annual payments and freedom of movement continues. To countless millions who voted to leave, of course, that would not amount to Brexit. We would, though, retain control of agriculture and fisheries under a Norway deal – sectors where, according to most farmers and almost all fishermen, EU membership means we currently lose out. Yet, oddly, the British economy would still be 2pc smaller than it otherwise would have been by the early 2030s.
Even with an extensive network of new UK trade deals – under the WTO option – this report recognises barely any gains. No matter that the EU, despite years of trying, has failed to cut free-trade agreements with most of the largest economies, including China, India and Brazil, nations set to grow far faster than the EU.
Negotiating as 28 member states is tough when the bloc itself contains countries with strongly conflicting objectives. The EU‘s ultraprotectionist instincts, whether driven by French farmers or Italian clothes makers, also get in the way. The UK, in contrast, has a long history of securing trade agreements – or at least we did, prior to EU membership. And, now Brexit is coming, large economies have shown strong interest in signing deals.
Yet, apparently, the “sums don’t stack up”. One reason is that this loaded report disregards significant benefits of being outside the EU‘s customs union – which, as well as allowing us to cut bespoke trade deals, also means UK consumers will no longer pay punitive EU tariffs.
The CBI recently claimed we can stay in the customs union while “respecting the vote to leave the EU“. Nonsense. The EU began life as a customs union, the mechanism enshrined in the 1957 Treaty of Rome. It embodies the legal essence of EU membership. EU tariffs, at the same time, make imports from non-EU countries much more expensive, particularly clothing, food and footwear – items on which low-income households spend a large share of their incomes. And these tariffs are paid on goods where there are often no UK jobs to protect, with consumers here facing higher prices to shield inefficient producers in other EUmember states from competition.
Four-fifths of such tariffs collected in the UK each year must then be sent to Brussels. And because the UK has a much higher share of non-EU trade than any other EU member, these outbound tariff revenue flows, funded by higher prices in the shops, are disproportionately high. Such vital considerations barely feature in Whitehall’s “sums”.
To read Liam Halligan’s article for the Sunday Telegraph in full, click here.