Halloween may be over but fear still stalks the land. As we enter the Brexit endgame, it is apparent that Theresa May plans to terrorise her turbulent troops into supporting the Chequers-style deal she has cooked up with the EU.
A deal at any price? That is the Prime Minister’s position. From the very beginning of the negotiations, she has been intent on securing a deal. The lamentable events of the past two years can be traced back to this simple imperative. According to her, success in the talks equalled a deal; failure equalled no deal.
And that is where I and my fellow economists in Economists for Free Trade (EFT) beg to differ. A deal is not success in itself. In fact, a bad deal is far worse than no deal (sound familiar?). I will come to why in a moment. First, I have to acknowledge that, in the sorry saga of Brexit, politics has trumped economics.
Whitehall, the City, big business, the loftier heights of the media – in short the establishment – have set the rules of the Brexit game. And the simplest and most important rule is that there must be a deal. May must come back from some marathon Brussels summit – complete with a lavish dinner and expensive (French) wine – waving a piece of paper. Agreement has been reached. Britain is now embarking on a new and special relationship with its continental cousins and everyone is getting on famously.
A deal trumps everything. No more rows, no more lectures from the likes of Juncker and his gang, no more condescension from the all-seeing, all-wise Barnier, and (briefly) no more disdain from the sanctimonious BBC. The game (and the British love games) is framed this way. Victory in Europe equals a piece of paper. Defeat equals the lonely business of walking away from the table and refusing to sign.
Of course, no deal is a total misnomer, as are the loaded associated propaganda of Britain ‘crashing out’ of the EU (a BBC staple) and ‘falling off a cliff edge’. There is no crash and no cliff. There is an alternative to the Prime Minister defying the will of 17.4 million people and signing a ‘deal’ that keeps the whole of the UK in a customs union for a ‘temporary’ but undefined time, denies us the opportunity to strike trade deals with the most dynamic countries in the world, binds us to the restrictive and wealth-destroying rules of the single market, costs us £39 billion, and constrains our sovereignty.
It is called a World Trade Deal operating under WTO rules. Most of the countries of the world trade with each other – and the EU – under these rules. And, yes, they are what the name suggests: ‘rules’. Discrimination against trading partners is outlawed and breaches are settled and enforced by WTO tribunals. Tariffs are low (averaging four per cent) and countries are free to reduce them as long as they offer these lower (or indeed zero) tariffs to all of their customers.
Without wearying you with all the detail, the economic modelling I have done at Cardiff Business School suggests that Britain would do very well under a World Trade Deal. Growth would pick up even faster (it has already confounded the prophets of doom in the Treasury by holding up well in the post-referendum phase) and the result would be greater prosperity for the nation – about an extra 0.5 per cent annual growth on average over the next decade and a half. There would also be more revenue for the Chancellor: enabling him to cut taxes or raise spending by an extra £25 billion a year from 2020 rising to £65 billion a year from 2025. All of this while still reducing public debt to a safe share of GDP. So Hammond would have lots of money to stuff the NHS with gold and plenty left over to reduce taxes that damage our competitiveness.
But, of course, Economists for Free Trade forecasts of faster growth and rising revenues under a World Trade Deal are an outlier, as they say in the economics world. The establishment team (the Office of Budget Responsibility, the IFS, the CBI, the IMF, the OECD) all forecast gloom and doom unless Britain gets May’s precious ‘Deal’. The reason, put simply, is that they feed wrong assumptions into their models of the economy, assuming that if Britain reverted to WTO trading arrangements, all manner of new barriers to trade would arise (pointless checks at borders and new concocted standards) and we would find ourselves in deep trouble.
It is all utter nonsense – and other private sector economists are increasingly disagreeing with the Treasury’s pessimism. The WTO outlaws this kind of discrimination and disruption, even if our European trading partners were minded to go down this road.
Why would they, when they sell far more to us than we sell to them? Why too would they risk illegal actions that undermine the very basis of EU treaties and would be shot down by their own businesses in European courts and the ECJ? In this vein, the President of the Calais region has let the cat out of the bag by stating he will not let Macron interfere with the smooth workings of the Port of Calais.
And that’s just under WTO rules, what about Canada-plus I hear you say? Quite right. A free trade deal between Britain and the EU along the lines of the Canada-EU agreement would be even better than a World Trade Deal. I would go for that if it was available and I hope May will have enough sense to ‘pivot’ in that direction. But for now something called the Irish backstop seems to have been put in its way; it is seemingly deliberately designed to keep us in a permanent EU limbo. But, if this is ultimately resolved for her deal, it will automatically be resolved for Canada-plus.
It doesn’t matter too much. A World Trade Deal is good enough to start with. Later, once we are properly out of the EU, we can talk to Brussels about a Canada-style deal with the wind at our backs rather than blowing against us. But under the currently proposed deal that effectively keeps us in the EU for the foreseeable future, the economic gains of leaving (all those free trade deals with the rest of the world) will be denied us. So why did we bother to have a referendum in the first place if we were going to spend the next two years trying to wriggle out of the result and betray the voters?
I have been here before. I backed the Thatcher Budget of 1981; I opposed entry into the European Exchange Rate Mechanism in 1990; I opposed scrapping the pound and joining the euro; I supported Brexit on economic grounds; I forecast the economy would grow steadily after the referendum.
The vast majority of economists disagreed with me on all counts. I am an outlier, I know. But the establishment is far from always right. This time, if it persists in obstructing the people’s expressed will, it may finally have cooked its own goose.
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