Cabinet told to forget flawed official forecasts – Whitehall’s secret new model shows Brexit will boost GDP by up to 4 per cent

Claims by Whitehall officials that Brexit will severely depress national output over the next 15 years have been comprehensively debunked by independent economists. The detailed new study will be presented to Cabinet ministers meeting this week to thrash out Britain’s demands as negotiations with the EU head for a critical final phase.

The study, described as the Alternative Brexit Economic Analysis (ABEA), flatly rejects the Whitehall verdict, leaked to the news website Buzzfeed earlier this month. It predicts that leaving the EU will boost the country’s economy by 2-4 per cent, in contrast with the Whitehall forecasts of up to an 8 per cent hit to gross domestic product.

Detective work by the authors, who include leading figures in Economists for Free Trade, reveals that Whitehall has now dumped the so-called “gravity model” that was a key input into the spectacularly inaccurate forecasts of the immediate effects of Brexit just before the referendum in June 2016. In its place, Whitehall is using a publicly available standard trade model, known as GTAP.

However, bizarrely, officials have not fed into the model data based on the clear objectives of Government policy as stated by the Prime Minister in her Lancaster House speech. This can be summarised as a ‘Canada plus free trade deal with the EU and free trade with the rest of the world’.

When these assumptions are fed into the GTAP model now favoured by the Treasury and the rest of Whitehall, GDP is projected to increase by 2 per cent over the 15 years after Brexit, rather than the up to 8 per cent drop forecast in the Buzzfeed leak. Using a model that matches UK trade facts pushes the Brexit boost even higher.

Former Conservative Party leader and prominent Brexiteer Iain Duncan Smith commented:

“This new study by some of our most respected economists, who have been right in the past on key issues such as the euro and the immediate effects of Brexit, deserves to be taken very seriously.

“It suggests that we should all be highly sceptical of Project Fear Mark 2 – the Treasury-led operation by Whitehall officials to discredit Brexit and browbeat ministers into the softest of departures from the EU. It shows that far from depressing UK economic growth in the years to come, escaping from the EU will boost domestic economic growth and raise living standards right across the country, particularly for the poorest.”

The ABEA conclusion is of critical importance given that ministers have already been briefed by Whitehall officials on their gloomy assessment of the likely impact of Brexit. The new study offers valuable ammunition to pro-Brexit ministers gathering at Chequers on Thursday and seeking to resist pressure from the Treasury for Britain largely to remain in lockstep with the EU after it formally leaves the 28-member bloc in March 2019.

The report says:

“The latest Whitehall analysis can only be properly assessed and subjected to rigorous outside scrutiny if it is published.  The failure to do so – together with the close similarity of its results to previous discredited Treasury analyses – has fuelled suspicion about the objectivity of the work. 

“If the Government’s policy – as declared at Lancaster House – is fed into the new Whitehall model, it produces positive outcomes for Brexit that are essentially the same as those of the models of other independent economists.

“Notwithstanding the secrecy of the leaked report, we have been able to piece together the key elements of the new Whitehall approach – the failed Treasury ‘gravity-like’ model has been discarded in favour of a standard CGE world trade model like those used by other independent economists.

“The latest Whitehall analysis makes many assumptions that are simply not credible.  Strangely, it does not even model the new agreement with the EU that the government is seeking.  But it does appear to assume that even with an EU agreement there would be absurdly large border costs on UK-EU trade; also that eliminating current EU-set trade barriers against non-EU countries would have negligible effects on the UK’s non-EU trade and the UK economy, an assumption that is demonstrably false on the very GTAP model it is using.

“The report shows that if the Government’s Brexit policy (as declared at Lancaster House) is fed into the new Whitehall model and unreasonable assumptions, as mentioned above, are corrected, the long-term economic impact of Brexit is positive.  Using this same model – but with more credible assumptions – we find that the level of GDP could be between 2 per cent and 4 per cent higher in fifteen years than if the UK had remained in the EU, rather than up to 8 per cent lower as reported by Buzzfeed.”

The 20 page report has been produced by four leading independent economists, all with a strong successful track record in economic forecasting:  Roger Bootle (Economists for Free Trade), Gerard Lyons (City economist), Professor Patrick Minford (Cardiff University and Chair of Economists for Free Trade), and Julian Jessop (Chief Economist at the Institute of Economic Affairs).

ENDS

Notes to Editors

A full copy of the report can be read here.

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