– Whitehall reported almost £150 billion hit to GDP if UK leaves customs union
– New report finds civil servants were WRONG by £300 billion
– UK will GAIN £80 billion by leaving customs union
Senior civil servants have catastrophically miscalculated the impact of leaving the customs union and completely ignored the economic benefits to the UK.
The recent ‘Cross-Whitehall report’ estimated that exiting the customs union would cost the UK economy by between 1.6 per cent and 7.7 per cent of GDP (£32 – £154 billion) over the next fifteen years. These figures include effects of likely free trade agreements (FTA) with non-EU countries, migration, and deregulation; in reality, the UK would actually gain something like 7% per cent of GDP (£140 billion), taking into account all these factors.
This blunder amounting to nearly 15 per cent of GDP (£300 billion) has been exposed in a new report by experts from Economists for Free Trade. The mistakes the civil servants have made with regard to the costs of leaving the customs union account for almost 11 per cent of GDP – or £220 billion.
The new analysis, authored by Professor Patrick Minford, found that in order to generate these large negative impacts on the economy, the civil servants had to feed into their model absurdly high assumptions about UK-EU trade barriers, equivalent to tariffs ranging between 8.1% and 30.6%. The bottom end of this range occurs if the UK stays in the EEA, inside the single market and so subject to its rules, including free movement of people. The top end occurs if the UK leaves under WTO rules without a trade deal and so tariffs are introduced.
Professor Minford explains that these estimates are incorrect; firstly, because modern customs procedures are mandated by the WTO to be ‘seamless’, which means that customs clearance is carried out by computer entry before and after port transfer, essentially without any significant cost. This is demonstrated by the fact that, under such modern border procedures, typically about 98% of goods travel across developed-country borders without any inspection. A practical demonstration of this is Switzerland, where all ‘frictional border costs’ represent only 0.1% of the value of goods. This would have a virtually zero impact on GDP.
Secondly, the new trade barriers that the civil servants have assumed are contrary to international WTO law, under which UK and EU commercial transactions would be regulated after Brexit. Modern WTO law on technical standards and service regulations make it clear that they must be non-discriminatory both between domestic producers and foreign exporters and between different foreign exporters. Therefore, any such new trade barriers are illegal and cannot be introduced.
He goes on to explain that the civil service have assumed that UK free trade agreements would only reduce UK trade barriers slightly. The report assumes that FTAs will be signed with a few unspecified non-EU trade partners – only the US is mentioned and included in their headline figure. Between them all these assumed FTAs when put into the GTAP model (the model based at Purdue University, now favoured by Whitehall) could according to the report generate a 0.3-0.6 per cent gain in UK GDP. This estimate is completely incorrect as other estimates using the GTAP model have demonstrated.
Based on these estimates were the UK to eliminate the 20 per cent trade barriers on food and manufactures that it would inherit from the EU, GDP would be boosted by no less than 4% according to the very GTAP model the Civil Service are using This tallies with the estimated gain from the model used by Economists for Free Trade.
Professor Minford concludes that based on the “gross overestimate” of UK-EU trade barriers and the “neglect” of the gains from free trade agreements with the rest of the world, the civil servants’ calculation swings from a loss of 6.8 per cent of GDP to a gain of 4 per cent (from £140 billion down to £80 billion up).
Commenting on the report, Professor Patrick Minford said:
“The enormity of this effort to mislead by the Civil Service can hardly be exaggerated.
“It is no wonder that it has confused Parliament, the people at large, and even some members of the Cabinet.
“It has led to a foolish effort by a small group to push for a New Customs Partnership as a close approximation to the EU customs union, when in fact a fully facilitated and normally cooperative customs service on both sides of the EU-UK border can virtually eliminate border cost. It is time for the facts to be appreciated and the debate to focus on an FTA with the EU that preserves existing free trade.”
Click here to read Professor Patrick Minford’s report in full.