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Hard Brexit Benefits? Change Britain's 24 billion of unicorns.

Professor Steve Peers

On Boxing Day, the pro-Leave group Change Britain produced a report (actually a press release with an annex) claiming 24 billion worth of benefits from a hard Brexit leaving the EU without participating in the single market or customs union. This claim was widely repeated uncritically by the press although a later critique of the economics by Jonathan Portes was published, and the economic analysis in the report was also fisked by Sam Bowman.

Their comments cover a lot of ground, but its worth standing back and looking at the report as a whole and at how poor the debate over Brexit has become.

The report produces its 24 billion sum from three sources: a) no further contribution from the EU budget; b) future trade deals; and c) cutting back red tape. Lets look at each of these in turn, and then note what the report neglected to mention.

EU budget contributions

The report starts with the UKs contribution to the EU budget: 19 billion if the UK budget rebate is not counted; 14 billion if the rebate is taken off; and 10 billion if the amount spent from the EU budget in the UK (on things like farm subsidies, research and regional development) is deducted. Change Britain accepts that the possible savings are 10-14 billion.

So this necessarily admits that the 19 billion figure which was the basis for the 350 million/week number on the side of the bus during the referendum was a lie all along. It was a lie because as I point out here, with further details and links, the rebate money is never sent to the EU, and the UK has full control over how that rebate money is spent and whether the rebate is retained in future.

Starting by admitting (albeit only indirectly) that they previously told a huge lie is not a good beginning for the reports authors, since it puts the credibility of anything else they say in question. But lets give them the benefit of the doubt and examine their other claims separately.

Cutting back red tape

The report estimates possibly several billion pounds savings from scrapping some EU laws concerning the issues of air pollution, animal welfare, data protection, GM foods, chemicals regulation, air passenger compensation, battery pollution and company law. These estimates should have been accompanied by numerous health warnings.

First, as Portes points out, these estimates (and the trade estimates), taken with the estimates on contribution savings, mix up several different things: public finances and business costs. Adding the numbers together is economically incoherent.

Secondly, most or all of the red tape referred to has a non-economic value: many people prefer cleaner air, more privacy and better treatment of animals, for instance, quite apart from the impact on GDP. There may, in any event, be indirect economic costs from pollution and less secure data, among others.

Thirdly, in some cases there may be savings to business but not the overall economy. Take air passenger compensation: if passengers are not compensated for delayed flights, the airlines save money but passengers no longer have that compensation money to spend. True, airlines might pass their savings on to passengers in general but still the passengers who previously received the compensation money will no longer be getting it. Either way, how would the overall economy benefit? The same goes for cuts to workers holiday pay and other worker benefits that business groups sometimes campaign for (though not on this occasion): cuts will save businesses money, but how will the corresponding cuts in workers spending power make the economy as a whole better off?

Fourthly, some of the laws concerned are related to market access to the EU most obviously, the biggest proposed saving, data protection law. As I discuss here, EU data protection law limits data transfers from non-EU countries without an adequate level of data protection. Scrapping that law (which would be complicated anyway by the right to privacy in the ECHR and the separate Council of Europe data protection Convention) would mean limits on market access to the EU. This would surely have an impact on the economy. 

Future trade deals

The report claims that the UK would generate exports to non-EU countries by signing its own trade deals. It calculates these increased exports by taking EU estimates of the trade effect of new deals with certain countries and assuming that the UK would benefit from 15% of that increase, because the UK has 15% of the EUs trade with non-EU countries. As Bowman points out, this is nonsense: the percentage of EU trade with non-EU countries which is held by the UK varies widely and depends on many factors.

Moreover, country where the biggest possible trade benefit exists in the asked for a trade deal list  Korea alreadyhas a trade deal with the EU, under which UK trade has already increased. (The EU document which the Change Britain report links to even refers to the EU/Korea deal as being in force already. Change Britain either a) did not read this document which it uses as a key source  and is moreover ignorant of the EU/Korea deal generally; or b) it is simply telling a blatant lie.)

So while its theoretically possible that the UK could sign a better trade deal with Korea than the EU did, the benefit of that deal would not be anything like the 25 billion claimed. Certainly, the report provides no evidence of this. Indeed, the UK will be worse off re exports to Korea after Brexit unless it convinces Korea to agree to a UK-only version of the existing deal.

Moreover, several other countries referred to in the report have agreed a trade deal with the EU which is not in force yet: Canadaand two ASEAN states (Vietnam and Singapore). Others are negotiating with the EU (USA, India, Japan, Mercosur, several other ASEAN states). The reports estimates could therefore only be valid if (a) the EU trade deals agreed or under negotiation are respectively either not ratified or not agreed; and (b) the UK is able to negotiate trade deals with those states.

Note that trade deals are not that easy to negotiate or ratify: the US has also had trouble doing a trade deal with the Mercosur states in South America, and the Change Britain report itself notes that the trans-Pacific trade deal might not be ratified. The report also fails to refer to the obvious increase in imports from the countries concerned that would follow from such trade deals. Finally, it one reason there is no EU/India trade deal is a disputebetween the UK and India during the talks. Obviously Brexit will not solve that problem.

In any event, if the UK stayed in the single market but fully left the customs union (like Norway), it could still sign its own trade deals with non-EU countries. 

Costs of leaving

The report says nothing about costs of leaving the single market estimated at 4% of GDP by the IFS, for instance. Maybe those forecasts are incorrect, but the Change Britain report doesnt even acknowledge their existence, never mind try to rebut them. In practical terms, for instance, how much will it cost to hire extra customs officers after leaving the customs union, or extra border guards and other immigration staff after ending free movement of people? In Change Britains fantasy world, these people must be invisible, or work for free.

Conclusion

An interesting coda to the Change Britain report: late last night, Michael Gove, the head of the official Leave campaign, went on Twitter to debate with Jonathan Portes about it. Portes repeatedly asked Gove to confirm if he had read the report, and Gove repeatedly avoided answering. Instead he demanded Portes first tell him how he voted in the referendum. How is that relevant to a debate over the issues?

And how can Gove assert simultaneously that he is certain Brexit will be economically beneficial and sneer that he is tired of expert economic forecasting? The Change Britain report or any other economic assessment of Brexit necessarily involves making some hypothetical assumptions. The alleged savings from red tape reduction and new trade deals both rely on such assumptions. So Gove is in effect taking the effect of Brexit on faith, assuming without evidence (since he wont debate the issue in detail) that the experts he agrees with must be right about the future, and the experts he disagrees with are wrong about it. Thats not an argument against experts; its just confirmation bias. To be fair, though, the number on the side of the bus wasnt confirmation bias. Rather, it was a lie.  

Scribbled without numeracy by incompetent interns; published without scrutiny by hungover journalists; cheered without irony by back-stabbing politicians. Six months after the referendum vote, the debate over Brexit deserves better than this report. We can only cross our fingers for 2017.

Barnard & Peers: chapter 27

Photo credit: Imgur

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