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Tuesday 11 October 2016

Hard Brexit Hard Truth Shock

We all saw the Big Red Bus with the Scary Number on the side being used by the Vote Leave campaign in the run-up to the referendum on Britain’s EU membership. “We send the EU £350 million a week” it told. The inference was clear: we leave the EU, and we then have £350 million a week extra money to spend on the things that our own Government decides. Thus we would Vote Leave, and Take Control.
Yet all the time, no-one in the Leave camp troubled themselves with any kind of cost-benefit analysis, any idea of what we got for our money. Worse, the actual figure was not £350 million, but just under £250 million, with the net contribution after the UK’s rebate coming out at less than £200 million a week. Now, we have been given an idea of what that cost-benefit analysis might look like.
Someone being economical with the actualité here

Of all media sources, it was the Murdoch Times that brought us the bad news this morning, telling its readers “Hard Brexit could cost £66bn a year”. The analysis is stark: “The leaked section of a Cabinet Paper … is believed to be part of one of three prepared for discussions this week and covers the World Trade Organisation, trade deals, and immigration. It says ‘The Treasury estimates that UK GDP would be [between] 5.4 per cent  and 9.5 per cent lower after 15 years if we left the EU with no successor arrangement, with a central estimate of 7.5 per cent”. And there was more.
In headline terms, a) trade would be about a fifth lower than it otherwise would have been; b) foreign direct investment would also be around a fifth lower and c) the level of productivity would be driven down by the reductions in trade and investment causing an overall reduction in the economy’s efficiency in the long run”. Ouch!

And it gets worse: “The net impact on public sector receipts [ie taxes] - assuming no contributions to the EU and current receipts from the EU are replicated in full - would be a loss of between £38 billion and £66 billion a year after 15 years, driven by the smaller size of the economy”. What a brilliant way to curb immigration, eh?

Taking a middle course through those numbers gives us around £50 billion a year. That’s almost a billion quid a week - to save less than £200 million. The thought that this is a classic case of cutting off nose to spite face comes to mind. But as the Guardian has told, “Brexit backers who have seen the documents told the newspaper the figures were unrealistic and claimed there was a push to ‘make leaving the single market look bad’”.
La la la, Dave can't hear you

That is because leaving the Single Market will be bad. We already have a currency crash, with hikes in fuel prices and those of other imported goods on the way before the end of the year. A smaller economy will support fewer jobs. A weak currency, for a country heavily dependent on imported goods, means higher prices, and that will feed through into inflation. Slowly but surely, the simplistic world view of the Brexiteers is falling apart.

But the Government’s Brexit man David Davis is still prepared to stand before the Commons and say “There will be no downside to Brexit, only a considerable upside”.

So that’s all right, then.


Ceebs said...

"Trade will be a fifth lower" so on effect brexit will cause a financial crash twice as bad as the great recession of 2007/8 and yet still May and the merry band of Brexit pirates are intent on driving us leminglike over that cliff.

rob said...

Sequel to Land of Soft Soap and never mind the Gory detail?

GCU Grey Area said...

I think the Three Horsemen of Brexit actually want a 'hard' exit, because they know that engineering a 'soft' one is beyond them. Hard Brexit, clean break, negotiate, get nowhere, blame Europe.

Yes Minister quipped that we only went into Europe to muck it up from the inside. I don't think they'll let us muck it up from the outside.

Andy Blatchford said...

"A smaller economy will support fewer jobs"

This isn't an in or out argument BTW and frankly the neoliberals won't do what needs to be done.

But there is something we can do about that GDP is C+G+I+(X-M)
That is Consumption + Government Spending + Investment + (Exports -Imports).
To fill in for that shortfall you do some straight Keynesian Government deficit Spending. Hey presto economy isn't smaller (and no we can't run out of 'money').

Ceebs said...

if only the core of the Brexit group weren't fanatically against government spending as an existential evil that might work Andy, however with them seemingly in control of the Murder/suicide pact that is Brexit, we may see a truly stupid attempt at a route out of the current situation