WHEN MPs called for a vote on the Brexit deal, many said economics should influence their decision. The government has now published its analysis. It makes gloomy reading for Brexiteers who think leaving the EU will boost the economy. The message is that Britons will be worse off with any plausible form of Brexit.
The government says that, even on benign assumptions about its deal, GDP per person will be 0.6% lower than otherwise in 15 years’ time. It claims this is better than a Norway-like deal that trims GDP per head by 1.4%. But this may underestimate obstacles to services trade in its own deal. Allowing for likely cuts in migration and higher non-tariff barriers raises the cost of the government’s deal to as high as 2.7%.
These figures are comparable to new estimates from two think-tanks, the National Institute of Economic and Social Research (NIESR) and the UK in a Changing Europe. The first says the deal will reduce GDP per person by 3%; the second has a central estimate of 1.9%. A cut of 3% translates into an average annual loss at 2016 prices of £1,090 ($1,400) each.
All three analyses also model the impact of a no-deal Brexit. The government finds this would reduce GDP per person by as much as 8.1%. The Bank of England has issued a similar prediction, suggesting also that the pound could slump in value by a quarter. The two think-tanks come up with smaller numbers, of 3.7% and 3.5% respectively. But that is mainly because they model an “orderly” no deal, which reverts easily to normal trade terms while mitigating the damage. A disorderly no deal, as assessed by the Bank, seems more likely.
Brexiteers say all this is “Project Fear”, which proved wrong after the referendum. Even Theresa May asked this week if economic forecasts could be described as facts. Yet although predictions of job losses after the vote were off the mark, John Springford of the Centre for European Reform, another think-tank, says those for the economy were not. GDP per person is some 2% below where it would have been without the Brexit vote.
The main factor is new friction with Britain’s biggest trading partner, the EU, which means a drop in trade of as much as 40%. This will also cut foreign investment, which is unusually high in Britain. Ending free movement will also curb valuable EU immigration. And all three factors will further reduce productivity growth.
Nor are Brexiteers’ dreamt-of offsets big enough. The government’s analysis finds a benefit to GDP per person of only 0.1% from likely deregulation. Savings on net payments into the EU budget are small. And free-trade deals with America, Australia and the BRICS countries would add just 0.2% or so to GDP per person. President Donald Trump said this week that a free-trade deal with America may be impossible. If the Irish backstop keeps Britain in a customs union, he is right. (Oddly, the government does not fully assess this.) But a deal with America would not be worth much.
A fair conclusion is that even hardliners should admit that Brexit will make Britons poorer. Their goal should be justified on grounds other than money.