Why No Deal is nothing to fear

The doomsday predictions for No Deal Brexit Britain are not grounded in reality.

Rob Lyons
Columnist

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Topics Brexit UK

The UK Office for Budgetary Responsibility (OBR) has just published its two-yearly fiscal risks report, which attempts to highlight potential dangers to the public finances both in the next five years and over the next 50 years. The idea is to sensitise the government to these possible problems and allow it to adapt policy accordingly. But the headlines were almost unanimous and focused on one thing: a ‘No Deal’ Brexit could cause a significant recession that would increase government borrowing by around £30 billion per year from 2020-21, and add 12 percentage points to total government debt over the next five years.

The OBR estimate, building on a model produced by the International Monetary Fund (IMF) earlier this year, assumes a No Deal Brexit that is relatively ‘benign’. For example, it assumes that disruption to trade due to border delays will be fairly short-lived. However, any attempt to model a particular scenario is only as good as the assumptions that get plugged into the model.

So, one criticism of the IMF model is that it assumes a big increase in the cost of non-tariff barriers – in short, extra costs and delays caused by differences between UK and EU rules and regulations. But since, in the immediate aftermath of a No deal Brexit, UK rules would be the ones we currently have – that is, EU rules – it is hard to see how such non-tariff barriers could be so costly. The model also makes assumptions about, for example, levels of migration, tariffs and the UK’s ability to strike new trade deals — or at least replicate the ones we have through EU membership. Many of these things are within the control of the UK government, so such costs are hardly inevitable and would not last long.

In any event, we should not place too much faith in attempts to divine what will happen after Brexit. Claims about mass job losses and recession in the event of just voting to leave were wide of the mark. They were the products of spin or emphasising the worst possible outcomes. Hence the OBR is careful to make clear it is only modelling possible ‘scenarios’, not producing forecasts. So what the OBR is doing here is asking: ‘If the IMF is right and there is a post-Brexit recession, what does that mean for the public finances?’ It is not a prediction of recession.

These nuances and caveats did not stop critics of No Deal from weighing in. The soon-to-depart chancellor of the exchequer, Phillip Hammond, said: ‘The report that the OBR has published shows that even in the most benign version of a no-deal exit, there would be a very significant hit to the UK economy. But that most benign version is not the version that is being talked about by prominent Brexiteers. They are talking about a much harder version that would cause much more disruption.’ His Labour opposite number, John McDonnell, was positively febrile, warning that ‘a No Deal Brexit would devastate the UK economy and the public finances’.

Some perspective is required. The OBR notes that in 2018-19, public spending amounted to £812 billion. That means that the £30 billion addition to the government’s deficit as a result of No Deal would be equivalent to about 3.7 per cent of total spending in the past financial year. The actual borrowing figure in cash terms would be around £60 billion per year – way below the peak of £153.1 billion in 2009/10 and lower even than 2014/15’s figure of £71.8 billion, when Brexit was a mere twinkle in the nation’s eye. In the UK’s slow recovery from the crash of 2008, it has only been in the past three years that borrowing levels have dropped below £60 billion. In 2018/19, total government debt as a percentage of GDP actually fell for the first time in years, though it was still 84.7 per cent of GDP, so the national finances are hardly in rude health.

So, if the OBR/IMF assessment is correct, the situation, while not ideal, would hardly be ‘catastrophic’, as many Remainers claim. And it would be nowhere near as serious as it was in the aftermath of the crash of 2008. Moreover, the economy, while far from booming, is in relatively good shape by some measures: low unemployment, rising wages in real terms (admittedly after years of stagnation) and low inflation. And No Deal Brexit Britain would be in better shape than many of our near neighbours and competitors. For example, unemployment in France is currently at 8.8 per cent; in Italy it’s 9.9 per cent. In the UK, the figure is 3.8 per cent. Of course, regardless of Brexit, a recession may be around the corner in any event, as part of a global economic slowdown.

The OBR report isn’t just about Brexit. There are plenty of other risks to the government finances, too, including the rising pension and health costs of an ageing population. But there are potential shocks to come from some unexpected areas. For example, as the rate of cigarette smoking declines, so does a valuable revenue stream for government. How will that hole be filled? One laugh-out-loud point in the report is that the BBC’s decision to end free TV licences for over-75s who don’t receive pension credit, a particular welfare benefit, may end up costing the exchequer more in the long run. Why? Because all the publicity about the licence-fee change will alert many older pensioners to the fact they should be claiming pension credit.

The real idiocy of the ‘project fear’ claims about No Deal Brexit is that they actually highlight that the EU really isn’t that important to the UK economy. Even the worst-case scenarios are not that scary. The more light shone on the actual consequences of ‘No Deal’ (or more correctly, ‘no overarching deal for now’), the less frightening they are. It would be better to have a transition period after we leave the EU and to keep trade as free as possible afterwards, just as long as it is consistent with UK independence. There will undoubtedly be teething problems and short-term costs. But there will be long-term opportunities, too, if we have a government willing to take them.

In that light, we should get on with Brexit rather than persist with the current extensive uncertainty that stops everyone from planning ahead. Our economy has long-term problems that are far more important than the current deal-or-no-deal debate with the EU, like stagnating productivity and too many poor-quality jobs. Leaving the EU on 31 October will not do irreparable damage to the UK economy, but failing to leave will deal a massive blow to our democracy.

Rob Lyons is science and technology director at the Academy of Ideas and a spiked columnist.

Picture by: Getty Images.

To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.

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Topics Brexit UK

Comments

quaybored

23rd July 2019 at 10:05 pm

Rob Lyons. You’re only concerned here with trade in goods. What about people?

The deal was not good, but at least it would have given some guarantees under international law to the 3.6 million Queue Jumpers and 1.4 million Citizens of Nowhere. A No Deal exit will immediately strip EU citizens of their EU bestowed rights to go about their lawful lives in the UK, and make them subject to exactly the same system of immigration control as the victims of Windrush. The shutters will immediately come down on new arrivals, they will have shorter deadlines to apply if they want to stay, shorter deadlines for their close family members to join them, and no protection from the European Court if their rights are infringed.

What’s more, immigration regulation is just about the most ‘Henry VIII’ area of British law. Since Theresa May became Home Secretary there have been 56 statutory instruments and 4000 individual rule changes on immigration, all without proper parliamentary scrutiny and all designed to make life more difficult for anyone in the UK who is, or appears to be, of foreign origin.

With No Deal there will be nothing to stop three simple questions today becoming an 85 page form tomorrow, nothing to stop landlords turning away EU citizens for not having an actual paper to prove themselves with, and nothing to stop criminal record checks being so stringent that people get turned down for having a speeding ticket 20 years ago.

And Brits abroad can expect tit-for-tat treatment for anything that happens to EU citizens here.

Sean Price

25th July 2019 at 7:03 am

Have you been to Britain before? Doesn’t sound like it. I can’t support the idea we would ever do that and if we did that government would be out on their tails very quickly. Both sides have skin in the game when it comes to citizens they are very keen to secure. For example regardless of no deal Norway and the UK have made an agreement that protects both sides citizens. Scare mongering is not helpful at all. This not 1930’s Germany and have some respect for British institutions please. We are not a dictatorship without due process whatsoever.

Joe123 JoJo

23rd July 2019 at 8:35 am

The whole argument behind the headling :

“it assumes a big increase in the cost of non-tariff barriers – in short, extra costs and delays caused by differences between UK and EU rules and regulations. But since, in the immediate aftermath of a No deal Brexit, UK rules would be the ones we currently have – that is, EU rules – it is hard to see how such non-tariff barriers could be so costly.”

Well, it’s actually really easy to understand : If I put a quotas on the number of cars you can sell in my country, if I stop recognising your certifications and force you to pay huge fee to grant them MY certifications or if I decide to add 10% tarrifs on your cars, it really doesn’t matter if your cars are exactly like mine.

No-deals means no-deals. It means that your cars will be more costly than everyone else who has a deal because you won’t have access to the single-market. It is gentleman’s club, you don’t pay, you don’t get in.

Stop spreading spurious claims. No-deal will fuck you up.

Northern 1312

23rd July 2019 at 1:49 pm

And what incentive would the EU have to issue such tariffs on British goods besides as punishment for having the temerity to leave? The minute that we officially leave the EU, we’ll be in complete regulatory alignment so ostensibly nothing has to change. Remember trade works both ways and tariffs can be reciprocal, the idea that EU member states would all collectively be willing to lose access to the British market in order to spite us is absurd. The EU needs to be careful how it plays its hand here if it wants to avoid convincing it’s already discontent southern and eastern periphery that the UK was correct to leave.

Stop spreading spurious claims. You don’t understand No-deal.

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