Theresa May’s plans to rely on World Trade Organisation tariffs in the case of a hard Brexit will cause a “major economic shock” and is worse than any other option, according to an unpublished Treasury document leaked to The Independent. Crashing out of the EU without a trade deal is the "alternative to membership with the most negative long-term impact" on the economy, it warns.
Relying on WTO tariffs would have serious consequences for companies, jobs and food prices, it states. The 36-page report uses language far stronger than that employed in the Treasury's published analysis of Brexit's long-term impact on the economy.
Opponents of a hard Brexit claimed the Treasury's view is unchanged from when the document was first drawn up, saying Parliament must be able to reject the damaging WTO option if Brexit talks ended in failure.
In the Commons on Monday, the Government will try to overturn a House of Lords amendment to the bill triggering negotiations, which calls for a meaningful parliamentary vote on the exit deal. Ms May has said that “no deal would be better than a bad deal”, meaning Britain would have to adopt WTO rules if it left the EU without an agreement.
Brexit supporters dismissed the Treasury paper as part of “Project Fear”, saying any early predictions of an economic crisis had already been discredited by the UK’s performance since the referendum.
The document claims that consumers would no longer benefit from the end to mobile phone roaming charges, EU compensation for delayed flights or cancelled holidays, or protections covering purchases in an EU country. It warns that the WTO regime would mean “new taxes on British trade” – tariffs and duties in the 53 countries with which the EU has free trade agreements. The UK’s privileged access to these markets would be “terminated”, and it “would take years” to strike trade deals and be difficult to replicate the current terms.
“UK agricultural exports to the EU would face new tariffs of 14.4 per cent on average, and non-agricultural goods an average tariff of 4.3 per cent – enough to undermine the competitiveness of some UK businesses,” it says. “The UK would have less access to the [EU] single market than Pakistan, Rwanda or Yemen.
“The EU would trade with the UK on the same terms as it does with countries like China – with no preferential access.”
The report describes the WTO’s coverage of services, which account for almost 80 per cent of the UK economy, as “out of date, based on a set of commitments that are 20 years old. It lacks the ambition the UK’s modern economy needs.“ It argues that, without a trade deal, the EU would have no scope to lower tariff rates for the UK without cutting them for all members of the 164-nation WTO.
“After we left the EU, we’d need to renegotiate the terms of our WTO membership,” the document, drawn up a month before the referendum was held, says. “This would trigger bureaucratic negotiations with other WTO members, lasting for months or years …This could be a very complex exercise involving a review of every tariff line – over 5,000 – to determine what rate the UK wished to apply.”
Although Britain could lower tariffs on EU imports to soften the blow of rising prices, it would have to reduce them by the same amount on all imports from WTO members. “This would put the UK in a weak position if we wanted to negotiate trade deals to secure more market access for UK exporters – other countries might avoid coming to the table if we’d already opened up access to our market.”
A spokesperson for the Treasury said: “We do not comment on leaked documents. The Treasury pre-referendum analysis is published online.”
Open Britain, which campaigns against hard Brexit, seized on the report. Labour MP Wes Streeting, a leading supporter of the group and member of the Commons Treasury Select Committee, said: “This report shows the Treasury’s own internal view is leaving the EU with no deal would be a disaster for the UK economy. Civil servants have shown that crashing out of the EU on to the WTO would cause a severe economic shock. Ministers should rule out this perilous path for our country.”
He added: “Having ruled out the best possible deal, which is staying in the single market, our reckless Prime Minister has chosen to make this worst-case scenario a real possibility. It’s time to swap dogma for reason and give Parliament the final say over the future of UK-EU relations.”
But Richard Tice, co-chair of the Leave Means Leave group, said: "The Treasury has a woeful track record on Brexit and this report is more civil servant scaremongering which does not reflect the practical reality of how we can thrive under WTO. Such negativity damages our negotiating leverage. Ministers should push on with confidence.”
If the EU rejected a zero-tariff deal with the UK, he said, the Government should leave the EU without an agreement, relying on WTO rules and striking free trade deals with our global partners.
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
“Leaving the single market is an absolute necessity and if that means reverting to WTO rules then that is a perfectly sensible option,“ he added.
A study by the pro-Brexit group Economists for Free Trade last month found that if the UK removed all import tariffs, gross domestic product would grow by 4 per cent and Treasury receipts by 7.3 per cent.
Professor Patrick Minford, chair of the group, said: “While the naysayers will have us believe that the ‘WTO option’ of no trade deal with the EU will lead to economic decline, the reality is that we do not need any such deal with the EU to achieve prosperity. When we leave the single market, the UK will take up its full membership of the WTO and it is the pursuit of free trade from that point that will deliver economic success.”Reuse content