The sole economic modelling exercise showing material benefits for the UK from Brexit has been debunked as “doubly misleading”, further demolishing the argument that for Britain “no deal would be better than a bad deal” when it comes to the EU.
Work by the “Economists for Brexit” group, led by Professor Patrick Minford of Cardiff Business School, before last year’s referendum suggested that if the UK left the EU without a trade deal and unilaterally dropped all tariff barriers on imports the country’s GDP could be boosted by 4 per cent relative to otherwise.
The finding, which contradicted all other studies which showed that Britain would be worse off due to leaving the EU, has been widely cited by hardline Brexiteers and even some business figures as evidence that the UK economy has little to lose if Britain fails to conclude a trade deal with the rest of the EU.
The Wetherspoons boss Tim Martin insisted last September of a deal that “we don’t need one”. Certain Conservatives have even urged Theresa May not to bother seeking a new trade deal, arguing that the Economists for Brexit modelling suggests the UK would actually be better off without one. The former Tory Chancellor, Lord Lawson, has asserted the UK needs “nothing more, nothing less” than trade with the EU under the most basic of World Trade Organisation rules.
But Professor Alan Winters, Professor of Economics at the University of Sussex and Director of the UK Trade Policy Observatory, on Wednesday pointed out that the modelling assumptions that produced the Economists for Brexit headline figure were suspect.
The small print of the modelling reveals the assumption that "general international pressure" over the next decade will compel the EU to reduce its own effective tariffs on imports from 20 per cent to 10 per cent - and that the authors ignore the impact of differences in EU safety and quality standards for goods on producer prices.
Professor Winters also points out that the modelling of Minford’s group bizarrely assumes the EU will waive its standards on goods imports from the UK post-Brexit, which implies precisely the sort of deep trade deal which the Economists for Brexit have been consistently arguing that the UK does not need to bother pursuing.
“Gaining 4 per cent [of GDP] requires more integration with Europe than the UK has at present!” Professor Winters wrote in a blog post.
“The term ‘unilateral free trade’ is thus doubly misleading: first, it presumes agreements with reciprocal liberalisations with the UK’s trading partners, including the EU, and second, on the EU, it is just plain wrong,” he said.
"Unless the UK and EU sign an FTA [Free Trade Agreement] that explicitly removes all EU non-tariff barriers to exports from the UK, WTO rules prevent the EU from eliminating barriers on the UK alone. If achieved, eliminating all tariffs and non-tariff barriers between the UK and the EU would imply deeper integration than the EU Customs Union and Single Market currently deliver, but coupled with a race to the bottom on standards!"
Professor Winters told The Independent that it was impossible to state the degree to which these assumptions were critical to delivering the 4 per cent GDP increase estimate without having access to the Minford model itself, but he added that they were “likely to be material” given the size of the EU’s existing external tariff and the scale of the UK’s trade with the Continent.
In response, Professor Minford denied his model assumed closer integration.
"We assume explicitly that the EU treats us under an FTA as it does now - so no change. Under our model if they do not and levy tariffs on us, it makes no difference to the world prices we have access to and therefore causes us no national welfare losses," he said.
He also said that his estimate of EU tariff rates included estimates of non-tariff (or regulatory) barriers.
The assumptions of the Economists for Brexit group – now rebranded as Economists for Free Trade - were previously criticised as grossly unrealistic on other grounds, including ignoring the fact that countries tend to do more trade with countries that are geographically closer, by economic modellers from the London School of Economics (LSE).
Ms May said in January in her Lancaster House speech that she intends to pursue a “a bold and ambitious free trade agreement” with the EU. But she also added that “no deal for Britain is better than a bad deal for Britain”, seen as a nod to the unilateral free trade option.
David Davis, the Brexit Secretary, admitted last year that it was possible the UK could leave the EU without a deal. And the International Trade Secretary Liam Fox issued a press release in August 2016 that suggested to exporters this could be the ultimate outcome of Brexit.
However, financial markets seem to have interpreted Ms May's decision to go for an early general election this week as a sign that she is more likely to avoid a "cliff-edge" Brexit in 2019.
Pre-referendum work by the LSE suggested that if the UK crashed out of the EU without a trade deal GDP could be 9.5 per cent lower by 2030. Oxford Economics, the National Institute of Economic and Social Research and PwC estimated relative losses of 2.7 per cent, 3.2 per cent and 3.5 per cent respectively.
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