Brexit trade deal with New Zealand will have 'close to zero' benefit to UK economy, government admits

Deal could lower welfare of the population and shrink GDP

The government's planned post-Brexit trade deal with New Zealand will have a negligible effect on the British economy and could actually make it shrink slightly and leave people worse off, according to government forecasts.

An official strategic outline of the government's plans for the deal unveiled on Wednesday says the effect on GDP (gross domestic product) from the deal will be "close to zero" according to government modelling.

But under one modelled scenario of a more ambitious trade deal, government statisticians think it is possible the UK economy could contract by -0.01 per cent. They also expect the overall welfare of the UK of the population to be slightly lower as a result of the deal.

"A trade agreement with New Zealand could have limited effects on UK GDP in the long run, with the estimated impact on GDP being close to zero under both scenarios compared to the UK not having a trade deal with New Zealand (between 0.00 per cent and 0.01 per cent in scenario 1 and -0.01 per cent and 0.00 per cent in scenario 2)," the document says.

However the trade deal would be slightly more beneficial to New Zealand itself, the government found, noting that "GDP in New Zealand is estimated to see economic growth of 0.14 per cent or 0.35 per cent as a result of this FTA in scenario 1 and 2, respectively".

While the government expects a trade deal to slightly increase productivity and "gross value added", its modelling also warns that not all areas of the country would benefit.

"In Northern Ireland, output may decrease relative to the baseline, reflecting a higher concentration of the agriculture and semi-processed food sectors," the document says.

Exports to New Zealand are expected to increase by between 3.8 per cent and 7.3 per cent under the deal. The government expects there to be a significant increase in imports of New Zealand lamb coming to Britain.

Overall the government projects that a substantial deal will reduce the welfare of the population. The document says: "Headline welfare changes are limited under scenario 1 and are estimated to decrease by 0.01 per cent in scenario 2".

Despite the potential damage to the UK economy from the deal, negotiations were formally launched on Wednesday, alongside talks with Australia.

A similar analysis published by the government today expects a trade agreement with Australia to "increase UK GDP in the long run by around 0.01 per cent or 0.02 per cent", also a negligible amount, particularly over the 15 year long-run period. The UK economy shrank by 20 per cent in April alone on the back of the coronavirus crisis.

The government also admitted in March that its flagship trade deal with Donald Trump's United States would boost UK GDP by 0.16 per cent.

However, the government is keen to sign trade deals with other countries to illustrate the benefits of leaving the European Union's customs union, in which Britain could not sign its own agreements but benefits from collective deals negotiated by the EU.

International Trade Secretary Liz Truss said: "Today's launch of trade negotiations with Australia and New Zealand is a historic moment for this county.

"When we left the EU we did so on the promise of trading more with friends and allies across the world. Deals with Australia and New Zealand are a powerful expression of our newfound independence and our intent to build a global Britain. I say to our old friends, Britain is back."

Speaking in the House of commons on Wednesday, Labour's shadow trade secretary Emily Thornberry said: "We cannot divorce this debate from that around the still busy Brexit negotiations.

"The businesses I speak to around the country simply cannot understand why the government is spending so much time and effort trying to negotiate international trade deals of relatively low value when it is yet to secure our continued trade with Europe.

"When the 47 per cent of our trade that depends on Europe is still hanging on the balance then that is where the government's priority should lie."

Speaking at the Commons international trade committee on Wednesday, Nick von Westenholz director of EU exit at the National Farmers' Union said: "There is a huge market of 450m consumers on our doorstep in very close proximity so it will remain hugely important market for us. Absolutely we should look for trade opportunities elsewhere around the world in the years ahead but none of those even collectively will make up for the significant damage agriculture might experience if we have a very hard end of the transition period next year. Absolutely the EU negotiation would be our priority."