Beware the headline costs of Brexit: We’ll thrive if we’re open to the world

Ryan Bourne
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The debate over our EU membership has long been dominated by outlandish claims (Source: Corbis)
You have to be careful with headlines. They are so often highly selective about the message they want to convey. Take an example from yesterday: The Guardian’s story on a report analysing the costs or benefits to the economy of the UK leaving the EU was headlined “Thinktank tells Ukip departing from EU would cost UK economy £56bn,” with the sub-headline “Open Europe thinktank warns Ukip that Britain could lose 2.23 per cent of its GDP by leaving the EU customs union and single market”.

The report certainly did outline a scenario whereby Britain would face such a cost. This was part of a useful exercise detailing a range of different counterfactuals such that the long-term effects of various forms of Brexit could be judged against continued EU membership. Yet contrary to the headline writer’s prejudices, the assumptions behind the “worst case” outcome neither fitted with Ukip’s declared agenda nor were even politically realistic (the latter according to the report itself). One suspects that a headline like “Thinktank warns that adopting policies neither Ukip nor other parties want could be bad for the UK” wouldn’t sell as many papers.

Unfortunately, the debate over our EU membership has long been dominated by outlandish claims on both sides. This helps mask the two important lessons of both the Open Europe report and other publications that have undertaken similar analysis, like the IEA “Brexit Prize”. First, under realistic assumptions about policies Britain would adopt outside the EU, the economic impact of leaving – either way – is likely to be very small. Whether we should leave or not should therefore be judged as a political decision, if the debate was rational. Second is the recognition that the best way for Britain to insulate itself from any potential negative effects of withdrawal is to adopt a liberal, open approach to trade, migration and regulation more broadly.

The “politically realistic” range of outcomes in the Open Europe report, for example, suggest that (depending on the policies adopted) there could be anything from a net cost of just 0.8 per cent of GDP to a net benefit of 0.6 per cent of the UK leaving. This corroborates with our recently re-published report by Brexit prize winner Iain Mansfield, whose best estimate entailed a very small net benefit of 0.1 per cent of GDP. Unlike the “worst case” scenario, all of these assume a free trade agreement with the EU could be reached. It is in the interests of both the UK and the rest of the EU for this to happen.

So all agree that it’s essential that any future scenario entails the maintenance of some form of free trade agreement. But to really maximise the economic upside of Brexit, we would need an expansive agenda. Externally, we should be seeking to sign free trade deals with fast-growing countries (such as China, Brazil and India), but should also consider unilateral free trade. At the border, we would need to maintain a fairly liberal approach to the movement of people, if not the complete free movement of EU citizens we are currently bound by. Within the UK, we would need to repeal a range of the most damaging EU regulations and provide a very competitive tax environment to maintain incentives for foreign direct investment.

Articulating this vision is not politically easy – especially when public opinion on issues like immigration is so strong. But if Out-ers want to win a referendum, they need to neutralise the economic issue by showing that Britain would be no worse off outside. The evidence suggests that, with broadly sensible policies, this is achievable. To go further and say Britain would be much better off would require a real vision for a pioneering Britain which is currently absent from our discourse even domestically.

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