Of course, the work may be a deliberately partial analysis designed to help win the referendum. But in politics it is always best to assess your opponent’s arguments in good faith. And herein lies the problem with the Treasury report. The chancellor does not do that. His department’s work deliberately ignores all the positive, liberal reasons people want to exit the EU and, by omission, suggests that there are no benefits to doing so.
The modelling assumes three different scenarios upon leaving: Britain remaining a member of the EEA (like Norway), signing a bespoke trade deal (like Canada), or walking away from the customs union and trading under World Trade Organisation (WTO) rules. In all three scenarios, the UK is supposedly worse off given projections through to 2030, with increasing virulence. That’s because trade is, to increasing degrees, assumed to be less open, and less openness has knock-on effects for productivity.
The eurosceptic response to this was initially dire, merely pointing out that forecasting to 2030 is a mug’s game. This is true as far as it goes – the precise numbers Osborne uses will be wrong. But what really needed to be debunked was the chancellor’s assumptions about the different scenarios and hence the analysis that got to the projections.
There is plenty to get stuck into. Let’s take the option advocated by many eurosceptics: that the UK should join the EEA upon Brexit in a Norway style-arrangement, at least transitionally. This broadly maintains the Single Market, albeit introducing rules of origin tests, and with likely tariffs on agricultural goods.
Incredibly, the Treasury claims that even this least disruptive scenario would lower GDP per household by £2,600 by 2030 – seemingly attributing huge weight to certain administrative customs rules which are set to become less relevant. Crucially, it assumes away the very reasons many advocate this option. Despite Britain having an independent trade policy and being free and nimbler to negotiate free trade deals with fast-growing areas, for example, the Treasury assumes we sign none.
It assumes we do not devise something better than the protectionist Common Agricultural Policy, which we will be outside of. It assumes that we do not use our newly-independent seats on global bodies to push for a more liberal global trading system. It assumes that, absent Britain, the Eurozone wouldn’t be able to solve its governance issues more quickly and grow more strongly. By construction, it assumes Brexiteers are wrong – with unsurprising results.
Similarly bizarre assumptions are made for the other scenarios. The key reason many want to exit the Single Market and have a bilateral deal with the EU is to improve the UK’s regulatory environment, and reassess policies on things like the environment. Yet the Treasury assumes the regulatory environment is unchanged.
On the less likely WTO option, the report becomes utterly bizarre – ignoring that the most prominent advocates of this route, such as professor Patrick Minford, do so because they want us to declare unilateral free trade, which would eliminate all tariffs on imports from around the world. Instead, the Treasury believes we would raise tariffs on the EU – apparently so that we would have more bargaining power with other countries in signing future trade deals. That is, of course, the trade deals it also assumes we would sign none of.
If all this sounds odd, then the reaction of much of the economics establishment was worse. Some commentators appear to have a weird mental block whereby they equate the EU with openness and Brexit with isolation, hence welcoming this selective analysis as respectable. Few said anything on the known problems of the model used, nor perhaps the assumption which should disqualify this work from being taken seriously at all: namely, that the EU will remain the same if we stay in.
Even if we assume this work was done in good faith then, this report’s fatal flaw is that it assumes we would set illiberal, bad, isolationist policy were we to leave the EU. Given Cameron and Osborne want to continue to lead the country post-referendum, other Tory MPs might want to take note.