To read many of the press reports about the Brexit negotiations, you might be forgiven for thinking that leaving the EU is a disaster waiting to happen that can only be averted by agreeing a deal with the EU with as few changes to the status quo as possible.
If such a view prevails, the UK is in danger of missing out on a once-in-a-lifetime opportunity to revitalise our economy to the benefit of industry, consumers and the public sector.
In truth part of the problem can be laid at the door of economists. Many in the profession have been quick to exaggerate the potential costs of a “clean” Brexit while downplaying or even ignoring the benefits.
Recent estimates from economists at the World Bank conclude that leaving the EU without any formal trade deal would reduce UK-EU trade by just two per cent per annum, a far cry from the disaster scenarios promoted by the Treasury in their Project Fear phase.
Certainly a trade deal with the EU is desirable and should be of benefit to both sides. But if, as seems likely, the EU is determined to extract billions of pounds in payments in return for striking a deal, it is not at all clear that this will be in the UK’s best interests. Even more importantly, we must also take into account that the “no deal” scenario will bring significant benefits to the UK, some of which might not be available in the event of a restrictive EU deal.
It is only now that the magnitude of the potential benefits is becoming clear. This week, Economists for Free Trade, of which I am a member, will be releasing a new report “A Budget for Brexit 2017” authored by Professor Patrick Minford of Cardiff University and which lays out in detail just how the UK can benefit from a new future even with a formal EU trade deal.
Most importantly, the UK would have the freedom not only to strike trade deals with non-EU countries, but it could immediately cut the tariffs which we are currently forced to charge on goods coming in from outside the EU.
Far from leading to an increase in prices as some have suggested, this should lead to significant price cuts, most especially for food, to the benefit of hard-pressed consumers. Lower tariffs on imports would provide a further boost to manufacturers who are already benefiting from a more competitive pound. And, of course, the UK exchequer would benefit from an end to the nearly £10bn net payments to the EU each year.
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The report also demonstrates how, over the longer term, greater competitiveness will further boost the economy and, crucially, encourage companies to make productivity-boosting investments which will in turn increase real wages.
The resulting improved long-term economic growth will provide a further dividend to the UK exchequer not only enabling higher public expenditure in areas such as the NHS but also giving scope for tax cuts and paying off some of the national debt. Indeed, Minford’s analysis concludes that by 2025, the chancellor could have an extra £40bn per year to play with.
It is understandable that many politicians are concerned about what happens in the short run as industry has to adapt to a new post-Brexit environment. Of course there will be some adjustment costs but businesses are generally very capable at responding to and taking advantage of change. They do, however, crave certainty about what the long-term future will look like.
And here is the paradox: an extended transition period in which our relationship with the EU is essentially the same as at the moment actually extends the period of uncertainty about the long-run destination. There is a danger that the proposed transition arrangements will simply add to the costs of Brexit while delaying the significant economic benefits which are there for the taking.
It is right that the government continues to aim for a mutually beneficial deal with the EU but this must not be at all costs – surely now is the time for our politicians to take the initiative and actively plan to reap the benefits of the post-Brexit boom.