Brexit will damage our wealth

Teresa May’s Agenda 

With the BBC, the Press, and the public focusing their attention on the the UK’s performance in the Olympics in Rio de Janiero, and with much of the nation (including parliamentarians) away on their summer holidays, it is not easy to discern how Teresa May’s government is engaging with the consequences of the EU Referendum.

TeresaMayIn theory, Teresa May’s government is committed to the same manifesto as the Cameron government, but in practice it is becoming clear that many policies and commitments of the Cameron government are now under review. The Financial Times has this:  “Theresa May sets a new policy direction – UK prime minister begins ditching key parts of David Cameron’s and George Osborne’s agenda”.

NickTimElsewhere, the same paper has this useful suggestion:  “Clues to Theresa May’s policy lie in chief of staff’s essays – Nick Timothy supports access to EU single market and enlarged welfare state”.  The suggestion is that perusal of Nick Timothy’s posts on the Conservative Home Site indicate the advice Timothy gives to the Prime Minister:  see Conservative Home – Nick Timothy.

However, not only is Mrs May very much more of a “one nation” Conservative than many may think, but she also has a mind of her own.  Certainly she will listen to advice, but the decisions will be hers.   Her background and upbringing testify to her “one nation” ethos  and  this article in The Guardian made clear, that was very much the basis of her leadership campaign: “Theresa May sets out ‘one-nation Conservative’ pitch for leadership”.

Hard Brexit

While Mrs May, has made much of the phrase “Brexit means Brexit” and while she has appointed three Vote Leave supporters to ministerial posts, this is not to be taken as support for the “Hard Brexit” approach advocated in the Financial Times by Bernard Jenkin MP, the Conservative Chairman of the Public Administration and  Constitutional Affairs Committee -see the post of 5th August “Single Market Access Needed“.   There are, of course, numbers of other rabid Brexiteers within the Conservative Party.  One such is that nasty little twerp, the (soon to be ex) MEP Daniel Hannan  who  has now written an article in the Spectator: “Brexit means that Britain will be boss again – All we have to do to regain total sovereignty is repeal Sections 2 and 3 of the 1972 European Communities Act”.

The Financial Times has this: “Brexit Briefing: No sovereign is an island – Some UK politicians are arguing that Britain can step out of the EU without following protocol“.  It is comforting that this article also refers to the compelling case made by Dominic Grieve QC MP in the Times Supplement – The Brief:  “Brexiteers are proposing an illegal EU exit – Dominic Grieve, QC“.   One rather thinks that the argument of Mr Grieve will easily prevail over any number of little twerps like Daniel Hannan.

Soft Brexit

The Guardian has this: “UK membership of European single market worth 4% more in GDP“.  The full text of the Institute of Fiscal Studies report referred to in the article is downloadable: “The EU Single Market: The Value of Membership versus Access to the UK” and it is well worth reading.

In essence, the IFS  concludes the UK economy would do best were the UK to remain in the EU.  Were the UK ultimately to decide to leave the EU, the second best option would be to seek to remain in the Single Market – but there would be a risk inherent in no longer having a role in the formulation/modification of the legislation governing the single market.

As the IFS summarises:

  • UK service exports are especially important. They accounted for 31% of all exports in 1999 and 44% of exports in 2015. The UK runs a significant trade surplus in services and the EU is the UK’s largest service export destination, accounting for 40% of service exports whereas emerging economies such as Brazil, Russia, India and China together account for less than 5%.
  • Single Market Membership is particularly important for financial services.So-called ‘passporting rights’ mean that UK-based financial firms can service EU businesses and customers directly. To maintain these rights would likely require membership of the European Economic Area (EEA). But that would come at the potentially considerable cost of submitting to future regulations designed in the EU without input from the UK. The UK may have to make some very difficult choices between the benefits from passporting and the costs of submitting to external imposed regulation.
  • New trade deals unlikely to compensate fully for EU trade. The EU accounts for 44% of our exports and 39% of our service exports. If the UK we are able to access the European Free Trade Association’s existing deals they would cover over 10% of UK exports which is more than the EU’s current third-country deals. Countries such as China and India together account for 4.6% of all exports, and 2.6% on services. Even small proportionate losses in trade (or lost growth in trade) with the EU would require quite dramatic – and probably implausible –increases in trade with such countries.

In short, whatever form Brexit might take, the cost to the nation is very unlikely to be made up from new trade deals with other parts of the world.  We will simply be worse off.

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