The headline in yesterday’s Western Mail was about a report from a think tank claiming that there is little to fear from a so-called ‘hard’ Brexit. It reminded me of two thirds of the oath required before giving evidence in a court – it looks like the truth, and nothing but the truth, but not exactly the whole truth.
On the basis of an assessment of the likely impact of tariffs in the event of no deal on free trade, the report concludes that the Treasury will actually collect more than it will have to pay out – some £12.7 billion compared to £8.8 billion. I haven’t gone through the detail of the calculation, but I see no obvious reason to dispute the figures. The problem that I do see with them, though, is that they assume that we continue to buy and sell the same products and services to and from the EU27, and apply the likely tariffs to that trade.
In reality, exiting the single market is likely to change the nature of the trade between the UK and the EU27, and to do so significantly. Whether it does so in ways which are damaging to the UK economy or in ways which benefit the UK economy is harder to judge. I tend to suspect the former is more likely in the short to medium term, but I accept that the effects may be mitigated in the longer term by trade with other countries outside the EU if the more optimistic projections of the Brexiteers are to be believed. (If they were honest, they could legitimately describe it as a gamble on short term pain for the possibility of long term gain; but instead they’ve been relentlessly and unrealistically optimistic and dishonest in trying to pretend that everyone will gain immediately, rather than accepting that there are going to be some losers, in the short term at least.)
There are a number of reasons why I tend to believe that the former scenario is more likely. One of them, just as an example, is EU rules on tendering for work. Under those rules, for contracts of a specified size, public sector purchasers are obliged to give fair and equal consideration to any tenders received from anywhere within the single market. It’s part of what makes it a single market. However, there is no such obligation for tenders received from a country outside the single market, with such tenders subject to additional tariffs as well. That does not, of course, mean that UK companies cannot or would not tender for such contracts, but it does raise a question about the likelihood of success for such tenders. And, in the same way, it might well mean that UK-based tenderers win more contracts in the UK if EU competitors’ bids are subject to tariffs. On the basis of that, and other, factors, it is surely valid at least to question the assumption that the pattern of trade would remain unaltered.
The report also suggests other ways in which the UK could take action to mitigate the impact, once it is free of EU rules. One of those is that: “Freed from the EU rules on state aid, the UK will be able to operate a more extensive regional aid programme.” Again, that’s entirely true, and the argument was a regular feature of the Brexit campaign. The problem, though, is that there is a not insignificant difference between “will be able to operate” and the much shorter “will operate”.
Of course, it’s not down to the think tank to set UK policy in this area, they can only suggest. But given the history of UK regional policy, I’m far from being alone in my scepticism as to whether any conceivable UK Government would actually implement such an approach. And they do have, as ‘cover’ as it were, the fact that in rejecting the EU, the UK (and Welsh) electorate have implicitly rejected the concept that richer parts of the union should contribute to the development of the poorer parts. Isn’t that a major part of that elusive £350 million per week that ‘we’ (i.e. the UK Treasury) were allegedly going to get back?So, the report gives one view on the results of Brexit, but it is just that, one view. As the Western Mail’s reporting demonstrated (by quoting a Welsh government spokesperson and Andrew RT Davies), its findings will be rejected by those who believe that full access to the market is the best outcome, and revered by those who are looking for some level of backing for their belief that the EU has more to lose than the UK does, who, despite Gove’s infamous comment, are quite happy to quote any ‘expert’ who will give them the answer that they want to hear.