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18 April 2018updated 24 Jun 2021 12:23pm

British people deserve an open debate about the type of Brexit we get

An honest conversation about the trade-offs of the options on offer is well overdue.

By Jonathan Portes

How much more – or less – will Brexit let us spend on the NHS (or indeed on anything else)? It’s rare that a single number can seep into the public consciousness, and influence the public debate, in the way that ‘£350 million a week’ did during, and after, the referendum campaign.

Of course, that figure has long been discredited even on its own terms. But more importantly, a full accounting of the financial impact of Brexit on the UK government – and hence on public services, taxes and borrowing – requires us to look not just at how much we pay (and get back) directly from the EU, but also at the wider economic impacts of Brexit and what they mean for tax revenues and spending.

There are no certainties here. Not only are long-term economic projections highly uncertain, but much depends on exactly what Brexit looks like. As the Institute for Fiscal Studies puts it, ‘the impact of Brexit on the public finances is highly uncertain, and depends critically on the trading relationship between the UK and EU.’

But that illustrates precisely why we need to make and debate such estimates: over the next few months, the UK’s negotiations with the EU27 will shape that future relationship. Inevitably, there will be trade-offs and hard choices. An informed debate, both in public and in Parliament, requires us to have some idea of the consequences of those choices.

And fortunately, the government’s own analysis, recently published by the Commons Committee on Exiting the EU, helps us frame those trade-offs in hard numbers.[1] It looks at three options. First, moving to something like the ‘Norway model’ of European Economic Area membership, where we’d leave the EU customs union, but stay in the Single Market, and continue to accept EU rules and regulations – including free movement of people. Second, simply trading with the EU as a normal third country, on World Trade Organisation terms, and treating EU citizens just like non-EU ones for immigration purposes. And third, negotiating a ‘Canada-style’ free trade agreement, that would mean few tariff barriers with the EU, but would still allow us to move away from EU regulations. For each of these, government economists, using the most detailed modelling done to date of individual sectors of the UK economy, have worked out their best estimates of the costs and benefits of Brexit to the Treasury.

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On the plus side, we’d get our money back – not the full £350 million voters were falsely promised in the referendum campaign, but not a trivial amount either. And a trade deal with the US would boost the economy. But the downsides are bigger. Under any of these three options, there would be a cost resulting from new customs controls. Under the WTO option – but not the other two – there would be new tariffs, reducing trade, economic growth and hence tax revenue. Reduced immigration under either the WTO or Canada models would be an additional cost. And, most importantly, non-tariff barriers – the new barriers to trade that we would face once we stop automatically sharing rules and regulations with the EU – are a significant cost in any of the three options, but far higher if we are outside the Single Market.

So what does this add up to? As the IFS says, ‘overall, Brexit will make the public finances worse; the question is by how much’. In today’s money, the government’s estimates imply a cost of about £260 million a week, or 9 per cent of what we currently spend on the NHS, for the EEA option; £875m per week, or 30 per cent of what we currently spend on the NHS, for the Canada option; and a whopping £1.25 billion a week, or about 44 per cent of what we currently spend on the NHS, for the WTO option (in fact, the headline numbers shown in the government’s published report are even larger than this, but since they’re for 2033-34, I’ve presented numbers here that are comparable in terms of percentage of GDP).

But what about the government’s ‘bespoke deal’? As the government made clear when the impact assessments were published, the forecasts ‘did not consider the outcome we are trying to negotiate’. This is entirely true. Any fair assessment must do what the government’s modelling didn’t do and model the ‘bespoke deal’. And at the time that civil servants were preparing this analysis, that may not have been possible.

But fortunately, the Prime Minister’s recent Mansion House speech – setting out in detail what the government means by a ‘bespoke deal’ – allows us to make a reasonable stab at doing exactly that. We can go through all the items, both costs and benefits, that go into this model. For example, we know the government (and the EU) want to avoid tariff barriers, so those costs won’t apply, but it intends to leave the EU customs union, so the additional costs that implies will. We also know it intends to end free movement but is prepared to consider a preferential regime for EU citizens, as under the FTA model – limiting but not eliminating the economic damage of lower EU migration.

And most importantly, the Prime Minister herself explicitly said, ‘our access to each other’s markets will be less than it is now’, recognising that there will be new frictions to trade as a result of her intention that the UK should be able to diverge from the EU’s regulatory regime, but slowly and over time. This implies an increase in non-tariff barriers that is larger than would be the case with an EEA model but smaller than with a simple Canada-style FTA. Putting all this together, we can make a reasonable and credible estimate of what the government’s own methodology yields for the government’s bespoke deal – a cost of about £615 million a week, or 22 per cent of what we spend on the NHS.

Of course, in deciding which of these options is preferable, the public finances aren’t the only consideration by any means. What they mean for immigration policy, for environmental and labour market regulations, for the Irish border – all these issues are important too, both economically and politically. But if we are to decide what sort of Brexit we want, the least we need is a menu, with prices. The government has published its current best estimates. It’s up to us to decide which of these prices is worth paying.


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