Britain has “nothing to fear” from a “clean break” with the European Union, according to a report by the group of economists who have consistently argued that Brexit will be a liberating experience.
The Economists For Free Trade (EFFT) report argued that moving outside the EU’s single market could lead to prices in the shops declining by 8% and the economy growing by an extra 7% over the next 15 years, or by more than £1tn in today’s money.
In its sights was the Treasury’s vision of higher prices, higher interest rates and 500,000 to 800,000 extra unemployed following the referendum vote and while facing the threat of a hard Brexit.
Philip Hammond admitted on Tuesday that project fear’s forecasting had been flawed. The chancellor said it had failed to take into account the Bank of England cutting interest rates and his own department’s modest relaxation of austerity. He observed that the project had emerged when article 50 was still some way from being triggered.
And yet, despite these mistakes, most economists still believe that something akin to project fear will come to pass should the UK prefer the clean break promoted by the EFFT.
Consider that its leading light, the academic Patrick Minford, despite spending years honing a model of the economy in his Cardiff University lab, has never been considered an expert on trade. His model has not been adopted by other academics.
He argues that cutting import tariffs to zero will usher in billions of pounds of cheap goods, reducing inflation and improving living standards.
He dismisses the concern that other countries will retain or even increase their tariffs, saying it would be a breach of World Trade Organization rules. Except that Donald Trump’s protectionist agenda puts him in breach all the time and there is only tit-for-tat retaliation. Why? Because a WTO dispute takes years to resolve. Ditching the UK’s import tariffs also jettisons any bargaining power the UK might have with other trading blocs, such as the US and EU.
The report goes on to dismiss concerns that without harmonised rules UK goods would be increasingly blocked from entering the EU. Minford again invokes WTO rules and claims the EU would be punished. Except that the EU places restrictions on the volume of certain goods from non-EU countries entering Europe all the time. China knows this to its cost.
Opening Britain to low-cost imports would also damage vulnerable industries such as agriculture and manufacturing, which are currently protected from cheap copycat goods by being inside the EU’s tariff regime. Government subsidies could offset the effects of intense competition from cheap beef and machine parts, but the huge sums needed would breach WTO rules and, even if they were allowed, would chip away at the gains.
