New analysis shows that the UK will be £135 billion richer with no deal.
The analysis in question is two years old, and claims that GDP would grow by £135 billion if the UK unilaterally removed all barriers to international trade after Brexit. The analysis has been criticised by other economists, especially for its argument that the UK would not face new non-tariff barriers to trade with the EU in this scenario.
An article on the website The British Journal, dated 8 July 2019, says “the latest report by the Economists for Free Trade have calculated that the opportunities from the UK going global under a “No Deal” Brexit may give the UK an extra £135 billion per year.”
The article has received over 35,000 shares on Facebook (using analysis from Crowdtangle) since its publication earlier this month, but the report in question is not new—it was published two years ago. Many users may have mistaken it for genuinely breaking news though, because The British Journal originally published the article with the BBC’s old breaking news image. It has since changed this to a generic “breaking news” image.
That matter aside, a wide range of other economists have criticised Economists for Free Trade’s estimate about the economic gains from a no deal Brexit.
Where does £135 billion come from?
Two years ago Economists for Free Trade (EFT) claimed that the UK economy would be better off by “as much as £135 billion a year” if the UK left the EU without a deal and unilaterally eliminated all trade barriers, including tariffs on imports.
Of the £135 billion, £80 billion was estimated to come from “free trade”, £40 billion from reducing regulation, £4 billion from reducing benefit payments to unskilled EU migrants, and £11 billion from no longer paying into the EU budget.
But a wide range of other economists have criticised the group’s estimates and we’ve looked at a few of their main points below.
The benefits of free trade have been heavily questioned
Much of the criticism of EFT’s calculation has focused on the points about “free trade”—where it identifies the bulk of the economic growth to come from. EFT’s argument is essentially that, if the UK left the EU on World Trade Organisation (WTO) terms, it could remove all tariffs and non-tariff barriers on imports from anywhere in the world, which would reduce the prices paid by British consumers by 10%, which in turn would drive an upturn in the economy (GDP).
The 10% figure has been criticised. Researchers at the London School of Economics (LSE) said the figure “comes from looking at the differences in price levels between the UK and some other countries and arguing that these higher prices are due to protectionism caused mainly by EU regulations (non-tariff barriers).”
However, this argument ignores the possibility that prices in EU markets may be higher for other reasons, for example because EU consumers buy better quality products.
The LSE continues: “say Europeans put a higher premium on high-quality clothing compared with Americans. It will look like Europeans are paying more for their clothes, but in reality, the higher average prices simply reflect a different mix of purchases.”
Also the data used by the EFT comes from 2002, meaning the estimates are quite out of date.
The issue of “non-tariff barriers” has also been contested
Economists have also challenged the EFT’s assumption that UK exporters would not face increased non-tariff barriers to trade with the EU if we left on WTO terms. The Institute for Government describes this assumption as “extreme”.
Non-tariff barriers are things like regulatory standards which trading partners have to comply with. They can limit the amount of trade which two countries are able to do together.
It is estimated that the non-tariff barriers faced by non-EU members exporting to the EU range from 7%-21% of the value of those goods (whereas members of the EU single market don’t face such barriers when trading with one another).
The EFT acknowledges this, yet believes that UK exporters would not face new non-tariff barriers if the UK left the EU on WTO terms because WTO rules wouldn’t allow it.
The Institute for Government says: “WTO law is not strong enough to compel the EU to abandon the legal requirements of the Single Market”, a finding supported by trade law experts. This would mean the UK would likely face significant non-tariff barriers on exports to the EU if it adopted the policy proposed by EFT.