The full cost of Brexit is now becoming clear
Published by CapX (23rd November, 2016)
Economists are not known for unity of outlook when predicting the future. But before June’s vote on Brexit, almost all agreed on one thing: the British economy would be damaged by a decision to withdraw from the European Union. One survey found just one in 20 believing this might be a smart move. ‘It is pretty remarkable to see this degree of consensus about anything,’ remarked Paul Johnson, director of the Institute for Fiscal Studies. ‘It no doubt reflects the level of agreement among many economists about the benefits of free trade and the costs of uncertainty for economic growth.’
The electorate was not swayed by such arguments, let alone a rare display of consensus from practitioners of the dismal science. And those pushing Brexit mercilessly exploited the post-truth landscape, deriding outmoded concepts such as expertise and evidence while repeating spurious slogans about taking back control. Meanwhile, prominent political figures argued forcefully for the economic benefits of Brexit. They toured the nation in a bus emblazoned with the mendacious message that the sickly National Health Service would get a £350 million a week cash injection following the breach with Brussels.
David Davis promised it would improve our economic outlook, Priti Patel said it would add billions of pounds to our economy while Andrea Leadsom insisted ‘with my 30 years of financial experience… there will not be an economic impact’. Boris Johnson also promised voters there would be ‘no economic shock’.
Now we can see the true cost starting to be exposed by the Autumn Statement. The British economy will be 2.4 per smaller over the next four years than if the nation had voted to stay in the EU. Borrowing will be £122 billion higher than expected, worse even than feared a few days ago – with Brexit fingered as biggest cause of this extra debt. And the Office for Budget Responsibility said any likely outcome of Brexit leads to ‘lower trade flows, lower investment, lower net migration than we would otherwise have seen, and hence lower potential output’.
The economic outlook is indisputably bleaker for Britain. These figures show how Brexit leads to a poorer nation – just as we were warned by experts, economists and those much-mocked mainstream politicians. Already the falling pound is driving up food costs and squeezing household incomes. Now we face higher borrowing, falling tax receipts and rising inflation. This means less money for the state, tougher times for businesses and belt-tightening for consumers. The Resolution Foundation says workers will lose £830 a year by 2021.
This is even before the shape of departure from Brussels is finalised. Today’s figures are based on assumption of soft Brexit. My soundings from European politicians and diplomats suggests it is likely to be much harder. The probable imposition of tariffs – at the very least on a transitional basis – would fuel the festering sense of alarm and uncertainty. The OBR admitted it has not allowed for firms shedding jobs aggressively or jittery consumers stashing money aside, ‘both of which are downside risks if the path to Brexit is bumpy’.
Soon after the vote, one senior source in Theresa May’s team joked to me that their immigration headache would be cured by a crashing economy. Now such words seem prophetic. For all the scaremongering over benefits and health tourism, most foreigners came to Britain to work – and the reason their numbers will decline, to the nation’s detriment, will be because the economy is heading in the wrong direction, with better deals available elsewhere. Already the plunging pound and reports of rising xenophobia are, on anecdotal evidence, deterring some Eastern Europeans. It is anticipated the cost to the Treasury of falling migration will be £6 billion by the next election.
Key Brexiteers seek to shrug off responsibility for any economic woes. Typical was Ukip’s solitary MP Douglas Carswell, who instantly tweeted ‘pundits fabricating narrative that it was June 23rd vote to blame for debt’ and accused the ‘SWI bubble’ of being ‘spies’. No, Douglas, it is all in the data – clear signs of detrimental impact, corroding the economy through disruptive uncertainty.
Expect much more of this as we move towards the inevitable economic dislocation of Brexit, with less money available to spend on public services such as the NHS. Meanwhile the whole thing is predicted to cost more than £400 million just in Whitehall administration, as armies of civil servants are hired.
At least Nigel Farage said he was prepared to shoulder some economic pain in return for winning back sovereignty – although it is easier for him, as a career politician whose bank balance and pension fund are so lavishly stuffed by Europe’s taxpayers, then for those ‘Just About Managing’ families we have been hearing so much about.
The chancellor, Philip Hammond, was left with minimal room for manoeuvre when it came to trying to help this target slice of the electorate in his Autumn Statement. He was also walking a tightrope in trying to set out the rocky path ahead without causing too much alarm – or indeed, seeing another batch of bile dumped on his head from angry Brexiteers accusing him of pessimism.
There is something ironic in the battle cry for Brexit being to take back control. For having won the battle, those who led the charge seek to evade responsibility for the legacy of their actions. Most kept their heads down after the chancellor’s gloomy statement.
As Britain slips into choppy economic waters, with the pain this will cause struggling firms and families, they will blame anyone but themselves for the consequences of their actions. This is the turbulent new frontline that will dominate politics in the coming years. But wouldn’t it be nice if they apologised for the billions of pounds they have cost Britain?