A new model economy post-Brexit will benefit those in Britain who need it most
For too long prominent economists have got away with the implausible claim that Brexit cannot lead to any significant benefit for the UK economy and that the only way to avoid disaster is to stay in the single market and customs union for as long as possible.
It’s almost as if the lessons of Project Fear have not been learned. Before the Referendum, Treasury economists assured the public that a vote to leave would cause “an immediate and profound shock to our economy” leading to recession and huge increases in unemployment. In contrast, we have seen continued economic growth and record low unemployment.
In a similar vein, the Centre for Economic Performance predicted that Brexit would cause a reduction in foreign direct investment of over 20%. Instead, investment in the UK has been at record levels. Of course it is early days, but confidence about future investment is actually higher now than before the referendum. This is partly driven by companies wanting to ensure that they have a presence in the strategically important UK market in anticipation of us leaving the single market. Just this week, Nissan announced that it was seeking to source more of its inputs from British suppliers precisely because of the expected, looser relationship with the EU.
Far from being “Despite Brexit” as the much-parodied FT is so fond of saying, the investment boom seems to be at least partly because of Brexit.
Economists for Free Trade have long argued that economists should stop trying to relive the referendum campaign and focus instead on how to achieve the greatest benefits from Brexit. Now we are delighted to have joined together with Labour Leave and Leave Means Leave to produce a manifesto for a ‘New Model Economy for a Post-Brexit Britain’. Our call for action includes:
- Lowering the costs of trade across the board both through free trade agreements with the EU and non-EU countries but also, if need be, unilateral abolition of tariffs.
- Abandoning the Common Agricultural Policy and repatriating fisheries.
- Taking back control of economic policy and regulation so that it works to the benefit of UK workers, consumers and firms.
- Managing unskilled migration so that companies have incentives to invest in training and skills, boosting productivity of UK workers.
- Taking back control of our huge annual payments to the EU.
If adopted, we estimate that these measures could give a boost to the UK economy of up to 7% of GDP, some £135 billion per annum. Just as importantly, the gains can be felt right across the income distribution. Indeed, the poorest have the most to benefit from Brexit, but only if we take the right decisions.
For example, lowering tariffs on imported goods, whether done as part of formal agreements or unilaterally, has the potential to significantly cut prices on goods such as food and clothing, a move that will benefit low-earners the most. It would also help alleviate some of the worst effects of current EU trade policy which works to keep developing countries in poverty.
Having control over migration into the UK enables us to have a system that does not disadvantage skilled workers from non-EU countries. In turn, this can help firms focus on improving productivity rather than keeping labour costs low. The result should be long term improvements in wages and competitiveness.
But these benefits can only be achieved if the UK quickly embraces all the opportunities offered by Brexit. The longer we stay in the single market and the customs union, the longer it is before we can pursue free trade with the rest of the world, decide our own economic policy and stop transferring huge sums of money to the EU.
A natural concern is whether unilateral free trade might put UK manufacturing at risk. In fact, the resulting lower prices and competition not only helps consumers but can fire productivity improvements which will boost long run wages and profits. Further, the big payments we currently send to the EU each month can be used to target help towards the most vulnerable sectors. For example, rather than subsidising richer farmers on the basis of how much land they own, we can choose to help struggling hill-farmers and those who provide most benefits to the rural environment.
Even better, being clear that, if the EU does not agree to a formal trade deal, we will happily fall back to global free trade and, of course, no more payments to the cash-strapped EU actually makes it more likely that a formal deal will be achieved.
The campaign by some in the remain camp to keep the UK as close to the EU for as long as possible seems to be nothing more than a quixotic attempt to reverse the referendum result by the back door. Apart from anything else, such a strategy would simply prolong the uncertainty about the UK’s long term trading relationship with the EU and that is certainly not in the interests of UK companies.
Fortunately, voters seem to be more sensible: a big majority, including many remain voters, now favour a clean Brexit with us leaving both the customs union and the single market.
It is time for the UK to leave Project Fear in the past and to embrace a prosperous future outside the EU with confidence and optimism.