Would Britain gain or lose by leaving the European Union? Is it possible the consequences would be neutral, with the costs and benefits of Brexit cancelling each other out?
More than three years have elapsed since Prime Minister David Cameron announced that, should his party win the 2015 general election (which unexpectedly it did), he would seek a new, more favorable settlement for Britain from his European partners and then put the result to the country in a referendum on whether it should stay in or leave the EU.
With only about a month to go before the vote, one might have expected a consensus to have emerged among economists and businesspeople as to Brexit’s expected effects. Sadly, there are no signs of it. In consequence, the British electorate will soon be called upon to make what is likely to be the most momentous political decision it will ever be called on to make without benefit of unambiguous expert opinion to guide it.
This is not to say that, in the run-up to the referendum, experts have not weighed in. To the contrary, since the referendum campaign got under way in earnest early last month, Britons have been subject on an almost daily basis to a cacophony of disagreeing voices. Many can be heard adamantly insisting that, should Britain vote to leave, it will have embarked on an extremely hazardous and damaging course of action. Consider just a few of the more prominent critics of Brexit in recent weeks.
Analysts from the National Institute of Economic and Social Research (NIESR), which describes itself on its website as “Britain’s longest established independent research institute,” published a statement that can be read here. It is predicated on the assumption that, were Britain to vote to leave the EU, it would soon afterwards do so without first having secured a free trade agreement with the EU. This is not an unreasonable assumption, considering how long it has taken the EU to agree to such free trade agreements as it has entered into with third countries.
Moreover, when Prime Minister Cameron informed Parliament in February of the results of his renegotiation of Britain’s EU membership terms, as well as the date of the forthcoming referendum, he also said that, should there be a vote in favor of Brexit, he would immediately commence Britain’s withdrawal through Article 50 of the Lisbon Treaty. This gives a country just two years before it is out unless both parties agree to extend the period of negotiation. Few believe that, within so brief a period, a mutually acceptable agreement could be forged between Britain and the EU, especially since the EU would want Britain to depart under the worst terms possible so as to discourage other member states from being tempted to follow suit.
In the short term, so the NIESR analysis concluded, approval of Brexit would cause Britain’s GDP to fall 1 per cent by 2017, compared with what it would have been had the vote gone the other way. In the longer term, it claimed Britain would by 2030 be suffering an annual loss of between 2.7 and 7.8 per cent of GDP, as compared with what it would have been had the country remained in the EU.
In more readily intelligible language, the analysis maintained the consequence of leaving the EU would be for annual per capita consumption to have declined in Britain by 2030 by somewhere between £900 and £2000 at 2012 prices—no small sum, considering that in that year, the average annual wage of a full time worker there was only £26,500.
On the same day as the NIESR analysis was published, the governor of the Bank of England, Mark Carney, announced that a vote to leave could tip Britain into a “technical recession” and destabilize financial markets.
A day later, the head of the International Monetary Fund, Christine Lagarde, reiterated Carney’s warning, adding for good measure: “Depending on what hypotheticals you take it’s going to be pretty bad to very, very bad [for Britain]. We have looked very carefully at the whole range of existing opinions, calculations, modularisations, forecasts, scenario planning, and we have done our own homework, and frankly, in the very vast majority of what we have seen, we haven’t seen anything that is positive, it’s always been on the negative side.”
Assessments of the economic consequences of Brexit, however, have not been uniformly adverse. A number of prominent economists and businesspeople, albeit only a minority of those who have publicly pronounced on the subject, claim that Britain would benefit by leaving the EU even if, at first, some if not all sectors of its economy might suffer from removal of the protection from foreign competition that the common external tariff brings.
In mid-May, the Sunday Times published a letter from eight German lawyers and economics professors, including a former president of the German Federation of Industry, in which they warned of the possible lack of standing in European law of the new assurances and concessions Cameron claimed to have extracted from other heads of member states. The letter concluded by remarking that many reform-minded Germans “envy the British for having . . . the chance to disembark from an EU project whose integration now threatens to undermine, rather than uphold, the liberty and prosperity of our continent.”
A day later, the Daily Telegraph published a letter from more than 300 business leaders, including the managing director of Goldman Sachs, urging the British electorate to vote for Brexit by claiming: “Britain’s competitiveness is being undermined by . . . membership of a failing EU.” They added that: “Outside the EU, British business will be free to grow faster, expand into new markets and create more jobs.”
In the business section of the same day’s issue of the newspaper, this more favorable estimate of Britain’s economic prospects outside the EU received ringing endorsement from economist Roger Bootle (whose book setting out the case for Brexit I reviewed for Law and Liberty here). In his newspaper article, Bootle points out that, ultimately, whether Britain will gain or lose by leaving the EU must remain more a matter of judgment than “a toting of numbers.”
This is because, against the benefits of being able to export goods to Europe free of the common external tariff, and against the other benefits of membership, one must set the “umpteen costs” of membership. These he lists as: “having to impose EU rules across the whole of your economy; having to pay the EU’s annual membership fee; being unable to negotiate trade deals with other countries around the world; having to impose the EU’s external tariff on imports into your country; and being obliged to take any number of EU citizens to live and work in your country.”
Bootle is one of a group of so-called Economists for Brexit, who style themselves “eight independent, leading economists who are convinced of the strong economic case for leaving the EU.” Among them is Patrick Minford, professor of applied economics at Cardiff Business School and a longstanding advocate of Brexit. Minford has calculated that Britain stands to benefit considerably by leaving the EU and by then adopting unilateral free trade.
On leaving the EU, claims Minford, its output would grow by 2 percent, competitiveness by 5 percent, and real disposable wages by 1.5 percent. He further claims sterling would fall by 6 percent (thereby boosting exports), as would Britain’s balance of trade deficit, to less than 1.5 percent of GDP, along with unemployment by 0.2 percent.
Minford concedes some uncompetitive manufacturing industry would undoubtedly go under as a result of Brexit, but, he argues, in time, even those who might have found employment in these industries stood to benefit through finding work in new and more productive ventures he predicts would spring up. In the interim they could receive government support from the extra revenue available from the more profitable enterprises he forecasts would arise under less heavy regulation than that demanded by the EU.
The billionaire stockbroker Peter Hargreaves, a big funder of the Brexit campaign, argues (perhaps naturally enough) that leaving would be a boon to the country in economic terms. Last week, he reportedly told Reuters: “It would be the biggest stimulus to get our butts in gear that we have ever had. It will be like Dunkirk again. We will get out there and we will become incredibly successful because we will be insecure again. And insecurity is fantastic.”
Not all agree with Minford and Hargreaves about exposure to competition being a good thing. Among the advocates of competition, however, none argues with greater enthusiasm for Brexit than do the economists, politicians, journalists, and ordinary citizens featured in a 70-minute documentary that premiered in London last month, which one can see on youtube entitled “Brexit: the Movie.” Among the economists are Eamonn Butler of the Adam Smith Institute and Mark Littlewood of the Institute of Economic Affairs, plus the IEA’s education director, economic historian, Stephen Davies.
Chiming in on their side is John Longworth, former director general of the British Chamber of Commerce, who quit that post in March so he could speak freely on the subject. Writing in the Daily Telegraph, Longworth said that Britain “will be more prosperous, have safer jobs, be more secure and have more influence if we leave the EU . . . the UK will do very well outside the EU and . . . must leave before it is too late.”
Polls currently show a referendum vote in favor of Brexit to be unlikely, but then a year ago, the same polls were forecasting that David Cameron’s party would lose the general election. There is still all to play for.