In 20 months, all the British Government did was initiate an unprepared Brexit and sign two entirely EU-written documents. Not only did the Government waste valuable time with Tory-internal, constitutional, and other unwinnable disputes; it also drags any material clarification about Britain’s post-Brexit state beyond March 29 2019 into the so-called implementation phase. The intent is to sleepwalk the country over the point of no return, unable to reality-check any Brexit-promise they continue to uphold against all likelihood and their better knowledge. This tactic has the convenient side-effect of limiting the practicality of a timely “first referendum on the facts”.
Nevertheless, we know enough already about the slowly emerging future relationship with the EU and beyond to assess it against the three central campaign-promises: take back control of UK money, borders, and law. Following, I will show that Brexit will break every single one of them. This article looks at money. Two following articles will check the reality of taking back control of UK borders and law, respectively.
The OBR, in its recent spring statement, has established that until 2022/23, the EU settlement payments and surrogate spending in lieu of EU transfers will be equal to continued net EU-contributions in a no-referendum base scenario. So just in terms of cash-outlays towards the EU, there will be no saving for 7 years after the referendum, and declining ongoing payments until 2064.
As shared before, the OBR had already, in its autumn 2017 statement, downgraded the UK’s GDP-growth by 2020 by 5 percentage-points compared to its last pre-referendum estimate from 2015, underlined by the UK’s drop from top to bottom of the G7 growth-ranking. Consistent with this, the OBR now estimates an average UK GDP-growth below 1.5% through 2022, currently more than 0.5 percentage-points below the G7 average. Extrapolating the OBR 2023 forecast for 15 years, the cross-Whitehall Brexit impact assessment predicts another 5% GDP-shortfall in the most likely trade-scenario (FTAs with EU, US, TPP countries, ASEAN, the GCC, China, India, Aus, NZ). What does that mean?
Already in 2020, the last transition year, and therefore still before Brexit has actually happened, UK GDP will be GBP 100 Billion lower than the OBR estimated in 2015. If only taking the G7-average as a benchmark, the shortfall is still GBP 50 Billion. Brexit reality, as assessed by Whitehall, will cost another GBP 140 Billion in 2038. That is a total of GBP 190-240 Billion, just in the single year 2038, growing to that number every year. Assuming a constant public sector share of 40%, these numbers translate in tax revenues lost of GBP 380(!)-770 Million per week in 2020 (I repeat: before Brexit!), growing to GBP 1.850 Million per week in 2038. I am here disregarding ongoing EU payments for agency-membership or pensions, the cost of replacement governance, other Brexit-implementation expenditure, and the cost of not really having a UK Government for several years. For every Pound “controlled”, according to Johnson, the UK must first burn this amount several times over.
Taking back control of our money? Only if one believes that a sovereign loss is preferable to a united gain. Is that really what a majority of people want and voted for?
* Arnold Kiel is a self-employed Management Consultant, father of two sons in British education, and very concerned about their future in this Europe
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69 Comments
Even if the predictions are correct and Britain is poorer due to Brexit, it may not be as important as one might suspect. There is an emotive aspect to Brexit that Remain has never managed to find a suitable response to. The rational argument simply isn’t enough. Unfortunately, I suspect Britain will have to be a lot poorer (relative to its neighbours) before some (many?) people realise their error. There is of course also the danger that they go looking for scapegoats.
I like to try to understand an opposing POV but I can’t make head nor tail of this argument. Surely no-one take the neoliberal Office of Budget responsibility that seriously? They hardly ever get anything right.
I did understand the footer. “father of two sons in British education, and very concerned about their future in this Europe”.
Fair enough. Everyone should be concerned about their children. That said, why not work for an amicable settlement that works for both the EU and the UK? We are good customers for the EU. We buy a lot more goods and services from the EU than the EU buy from us. If the EU decides to cripple the UK economy then that can’t continue. We just won’t have the buying power.
We shouldn’t, though, stay in a bad marriage because of threats. So let’s have an amicable parting of the ways and let’s hear no more calls for ‘unconditional surrender’.
@ Peter Martin
Why is it a “bad marriage”? And what you describe as “threats” may simply be Realpolitik.
Nomde Plume,
“Why is it a “bad marriage”?”
I don’t want to go through all the referendum arguments yet again! But maybe this a new one?
When a marriage or relationship is on the rocks, there’s often a reluctance to use a joint account. The UK showed that reluctance with the EU when it came to adopting the euro. A joint currency is very much like a joint account. Just as two people can write IOUs ie cheques on a joint account , nineteen countries can, theoretically, write IOUs in euros. The ECB is responsible for making sure all euros are equal.
So the writing was on the wall for the UK/EU ‘marriage’ when the UK decided that not only did it not want the euro in 2003 but it wasn’t going to commit to using it ever. Furthermore, and unlike other non euro users, it wasn’t going to commit to SGP rules.
@ Peter Martin
I think it is legitimate to point out that we haven’t really taken control of our money if we are paying the EU up until 2022/23 an amount “equal to continued net EU-contributions in a no-referendum base scenario”. Getting bogged down in economic forecasts is more of the failed strategy of the Remain campaign. Also is Arnold Kiel comparing like with like. He doesn’t provide any links to the OBR figures and if the comparison is between forecasts. And we all know each time a new forecast is made it forecasts a slightly different future from the last one.
On the UK joining the Euro and the Stability and Growth Pack. The UK was correct not to join as the system doesn’t have the fiscal transfers between regions and countries to make it work for the poorest regions and countries.
I don’t understand your euro argument. It is not relevant to the UK. Other non-euro countries are not considering leaving.
Sorry, Peter Martin. IF you regard this as a “marriage”, it was “on the rocks” already, with UK asking for “pre-nups” etc at the beginning. Because suspicion has always been the watchword.
In truth, “marriage” is not really the correct analogy. Partnership is. It has always been a number of participants. There has always been a substantial number of people (probably 25 – 30%) who have opposed the partnership on, more or less, emotional grounds. These people have, throughout, tried to add to their arguments, and gradually, as more of the press have been brought on side, the initial vote which persuaded the British people to greatly back being “in Europe” has been eroded by a coalition of ideas, leading to the vote in 2016. I think the “core vote” is still around 25 – 30%, as it always has been.
So, it has not been “a failing marriage”, it has been a long process of those who didn’t trust from the beginning, undermining the trust held by some of the less firmly grounded attitudes in the benefits of close and democratic cooperation with our neighbours for the common good the avoidance of war (and all the other arguments we are familiar with here). The use of the majority media has amplified the disparate arguments deployed by the “no trust” group.
I think it wise to keep in mind two pieces of economic wisdom:
1) it’s difficult to make predictions, especially about the future;
2) the only function of economic forecasting is to make astrology look respectable.
In this vein, a recent paper from the Cambridge Centre for Business Research notes dryly
“Economic Forecasters in the UK have a poor record over the last decade. The failure to foresee the 2008 economic crisis has become infamous, even involving the Queen’s famous question: ‘Why did nobody notice it?”
This paper, “How the Economics Profession Got It Wrong on Brexit” then goes on to critique the assumptions, methodology and shortcomings of leading economic forecasting models. It concludes that
“The fact that the flaws we identify all point in the direction of pessimism on Brexit, and hence in the direction that most academics and economists tend to lean ideologically, will increase the scepticism of many. The refusal of the Treasury to discuss their approach, at least until the issue was aired in Parliament, is in our view unacceptable in an open democracy.
“Our conclusion is that in order to restore public confidence in economic forecasting for major policy issues like Brexit, economists need to use more relevant analyses, based on a wider range of evidence … The academic profession needs to reconsider both the relevance of its current attachment to theory based on unrealistic assumptions, and to the general quality of policy-relevant applied work. Whatever techniques are used need to be applied with more balance and scepticism.”
The CBR paper is available at
https://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-research/downloads/working-papers/wp493.pdf
@ Nom de Plume,
The problems of the euro zone can’t be contained within its borders. EZ countries tend to be in state of recession, like Italy, or they are highly mercantilistic, like Germany. That’s the only antidote to the austerity inducing SGP. Therefore they aren’t good markets for UK exports. Someone in the UK, either Govt or the Private Sector, has to borrow to fund our inevitable trade gap and that gives the UK an overall debt problem.
Then there’s the problem of migration from the depressed economies!
@Tim 13,
You’re right. It is a partnership or should have been. The UK should never have asked for opt-outs. We should have been totally in, to the same extent as everyone else, or we shouldn’t have been in at all. Just possibly, if we’d been part of the euro zone, and had been more enthusiastically involved in its creation, we could have insisted that the rules should have been far less rigid and ‘Germanic’.
The hard heads in the Treasury knew well enough that the SGP rules would been a disaster for the UK. Gordon Brown’s ‘five principles’ were a smokescreen IMO.
Not sure how the 40 billions divorce bill, with nearly half coming off during the transition and the rest spread out over 40 years adds up to no gain up to 2022 but agree that the govn may well have less net revenues due to falling tax receipts during this period. Throw in the cyclical nature of the business cycle and it may well end up with a frightening drop in revenues and a mind boggling total debt that will make the problems of leaving the EU look minor though ironically the forced rebasing of dodgy EU countries will mean they are in a much better place to withstand such a shock. Given that you can’t increase taxes much without throwing the economy into an even deeper recession nor borrow/print much more money without causing a ruined pound and hyper inflation, be interesting to see how the govn gets out of its self-dug hole…
I’ve just refreshed my memory of Gordon Brown’s five principles. Possibly I was too dismissive. However they are questions rather than explanations.
There were:
1) Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis?
2) If problems emerge is there sufficient flexibility to deal with them?
3) Would joining EMU create better conditions for firms making long-term decisions to invest in Britain?
4) What impact would entry into EMU have on the competitive position of the UK’s financial services industry, particularly the City’s wholesale markets?
5) In summary, will joining EMU promote higher growth, stability and a lasting increase in jobs?
We now know the answers!
Even if one took the rather eccentric view that all economic forecasting (and the OBR) should be abolished, and certainly not used for political decision making, some facts stand: 1. No EU net contribution-relief for 7 years. 2. The EU (incl. the dreaded eurozone!) and the G7 are already today outgrowing the UK. 3. The structural delta (not based on forecasting but on sectoral analyses) between the status quo and FTAs with various countries, including the EU is negative.
William Fowler,
Page 229 of the OBR Economic and fiscal outlook – March 2018: http://cdn.obr.uk/EFO-MaRch_2018.pdf
@ Arnold Kiel,
EU-ophiles are playing a similar game to climate change deniers. If the Earth is cooler than it was a year previously, or the extent of Arctic ice is slightly greater, they’ll proclaim the end to global warning. Substitute, instead, one or two quarter growth figures in the eurozone and, hey presto, the problems of the euro are all fixed!
I would actually credit the the ECB with doing a pretty good job of keeping the euro alive in the past five or so years. In the teeth of German opposition they’ve introduced a measure of QE, and associated monetary stimulus, to reduce interest rates throughout the EZ to almost 0%. So governments can now more easily support their previously unaffordable debt levels. It should be seen as the ECB buying some time for more fundamental reforms in the EZ but if German opinion is anything to go by, those remain as far away as ever.
The true state of the EU and the EZ can’t be measured by cherrypicking economic data points. Besides the not so little matter of Brexit, the EU is in turmoil everywhere as voters abandon their traditional, and usually very pro EU, political parties and look for more radical, and usually very right wing alternatives.
https://www.theguardian.com/commentisfree/2017/sep/29/right-social-democracy-dying-europe-afd-far-right-germany
Peter Martin,
your habitual and oftentimes extraneous euro-bashing is also here irrelevant. Your Government, not me, predicts that replacing single market membership with a FTA will cost 5% of GDP, even after adding FTAs with the most important non-EU countries. Despite the euro, the EU is and always will be the UK’s biggest foreign market.
@ Arnold Kiel
Your evidence doesn’t support your claim. Table B.7 on page 229, clearly shows that in 2020-21 we are paying £3.0 billion less, 2021-22 £3.3 billion less and in 2022-23 £5.8 billion less than the “No-referendum counterfactual”. Maybe you should have read paragraph B47 before writing your totally misleading article.
@ Arnold Kiel,
“Your Government, not me, predicts that replacing single market membership with a FTA will cost 5% of GDP”
Maybe, but our Government’s record in the field of economic prediction is so poor that no-one takes much notice. It’s no different in the EU. Is the performance of the eurozone what was expected?
Michael BG,
these amounts are not free, as the Government has already committed and might commit further funds for areas of ongoing EU-collaboration or domestic replacement spendings. I just followed the OBR’s assumption concerning such amounts. Given the much more massive indirect financial damage of Brexit, different assumptions about the use of single-digit Billion figures in three years hardly make my arguments “totally misleading”.
@ Arnold Kiel
I am dismayed and disappointed by your reply. The OBR state in paragraph B47 “any difference is recycled as other spending”. This means the UK government will decided what to spend it on. Even the OBR haven’t assumed the money would be spent as it is spent at the moment. It is totally misleading to make that assumption. You are making political comment and presenting it as fact and this is really misleading.
As already pointed out forecasts are not facts, just opinions. Unless we can know what would have happened between 2016 to 2022 if there had been no referendum and what actually happened will we ever know what the economic costs of leaving were. And even if the economic cost is huge it has no relevance to the UK government taking back control of everything it spends its money on without having to allocate a sum to the EU to spend on its behalf.
Michael BG,
an as of yet unspecified amount of this will be additional EU and substitute payments. But I understand that the fact that these amounts will be subject to UK decisions cause you great joy and confirm your pro-Brexit view; fair enough.
Have you noticed though, that they represent a small fraction (single digit %) of the total Brexit damage already caused in those years? Probably not, because these are just “opinions” (why the excitement then?), and you anyhow believe that “even if the economic cost is huge it has no relevance to the UK government taking back control of everything it spends its money on without having to allocate a sum to the EU to spend on its behalf”.
Brexit at any cost, in other words. I won’t convince you. But millions of struggling Britons will pay dearly, not something that crosses Brexiters’ minds if it challenges the purity of their convictions.
@ Arnold Kiel
You have read a lot more into my comments than are there. I believe we should present the facts and not present opinions as facts. I think that is the liberal thing to do so people can make rational decisions.
You state I have pro-Brexit views and imply I am a Brexiter. I voted Remain in the referendum and would have campaigned to stay in if I had been well enough. Last month I wrote an article published on LDV (https://www.libdemvoice.org/what-more-do-we-need-to-try-to-do-to-persuade-the-british-people-to-vote-to-stay-in-the-eu-56713.html) in which I set out what we should do to try to reform the EU to convince people to vote Remain if there is a referendum on the deal.
@Michael B G
” I believe we should present the facts and not present opinions as facts”
That is what makes me admire you so much on here.
I know you are a remainer and have argued the case for remain on here many times, but I also know that you are passionate about facts and details and will get to extraordinary lengths to delve in to claims made by leave or remainers and then present them in a coherent manor to the benefit of us readers , I am sure most of us appreciate that.
I really do look forward to your comments, because when I find an article is sloppy in it it’s writing and fails to provide proper links that helps us readers come to a more informed opinion, we can always rely upon you to point us in the right direction.
Many thanks and Kind Regards
Matt
Michael BG
I’m afraid that “making political comment and presenting it as fact” is very much what Arnold does; plus assuming that anyone who questions his often tenuous and aggressive arguments must by definition be a “Brexiter” who of course doesn’t care for the poor people like he does. I’ve had the same sort of exchange with him more than once.
Who he thinks he’s convincing like this I don’t know. He’s certainly driven me to feeling more sympathy for the Leave argument than I ever had before. Perhaps he’s a sleeper agent?
@ Arnold Kiel,
“your habitual and oftentimes extraneous euro-bashing is also here irrelevant.”
Yes I’m a critic of the notion that 19 countries can share a single currency, and several other have to align their their currencies to it for period of years to “qualify” for euro membership. Separate economies need separate currencies which should be allowed to float on the forex markets.
However, having said that, it would be possible for the EU to make a much better job of the euro than it does. The Stability and Growth Pact sets the rules for the euro using countries. Those rules were largely written by the Bundesbank to suit the German economy. Somewhat ironically Germany was the first major transgressor of those rules in 2003! But nothing much was said. There was some initial flexibility applied to those rules after that but when the flexibility was really needed, after the 2008 GFC, the rules started to be enforced with an increased zealousness.
http://www.civitas.org.uk/content/files/EC.10.SGP_.pdf
Michael BG,
I apologise for not remembering your remain-stance, for the second time, I am afraid; it is hard to depict from some of your comments, e.g. when your judgement is based on less 1% of the total Brexit damage. I did read your article, though, and did not comment because I disagreed so fundamentally with your proposals that no constructive contribution would have been possible. To reform the EU, one must decide to be a member first, and then engage with 27 others who also have a vote. That is why the EU you want is not on offer and cannot successfully campaigned for, just the one that exists and evolves in consensus (if any).
Malcom Todd,
which Leave “argument” ? I am waiting for three years now. You will concede that I am providing some, even if I do it poorly.
@ Malcolm Todd,
“Perhaps he’s (AK) a sleeper agent?”
We’ve been rumbled! 🙁
Thank you Matt for your kind comments. You are correct I am passionate about presenting the correct facts and details. This doesn’t stop me posting opinions but I try to make it clear which are facts which are my opinions.
Thank you Malcolm for your supportive comments. Arnold’s debating style can only be counter-productive.
Thank you Arnold for your apology. I am glad you read my article.
I was convinced in 2016 that the economic argument would convince enough people to vote Remain. I didn’t think they would not believe that we would be adversely affected if we left the EU or not be that bothered (possible a mixture of both). The economic argument in 2016 was based on forecasts. Perhaps I should have thought differently when George Osborne forecast that house prices would fall by 18% in the two years following the referendum result if we voted to leave the EU (https://www.theguardian.com/politics/2016/may/20/eu-referendum-george-osborne-house-prices-brexit).
Nobody knows how UK-EU trade will be effected once we leave the EU. Nobody knows what, if any tariffs UK exports into the EU will face. Nobody knows if the devaluation of the pound will ensure that the prices of UK goods to purchasers in the EU will ensure there are no price rises. Nobody knows how human (and business) behaviour will change and if these will ensure no or little price increase on UK goods being exported into the EU or if those buying British goods will be able to find cheaper replacements even if the prices rise. Nobody knows!
I agree with you that it is most likely the UK economy will be adversely affected by leaving the EU. I expect I don’t think it will be as bad as you think and I expect the UK government and businesses to take action to try to reduce these affects.
Perhaps you misunderstood the point of my article. Perhaps I wasn’t very clear. The purpose was not to convince members that my 4 suggested reforms were what they would want in an ideal world but to only convince them that if we asked the EU to make the reforms and they would agree to do them we would have a better chance of winning a referendum on the deal if there was one, because staying in the EU wouldn’t be as unpopular as it was in 2016. The argument presented that there was no point in asking because the EU wouldn’t agree always seemed to me to be an argument which reinforces the position of leavers that the EU is not reformable.
@Micheal BG
The EU is not about UK domestic politics. No wish list can be imposed, as Cameron found out. Due to internal EU politics and the way the it works: negotiated treaties (with difficulty). Turn up and demand will not work.
The EU will reform because of the internal challenges it faces. British concerns will not be part of their considerations. It is the price you pay for being Out.
@ Nom de Plume
I didn’t suggest imposing anything on the EU, I wrote “if we asked the EU” and if (maybe a big if) they agreed it would help us stay in the EU. I recognise that the EU may not want to make the changes I suggested and other reforms of the Growth and Stability Pact might be more acceptable. However, they might have accepted three of my four and agreed to change the restrictions in the Growth and Stability Pact to assist in making the Euro work for everyone.
I don’t think Cameron believed he would lose the EU referendum and so failed to convince the rest of the EU that real reforms were needed to keep the UK in. It is possible that now the rest of the EU does recognise this.
Do you accept that your negative position on the likelihood of getting the EU to reform plays into the Leave position that the EU is not reformable? And that the idea that the EU is not reformable played a role in convincing some people to vote Leave?
If you mean by “reformable”: do what Britain wants, then yes. There are two sides to a negotation and it is not achieved by simply demanding things; as May is/will find out. The EU institutions have continuously reformed, perhaps not in a way you like. In any case, the dynamic of leaving remains the same.
Michael BG,
“Nobody knows” is a bit simple.
We know that a GBP-devaluation only helps with respect to local content, and as long as British workers accept the loss of purchasing power, as practically all of their consumption has imported content. We also know exactly the WTO-terms and those of the EU-Canada-agreement to compare them with the single market. We also know that the WTO-most favoured-nation-clauses prohibit arbitrary EU-UK tariff-setting without making them universal. Businesses also know exactly how to respond: relocate to the single market, if EU-trade matters to them. Especially the Japanese do not take rule-changes in the middle of a game lightly; they will never forgive the UK for breaking Thatcher’s promise. Also the British Government knows what it wants: the unavailable.
As you insist on your own reformed EU, I have now commented on your article from Feb. 19 (currently awaiting moderation).
@ Nom de Plume
I would hope that my four proposed reforms would be supported by more than just the UK. I expect one of them to happen in the future even if it is not agreed in a treaty. The reform of the Growth and Stability Pact will have to happen in the future if all the current members of the Euro zone are to stay in it. My suggested reform to involve national Parliaments I think would reduce anti-EU feeling across the whole EU. But we will never know if there is any support for my suggested reforms because of the attitude which says there is no point in our asking the EU to reform to make it more popular in the UK and I think more popular across the EU. And this feeds into negative feelings about the EU in Britain.
@ Arnold Kiel
Nobody knows is true.
Please tell me what the weather will be on 30th March in 2019?
Please tell me what the exchange will be between the pound and the Euro on 1st January 2021?
Please tell me what the tariff rates will be on all goods and services that the UK exports to the EU on 1st January 2021?
Please tell me what the effect will be on the price of all goods and services that the UK exports to the EU of the exchange rate and the tariff changes above?
Please tell me how much of these price increases will be absorbed by UK companies?
Please tell me how many of these goods and services be can be supplied to EU consumers at a cheaper price than that produced by the factors above?
I think you can’t answer any of these questions. I think nobody can answer any of these questions.
It has been predicted that if get a trade deal like Canada’s our economy will be 2.63% smaller than it would have been if we had stayed in the EU (https://theconversation.com/the-five-alternatives-to-eu-single-market-and-customs-union-would-all-make-uk-poorer-92228). This study states “The losses will occur over a long period” (I could not find how they define “a long period” but in the paper there was talk of 50 years). It is still possible that we will get a better deal than Canada’s. We just don’t know.
I have never insisted that the EU is reformed as I suggested. By saying I did you imply that any suggested reform by anyone is them insisting that the reform be carried out! I think this is a very strange way of thinking.
Michael BG,
nobody can give you those precise numbers. But there are enough smart economists in Government and outside that can determine the direction of change, estimate a range, and make a qualified judgement on their most likely mid-point-outcome. This is how all informed decisions are being made all over the world. This does not make them always right, but better. Planning and forecasting replaces chance by error; and from errors one can learn. The alternative is throwing a coin, not what I believe you are advocating.
All these economists agree on one thing: the total impact of Brexit is a very very big number, and it has a minus-sign before it. The 2.63% you are quoting would represent almost GBP 1000 per Briton at the current GDP. I do not believe that this would happen slowly, because the step-change from total freedom to a conventional FTA would render many industrial supply chains as well as financial services passporting immediately obsolete. Add to that the recent UK underperformance, and you have already reached Osborne’s 4300 per household; a bit later but no less damaging.
I do not understand why people continue to talk in terms of being poorer by £1000 per Person or £4,300 per household.
We know that these are not talking about every Individual will be worse off by these amounts, so why present the figures in this way?
It was used as a tactic before the referendum in the hope of scaring people into thinking that their households were going to be hit by these amounts if we exited the EU. The same as George Osbourns ridiculous
Apart from the figures being totally nonsense (IMO) in the first place.
The Country is not going to GET poorer by leaving the EU because to get poorer one has to LOSE money, it MIGHT be the case that we grow at a LESS Rate, which of course is NOT getting poorer.
If you are going to learn anything from the last referendum it should be to present your “opinions” and “facts” in a transparent manor, because when you carry on with this style, people know it is just waffle and switch off. Exactly the same way they did when Osbourn claimed that house prices would drop 18% because of Brexit.
BTW Arnold what happened to your 3rd Article? I was looking forward to reading that
matt,
it does not surprise me that you consider straight arithmetic as “opinion” or “waffle” and averages as “tactic”. What is factual in your world view? You are right in one respect: the rich will not lose, and a loss of GBP 4300 is not equally painful for every household. As usual, the poorest will suffer the most, and it does not make much difference to them whether they lost or never received the GBP 4300 they would have pocketed if the UK had voted to remain. It is, btw, an ongoing deficit, never recoverable and bound to grow in a weaker, more isolated UK economy.
My house has lost 18% value, exclusively because of Brexit, again, just a little later than expected by Osborne.
LDV will publish part 3 when they see fit.
@Arnold Kiel
You are doing it again.
You are implying again that every household will actually be £4,300 poorer because of Brexit. Which is of course not true.
The £4,300 is what “allegedly” the country will lose out by per household, not actual households itself. Why do you continue to present your arguments in this way when it is simply not true?
If your argument were true, it would be implying that, if we did not vote to leave the EU,
Minimum Wage would rise by £1000 a year per person, Unemployment Benefits would rise by £1000 a year, which of course is absolute nonsense as Welfare Benefits have been frozen for many years, well before Brexit and it would be a miracle if the Government ever increased welfare by 20 pence a week, let alone £20.
The only places house prices are really falling by the amount you allege is in parts of London where house prices have been artificially inflated for years and are actually now starting to represent a truer value which of course can only be a good thing.
matt,
if you travel around your country or the wider world, you can observe that per capita GDP is quite a meaningful statistic and strongly reflects on people’s wellbeing. The point is, were the UK to remain, it could increase the minimum wage or welfare by GBP 1000 per person for 4 years, without deteriorating its financial position.
Corbyn might actually do so, and could even afford it, if he came to his senses and really lived up to his promise to protect jobs and end austerity. The 20 pence a week is the Tory scenario preferred by Brexiters.
@Arnold Kiel
Thats a lot of “If’s and “could’s”
But the point is, why not present the “alleged” statistics as the Country will grow by £116 Billion less over the forecast period, rather than try to imply that 26.1 Million Households are going to lose £4,300 Each.
In order to lose something you have to possess it in the first place.
And that is the problem with your argument, you muddy the waters with misleading information or untruths.
How is your implied argument that the UK could Increase Welfare by £1000 Per person if we stay in the EU any better than the leaves argument that if we leave the EU we could increase NHS spending by 350 Million a week?
matt:
I think you are objecting to a projected loss of GDP expressed in terms of a per capita or per household sum. The projections are quite obviously fact based, but they are indeed projections and open to challenge. If you have alternative respected and fact based projections to present, you should do so. The growth of GDP has already fallen behind other EU states, it would be very difficult to make a case that it would have fallen so far behind without Brexit.
Arguments that Brexit will not decrease in growth of GDP rely on right wing, libertarian day-dreams of world wide unrestricted trade, without tariff or non-tariff barriers or on ultra protectionism in a dirigiste state. Most Brexiters, however, seem to harbour an incoherent pick and mix of the two extremes. Those who make the professional projections do what they can to be coherent; whatever may be your hopes and dreams, this makes a substantial difference.
@ Arnold Kiel,
All these economists agree on one thing: the total impact of Brexit is a very very big number, and it has a minus-sign before it
That’s not true. There’s plenty of economists who are critical of the ordoliberal economics of the European Union and consider the best policy for the UK is to put as much distance as possible between the UK and the EU.
@ Martin,
“Arguments that Brexit will not decrease in growth of GDP rely on right wing, libertarian day-dreams of world wide unrestricted trade, without tariff or non-tariff barriers…..”
There’s a broad range of political and economic opinion to suggest the EU is on the wrong economic track. The Post Keynesian economists, normally considered to be on the left, and who I would align myself with, are critical of the EU because of the permanent tendency to austerity the rules of the Stability and Grwoth pact dictate.
@Martin
Funny, I always thought projections were a hypothesis and not a fact.
Forecasting is a process that analyzes financial statements and current financial position, and presents an assumption of how it will behave in the future.
Problem with the treasury forecasting as we know since the referendum, Neither households and Business behaved in the way that they or other economists anticipated. They hardly have a good track record do they.
I have not once argued that “growth” in the UK has not slowed since Brexit or would not slow down in the future. What I am arguing against is those that imply that households will lose money because of brexit, because in order to lose something, you have to first posses it.
Project fear failed miserably the first time round, I hardly see it finding it’s second wind now and winning the battle
Peter Martin:
I am sure that if you could you would cite these economists whose respected opinion is that the UK would be better off outside the EU.
Those are good points, Martin, IMO.
Martin
Well, here’s an article about a group of economists who say exactly that. They call themselves “Economists for Free Trade” and include Patrick Minford, who is a rather well-known Professor of Applied Economics.
I’m not endorsing anything they say, you understand, and I’ve no idea whether Peter Martin agrees with their views on economics generally. But if, as it seems, you doubt whether there are any serious economists who think Brexit will be better for the UK economists – yes, there are.
Sorry, something went wrong with the second link in my comment above, but the web address is http://www.economistsforfreetrade.com.
Malcom Todd:
Thanks, I rather think that helps make my point.
Really? How?
Indeed, the famous Patrick Minford, a lonely man, but frequently cited. He also had the honesty to add that his recipe, unilateral abolishment of all trade barriers, would eradicate UK manufacturing and agriculture, not a problem, in his view. His assumptions are easily challenged; unsurprisingly, no reputable economist supports his views.
But I am confused now: do you Brexiters reject all economic forecasting to uphold your indefensible views, or are you of the opinion that there is just one economist who is fit to forecast properly, and all others are charlatans?
@Malcolm Todd
You’re right that Patrick Minford is a serious economist.
He has also said that Brexit would ‘mostly eliminate manufacturing’, and that this shouldn’t scare us… “These things happen as evolution takes place in your economy.”
https://www.chroniclelive.co.uk/news/north-east-news/mps-react-after-vote-leave-11269819
Economists like Patrick Minford believe in a “clean Breixt”, that we should follow a policy of no import tariffs, and, if other countries impose tariffs on our goods, that’s their problem, in that they are effectively taxing their own consumers.
This would involve lower wages for the low paid, and higher wages for those whose skills are in demand. This model would make the UK more like the USA, and, far from giving more funding to the NHS, it would mean big cuts to public spending.
I think it could deliver some of the benefits that Minford is claiming, but it would mean greater inequality, lower safety standards, and reduced workers rights. It’d also do terrible damage to the social fabric of our country.
It is also the exact opposite of what other pro-Brexit people want.
In the context of a Leave campaign that promised more money for pubic services, a big cut in immigration, and no reduction in workers rights or safety standards, there is absolutely no chance Minford’s model would happen.
Brexit allows hard left politicians to claim that Brexit will allow them to create their left-wing paradise and rightwingers to claim it would create their right-wing paradise. But the Leave campaigns have very carefully avoided endorsing either model – because they know if they did, their motley coalition would fall apart.
As for the model that Peter Martin’s economists want, I would be interested to know what it is, and what country it would make us more like.
@Martin @ George Kendall,
On the question of citing economists: My personal favourites would be:
Prof Steve Keen.
https://www.dailyreckoning.co.uk/economy/professor-steve-keen-on-the-problem-with-europe/
Prof Bill Mitchell
http://bilbo.economicoutlook.net/blog/?p=33894
But there’s lots of others who have argued that the EU is on the wrong track like Joe Stiglitz, and even Thomas Piketty. I’ll not put the links down here as that will mean I’ll almost certainly end up in moderation. Yanis Varoufakis is another, who has all the intellectual arguments against what the EU is trying to do but somehow manages to argue against anyone wanting to leave. Possibly Piketty is is in that category too.
On the question of what “PM’s economists want”: George Kendall knows very well that I have tried to explain often enough but that is difficult when someone is determined to not understand.
On the question of what country it would make us more like: Take you pick. If you want us to be like Greece, the economists I would generally support will advise you on how to be like Greece. Or the USA or Singapore or China. Whatever you want essentially. I’d go for an independent UK which had a policy of low inflation, low unemployment, good growth and with an economic policy which was geared to greater equality and environmental sustainability.
Arnold Kiel
“you Brexiters” – there you go again.
George Kendall
I don’t know a lot about Minford, and as I said I’m not endorsing anything those economists claim. But it was implied above that Peter Martin couldn’t cite any economists who believed that Brexit would benefit the UK, so I wanted to point out (and it took all of 10 seconds Googling to find them) that there are indeed properly qualified economists who take that view.
Of course, those who are already convinced that this will be an economic disaster will dismiss any economist who disagrees with that view as not being “respected” or “reputable” and then repeat that no such economist can be found who will deny that this is an act of economic self-harm. This is known as “begging the question” and it invalidates the argument. (Obviously, that doesn’t prove that the opposite is true, either.)
To a hammer, every problem looks like a nail. To Peter Martin, every economic evil looks like a currency-union. Only a different planet would provide sufficient distance. Trouble is, the EU is, always was, and always will be the UK’s biggest, most complementary, and most likeminded market and society.
He is right from one angle, though: every small, overaged, rich, comfortable, resource-poor, pacifist, immigration-hostile, underinvesting, technology-dependent, welfare-oriented country is “on the wrong economic track”, but there is no way out. Scale through union is our only defence.
“an independent UK which had a policy of low inflation, low unemployment, good growth and with an economic policy which was geared to greater equality and environmental sustainability” squeezed between the EU, the US, China and threatened by Russia? I never cease to be awed by your infatigable Brexit-romanticism, Peter.
@Malcolm Todd
“I don’t know a lot about Minford”
Where have you been all these years?
I didn’t say I’d never heard of him! But really, most people surely haven’t. We don’t all read economics journals for fun, you know…
@ Arnold Kiel,
“Trouble is, the EU is, always was, and always will be the UK’s biggest, most complementary, and most like minded market and society.”
Trouble is that the UK is closer in its economic thinking to the the USA. The UK and the EU aren’t quite as “likeminded” as you might suppose. The EU is built on the German model of ‘exports are good’. Countries that can’t manage to run export surpluses end up in deep recession. The German model requires a ‘managed’ exchange rate to keep exports competitive. The UK and USA have freely floating rates.
The UK has ended up in a trading bloc which isn’t a good market for UK exports. The members are either highly mercantilistic, like Germany and the Netherlands, or they are in a poor state and can’t afford UK imports. It’s no surprise that there is a huge trading imbalance. Unlike the ROW, BTW, which has approximately balanced trade with the UK.
The trading imbalance has to be paid for by someone in the UK ‘borrowing’ the money to pay for it. Consequently both the Govt and private sector tend to have debt levels which cause general concern. I’d argue that it’s private debt which is the real problem but that’s another story.
So, if the UK were to remain a part of the EU, how would this mismatch be reconciled? Would the EU allow us to carry on racking up debt to pay for German exports? Or would Germany change its economic thinking to be more like the USA and be prepared to run trade deficits? Somebody has to in the global economy!
@ Arnold Kiel
“The 2.63% you are quoting would represent almost GBP 1000 per Briton at the current GDP”.
Sorry about the delay in replying. I thought you might like some facts.
According to the ONS our GDP is £492,785 million (https://www.ons.gov.uk/economy/grossdomesticproductgdp)
2.63% is £12,960.2
The latest estimate of the population of the UK is 65.65 million (https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates)
12,960.2/65.65 = £197.41.
You were wrong by a factor of 5. Perhaps you should give up mathematics.
Of course Matt is correct this is only a prediction of the amount of growth the UK may not obtain.
Please can you post a link to any economic forecasts for UK growth which was correct three years after they were made? I don’t think any exist.
Also the OBR have downgraded our economic growth recently not because of Brexit but because of poor productivity. I refer you to paragraph 3.4 of the OBR (that you helpfully supplied a link to above) where they talk of the effects of Brexit “we still have no meaningful basis for predicting a precise outcome upon which we could then condition our forecast. Moreover, even if the outcome of the negotiations were predictable, its impact on the economy, monetary policy and the public finances would still be uncertain”. In paragraph 3.47 they talk of increased economic growth due to exporting more.
@ Matt,
Before Arnold does it, maybe I’d better suggest that we need to be clear about the time span. £493 bn is the quarterly figure.
We can all play the same game. If we look at economic growth before and after the 2008 GFC we can see, on the basis of measured GDP compared with the previous trendline, that neoliberal economics has cost us some £50 bn every quarter since then. That’s £1.8 trillion over the last 36 quarters. Divide that by 65 million and we can say that neoliberal economics has cost us about £27,000 each since then.
https://www.economicshelp.org/wp-content/uploads/2015/09/real-gdp-trend-actual-600×509.jpg
sorry I meant @ MichaelBG not @ Matt in my last comment.
Thank you Peter. What type of person measures GDP for a quarter and not the year?
Sorry Arnold your £1000 should have been less than £789.64 (I haven’t bothered to find the actual for each of the last 4 quarters I just checked it grew each quarter). So only out by over 20%!
According to the ONS there were 27.1 million households in the UK in 2016 (https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/families/bulletins/familiesandhouseholds/2016)
12,960.2/27.1 = 478.228.. * 4 = £1912.92.
To simplify calculations, I am using a UK GDP of 2 Trillion GBP. I wrote almost 1000 per capita. Please note that this is a GBP-view. The loss in real purchasing power was higher due to GBP-devaluation and the the high import- content of UK consumer spending.
To triangulate Osborne’s per household number, I was looking at the already incurred and the expected GDP losses.
The lack of productivity-gains has two drivers: mix and technology. Mix means that some sectors, e.g. larger and industrial firms are more productive than others. As the UK is set to lose all of these due to capital outflow because of Brexit, it is hardly coincidental that thr OBR has now given up its hope for productivity gains. Other advanced countries with similar demographics are outperforming the UK, because investment and productivity- improvements happen there.
@ Arnold Kiel,
“The loss in real purchasing power was higher due to GBP-devaluation and the the high import- content of UK consumer spending.”
Of course this is always the way that UK public opinion has always looked at the value of the pound on the forex markets. The higher it is the better – as far as most people are concerned. That’s why we do have such a large import content.
But, and as you well know, this isn’t how currency values are seen in Germany. Germany could have a much more valuable currency tomorrow -if it wanted to. Simply leave the eurozone and go back to a new DM. It’s value would appreciate rapidly. Then German people would be able to have a higher “real purchasing power” too. Instead nearly everyone in Germany is happy that the euro gives German industry a competitive advantage.
So who has it right? IMO neither of us do. We should both want our currencies valued at a level at which our trade balances. Its not good for the UK to run such large deficits (they have to be financed by debt) and it’s not good, indeed it doesn’t make any sense, for Germany to run such large surpluses.
Eventually the EU will crumble even further if the problem of trade imbalances isn’t addressed.
@ Michael BG,
No problem.
You ask:
“What type of person measures GDP for a quarter and not the year?”
An economist type of person, I’m afraid. They seem to like quarterly figures. I agree that it’s better to use annual results. Quarterly figures jump around too much due to the influence of weather patterns and other short term influences. Even annual results can’t tell the full story. I like graphs. Maybe that’s the scientist in me.
If we plot a graph we can see what I’d call “noise” in its shape. The shorter the time period the higher the noise, or the greater is the natural statistical variation.
So the next time we see anyone saying that everything looks much better, or much worse, on the basis of one quarter’s figures we shouldn’t take much notice. We should look at the graph and see we can spot any underlying trend.
Of course, what’s wrong with “2.63% … would represent almost GBP 1000 per Briton at the current GDP” is that the corollary is that our present income is nearly £40,000 per person. Which is clearly nonsense.
These folksy attempts at relating big GDP numbers and scarily mathematical percentages to people’s personal incomes are all very well, but if the rounding is always in the same direction and the calculation ignores the fact that not all GDP is household income anyway, then the result is just plain dishonest.
There is very little point in arguing whether how the UK economy will fare compared to comparable economies will be worse or much worse.
– Whatever, it presages austerity that will be coped with more easily by the better off.
Those who believe that the EU or the Euro will disintegrate are out of touch with reality, but if they are so sure they could make a lot of money on the futures markets or even with the bookies.
Malcolm Todd,
just wondering: how comes you contest the precision of my arithmetic at the same time as the reliability of the underlying forecasts? I was using your (undated and IMO low-balling) number for argument’s sake; the Government’s estimate is twice that over 15 years. In a steady state, especially with a savings-rate close to 0, all income eventually accrues to individuals. You are not seriously contesting, but rhetorically minimising the fact that most people in Brexit Britain will be substantially poorer than they would be in the EU. This penny-smart and dollar-stupid reasoning sounds, I am sorry to say, very much like leavers who try to appear argumentative while just discrediting any attempt at analysis. Maybe that is why I subconsciously fail to recognise your remain-stance, it is really nothing personal.
@Arnold
“In a steady state, especially with a savings rate close to zero, all income eventually accrues to individuals”
I like to try to understand where everyone I coming from but I can’t follow this at all. What do you mean? Maybe you can explain?
Arnold Kiel
I don’t think you were using my number, as I never offered one. Are you confusing or compounding me with everyone else you’re arguing with? We’re not a blob, you know.
Your attempt to sweep aside questions about the accuracy of your claims as “penny-smart and dollar-stupid reasoning sounds, I am sorry to say, very much like leavers” who claimed we were “sending £350m a week to the EU” and when that was demonstrated to be rubbish pretended that it didn’t matter what the real figure was because the basic point still stood.
If you’re going to use figures, use accurate and meaningful ones, and don’t complain when you’re challenged to back them up.
@ Arnold Kiel
As you didn’t say what you were basing your £1000 on there was no way of knowing. And even with UK GDP of £2 Trillion you are 20% out. For £1000 to be correct we would need a GDP of £2.5 Trillion! If you can’t get the mathematics right it is unlikely you will convince anyone to change their mind.
Quoting figures created by the government during the referendum campaign is clearly not going to convince anyone so why do it?
There is no basis for thinking there will be large capital outflows. I think there will be a decline in new foreign companies investing here once we leave the EU but that is something different. Once we have fewer people coming here from the EU to work that might be a big incentive for UK businesses to invest to increase productivity because they will not have a large pool of cheap labour to call on.
(I have responded to your comments on my article – https://www.libdemvoice.org/what-more-do-we-need-to-try-to-do-to-persuade-the-british-people-to-vote-to-stay-in-the-eu-56713.html)
Peter, Malcolm, Michael,
our discourse has become circular and without broader benefit. I am checking out now, happy to accept that you find my reasoning 80% correct.
Brexit will ruin millions of already marginal livelihoods, and further enrich very few profiteers of this national delusion. None of you substantiated a different scenario.