Even this popular ‘soft’ Brexit scenario still slows the U.K. economy, think tank says
Economy would be 3% smaller than if it remained in EU: NIESR
A scenario where the U.K. leaves the European Union but keeps some key economic ties with the 28 member state, colloquially known as a soft Brexit, would still leave the U.K. with a sizable fiscal shortfall and would slow the economy significantly, according to one think tank.
The National Institute of Economic and Social Research, or NIESR, said if the U.K. split from the bloc but remained in a customs union, it would still cost the country £80bn ($100 billion) and leave the government with a shortfall thanks to a shrinking population.
“We estimate that leaving the EU to join such a customs union would eventually result in the U.K. economy being around 3% smaller than it would have been had the U.K. stayed in the EU. This reflects the impact of higher barriers to trade in services on investment and productivity, and an assumption that net inward migration would be lower with the UK outside the single market,” wrote Arno Hantzsche and Garry Young, in a research report published Thursday.
The shrinking population would leave the government with a yearly shortfall of £13bn due to less tax revenue and demand for public services, the research group added.
A customs union is where there are no tariffs or import taxes on goods traded between countries within the bloc.
Customs union scenario
The figures are in contrast to those touted by pro-Brexit economists. The Economists for Free Trade said in a September report that the long-term gains to U.K. growth would be about 7% over the next decade, adding that the Treasury would receive an extra £80 billion in revenue under a World Trade Organization deal.
“There really is nothing to fear,” said Jacob Rees-Mogg, a Conservative member of parliament and a leading Brexit campaigner who also serves as an adviser to the Economists for Free Trade, who added that leaving the EU is about “escaping from a failed economic model.”
But, the NIESR said a customs union also comes with unquantifiable drawbacks. “While this type of customs union arrangement is seen as being as frictionless a trade relationship as is possible without the U.K. being in the single market, it would nevertheless involve significant non-tariff barriers that would hinder trade, particularly in services,” the report said.
As it stands, the U.K. is set to leave the EU on Oct. 31, unless a withdrawal agreement is ratified earlier. But an agreement remains elusive, as hopes for a deal between the ruling Conservative and opposition Labour parties fade.
Moreover, Prime Minister Theresa May is coming under further pressure as she attempts to ratify a deal before the May 23 European Parliament elections.
The uncertainty around the plight of the U.K. economy has seen its benchmark equity indexes underperform. Year-to-date the U.S. FTSE 100 UKX, -0.87% has gained 7.3% compared the S&P 500 SPX, -0.30% which has added 14% and the pan-European Stoxx Europe 600 index SXXP, -1.65% which is up 11.3%.
Furthermore, the British pound GBPUSD, +0.0846% remains at the mercy of Brexit headlines. Economists have predicted it could fall below $1.20 versus the dollar and hit parity versus the euro EURUSD, +0.1427% should the U.K. leave without a deal.
The report was prepared for the People’s Vote campaign, which is calling for a public vote on any final Brexit deal between the U.K. and the EU. The NIESR said it undertakes projects for external organizations only on the basis that the institute has full control over content.
Similar Recent Posts by this Author:
- THE UK BANANA REPUBLIC – WHAT IS THE UK ECONOMY IF NOT THE SERVICE SECTOR – RETAIL, & PROPERTY, BUT GAMBLING ON FINANCE ( INSURANCE ETC…) AND EXPORTS (DRUGS MAINLY )
- NOVEMBER 5th + 20 = 25th When The Parliamentary VOTE ON BREXIT GOES POP FOR MAY
- NEW DEAL – NOT NO DEAL- ITS CALLED INDEPENDENCE – WITH A LABOUR GOVERNMENT
- CORBYN -THE BACKDOOR BREXITEER
- Cowering Cowardly Cabinet Custards ? – SET THE CAT ON THE OLD CROW CALL A GENERAL ELECTION NOW
- SHACKLED & SUNK – MAY’S CUSTOMS UNION IF IT GIVES EU FISHERMEN ACCESS TO BRITISH WATERS – AND EU FARMERS FOOD IMPORTS A FREE ACCESS – WE NEED A 200 MILE FISHING EXCLUSION ZONE AND THE CHANNEL UNDER BRITISH CONTROL TO IMPORTS