Rebuttal: Systematic Crisis or Systematic Lack of Evidence?

no deal brexit

We take a look at claims that customs checks will bring about shortages, and look at the problems with the recent OBR forecast of a 2% GDP hit in the event of No Deal.

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The Guardian has recently had a field day publishing a Cabinet Office briefing from September, which it suggests is evidence of the risk of a possible ‘systematic economic crisis’ as a result of Brexit.  Needless to say, however, the government has made substantial No Deal preparations since September, which mitigate a number of the concerns outlined in the report.  In particular, the biggest concern outlined in the report is the flow of goods, which could be limited to varying degrees by customs procedures.

Moreover, headlines about a traffic backlog from no deal tests are similarly misleading.  The reaction from the French press has been rather different, stressing the success of the joint exercise held by the ports of Calais and Dover.  Smart technology, extra staff and extensive preparations suggest that there will be ‘no return to the border of 50 years ago’.  Talk of food shortages, then, is simple scaremongering.

Dismal but no Science – the OBR’s No Deal Projections

In connected recent news, the Office for Budget Responsibility has published a gloomy assessment of the impact of a WTO Brexit, suggesting it will reduce GDP by 2% compared to a deal.  It’s worth stressing from the outset that these figures are largely guesswork, but are worth tackling in more detail anyway.  (See pages 193-7 of the report.)

The estimates of immediate disruption from border chaos (to the value of 0.75% of GDP in the first year) are, as we suggest elsewhere, exaggerated.  Likewise, ‘other costs’ section is inflated by assumptions about the dire impact of non-tariff barriers (like regulatory equivalence) – though many of these can be evaded, agreed in separate arrangements with member states, and some indeed are not part of formal negotiations at all.

Besides the estimates of the effects of immediate disruption, however, most of the long term damage that’s envisaged is thought to come from structural unemployment, productivity losses and lower business investment.  A closer look at the report, however, reveals that it relies on the same flawed assumptions about the limited gains to be had from faster trade deals with other partners, the benefits of improved regulation, and the dependence on EU trade derived from ‘the government’s own figures’ (the 2018 Treasury Report that the government no longer relies on) that we’ve critiqued before.

Conversely, the estimate of productivity losses relies on the assumption that international trade fosters competitiveness in domestic firms – despite the fact that the proposed link has never been demonstrated except in emerging markets where conditions are wildly different from Britain’s mature economy.  Hardly, in summary, the catastrophe that ‘I told you so’ commentators would like to unfold.

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Briefings For Britain