The latest pro-Brexit analysis has got its sums badly wrong
Assumptions used for the Economists for Free Trade paper are absurd
Chris Giles 9 HOURS AGO
An analysis by the pro-Brexit advocacy group Economists for Free Trade says the potential gains from the UK government’s favoured route to leaving the EU would provide a 2 to 4 per cent boost to national income in the long term. The results contrast with the unpublished internal Whitehall analysis suggesting a 2 to 8 per cent loss of national income from any plausible Brexit policy.
While Economists for Free Trade say their analysis has “comprehensively debunked” the Whitehall results because it accurately models “the clear objectives of government policy as stated by the prime minister in her Lancaster House speech”, anyone interested in UK economic policy must wonder what to make of these differences.
As far as we know, this time the divergent results do not stem from a fundamental difference in the type of economic modelling. In the new paper, obtained by the Financial Times, Economists for Free Trade praise Whitehall officials for adopting a type of trade model they favour. It bases its results on a published paper from the Canadian group Ciuriak Consulting, which specialises in trade modelling.
Three questions arise. Has Economists for Free Trade chosen reasonable assumptions, which best describe Britain’s current position and the policy choices? Has it reflected the Ciuriak Consulting paper fairly? And why does it achieve its headline results?
The answer to the first question on the assumptions used is an unequivocal “no”. Economists for Free Trade assume Brexit Britain has no tariffs on trade with the rest of the world, no non-tariff barriers with any country, and that border costs with the EU will be zero. The paper is clear on the last point. “We have assumed for the purposes of modelling that border costs are effectively zero,” it says.
On tariffs, British government policy is not to drop all import tariffs unilaterally, but to “do trade deals”. Dropping all non-tariff barriers is an assumption not just that Britain would say yes to chlorine-washed chicken, but also to lead paint on toy imports and cars with no emission standards at all. It specifically contradicts David Davis’s assertion of government policy, made in the Brexit secretary’s speech this week, that Britain will not seek a deregulated “Mad Max-style world borrowed from dystopian fiction”. And assuming no border costs at Dover specifically ignores the EU’s insistence, recognised by Britain, on the importance of its own regulatory autonomy.
The assumptions, therefore, are nothing like government policy. They are absurd.
The second question also produces a negative assessment. Not content with the results of the unilateral free trade option in the Ciuriak paper, Economists for Free Trade decided simply to multiply the benefits of that policy by five. Because it is inconvenient, it also ignores the paper’s conclusion that “the present value of the benefits of continued participation in the borderless [EU] single market would likely dominate, since the additional trade costs imposed by a . . . border would continue to be incurred indefinitely”.
The answer to the third question, then, is that Economists for Free Trade achieve their positive results simply because they assume leaving the EU has no trade costs and only potential benefits. There are also no costs associated with deregulation and only benefits.
Put rubbish into a model and rubbish will spew out.
This analysis should not be viewed as anything other than special pleading. If this is the sort of work that is influential among ministers and underpins policy, Britain’s economy is not in safe hands.
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