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The true cost of May’s Brexit

£44b per year – that’s how much extra tax is needed if May “negotiates” her perfect exit deal.

The evidence is stacking up and no-one is even asking the Conservatives how they will pay for the additional costs of Brexit.

Lets assume that the UK get everything they ask for and the EU agree to:

  • no divorce bill – UK do owe something and it could be as high as €100b but lets assume they let us off this
  • A massive “comprehensive” Free Trade Agreement, just like May has promised
  • UK gets to opt out of Freedom of Movement
  • UK gets to opt out of oversight by the European Court of Justice
  • UK gets to opt out of paying ANY EU budget payments

Sounds good?  It is pretty unrealistic but these are the kind of expectations that Theresa May is setting.

So what happens to our economy should May negotiate such a deal?

On the plus side the UK will get their Budget Contributions back.  This has been £15b each recently once the rebate is taken off.  However the UK also receives around £12b back in funding  which means  net the “gain” for the UK will only be £3b.

Once out of the EU the UK need to make up the shortfall in funding for some key areas or see them go to the wall.  The two obvious candidates are Farming and Scientific Research.  To stand still the UK will need to provide £3.8b to UK Farming and £3.3b to UK research programmes, £7.1b in total.

If the gain from the Budget contributions is netted off the cost of leaving the Single Market starts at £4.1b.

But we don’t have anyone to negotiate our trade deals.  A conservative estimate of running the New Trade Dept. is £5b. per year bringing the #Brexitcost to £9.1b per year.

In the Autumn Statement 2016 Philip Hammond presented the OBR report which estimated a further £59b costs over the next 5 years related to Brexit including £16b in lost taxes from lower migration and £18.2b in loss taxes through lower productivity related to brexit.  By 2020 these costs are expected to have increased to £15.2b per year. The #Brexitcost goes up to £24.3b.

But the economy is going to boom in the new world, free from the shackles of the EU, right?

Wrong. Dr Monique Ebell has analysed the recent NIER (National Institute Economic Review, 1/2/2017 and calculates a  22% drop in total UK trade from an FTA with the EU when UK is out of the Single Market. The new trade from the rest of the world can be calculated based upon other examples of similar arrangements and can be expected to bring in an increase in trade of 4.8%. So the long-term prospects for the UK is an overall loss of trade of more than 17%.

The reduced tax income from this will be enormous.  If we ignore the loss of income tax from the obvious job losses and merely make a basic calculation of 17% of our total VAT income of £120b this would result in a £20b loss of taxes.

The #Brexitcost is up to £44.3b per year ignoring costs of job losses, no divorce bill and no EU Budget contributions.

Why is no one asking how this will be paid for?  To balance the books the Tories will have to massively raise taxes and, at the moment, they are not being challenged on this.

 

References:

[1] https://www.ft.com/content/e94c96a2-d3e3-11e6-b06b-680c49b4b4c0

[2] https://policyexchange.org.uk/publication/clean-brexit/

[3] http://www.niesr.ac.uk/blog/will-new-trade-deals-soften-blow-hard-brexit

[4] https://www.ifs.org.uk/uploads/publications/comms/r116.pdf

[5] https://medium.com/@SamuelMarcLowe/how-to-save-the-uk-car-industry-from-brexit-kinda-c99c02291026#.ibkpj8ph6

[6] https://medium.com/@SamuelMarcLowe/explaining-cumulative-rules-of-origin-2c13fb4dfca1#.xwx5timly

[7] https://www.wto.org/english/res_e/reser_e/ersd201212_e.pdf

[8]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/517415/treasury_analysis_economic_impact_of_
eu_membership_web.pdf

[9] http://www.nber.org/papers/w19285.pdf

[10] http://www.nber.org/papers/w19285.pdf

[11] http://www.cepii.fr/pdf_pub/wp/2013/wp2013-27.pdf

[12] https://www.ft.com/content/e456c008-8642-11e6-8897-2359a58ac7a5

[13]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/517415/treasury_
analysis_economic_impact_of_
eu_membership_web.pdf

[14]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/198115/bis-13-869-economic-impact-on-uk-of-tranatlantic-trade-and-investment-partnership-between-eu-and-us.pdf

[15] https://www.gov.uk/government/news/ttip-an-overview-of-the-eu-us-free-trade-deal

[16] http://trade.ec.europa.eu/doclib/docs/2016/may/tradoc_154522.pdf

[17] https://medium.com/@SamuelMarcLowe/can-global-britain-defy-gravity-18df4e9f4f7f

[18]http://trade.ec.europa.eu/doclib/docs/2011/september/tradoc_148201.pdf

[19] http://trade.ec.europa.eu/doclib/docs/2010/june/tradoc_146221.pdf

[20] http://ec.europa.eu/smart-regulation/roadmaps/docs/2015_trade_040_aus_nz_trade_agreement_en.pdf

[21] http://www.andrewlilico.com/2017/01/09/my-presentation-to-the-aea-annual-conference-on-brexit-six-months-on/

[22] https://cebr.com/reports/the-economic-impact-on-services-from-the-uk-losing-single-market-access/

 

 

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