Boris Johnson’s Brexit proposals would leave UK economy worse off than Theresa May’s deal, a new report by academic think tank The UK in a Changing Europe finds.
The difference between May’s deal and Johnson’s proposals arise from the UK having no customs union with the EU, no level playing field arrangements and a limited (or quite possibly no) free trade agreement.
The impact of Mr Johnson’s proposals on UK GDP per capita ten years after Brexit could be between -2.3% and -7%, compared to remaining in the EU. This compares to May’s deal, between -1.9% and -5.5%, and an exit on WTO terms, between -3.5% and ‑8.7%. The ranges reflect uncertainty regarding migration policy and the impact on productivity.
Under Johnson’s proposals, the best-case scenario would result in a £16bn hit to public finances per year, based on current GDP, and a £49bn hit in the worst-case scenario.
The report, The economic impact of Boris Johnson’s Brexit proposals, considers four scenarios: with and without a productivity adjustment, and under liberal and restrictive migration scenarios.
Trade
The modelling in the report covers trade and migration. For trade, researchers at LSE’s Centre for Economic Performance used a state-of-the-art trade model. The prime minister’s proposal means that the UK would leave the EU’s customs union and single market, and so regulatory barriers to both goods and services trade would increase as a result. Under a no deal scenario, where no trade agreement was reached with the EU, such barriers would be considerably higher.
Immigration
Both Mrs May and Mr Johnson said freedom of movement would end once the UK left the EU. Early indications suggest the Johnson administration may take a more liberal approach to immigration than under Mrs May. The UK in a Changing Europe modelled restrictive and liberal scenarios to gauge their relative impact.
Findings:
Public finances
Such economic impacts would have major implications for the public finances. These would far outweigh any gains resulting from reduced or no EU contributions.
These results are summarised in the table below.
Professor Anand Menon, director The UK in a Changing Europe, said: “In all the sound and fury over the politics of Brexit, the economic implications have been somewhat lost from sight. Obviously, this kind of economic modelling needs to be treated with appropriate caution. However, our estimates provide a clear indication of the broad scale of the impact of Boris Johnson’s proposal, which can be compared to May’s deal, as well as a no deal scenario.”
Professor Jonathan Portes, senior fellow The UK in a Changing Europe, said: “Our modelling shows that the much more distant economic relationship with the EU envisaged by Boris Johnson will mean that the economic impacts of Brexit on trade and hence growth will be considerably more severe. The hit to the UK public finances could be up to £50 billion a year. However, these could in part be mitigated by a more liberal immigration policy.”
These results are subject to a high degree of uncertainty, relating both to the inherent difficulties in economic modelling, and the fact Mr Johnson’s proposals are yet to be fully formed, let alone approved by the EU yet.
The report makes a number of assumptions, which are set out clearly and transparently. It also analyses the impact of changes in trade and migration both holding productivity constant and allowing for productivity changes following Brexit. The conclusions of the report are consistent with economic theory and the empirical literature.
The report does not model the short-term disruption resulting from no deal, which was the subject of an earlier UK in a Changing Europe report, No deal Brexit: issues, impacts and implications.
The UK in a Changing Europe, and the authors of this report, do not take any position of which of the four scenarios are preferable, recognising that there are many other considerations than simply economic ones. Nevertheless, it is important that Parliament, and the country as a whole, take decisions on the basis of the best available evidence.