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Thursday, February 08, 2018

The real cost of a hard Brexit?

Nick Clegg is most probably right when he says that the chance of us having a 'soft Brexit' whereby we remain in the single market has gone. As the Telegraph reports, the former Deputy Prime Minister said that it now seems unlikely that Theresa May will stand up to her right wing and insist on a deal that keeps us in the free trade area, that there is a very real danger that the UK could crash out of the EU without a deal.

The choice that faces MPs and hopefully the country therefore is one of revisiting the referendum result, possibly in a second plebiscite or proceeding with an economically disastrous Brexit that could wreck our economy for years to come.

Just how stark this choice is has been evidenced by the government's now-less-than-secret economic analysis. As the Guardian reports, the Treasury believe that a no-deal Brexit would blow an £80bn hole in the public finances, with the leave-voting heartlands of north-east England and West Midlands worst affected.

The paper says that this analysis, which assesses the economic impact of leaving the bloc, predicts that if there is no deal, the government will need to borrow £120bn more over the next 15 years:

The report suggests that the north-east would face a 16% hit to regional economic growth, and the West Midlands 13%. And it claims that a hard Brexit would mean an overall 21% rise in retail prices, with a 17% rise in food and drink costs.

The additional borrowing costs would be mitigated by £40bn of gains from leaving the EU, including £11bn in saved payments, leaving £80bn in net costs. Of this, £55bn can be put down to the impact of non-tariff barriers, which could include regulatory divergence or quotas.

However, one source who has seen the original documents cast doubt on the projected £40bn gains, which they said had been calculated by estimating the potential benefits of slashing regulation, including on the environment, which the government has said it will not do.

And this is not just limited to a hard Brexit, the analysis found Brexit would leave the UK worse off under three possible scenarios: a comprehensive free trade deal, single market access and no deal at all. Wales would also be badly hit, predicted to suffer a 10% fall in economic growth under a no deal scenario, 6% if there is a free trade deal.

The paper adds that the report is understood to predict an additional 21% rise in retail prices, an 18% rise in agricultural costs, a 17% rise in food and drink costs and 14% rise in motor vehicles and parts, over the 15 years post-Brexit. It predicts that if the UK were to trade under WTO terms, tariffs could mean food and drink prices increase by an additional 12.7%.

Their sources say that the document also analysed the impact of future trade deals, projecting that a free trade agreement with the US would mean just an 0.2% boost to GDP at best.

This is of course just one analysis, but it is a pretty authorative and scary one. Surely the case for a referendum on whatever deal is agreed is much stronger as a result of this analysis.
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