Another alternative, any comments?
Brexit negotiations are stalled. Only one issue matters – the Irish backstop. Despite all the drama and noises off about Chequers, “Norway for now”, and Super Canada, none of that matters if we cannot agree a divorce. And, unless the EU shifts tack, the only path to an orderly divorce is via the backstop. So we are facing down a growing risk of No Deal. No Deal could mean tariffs on trade with our largest partner – the EU. So, the Government should commit now to reduce our overall tariffs in the event of No Deal.
No Deal should be nobody’s preferred option. It would mean significant disruption. Aviation, haulage and transport, citizen’s rights, and many other areas would potentially be affected. Almost by definition it would suggest that relations across the Continent had broken down – the political and strategic effects could be profound.
But there might be little choice if the alternative would mean a backstop which threatens the long-term integrity of the United Kingdom. So what would it mean in economic terms? Open Europe’s analysis, published yesterday, reveals that in the medium term the static macroeconomic effects of No Deal would be material but relatively small. GDP growth would be affected – down an estimated 2.2 per cent by 2030.
Our model considers the cost of tariffs with the EU, as well as costs for customs and other non-tariff barriers. But despite these new costs, we found that No Deal would not be the biggest determinant of our prosperity over that period. Over the medium term up to 2030 the UK economy would continue to grow by around 30 per cent, even in the event of No Deal. Our research is in line with findings by the LSE, PwC and the OBR. Yes, other people have come up with bigger numbers, including the Treasury, but they have thrown in other effects which are much harder to model successfully.
What our research also shows is that the Government could take action to mitigate some of the medium-term effects of No Deal. If we left without a deal, there would be tariffs payable on our trade with the EU under WTO rules. (Britain can’t just choose not to levy tariffs on European trade). But we can change our overall tariff regime. Although our WTO commitments impose a maximum level on tariffs which can be charged with any member state, it’s open to the UK to charge less as long as they do this on a most-favoured nation basis. WTO commitments are a ceiling not a floor.
So in our No Deal report Open Europe looked at the effect of lowering all our tariffs on industrial and manufactured goods to zero (and we phased in reductions on agricultural goods). We then also improved our openness to services trade and foreign investment (we moved the UK to “best in class” levels). These steps – which the UK could do without any negotiation – would dramatically reduce the impact of No Deal. Our model suggests that the macroeconomic effect over the same period up to 2030 would be reduced from a 2.2 per cent to 0.5 per cent drag on growth.
Source: Henry Newman: How to manage No Deal? To start with, pledge to reduce tariffs. | Conservative Home