UK parliament seeks new analysis on cost of Brexit before key vote

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Tourist binoculars offer users the chance to pay in Pounds or Euros in the British overseas territory of Gibraltar, historically claimed by Spain, April 20, 2017. REUTERS/Phil Noble

The British parliament’s Treasury Committee demanded that the finance ministry produce fresh economic forecasts of the cost of leaving the European Union under Prime Minister Boris Johnson’s new deal before politicians have to vote on Saturday.

“It is unacceptable that the Committee has not received this information from HM Treasury. It appears to be an attempt to avoid scrutiny,” the committee’s acting chair, Catherine McKinnell, wrote in a letter to finance minister Sajid Javid.

Javid told reporters in Washington on Thursday that he did not intend to update finance ministry forecasts on the cost of Brexit that were last produced in November 2018.

Britain’s finance ministry and almost all external economists have forecast that increased trade barriers will cause the British economy to grow more slowly than if it were to stay in the EU, and the damage increases as trade barriers rise.

Based on what was known of Johnson’s plans last week, U.K. in a Changing Europe estimated that they would make Britons more than 6% poorer on a per capita basis than staying in the EU – equivalent to 2,000 pounds ($2,570) per year in the medium term.

A so-called no-deal Brexit — which would leave Britain trading purely on World Trade Organization terms — would lower incomes by just over 8%.

FINANCIAL MARKETS
Financial markets have reacted positively to the deal, as it lowers the risk of a disruptive no-deal Brexit.

But Dean Turner, an economist with UBS Wealth Management, said that although it might give a brief fillip to British growth, there was too much uncertainty about the longer-term trading environment to revive moribund business investment.

“I wouldn’t be getting the flags out just yet,” he said. “I think we will see a little bump in activity, but not anything that will be meaningful enough to get the UK out of a weak growth trend.”

The Centre for European Reform estimated that Britain’s economy was already nearly 3% smaller than it would have been if it had voted to stay in the EU in June 2016’s referendum.

While the bulk of the Johnson deal was seen as largely the same as that agreed between the EU and May, analysts noted that May’s aspirations for a close future trading arrangement had been watered down in the political declaration accompanying it.

Whereas the May version aspired to “as close as possible” a future trading relationship with the EU, that line was replaced by merely “ambitious” in the revised text.

“Theresa May’s deal would have ended up in a softer arrangement than just a free trade agreement,” Alex Stojanovic of the Institute for Government said.

“This government appears to want an FTA and that is very different: that means there would still be regulatory barriers particularly in goods between Great Britain and the EU.”

Rachel Kent, a financial services lawyer at Hogan Lovells, said the original political declaration already tied regulatory alignment to market access in a future UK trade deal with the EU, Britain’s biggest financial services customer.

But the revision made this more explicit, she said. British regulators have said they do not want to become ‘rule takers’ rather than rulemakers after Brexit, increasing the chance of divergence and barriers between British and EU financial services markets.

Stojanovic added that Britain’s new freedom to sign its own bilateral trade deals around the world was unlikely to offset the lost economic activity.

“If the UK did a deal with everybody … it would benefit in 15 years the UK GDP by 0.2%. Most free trade agreements do not benefit GDP very much.”

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