Much ink has been spilt in recently over what would have happened to the economy if Britain had voted to remain. For all the publicity this has generated, this question is purely academic. As fans of 90's films Sliding Doors and The Butterfly effect can attest, when you make even one tiny change to your starting conditions, what comes next is totally unpredictable.
Furthermore, those 'economists' claiming to have modelled the economic consequences of Brexit, are the same ones who have proved worse than useless at predicting economic results (GDP, inflation, everything,) even a few weeks ahead; let alone diagnosing the causes and cures for our economic malaise.
This is delusional arrogance of the most extreme kind from a profession that has been consistently failing for a generation. What next? Perhaps we could get Gary Linekar to report on BBC bias?
When the entire country is suffering, fantasy spreadsheet games in Ivory Towers is the last thing we need. Back in the real world, what matters is what we do from here. And do something we must. With that in mind, let's consider how we could grow per capita GDP; and whether we would be best placed to do so in the EU or outside of it.
1. Cheap energy
The highest energy prices in the developed world are crushing our economic competitiveness, shutting down existing industry and preventing us from embracing new technologies. Many regard energy costs as the primary cause of our productivity crisis. Clearly, cheap energy would do wonders for competitiveness, cost of living and productivity.
Unfortunately, rejoining the EU would make this harder. The bloc also has some of the highest energy costs in world, thanks to heavy regulation and carbon taxes. These make power prices high and restrict the ability to exploit cheap domestic fossil fuels.
Brexit 1 – Rejoin 0
2. Building Blitz
Another engine for economic growth would be a building blitz. Thanks to red tape, the UK has the unwelcome title as home to the most expensive and slow construction projects in the world. Much of this is self-inflicted, but a lot of is a legacy of our EU days; such as Nutrient Neutrality and construction product regulations (CPR). In fact, Rishi Sunak blamed legacy EU red tape for blocking over 100,000 new homes. Were we to rejoin (or accept EU regulations as part of any customs deal), we would face all this and a whole lot more: including a ban on fossil fuel boilers, compulsory solar panels, and zero-emission building rules.
Brexit 2 – Rejoin 0
3. Borrowing Binge
I am not saying we should do this, but for the sake of completeness, we could boost growth through a public or private or sector borrowing binge.
In fact, we are already doing this, with a budget deficit of over 5% of GDP. This is not something we could do in the EU. Since 1994, the EU has set tight limits on government borrowing through the Stability & Growth Pact, mandating a maximum 3% deficit and 60% debt to GDP. We are already way out. To meet those requirements, Rejoining would trigger mass austerity and at least a short-term recession as spending is slashed.
What about a private sector credit boom? Once again, this is harder within the EU thanks to extremely onerous bank regulations that make lending more difficult and more expensive. Only last week did the Bank of England follow America in reducing capital requirements to keep us competitive with the US. We could not have done that without Brexit.
An ugly, controversial goal but a goal all the same, leaves the score at Brexit 3 - Rejoin 0
4. Mass AI adoption and Big Data
The potential of AI is not just hype; it could be transformational in terms of productivity. For example, Big Oil began harnessing AI over a decade ago, and the results have been transformational. Drilling costs have fallen at least 50% across the board, with the productivity of shale drillers up 3½-fold in fifteen years, even as environmental and labour standards have risen. Imagine if NHS hospitals delivered more operations, better work conditions and better results for half the cost! In fact, pumping terabytes of big data through AI could transform healthcare; optimising every treatment for every patient to deliver radically better outcomes. That is just the start, The potential wins go on and on, and cover every conceivable economic activity.
Unfortunately, the EU has explicitly made itself a tech backwater; thanks to lobbying by vested interests, a hatred of big tech, unworkable data protection rules and sky-high energy costs. No surprise that its latest AI Act to regulate the sector comes in at 892 pages! Thanks to this environment, the EU has already lost the race. The European Commission admits EU investment in AI is just 4% of what the US is investing.
If we want to economically benefit from the AI arms race, we need to get as far away from EU control as we can, and fast.
Another pile driver to the back of the net for the Brexit XI. At halftime, it's Brexit 4 - Rejoin 0.
5. Optimised Immigration
After the disastrous Boriswave, economists are coming to terms with the idea that successful immigration is about quality not quantity. Using the OBR's own methodology, a low value arrival will cost the state tens of thousands pounds a year, and over £0.5m if they stay. By contrast, a carefully selected, high value, hard-working and well-integrated immigrant can be worth around £1m over time.
Using these numbers, I have shown that the difference between our current immigration shambles (long- term net cost of £600bn per annum) and optimised immigration (long-term value of £300bn per annum) is nearly a trillion pounds a year! And thanks to non-EU success stories (like Singapore, the UAE and Australia), we know exactly how to structure optimised migration.
Clearly that enormous windfall would not be possible if we go back to EU free movement rules, or accept any deal with the EU that includes open borders (e.g. Youth Mobility Scheme). Moreover, under the Copenhagen Convention, EU members have to accept the rulings of the ECHR, further frustrating comprehensive border controls.
This is turning into a rout. Brexit 5 – Rejoin 0
6. Deregulation
The economic costs of regulation are astounding. According to the Adam Smith Institute:
Federal regulations added over the past fifty years have reduced real output growth by about two percentage points on average...It's worth thinking about that for a moment. Each individual American, the society as a whole, would be three times richer than they are if there had not been that explosion of regulation of the economy since WWII. That sort of increase in wealth buys quite a lot of people harmed by the lack of regulation.
Wow! Americans would be three times richer, but for the explosion in red tape! And that's in the "Land of the Free!" In red-tape mad Britain and Europe, presumably we could be four or five times richer.
Moreover, research has also found that over-regulation disproportionately impacts low-income households and leads to greater inequality. This is often down to 'regulatory capture,' whereby regulations favour large, established corporations and impose barriers to entry, stifling competition and entrepreneurism. Thus, the US states with the most regulations also have the highest poverty rates.
Much of our regulatory damage is self-inflicted, but much of it is a hangover from our EU days. There are nearly 20,000 EU legislative Acts currently in force. Most of these run to tens or hundreds of pages. Because the EU's legislative web is so complicated, there is no single depository, but estimates put total EU legislation at well over a million pages! And that runaway gravy train is only heading in one direction; with the EU adding another 2000-odd acts every year.
Clearly no one can possibly know or understand that many rules. That has a paralysing effect on productive activity, while providing a feeding frenzy for opportunistic lawyers and activists.
Since Brexit, we have pruned just a few percent of this red tape. That is unforgivable, given foreign-imposed rules and the democratic deficit were at the core of the Brexit vote. The opportunity to do so remains wide open. However, rejoining (or even joining the Customs Union), would mean yet another suffocating dump of red tape (on top of our domestic legislation). Indubitably, that would deliver a negative growth shock long term and short term.
Definitely one of the most impressive goals of the night: Brexit 6 – Rejoin 0
7. Tax
Cutting tax would likely improve growth. Of course, countries can raise or cut taxes within and outside the EU. However, there are some EU-mandated limitations; including harmonization rules on excise duties (like alcohol, tobacco and energy), carbon taxes and minimum levels for VAT and corporation tax. This is likely not the end, the EU is explicitly seeking to implement further measures to control national tax policies.
Ostensibly, these rules are in place to prevent distortions at the single market level. Thus, if we rejoined the single market, we would have to accept these and any future controls.
What a night for the Brexit XI. Brexit 7 – Rejoin
8. Freer Trade:
Rejoiners believe that full EU membership or being part of the Customs Union would reduce barriers to trade.
However, as Julian Jessop points out, most UK-EU trade is already quota-free and tariff-free (as long as 'rules of origin' are met). BUT a UK-EU Customs Union would mean higher tariffs on UK trade with the rest of the world. That would particularly effect food prices – a big cause of our cost-of-living crisis, and especially important to the poorest households. Moreover, even in a Customs Union, there would still be checks at the border, especially if the UK remained outside the EU's Single Market and Schengen, so a Customs Union would not deliver 'frictionless trade'. Not much of a benefit then.
And it gets worse. 'The UK would have no say in EU trade policy but would be forced to copy it, and the ability to do independent trade deals with other countries would be severely limited.' That means undoing all those trade deals we have got so far - including the world's lowest tariffs with America - and swallowing a good deal of those a million pages of EU red tape again. And that red tape includes Carbon border taxes, along with the biggest and most complex web of non-tariff barriers on the planet. In fact, as Lord Frost has explained, while there are clearly many drawbacks, it is not possible to identify even a single benefit of rejoining the customs union. Ouch.
Moreover, as Trump has shown, if there are areas where we want more concessions from the EU, we can likely get them by playing hardball. Like America, we are a big economy, run large trade deficits with the EU and are a vital defence partner. But unlike the US, we didn't war-game our trade negotiations. Instead, we sent wet civil servants in to apologise for Brexit and beg for whatever the EU might throw us. Trump has proved we could do better.
Final Score: Brexit 8 - Rejoin 0
That is a decisive win. We have eight economic levers for growth. Every single one is more effective outside of the EU.
Let's leave the backward-looking failed economists to gaze at their navels. Because, as the saying goes, "Today is the first day if the rest of your life." If and when a leader sincerely decides they want to boost our prosperity and accelerate out of the doom loop, they will find it far much easier by going further and faster with Brexit freedoms, than rejoining in full or in part. Completing the restoration of British Sovereignty is the ONLY way back to prosperity. If we seize it, good things can happen fast.
