Hard Brexit would cost public finances £80bn, says secret analysis

Hard Brexit would cost public finances 4% of GDP, says secret analysis, by Jessica Elgot. The British public are being told that Brexit may involve a hit to the GDP of up to 20%, depending on who is doing the predicting. Britain’s GDP is about £2,000bn.

The Guardian has learned that the secret papers, which assess the economic impact of leaving the bloc, predict that if there is no deal, the government will need to borrow £120bn more over the next 15 years. …

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. …

The detail of the studies comes after the papers were leaked to Buzzfeed last week. The analyses 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. …

The SNP MP Peter Grant said the figures made for “utterly grim reading” and the government should now publish the paper in full. “The leak underlines the case that remaining in the single market and customs union is the only way to minimise that economic harm,” he said.

Bob, a reader in the UK:

This article is on a secret government report that is available to MP’s, but not generally published. I think it’s a reasonable assumption that May is likely to believe something like this and quite probably believes that it will be worse for the reasons stated in the article as present policies would have to change to get some of the benefits apparently claimed in the report.

The key point to my mind is that UK policy for nearly 50 years has been to develop ever closer trading links within the EU and hence it’s credible to believe that the short term impact of a severing of ties overnight could be severe. For example, much of the inward investment into the UK in this period has come from Japan and the USA basing businesses in the UK aimed at accessing EU markets.

Hope this helps give some context to the debate that’s raging here.

The EU, if it’s sensible, should not want a hard Brexit, but the likely damage is greater for the UK than the remaining 27 countries so the argument is that the UK has to concede more in the negotiations.

May is in a very tough spot as she clearly buys into the strongly articulated arguments of the mainstream economics profession that a hard Brexit will hammer the economy. A common refrain is for a 20% hit to GDP; compare this to the ~5% cumulative hit from the financial crisis in 2007 and 2008. So her policy position is logical, if one starts from the dual premises of delivering Brexit and avoiding a catastrophic economic outcome. Clearly, if GDP was to collapse by something like this level then the party in government would be in huge trouble with the electorate.

And on Jeremy Corbyn:

Corbyn is a very different animal than Wilson and I suspect that Clement Attlee was also very different. The huge Labour win in 1945 was a reaction to the hardships of WWII and to the Tories screwing up handling Hitler in the 1930’s rather than support for a non-nuclear weapon pro-Palestinian supporting party.

Corbyn is much closer to Tony Benn from Wilson’s era and Harold Wilson was well known for his Benn put downs: he referred to Benn as being like an Old Testament prophet and also that he immatures with age.

hat-tip Bob