Meet the new bus…

In amongst the past week’s political turmoil and human tragedy The Daily Express’ claim that Brexit would make the UK £156 billion per annum better off passed almost unnoticed. In case you missed it, here’s one of my favourite hard-Brexit idiots sharing the story – and reading it exactly the way The Express intended it to be read:

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This is, of course, the stock-in-trade of The Express, and it would be easy to dismiss this as just another day of drum-beating for Brexit, maybe make a joke about it and move on. However, when I did exactly that, one of my Twitter followers asked if I’d read the report on which it was based, and kindly provided a link.

I read the article, I read the report, I read the reports the report cited. I’m not an economist, but this material is largely written for the lay-reader anyway or, perhaps more accurately, it’s written for the lay-journalist, who is looking for quick headlines and may overlook the stage-magician misdirection in these pieces.

Let’s start with Dancing Palace Guard – who I genuinely do not believe intended to mislead anyone, they simply either looked only at the headline, or were misled by the article. The ‘better off’ that is being talked about is a £156bn increase in the UK’s gross domestic product (GDP). GDP is an estimate of the total value of all goods and services produced within the UK. It’s not government revenue, so it can’t pay for a new NHS, more armed services or indeed anything else. It’s just a suggestion that the total amount of ‘stuff’ that we make and sell would rise.

The Express kindly tells us that this amount is equal to 7.2% of current GDP, and even breaks down where that money is coming from.

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Starting at the arse-end of that sentence you may recognise the money that was the most important thing in the world up until 23rd June last year, after which it was discovered that nobody had ever mentioned it or alluded to it in any way at all.

Former London Mayor Boris Johnson speaks at the launch of the Vote Leave bus campaign, in favour of Britain leaving the European Union, in Truro

It’s striking that already terms are getting muddled up. Our net contribution to the EU is direct government spending, quoting it mixed up with estimates for increased GDP is either confusing or confused.

Slightly more striking thing is that it’s the wrong figure.

Basic maths tells us that if 7.2% of GDP is £156Bn then 0.7% of GDP is £15.2Bn, not the £10Bn mentioned by The Express (which, in turn, is citing this report by the, presumably neutral, Leave Means Leave campaign)

This suggests that one of two things happened here:

  1. The writer of this piece has done their own calculations (workings not shown) and come to the conclusion that investing £10Bn into the UK economy would yield a 50% ROI, every year, in terms of GDP growth, or
  2. The writer of this piece spend so little time on the original report that they didn’t even notice that the mention of 0.7% of GDP was in an entirely different section to the investment of EU contributions.

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Easy mistake to make.

You might also notice that the report specifically recommends against spending our EU contributions on the NHS – or any public infrastructure at all – but rather spending it on “commercial ventures” which “create[s] economic growth, wealth and jobs”. Perhaps, “We send £350 million per week of tax-payers money to the EU, let’s give it to private companies and hope that, in our new low-tax economy, they spend it well enough for us to get some of it back” wouldn’t fit on a bus.

But let’s get back to that deregulation, from which The Express claim we’ll see a 2.5% bump to our GDP. Here the Leave Means Leave report (a) starts relying on external sources and (b) manages to descend almost into farce.

It starts by referencing Open Europe’s top 100 most costly pieces of EU legislation. Here’s there top 5, from their own web-site:

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In total Open Europe estimates that the top 100 most expensive policies cost us £33.3Bn annually. The top five however gives us a flavour of the problems with just reclaiming that money. Nobody in the EU referendum voted to repeal climate legislation or to worsen conditions for permanent or temporary workers. These laws would have to be revisited and rewritten and, presumably, recosted.

[Edited to add: The mysterious ‘CRD IV package’ that’s at number 2 in that list is the raft of regulations that were brought in after the 2008 financial crisis, and are designed to stop us having to do another £500 billion bank bail-out. Tearing up legislation with gay abandon is a very dangerous thing to do]

The Leave Means Leave report then cites the British Chamber of Commerce’s figure of a total annual cost of £80Bn for all EU laws. It then goes on to say:

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Firstly, 2% of GDP is around £50Bn, from laws costing us £80Bn/year. That is not a “modest deregulatory target”, that is tearing up more than 60% of laws and not replacing them with anything.

More importantly – why the hell are they quoting these figures as a percentage of GDP??? This gives the impression that if we scrap these laws then all of the money saved somehow ends up in our national bank-balance. GDP is, recall, just the total value of ‘stuff’ that we produce. If we save a company £1 in regulation does £1 more of ‘stuff’ fall out of the end of the sausage machine? Or is it more likely we remove legal protections for everyone in exchange for more profit for shareholders?

They tellingly say (emphasis added):

Potential savings from deregulation of 0.7 per cent of GDP were estimated by Open Europe at the time of its report as the maximum politically acceptable savings from deregulating a proportion of the top 100.

Even if this £33Bn, or £50Bn, or whatever were there for the taking even the people proposing it are recognising that it’s only something we can do after Brexit. It’s not an automatic consequence, it doesn’t swing into action the minute we step away from the EU. And it’s still less than the 2.5% that The Express are quoting.

The author adds to the end of this section,  somewhat wistfully:

Having sat for years on Mrs Thatcher’s Deregulation Task Force, which was largely fruitless, the willful forces of inertia in Whitehall and amongst their doppelgänger, big corporates, should not be underestimated.

There’s no doubt that this ‘modest’ deregulation is the work of years, or decades.

This is also the main issue with the big 4% boost to GDP from Free-Trade Agreements (FTAs) with the rest of the world.

Here the argument gets more technical, but basically it boils down to Treasury forecasts say the economy will shrink by 8% post-Brexit, while another group, Economists for Free Trade (formerly Economists for Brexit) say that it will rise by 4%, thanks to all of the free-trading that we’ll be doing.

That is, however, contingent upon:

we have as near to “signature ready” arrangements available on Brexit day plus
one, with as many countries as possible. These will help facilitate future economic growth and the removal of technical barriers

In the best-case scenario, then, we are plunging into Brexit with only the hope that countries across the world will be happy to sign free-trade agreements with us, negotiated in record time, and that the ‘technical barriers’, of which there are many, will be happily resolved in the future.

Leave Means Leave then reassure us that this is not the be-all and end-all of Brexit:

However, it is also important to recognise that 80 per cent of the economy is not concerned with exports and will benefit from the other manifest benefits of Brexit. As will the 11 per cent, which is already associated with exports to the ROTW.

A report that, in places, dithers over whether it wants 0.7% growth or 0.9% growth here manages to write-off one fifth of the UK economy, doesn’t even attempt to work out what percentage don’t directly export, but do rely on imports or form part of the supply chain for a final exporter, and seems not to recognise that the 11% of the economy that trades with the rest of the world does so under EU agreements.

As the section concludes:

By contrast FTAs with the ROTW, including with the United States, are dependent on other parties and while business will be encouraged by the success of these, it will be even more so by recognising benefits that are more certain, especially in prospect as opposed to completion.

In other words, the difference between an 8% shrinkage of our economy and a 4% growth is entirely in the hands of other nations, and even if they cooperate we still have barriers to overcome.

All in, then, our £156Bn Brexit bounty is dependent on funnelling tax-payers’ money into private commerce, in a market which may be tanking, while also shredding regulations and simultaneously negotiating dozens of free-trade agreements, in the hope that in some distant future we’ll start to see those publicly funded businesses do well enough to pay a bit more in tax.

Sounds very much like a case of “Meet the new bus (same as the old bus)”…

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