The leaked Treasury paper suggesting a ‘hard’ Brexit could cost HM Treasury £66 billion a year in tax revenues is simply not credible. Indeed, the Treasury have got it the wrong way round. Only by leaving the failing Single Market can the UK drive tariff-free deals globally, something the EU has manifestly failed to do. This will enhance Treasury revenues, not reduce them.
The total UK tax take is projected to be £716 billion in the current tax year, so to suggest over nine per cent of the entire tax base is at risk, as the Treasury does, is an extraordinary claim. It makes a good headline, but it is as improbable as many of the ‘official’ pre-referendum forecasts. Those predicted economic collapse if the UK voted to leave, which have so far proven totally unfounded. Rather than the economy contracting, as the Treasury predicted, employment is up, wages are up, growth is up and the stock market is at an all-time high.
Last year. the UK exported £135 billion of goods and £89 billion of services to the EU – equivalent to 12 per cent of UK GDP. Average tariffs into the EU from third party countries average 1.1 per cent of the total value with a zero per cent tariff on approximately 75 per cent of all goods and services traded. Since the Brexit vote, the UK has gained some 16 per cent competitiveness against the US and 14 per cent against the Eurozone at current currency rates. To suggest that under WTO rules, if no free trade agreement with the UK is reached, that trade will collapse is simply not credible. Indeed, the opposite looks likely – we should anticipate an export-led boom as UK competitiveness has just markedly increased.
It is manifestly in the EU’s interests to agree a free trade deal with the UK, despite its current noise. This is because the UK has a £110 billion current account deficit with the EU. Not to do so would harm the EU more than the UK.
Indeed, if no deal is reached the impact on EU trade will be minimal. USA, China, Japan, Brazil and Australia all trade under WTO rules and very successfully indeed. Current tariffs are a drop in the ocean compared with currency moves. The Treasury assumption that GDP could fall by 9.5 per cent with a £66 billion hit to tax revenues is frankly eccentric given that total trade to the EU is only worth 12 per cent GDP.
Even if the EU is spiteful enough not to offer a free trade deal, it is clear that far from being “at the back of the queue”, the US, Australia and China in particular would relish the opportunity to build free trade relationships with the UK. If the EU won’t cut a deal, others will. This will more than compensate for any risk to EU trade.
Moreover, the Treasury talks as if the EU is some sort of economic success. It is not. It has been the slowest growing economic region for a generation now and a number of countries’ economies including Italy, Portugal and Greece are smaller today than a decade ago. The problems with the EU banking system remain unresolved as witnessed by the problems with Deutsche Bank and the Italian banking sector. Unemployment remains well over twice the UK average across the EU and it is a moot point as to whether the EU can even survive at all on a long-term view. It is not just in the UK that the populations are fed up with its dull, relentless centralisation. It makes no sense to tie ourselves to a failing economic bloc with no say in its governance, which is exactly the square Norway is in.
The UK will prosper by being a beacon for free trade with the world. UK business is increasingly following growth, a decade ago 61 per cent of our trade was with the EU. It is 43 per cent today and projected to fall to just 35 per cent by 2025. Outside the Single Market the UK can adopt its own free trade deals which will not only benefit our consumers but also those in developing nations where very high EU tariffs on agricultural products, in particular, cripple growth in Africa and Asia.
On the contrary, Leave Means Leave estimates a clean break with the EU, leaving the Single Market, will enhance GDP and tax revenues. We estimate the benefit of devaluation coupled with the monetary and fiscal response minus modest short term uncertainty will add one per cent to UK GDP in 2017, equivalent to £18 billion with a tax benefit of £6.6 billion pa. Longer term we believe leaving the Single Market will add 0.5-0.75 per cent GDP each year or a further £12 billion compound due to the saving on EU membership fees, more sensible regulation and global free trade deals, minus a marginal reduction in EU investment.
What we are witnessing is an orchestrated effort by a few organisations to fight a rear-guard action to undermine the clear vote of the people to leave the EU. If Remain had won by a single vote, it would have taken that as a green light for further integration. They lost. The Treasury needs to accept the clear instructions of the British people and stop undermining confidence in the UK economy.