EU did not blink and end of the world as we know it would be awful

IN recent days, we have had two very different takes on the consequences of choosing a path viewed widely as hazardous.

One was a considered view based on detailed estimates with hard numbers derived from apparently substantial research, and highlighted likely grim consequences. The other was a seemingly offhand declaration that going down the route viewed by so many as dangerous “wouldn’t be the end of the world”.

The issue, of course, is Brexit. Specifically, the scenario of a hard Brexit. And what is most interesting is that the contrasting views come from none other than Chancellor Philip Hammond and Prime Minister Theresa May. So which one should the public put its faith in?

In normal times, people might form opinions on such starkly contrasting views according to party political preferences. But not in this case, given the wildly differing views come from those at the highest levels of the Conservative Government.

No doubt, Brexiters will prefer Mrs May’s “wouldn’t be the end of the world” version of events, delivered as she started a visit to Africa this week, regardless of her remark having no obvious substance behind it.

And this underlines the continuing problem. The UK Government is in a spectacular mess, following the ill-judged decision by former prime minister David Cameron to have a European Union membership referendum in the first place and the lamentable outcome of this vote.

As the clock ticks surely towards the Brexit date of March 29 next year, it seems some in the Conservative Government may have decided a stiff upper lip will see the UK through.

However, surely it is Mr Hammond’s view of the likely consequences of a hard Brexit, based on a seemingly extensive UK Government analysis, that reflects the economic reality of the situation, rather than a throwaway comment that it will essentially all be okay.

Sentimentality about Britain using its fighting spirit to muddle through seems to be increasingly prevalent. This is perhaps no great surprise, given what look like concerted efforts by some Brexiters to whip up British nationalist sentiment among voters.

However, putting a brave face on things will not dispel economic reality. The pound’s weakness on Tuesday, in the wake of Mrs May’s comments, signalled financial market players were entirely unconvinced by her attempted reassurance. Rather, sterling tumbled to its weakest level against the euro for nearly a year because Mrs May’s comments fuelled worries over the possibility and effects of a hard Brexit, where the UK leaves the EU without agreement over its future relationship with the bloc on trade and other key issues.

Michel Barnier, the EU’S chief Brexit negotiator, provided some relief to sterling on Wednesday by striking a conciliatory tone. But the triumphalism with which his comments were met by some in the Brexit camp, seemingly triggered by some kind of bizarre view that the EU had caved in or “blinked” and the UK could get whatever it wanted now, is ridiculously wide of the mark.

The Brexiters’ great excitement and patriotic pride seemed to arise from Mr Barnier’s declaration that the EU was prepared to offer a partnership with Britain such as there had never been with “any other third country”. However, crucially, he also emphasised the UK could not have “single market a la carte”.

Mr Barnier declared: “Single market means single market.”

Mrs May, who is having to keep the Brexiters happy to try to hold a divided Conservative Government together, has made it clear the UK will be leaving this single market.

The impact estimates flagged by Mr Hammond last week, in a letter to Treasury Committee chair Nicky Morgan, relate to a very long timeframe. However, this is crucial when considering the implications of Brexit, under the various scenarios.

The effect of any Brexit scenario will be very long-lasting. What might not sound like major reductions in the UK’S average annual growth rate will, over many years, add up to a very major hole in the country’s economic output, relative to what would have been the case without the Brexit nonsense. And Government borrowing will inevitably be much higher than otherwise.

The chancellor flagged an estimate from the Westminster Government’s provisional analysis in January that a no-deal Brexit would leave the country’s gross domestic product 7.7 per cent lower than would have been expected had the UK stayed in the EU, 15 years after such an exit. The forecast range is GDP would be between 5% and 10.3% lower than otherwise. Mr Hammond noted the January analysis estimated borrowing would be around £80 billion a year higher under a no-deal scenario by 2033/34, “in the absence of mitigating adjustments to spending and/or taxation”.

People need look only at the total interest paid over many years on longterm borrowings, such as mortgages, to appreciate the way something builds up very significantly over a protracted timeframe.

Brexiters would be unwise to look at the huge numbers outlined by Mr Hammond and believe this is some exaggeration to stop them realising their baffling ambition to leave the EU. Rather, the estimates highlight the effect of relentless, grinding damage over a period of many years.

Mrs May seemingly tried to pour cold water on the forecasts cited by Mr Hammond, noting they dated back to January and were work in progress. But why should the fact that the forecasts date back to January make them any less relevant?

While the probability of a hard Brexit has increased, in large part as a result of intransigence on the part of a Conservative Government stuck firmly in the grip of the Brexiters, the realities of a no-deal Brexit are the same as they were in January.

The degree to which the Brexiters hold sway is perhaps well illustrated by the fact Mrs May has chosen to declare the hard exit scenario “wouldn’t be the end of the world”. After all, this seems like quite the change of tone, given she preferred that the UK remain in the EU in the run-up to the 2016 referendum vote.

Mr Barnier’s comments might offer some hope that the EU will be more constructive than the UK but we should not underestimate the capacity of the arch-brexiters to wreck any deal that might help the country mitigate the inevitably major damage from leaving the bloc.

Mrs May must realise businesses and households will not be fobbed off with what might be viewed by many as a far-too-casual dismissal of their entirely understandable fears over Brexit. Especially given the analysis done by the UK Government, whether Mrs May likes it or not, signals very clearly that these fears are entirely justified.