Pro­ject Fear is back – and big­ger than ever

The Sunday Telegraph - Money & Business - - Business - LIAM HALLIGAN Fol­low Liam on Twit­ter @liamhal­li­gan

Ahead of the June 2016 ref­er­en­dum, a Re­main-back­ing prime min­is­ter used a padded­out HM Trea­sury study to claim vot­ing Brexit would spark “an im­me­di­ate and pro­found eco­nomic shock”. The UK, we were re­peat­edly told, would fall into an in­stant re­ces­sion, even be­fore we’d left.

Another Re­main-back­ing Prime Min­is­ter, faced with her own Brexit im­passe, has adopted the same tac­tic, only more so. Lu­di­crously alarmist pro­jec­tions, this time from the Bank of Eng­land, are be­ing wielded to scare vot­ers and MPS into back­ing a Brexit-in-name-only With­drawal Agree­ment that leaves the UK en­tirely at the mercy of the Euro­pean Union.

The Bri­tish econ­omy will con­tract by a pun­ish­ing 2.1pc dur­ing the 18 months af­ter any leave vote, the Trea­sury told us ahead of the ref­er­en­dum, with 500,000 job losses. Such lurid fore­casts spread a tsunami of anti-brexit news across our air­waves. Far from shrink­ing, UK GDP ac­tu­ally grew 2.8pc dur­ing the year and a half af­ter the vote. Em­ploy­ment surged, with un­em­ploy­ment reach­ing a 42-year low. The pre-ref­er­en­dum Trea­sury fore­casts, epi­cally wrong in di­rec­tion and mag­ni­tude, were bo­gus – as some of us said at the time.

Now the Bank of Eng­land is lead­ing the charge. A “no-deal Brexit” could spark a 30pc house-price col­lapse, we were told last week, with the econ­omy shrink­ing 8pc in a sin­gle year. This is ar­rant, head­line-grab­bing non­sense.

The big­gest an­nual GDP drop in mod­ern his­tory was in 2009, amid a world­wide fi­nan­cial cri­sis and the worst global slump since the Thir­ties. Yet the Bank now claims, with a straight face, that trad­ing with the 27-mem­ber bloc us­ing World Trade Or­gan­i­sa­tion rules, the sys­tem cov­er­ing the bulk of trade across the globe, could see our econ­omy shrink twice as much as in 2009. When our to­tal EU ex­ports amount to just 11pc of GDP? When fewer than one in 12 UK firms sell goods and ser­vices to the EU? These ut­terly ridicu­lous es­ti­mates are “a worst-case sce­nario, not a firm forecast”, says the Bank. But they’ve still been in­jected firmly into the blood­stream of pub­lic opin­ion, via end­less blood-cur­dling bul­letins, as those ul­ti­mately re­spon­si­ble for pro­duc­ing them knew they would.

For­mer Brexit sec­re­tary David Davis says the Bank’s pro­jec­tions, pub­lished along­side a sim­i­lar Trea­sury ef­fort, are part of “a pro­pa­ganda on­slaught”. Given he re­signed from May’s cab­i­net, some might say he’s bi­ased.

How about An­drew Sen­tance, a re­spected economist, for­mer Mon­e­tary Pol­icy Com­mit­tee mem­ber and staunch Re­mainer? The Bank’s anal­y­sis is “highly spec­u­la­tive and ex­treme” he says, “fur­ther un­der­min­ing per­cep­tions of its in­de­pen­dence and cred­i­bil­ity”. No­bel Prize-win­ning economist Paul Krug­man, again no fan of Brexit, mean­while de­scribes the Bank’s hand­i­work as “pretty far out on a limb”, based on as­sump­tions that “don’t fol­low from ba­sic trade the­ory”.

As for ex-mi6 boss Sir Richard Dearlove, he thinks “WTO terms is now the only vi­able way to leave the EU”. May’s deal “sub­or­di­nates UK de­fence forces to EU mil­i­tary con­trol and com­pro­mises UK In­tel­li­gence ca­pa­bil­i­ties”, he ob­serves, while the “hys­ter­i­cal de­mon­i­sa­tion” of leav­ing un­der WTO rules “is, of course, Pro­ject Fear, like its scare­mon­ger­ing 2016 pre­de­ces­sor”.

I’ve long ar­gued that no-deal is the most likely out­come. While I’d pre­fer Bri­tain to se­cure an EU free-trade agree­ment, trad­ing un­der WTO rules is just fine. Doom-mon­gers who say oth­er­wise – char­ac­ter­is­ing this route as “crash­ing out of the EU” or “un­think­able” – are ei­ther ig­no­rant, try­ing to pre­vent a mean­ing­ful Brexit, or hop­ing to re­verse the 2016 vote al­to­gether. And that, I’m afraid, in­cludes our Prime Min­is­ter.

Un­der WTO rules, UK-EU trade con­tin­ues – a state­ment of the ob­vi­ous but in the cur­rent cli­mate of fear it

needs re­stat­ing. The US and China an­nu­ally sell hun­dreds of bil­lions of pounds of ex­ports to the EU from out­side – with none of the oner­ous sovereignty re­stric­tions con­ceded by May. The UK can do the same.

Bri­tain al­ready con­ducts most of its trade out­side the EU, largely un­der WTO rules. Such trade is grow­ing and gen­er­ates a sur­plus. Our EU trade, in con­trast, de­spite the much-vaunted sin­gle mar­ket, is fall­ing, ac­counts for well un­der half of ex­ports and gen­er­ates a deficit – with Bri­tain mak­ing mas­sive con­tri­bu­tions and ac­cept­ing count­less anti-demo­cratic rules for the priv­i­lege of “ac­cess”.

“No deal” means with­hold­ing the £39bn EU “di­vorce bill” – spend­ing it at home and boost­ing the do­mes­tic econ­omy. Un­der WTO rules, we charge rel­a­tively low re­cip­ro­cal tar­iffs – again, gen­er­at­ing bil­lions for Bri­tain, see­ing as “they sell us more than we sell them”. Such funds could sup­port sec­tors where WTO tar­iffs are higher.

Be­hind the scenes, de­spite Down­ing Street’s re­luc­tance, the nec­es­sary no-deal prepa­ra­tions have been un­der way. This re­luc­tance was de­lib­er­ate, we now see, given May’s reck­less de­ter­mi­na­tion to present her agree­ment as “the only option”. Still, the Na­tional Au­dit Of­fice re­cently con­cluded an on­go­ing HMRC up­grade means Bri­tain’s re­vamped cus­toms ser­vice should be ready to cope with the ex­tra checks from Jan­uary 2019.

Re­cent “news” that the UK will run out of “widely used vi­tal drugs” and “drink­ing wa­ter” un­der no-deal is beyond the pale. Other ad­vanced coun­tries man­age just fine out­side the EU, as we did be­fore we joined 45 years ago. And will planes re­ally “fall out of the sky”? The UK is a mas­sive avi­a­tion player and land­ing rights are re­cip­ro­cal. Any UK-EU agree­ments will be forged by March and, if not, mem­o­ran­dums of un­der­stand­ing will ex­tend cur­rent prac­tices un­til they are.

Com­plex sup­ply chains? Yes, there are is­sues. But we im­port plenty of just-in-time com­po­nents from out­side the EU and the so­lu­tions to most prob­lems re­lat­ing to goods en­try into Bri­tain are in our gift. And the Ir­ish bor­der al­ready copes with dif­fer­ing cur­ren­cies, du­ties and tax rates. Phys­i­cal “hard bor­der” posts that might in­flame sec­tar­ian sen­si­tiv­i­ties are un­nec­es­sary if we leave the cus­toms union – as nu­mer­ous experts, and the WTO, have con­firmed. The EU won’t erect them, nor will Dublin or Lon­don. Yet Mrs May has let bor­der false­hoods warp her Brexit strat­egy.

A no-deal Brexit, while not ideal, would start to nor­malise long-term UK-EU re­la­tions. It puts us in a strong po­si­tion to strike a mu­tu­ally ad­van­ta­geous EU free trade agree­ment once we’ve left.

The real dan­ger is a Cor­byn gov­ern­ment – the likely out­come if May con­tin­ues to be­tray the ma­jor­ity of the coun­try, and democ­racy, by pre­vent­ing a clean break.

‘While I’d pre­fer Bri­tain to se­cure an EU free-trade agree­ment, trad­ing un­der WTO rules is just fine’


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