Government and independent forecasts of the economic impacts of
Brexit focus on the long-term effects and do not provide a guide
to the immediate disruption from ‘no deal’, warns a new report by
the Institute for Government.
This is one finding from Understanding the economic
impact of Brexit, a new report that examines 14 studies
on the long-term impacts of Brexit carried out by a range of
organisations, from the UK and Dutch governments to the London
School of Economics and city banks.
These forecasts project how the UK economy is likely to be
affected by around 2030 because of Brexit. However, the report
says long-term estimates are not a guide to what might happen
immediately if there is a disruptive no deal Brexit. Long-term
estimates are based on current economic interactions between the
EU and other countries with which it does not have a free trade
agreement, like the USA. But the USA has well-established systems
in place to handle this relationship, as well as crucial side
deals (covering, for example, aviation and data). But none of
this would be in place immediately in the event of a disruptive
no deal.
The report also highlights that it is differences in the
assumptions used in economic models – rather than the models
themselves – that drive the large variation in predictions of the
long-term impact. For example, studies that conclude the impact
will be more negative, such as those by Rabobank and the
Treasury’s pre-referendum forecasts, assume that Brexit will lead
to a large increase in trade barriers with the EU and a clampdown
on migration, leading to a reduction in innovation and lower
productivity growth.
The only study to predict a substantial gain, carried out by the
Economists for Free Trade, assumes there would be no increase in
trade barriers with the EU, a large reduction in trade barriers
with non-EU countries and that the UK Government would make
widespread changes to regulatory policy.
The report says it is ultimately the Government’s responsibility
to bring clarity to the public debate around the long-term
impacts of Brexit. It makes nine recommendations for information
the Government must publish alongside its final assessment of the
economic impact of the proposed Brexit deal, from regional and
sector impacts to migration and regulatory policy, so that others
can see what assumptions they are working off and judge whether
these are reasonable.
Gemma Tetlow, Chief Economist at the Institute for Government,
said:
“There has been too much heat and not enough light in the
discussions of the possible economic impact of Brexit. Any
estimates the Government produce if and when a deal has been
reached should be scrutinised but this must be done on
appropriate, rather than spurious, grounds. When the Government
publishes its final analysis, it must make clear what assumptions
it has made so that MPs and other observers can judge whether
they are a reasonable central estimate.”
