Suffering the same “group think” as the OECD, the Bank of England and the Treasury, the IMF starts from the position that Brexit is bad and then projects that Britain outside would make poor decisions. How else can we explain them highlighting a range of forecasts which at the top end assume Britain would suffer more from leaving the EU than we did during the financial crash, Great Depression and World War I?
This referendum is ultimately a long-term decision that will determine whether Britain governs itself in a democratically accountable way. What you think the long-term impact of Brexit will be is therefore a judgement of the policy decisions we would make, given the options available, and how these will impact the only thing that matters in the long term – productivity growth. The IMF is no better placed to speculate on the choices we will make than a columnist like me.
What’s clear is that, if we make good decisions, we can be better off. Here are four areas where we could improve our growth prospects by voting leave on 23 June.
Trade: Brexit will allow us to pursue more free trade. The Treasury analysis just assumes we’d pass up on that chance. They believe that, if we opt to remain in the EEA or sign a bilateral deal with the EU, we will use our new found trade freedom to sign precisely no free trade agreements. The example of Switzerland – outside of the EU but with more major economy deals, such as with Japan, China and Canada – shows this is nonsense.
But the truth is that we don’t even need overt all-encompassing trade agreements. Bizarrely, the Treasury believes that, if we opt to trade in the global market under WTO rules, we will erect barriers against EU imports, becoming more protectionist rather than deciding to unshackle ourselves from EU tariffs. But if we were to pursue unilateral free trade, abolishing all of the EU’s external tariff and maintaining tariff-free imports from the EU, consumers would enjoy an 8 per cent fall in prices, the economy would restructure to industries in which Britain has a comparative advantage, and the increased competition would create more highly productive jobs and increase growth – the complete inverse of what the Treasury expects.
Migration: Many believe that Brexit would result in an economically-damaging clampdown on migration, with the end of free movement and new immigration curbs to hit government targets. But it need not. In fact, given the constraint of public opinion against complete free movement, Brexit could be used to re-orient migration policy to a more liberal approach to non-EU migration within a new universal non-discriminatory framework – raising our growth potential overall. The politics of leaving may prevent this instantaneously, but as the 1970s to 1980s shows, our democracy can correct bad decisions. What is popular tends to be replaced with policies whose results are popular in the medium term.
Regulation: Brexit would enable us to review some major regulatory areas – not least on carbon emissions reductions. A lot of nonsense is put about regarding this. The EU seeks to reduce carbon emissions in a really inefficient way, with renewables targets and other EU directives raising energy costs far higher than they need be, on top of emissions trading schemes. Leaving would enable us to revisit these and replace them with something more economically sensible with the same aim. The same could be said of biofuels mandates (which raise food prices), some employment legislation, and policies on agriculture and fishing.
Eurozone governance reform: Finally, in the medium term, even EU economists believe that Brexit would result in faster economic growth in the Eurozone, which of course would be good for Britain too. That’s because a Brexit would enable Eurozone countries to get on much more quickly with the EU-level governance reform necessary to deal with the crisis of the single currency.
This article was first published in City AM.