Leaving the Single Market: The free-market case for ‘Hard Brexit’

It has all the hallmarks of a last stand. Having abandoned resistance to the referendum result itself, Remainers are rallying to the cause of staying in the Single Market.

Re-using the referendum hymn sheet, the same politicians, businesses and pressure groups who predicted doom and gloom from the decision to vote Brexit are now forecasting postponed doom and gloom if we opt to choose a “hard Brexit” or a “closed Britain” – leaving the EU’s single regulatory zone and trading under WTO rules.

Established businesses which do well under the status quo are always afraid of even minor changes to the trading and regulatory environment. But politicians have a duty to set conditions for the general good of the whole economy in the long term. On this the Remainers are severely overestimating the gains from Single Market membership while underestimating both the gains from leaving and the huge risks of remaining. This facilitates their bizarre assertion that being outside somehow need lead to a more closed Britain.

First, let’s take the importance of the Single Market. The European Commission itself (which has no incentive to underestimate) believes this common regulatory zone has raised EU-wide GDP by just 2.1 per cent overall. That figure was calculated for 2008, at the height of the boom. As the economist Andrew Lilico has outlined, for the UK we can imagine this would be less significant still: the UK trades less with other EU members than the EU average and specialises in services where the Single Market is less complete. We were also already fairly liberal in regulatory terms during this period (meaning the benefits from any harmonisation measures would be less pronounced for us).

The Treasury believes that, despite this, leaving the Single Market could somehow cost up to 6 per cent of GDP in the long term. But this is based on huge dynamic gains, for which there is little to no historical evidence. Indeed, in future we expect EU trade to become relatively less important. Despite hopes for a flexible economy able to adjust to the changing pattern of global demand, Single Market membership would mean 100 per cent of the economy would continue to be bound by often damaging regulation emanating from Brussels. This should be of particular worry to the City, given the EU’s frequent attacks on so-called “Anglo-Saxon” finance. Indeed, as Remainers helpfully pointed out during the campaign, the Single Market solution is undesirable post-Brexit because we could no longer vote against new regulation imposed upon us.

This is not the only risk. Staying in the Single Market would mean a continuation of budget payments to the EU (net 0.5 per cent of GDP), something only likely to rise given the centralising ambitions of Brussels. The need for the Eurozone to integrate further to solve the euro crisis also risks the institutions of the EU increasingly being dominated by a single currency bloc, potentially to the detriment of the UK.

What business might fear is a big bang – a changed tariff and regulatory environment all in one go. But steps can be taken to mitigate the transition. The depreciation of the pound already vastly outweighs any adverse tariff effect on exporters to the EU. Last week’s announcement that existing EU workers have a right to remain within the UK negates risks for businesses employing EU staff. And the government’s Great Repeal Bill, through repatriating the body of EU law and regulation, means any changes to the regulatory environment would be incremental. It also means the EU should be willing to agree to an equivalence tariff-free arrangement on the point of exit – given the mutually beneficial nature of free trade.

Whether we become a more “open” or “closed” economy has nothing per se to do with the Single Market. Indeed, while the common regulatory zone prevents damaging government action in certain areas, the most significant upside gains from leaving the EU come from leaving the Single Market and customs union altogether.

Being willing to leave both and trade under WTO rules would at a stroke end the uncertainty that protracted negotiations would bring. The UK could declare unilateral free trade, slashing tariffs which would lead to more specialisation and an effective tax cut for consumers. We would repatriate our gross contributions, be able to deregulate or reassess regulation in areas where it was beneficial incrementally, and kill stone dead the ratchet of more EU centralisation. This would not only fulfil the electorate’s instruction to “take back control”, but could, alongside a programme of agricultural reform, leave the UK more open not less.


This article was first published in City AM.

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.

5 thoughts on “Leaving the Single Market: The free-market case for ‘Hard Brexit’”

  1. Posted 17/10/2016 at 16:38 | Permalink

    “Last week’s announcement that existing EU workers have a right to remain within the UK negates risks for businesses employing EU staff.”

    I trust you understand that this is only partly true.

    The announcement negates risks for businesses employing EU staff that are existing EU workers. It does not negate the risks for businesses relying on an inflow or intending to hire EU staff in future.

    The risk of not being able to freely hire EU workers in the future has a much higher impact on businesses than not being able to carry on employing their existing EU staff.

    The reason is that filling a vacancy previously held by an EU national from the domestic labour force is a tactical / operational challenge.

    Deciding that, in doing business, innovating, growing, and expanding in the UK, your company will not be able to freely attract EU talent (at any level from entry to experienced) is a strategic challenge.

    The unintended consequences of this policy are going to be stealth because nobody will be able to point out the Business that did not set-up, grow, innovate, or move to the UK. But they will also be devastating.

  2. Posted 18/10/2016 at 08:00 | Permalink


    I disagree with your assessment… I do not see that there would ever be a bar against productive, innovative and necessary people coming to the UK, that is not what has ever been suggested. It is typical Bremoaner rhetoric… Conflating control of boarders with shutting them is pretty pathetic.

    Having control over who comes here and that they are required for our economy can only be good; it enables us to plan and anticipate public services to accommodate them. It also enables us to minimise the impact on services by requiring work visitors to have health insurance, sufficient salaries so they do not have to claim UK benefits and have to leave the UK when they finish their work (unless they choose to become UK citizens of course).

  3. Posted 19/10/2016 at 21:45 | Permalink

    “What business might fear is a big bang – a changed tariff and regulatory environment all in one go. But steps can be taken to mitigate the transition. The depreciation of the pound already vastly outweighs any adverse tariff effect on exporters to the EU. ”

    So, essentially you can be a classical liberal scholar and openly accept as desirable the fact that consumers will be now paying tariffs on top of the depreciated value of their savings and income in pound sterling.

  4. Posted 20/10/2016 at 18:10 | Permalink

    You appear to be parroting the line espoused by that arch EU shill, Nick Clegg, in the press recently, ie, that prices for food and goods will rise if we leave the Single Market.
    Both you and Clegg conveniently forget or purposely avoid mentioning the fact that imports from non-EU countries are already more expensive due to EU tariffs imposed on them, and that once we leave the corrupt and inefficient EU – whose disastrous currency, ageing population, poor productivity, huge unemployment and steadily diminishing percentage of global trade point to disaster in future for many member states, and particularly for most eurozone members – those tariffs need no longer apply, thus engendering cheaper food prices, goods and services from the majority of the world’s trading nations.
    If the EU – with Francois Hollande to the fore (before he is likely kicked out next year) – choose to play hard ball and impose tariffs on EU imports to Britain we can (and I think should) reciprocate and make it clear right now that that will happen, though with regret as an option forced upon us. All Hollande and the EU would achieve is a further contraction in French and EU trade as other global trading nations take advantage at their expense. If the Germans decide that their dream of European domination trumps even national self-interest, including their massive car industry, then I’m sure the Americans, Indians, Chinese, Brazilians, etc will be delighted to hoover up some of their market share.
    If you and others are going to push this increasingly desperate pro-EU Remain line then at least you could try to be even-handed. It is inconceivable that we remain paid-up members of the Single Market after Brexit as we would pay the piper but have no say, and inconceivable that the government ignores the wishes of the majority who voted to leave the EU by keeping us in it anyway when the EU has made abundantly clear that membership of the EU inevitably means accepting continued open borders and free movement.
    We have a third of a million net inward migration every year, a figure that could well rise further if we remain in, and the people have spoken – they want national control of our laws and our borders.
    ‘GG’ claims above that leaving the Single Market would mean shutting the door completely on immigration and would likely leave some employers at a loss for essential staff, when of course it means by definition no such thing. Regaining control of who is allowed to enter, and what skills they have, would give Britain the best of both worlds.
    If I were living in the EU and considering the state of the place today I would have a great deal more to be worried about. And I haven’t even mentioned iup to this point their losee of Britain’s enormous financial contribution and the EU’s disastrous, self-created migrant problem and its associated social and security problems.

  5. Posted 19/01/2017 at 23:10 | Permalink

    “But politicians have a duty to set conditions for the general good of the whole economy in the long term.”

    Is Brexit really bringing the ugly Keynesianism in people?

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