Britain able to bloom once it is free of EU shackles

I have had my fingers poised over the keyboard in anticipation of writing about Brexit for several years. Notwithstanding the results of the 2016 referendum, the ultimate fate of the departure of Britain from the EU remained so uncertain that there never seemed to be a good time to put pen to paper, so to speak.

But after the re-election of the Johnson Conservative government in the UK — “stonking mandate” and all — Brexit will now happen. It is therefore worth canvassing the economic arguments about Brexit and the likely consequences of Britain leaving the EU.

But before I do so, let me just point a finger at the malicious and misleading intervention of the technocratic class in the Brexit process; in particular, the civil servants at HM Treasury and the officials of the Bank of England.

There is little doubt that most of these London-based and highly educated bureaucrats favour Britain remaining part of the EU. Globalists virtually to a man and woman, it is clear that their personal views swayed the extreme conclusions of the Brexit-related research that has been released by these institutions.

Leading up to the referendum, HM Treasury predicted that ­Brexit would reduce Britain’s GDP by between 3.8 per cent and 7.5 per cent depending on the form of the withdrawal agreement. Late last year, the BoE seriously ­embarrassed itself by claiming a no-deal Brexit would cause GDP to fall by 8 per cent, unemployment to rise to 7.5 per cent and inflation to surge to 6.5 per cent. House prices would fall by 30 per cent and commercial property ­prices would sag by nearly a half.

All this was even too much for strongly anti-Brexit, Nobel prize-winning economist Paul Krugman, who declared: “I don’t understand how you can get that kind of cost without making big ad hoc assumptions about productivity. I am worried in all this about motivated reasoning on the part of people who oppose Brexit.”

So what are the likely economic effects of Brexit? To what ­extent do they depend on the ­details of the withdrawal agreement? Are there differences ­between short-term and long-term consequences? In answering these questions, it’s worth outlining some of the background in terms of Britain’s membership of the EU. The UK’s initial entry was in fact quite limited, with the joining of what was then known as the European Community in 1973.

At that stage the EC was essentially a Customs union; there were few impediments to trading between members of the union while the trade barriers to the rest of the world remained in place. Customs unions have the effect of creating trade between the members while diverting trade away from other countries. Economists generally are not in favour of Customs unions but it does depend. In this case, the ­decline in tariffs around the world more generally, in association with a still functioning world trade system and multilateral trade agreements, meant the costs of the European Customs union fell relative to the benefits.

If this is all Britain’s membership entailed, the story would not be very interesting. But several important developments occurred that transformed the spheres of influence of the European project, leading to what has become a supranational form of government over many aspects of economic (and personal) activities. In particular, the Maastricht Treaty set the scene for a degree of fiscal integration of the EU and intercountry transfers to account for differences in income levels across the group. The Schengen Agreement provided for the free movement of people across the EU.

Over time, the required regulatory harmonisation of goods and services across the EU was ­associated with a marked increase in the regulatory encroachment of Brussels. EU members also were subject to the decisions of the ­Europe Court of Justice.

The reasons for the unexpected result of the 2016 British referendum continue to be debated, but the voting followed a clear pattern: Londoners and residents of university towns were in the Remain camp while those living in the rest of the country, Scotland aside, voted to leave. It is interesting that last week’s results largely followed the same configuration.

The first thing about the economic benefits of an imminent Brexit is the lifting of the high ­degree of uncertainty that has plagued the British economy. While it is not entirely true that markets abhor uncertainty — money can always be made on this basis — productive investment tends to be deterred by an unclear and potentially volatile future.

Second, the value of Britain retaining its own currency has been clearly demonstrated. Had Britain decided to join the currency union in the late 1990s and replace the pound with the euro, the discussion we would be having now would be very different. In fact, there probably would be no discussion at all because Brexit would not have been a viable ­option.

There are many complications to sort out with Britain leaving the EU. The Northern Ireland border issue will have to be ­resolved but let’s not forget that Switzerland, a non-EU member, is surrounded by EU countries. And it is really the dealings between companies and individuals that matter as much as inter-country relationships. If it made sense for companies within the EU to trade before Brexit, for instance, it will in all likelihood still make sense to trade after the withdrawal.

Economically, it will be far better for Britain to develop new trade arrangements with other parts of the world — the US, Canada, Australia, India and the like — given that the EU’s economic growth path is in the slow lane. Much better to hitch your wagon to growing countries, something that was prevented by virtue of EU membership.

On balance, Brexit is likely to provide a substantial boost to the British economy, even if there are some short-term costs. By removing the regulatory shackles of Brussels and allowing Britain to formulate a sensible skills-based immigration program, the future is indeed relatively rosy for a Johnson-led nation.