Britain is lurching towards an economic, political and moral disaster, writes John Van Reenen (MIT).
We are careening towards the most extreme form of Brexit imaginable – flouncing out of the European Union (EU) after 46 years without any transition plan. Operation Yellowhammer, a leaked secret report from the government’s own officials predicted that the most likely outcome of this no-deal Brexit would be shortages of medicines and fresh foods, civil unrest and transport chaos. In short, the most vulnerable people will suffer terribly. Many will die.
Boris Johnson is a man who clawed his way to power through the votes of a mere 0.13 per cent of the population. His lies are so profuse and extreme they would make Pinocchio blush. During the 2016 Brexit referendum, he was driven around in a big red bus plastered with false claims about how much money Britain gave to be a member of the EU. The numbers were so wrong, the UK’s chief statistician had to refute them – the best estimates find that Britain gets economic benefits from being in the EU that are about ten to twenty times as large as the financial cost of membership (see box on “the economics bit” below). Like so many populists, Johnson is a son of the wealthy privileged elite, who promises nirvana to a polarised country weakened by decades of stagnant wages and austerity. And like so many in the rabidly Eurosceptic UK media, his journalistic career was made from fabricating stories about European regulations. He was sacked not once, but twice by his editor for lying.
Johnson has no political compass except his preening ambition.
The transparent ploy of his government is to pretend to seek a new deal, while running down the clock to October 31st. Brexiters demand the elimination of the “Irish backstop”, which is the insurance policy to prevent the return of a hard border in Ireland in the current withdrawal agreement. However, three years of intense discussion and negotiation have shown that although there are plenty of alternatives (such as staying within the single market like non-EU Norway), none of these solutions satisfy the numerous other demands of the Brexiters.
Why a no-deal Brexit is so profoundly undemocratic
The mantra of the no-dealers, played on “bleat and repeat” in the supine mass media, is that we must “respect” the vote and leave for the sake of democracy. But it needs shouting throughout the land: There is no mandate for a no-deal Brexit.
The idea that the UK would crash out of the EU was not on the 2016 ballot paper. Johnson himself said that chances of no deal were a “million to one.” The country was split down the middle by the vote with two of the four nations of the UK voting to remain – Scotland and Northern Ireland. Polling now consistently puts Remain ahead of any sort of Leave, let alone its most extreme form. This is hardly surprising as now the public are more aware of what Brexit actually means.
Since few voters wanted or want a no-deal style Brexit, why should the suicide cult minority who do clamour to crash out of the EU, dictate to the majority? Should they be able to thrust their twisted ideology down the unwilling throats of the people?
Parliament has voted consistently to block a no-deal Brexit. Consequently, Johnson has come up with a clever new wheeze – simply dissolving the legislature in advance of the Brexit deadline, so Members of Parliament cannot stop it, no matter what. The last time this happened was when King Charles did it in the 1640s, which sparked the English Civil War and resulted in a beheading.
It is clear that the gang who rule Britain have no real respect for democracy. It is simply nauseating that they will stop at nothing to advance their agenda.
How did we get here?
The EU has been a force for peace between nations who were at war for millennia. By building the largest single market on planet Earth, it has enabled these warring tribes to trade and grow closer. European countries fight each other over fishing quotas instead of bloody fields. This accomplishment was without blood and battles, but through a growing club who realised that our mutual self-interest lay in cooperation instead of conflict. Britain has been a proud member of this club, helping build the single market and guiding the club’s expansion to help bring prosperity and stability to countries formerly under the yoke of fascism in Southern Europe and Communism in Eastern Europe.
Brexiters are the vanguard of the populist nationalists who hate the EU, because it promotes a rules-based liberal order rather than a tribally based struggle for power. Trump and Putin love a weakened Europe that they can bend to their will. They undermine the international cooperation, which is our only hope to deal with the global challenges humanity faces. No wonder these authoritarians reject policies to tackle climate change. They reject reason, facts and experts. They want to return to a nativist world based on gut instinct, where civility is overruled by the mob, manipulated of course by the iron fist of the demagogue.
Why Brexit is so financially painful
The no-deal crisis matters viscerally, as crashing out will hit hard. However, even after the adjustment when medicines and food supply chains recover, the worst is yet to come. Johnson has been promoting his economic lackey, Gerard Lyons, to head the Bank of England and therefore end its political independence. Lyons admits that no-deal Brexit will cause pain, but believes in a “Nike Swoosh” recovery. But the true picture will be one of a “dead cat bounce”. There will be a temporary recovery after the No-Deal chaos subsides, but then the inevitable relative economic decline will kick in making Britain poorer than it would been if we remain.
The economics of Brexit are almost trivially easy, which is why there is near-universal agreement among experts that Brexit will cost us dear. Trade costs rise with our closest neighbours from both tariffs and regulatory divergence, so trade will fall. Since the lesson of human development is that trade makes us average richer, Brexit will make us poorer. And the more extreme is the form of Brexit, the bigger is the fall of trade and income. The gory details and spurious counter-arguments are in the box below.
The pain will accumulate gradually. Brexit is a cunning domestic abuser of the economy. He hits us where the bruises do not show easily – it will be a gradual accumulation of financial pain over many, many years. Johnson will not be able to hide the violent assault of a No Deal. However, when the economic police are called, he will inevitably blame our nosy European neighbours, doubtlessly recording it on their iPhones. Alternatively, it will be the traitors within who are the enemies of the people.
We can argue over the exact magnitude of the Brexit pain. My best guess is that after a decade or two, British national income per head will be a tenth smaller under a no-deal Brexit than it would be if we remain in the EU.
Ten per cent of GDP sounds anodyne – is a loss of £200 billion per year a manageable number? Ten percent off public services means 11,000 fewer hospital doctors, almost 3,500 fewer GPs and 31,000 fewer nurses. Therefore, less diagnosis and treatment, longer waiting times and more people living in more pain. It means 12,600 fewer police – more crime, fewer clear-ups and more misery. It means 45,000 fewer teachers – bigger classes, less learning and more failure before kids’ lives have even begun.
Please do not tell me that we can avoid the cuts to the NHS because we can take bigger cuts elsewhere. Fewer cuts to the NHS mean more cuts elsewhere.
Instead of cutting services, could we just raise tax? Offsetting a £82 billion less public spending means increasing the basic rate of income tax by another 15 pence in the pound. At a time when wages will be stagnating, this will not be a pretty sight.
Let us be generous and say the losses are only half what I think they are – 5 per cent of GDP. This is actually the estimated long-run loss of Theresa May’s deal made by the independent UK in a Changing Europe, a softer situation than no deal. This will mean “only” a £100bn lower income hit so 22,500 fewer teachers and 15,000 fewer nurses.
The bottom line
We have known for a long time that Brexit is an economic disaster and now we also know that undemocratic no-deal Brexit is a political disaster. But it is also a moral disaster. A conscious decision to subject huge numbers to financial misery and see people hurt and die due to loss of public services and economic dislocation is simply unforgivable. Even if no deal were supported by an overwhelming mass of people – and the opposite is the case – it would still be wrong. If your sister were about to start a heroin habit, would you simply shrug and say “well it’s her choice”? Or, would you fight as hard as you could to stop her?
The people and parliament should not allow their rights to be trampled. Despite the looming darkness, we must prevent the assault on truth and democracy that Johnson’s odious regime represents. Britain is in the front line in this global battle.
And remember – it’s not over until it’s over.
Now the economics bit
Even though the economic arguments for EU membership are less important than the political and ethical case, I am a professional economist, so here are a few notes for the interested.
It is abundantly clear that Brexit entails an economic loss. The only real question really is how big the loss will be under different forms of Brexit. The best discussion of this is here, from the politically independent think-tank UK in a Changing Europe.
The conclusions are similar to my pre-referendum analysis as well as the recent Brexit assessments by the government, the Bank of England and NIESR. Indeed, all credible independent studies are in broad agreement that Brexit reduces average incomes, but the softer the Brexit; the lower will be the economic losses. This is why there is such a strong consensus among economists that leaving the EU will economically harm the UK.
The strength of this consensus is similar to that among medical experts about the harm caused by smoking or among meteorologists over the reality of climate change. This is why it is so ridiculous that the BBC and other broadcasters in the name of ‘balance’ give equal prominence to pro-Brexit economists as they do to those reflecting the profession’s opinion. The bulk of the UK press is virulently pro-Leave, so also heavily promotes the motley Brexit crew, whose models have been thoroughly, repeatedly debunked.
Often one hears the refrain that ‘economic forecasts are always wrong’ so should be ignored. A doctor cannot predict the age at which you will die if you start smoking two packets of cigarettes a day, but she is on firm grounds forecasting that your new smoking habit will be bad for your health.
Brexit economic analysis is generally not a forecast of what will be the exact size of the economy post-Brexit, but rather an analysis of the difference in economic outcomes if the UK leaves compared with if the UK remained. Brexit will not abolish the technological progress that the economy has managed to exploit over the last 250 years in order to grow. It will just mean that we are poorer given whatever the state of technology and world demand conditions that emerge over the next few decades.
A variant of the above argument is that economists’ forecasts have all been proven wrong by how well the UK economy grew after the vote in 2016. For example, David Davis, the former Secretary of State for Brexit, said that ‘previous Treasury forecasts had been proved wrong and were based on flawed assumptions’, citing in evidence that the UK economy had grown by over 2.8 per cent in the 18 months since the referendum, whereas the Treasury had forecast it would shrink.
This is an example of wilful misunderstanding. The general prediction was that the economy would grow by 2 per cent less than expected because of Brexit. And in fact, this is broadly what has happened since the vote – the UK economy has slipped from being at the top of the G7 growth league to the bottom. Moreover, observers reckon that GDP per capita is about 2 per cent lower than expected due to the Brexit vote.
It is true that economists thought that there would be a bigger immediate hit from the Brexit vote, whereas it took a few quarters before the economy started to slow down significantly relative to other countries. Therefore, although the forecasts got the overall hit about right, they got the timing wrong.
There were probably two reasons for this. First, modelling assumed that the negative immediate impact would come from the rational expectations of consumers of lower future real income growth. However, many people actually believed the propaganda on the Leave side that there would be no economic fallout from Brexit, so they continued spending much as before. It was only gradually when reality dawned that consumer confidence took a knock (for example, when the large fall in the value of sterling started to feed through into higher food prices and more expensive foreign holidays).
The second reason was that the Treasury analysis assumed that Article 50 would be activated immediately, whereas it was nine months later when Theresa May did this. The slowdown of the economy followed this as uncertainty started to spike.
Finally, it is worth pointing out Brexit has not yet happened. The majority of work, including my own, focuses on what happens after Brexit occurs, which is currently slated to be after the ‘transition period’ ends in 2020. Negative effects now are due to expectations about what might happen in the future, and these are notoriously hard to model.
The trouble will really start when true Brexit hits the fan.
This post represents the views of the author and not those of the Brexit blog, nor LSE. It first appeared at LSE Business Review.
John van Reenen is a professor at MIT’s department of economics and Sloan School of Management. From October 2003 to July 2016 he was professor of economics and the director of the Centre for Economic Performance (CEP) at LSE. He has published widely on the economics of innovation, labour markets and productivity. In 2009 he received the Yrjö Jahnsson Award, the European equivalent to the US Bates Clark Medal, awarded every two years to the best economist in Europe under the age of 45. In 2014 he won the European Investment Bank prize for excellence in economic and social research.
I do not believe the explanations as to why the Treasury wrongly forecast the effects of a Leave vote on the UK economy. The Treasury forecast a rise in employment of between 500,000 and 800,000 when in fact we now have record levels of employment. There is no evidence that the Treasury would have predicted a different employment trend had they known in advance of the delay of Article 50. There is no evidence that that employment would have fallen rather than risen had Article 50 been activated immediately.
We can only guess what the outcome of the Referendum might have been had economists correctly forecast that a Leave vote would be followed by a period of record employment. This is a serious constitutional issue. Yet, rather than address their gross failure, economists pretend (like the author of this article) that nothing is wrong. The Treasury gave two forecasts of unemployment following a Leave vote but their report did caveat their forecasts. They did say that the outcome might be worse. Nowhere did they say that it might be significantly better. Like the Iraq report before it, the Treasury report was clearly ‘sexed up’. There should be a public enquiry into the Treasury report just as there was into the Iraq report.
“Brexit economic analysis is generally not a forecast of what will be the exact size of the economy post-Brexit, but rather an analysis of the difference in economic outcomes if the UK leaves compared with if the UK remained.”
Had the referendum gone the other way, economists would now be comparing our record employment levels with their erroneous estimates for employment following a Leave vote.
By modelling different economic scenarios, economists tell us that EU immigration has had no detrimental effect on the low paid. They have not explained to us why the law of supply and demand uniquely fails to apply to low paid workers in the UK. The ONS has recently told us that net immigration has fallen to its lowest since December 2013. The ONS has also told us that earnings growth was highest in 2018 in the lowest-paid occupations. No doubt economists are already building themselves models to ‘prove’ that the same outcome would have happened under a Remain scenario with continuing high levels of European immigration.
Sorry … “The Treasury forecast a rise in employment of between 500,000 and 800,000” ….. should of course have been “a rise in unemployment …”.
Teejay. Well said.! I wish some writers of these posts would fixate on the possibility that the Leave and Remain vote is not so black and white as in’ Leave Populist and narrow minded’ and ‘Remain outgoing and far seeing’. This piece , to my mind is just another well worded expression of Remain bigotry..
Excellent post. A very good point about what the scale of the vote might have been had the Treasury accurately forecast the unemployment figures following a Leave vote; and yes there should be an inquiry into how and why the Treasury got it so wrong in such a way at a time when accuracy (or at least silence in the absence of certainty) was a democratic prerequisite.
For what it is worth, I think the Treasury forecasts were so hopelessly wrong because ( although they predicted a fall in the value of the pound), they did not properly take account of the benefits to the economy of a lower pound. This seems surprising since the same happened when the UK was ejected from the ERM. They seem to be making the same mistake going forward from now.
Teejay, As artists, my husband has done very much better since the Vote.Could be a fluke of course! He imports all his glass from America..It has done me no harm as an artist that the poundis not as strong as it was.My husband, by the by,was a Remain voter and i a Leave. I could not bear the way my family Northern seaside town has suffered so badly since the UK joined the EU.I continue to be upset by the lack of understanding from the so called learned people who blog on this page. Many are obsessed with models about their preset ‘London bubble’ conclusions.
Mrs MV ….grateful if you could explain the link between the EU and decline of the northern seaside town?
There is so much that is utterly unbalanced in this piece.The press are patently not virulently pro-Leave; not only Leave politicians tell the odd lie (anyone remember ‘ we will do what you say’ re the referendum?); the Remain campaign was clearly at least as ‘establishment’ as Leave (and its votes came more from the wealthy / establishment); polling indicates Tories would win an election, and Tory / Brexit party combined vote would be in majority in recent polls; Leavers are certainly no more intransigent than Remainers who won’t even countenance a clean Brexit as an option on their proposed second vote; and many of whom have sought to overturn the 2016 result from day 1.
The article likens a clean break from the EU’s institutions and jurisdiction to ‘domestic violence’ or a ‘suicide cult’, a ‘twisted ideology’ that will ‘stop at nothing’, wanting ‘a nativist world based on gut instinct, where civility is overruled by the mob, manipulated of course by the iron fist of the demagogue’. Brexiteers are people who reject ‘reason, facts and experts’, who made a ‘ conscious decision to subject huge numbers to financial misery and see people hurt and die’ . The Brexit voting public have something akin to ‘a heroin habit’ that good people have to stop.
This is patently ridiculous stuff.
I think the whole Brexit issue needs to be considered over the long term, a period of decades. If all the opposition parties in Parliament were to get together now and force a revocation of Article 50, then the UK would be a reluctant member of the EU but I think this would be a political disaster. Very likely everything that went wrong with the economy would be blamed on the EU and it wouldn’t be long before the annoyed Leavers elected a government who would take the UK out of the EU anyway. If you want the UK to be a convinced, cooperative and permanent member of the EU, I don’t see any way except for the UK to leave the EU for a while, discover that it’s cold out there, and reapply. Rehashing macroeconomic forecasts from 2016 is not going to be enough.
Thank you John for a very balanced and informative post, backed up by numerous sources. If articles such as this had the readership they deserve, if people really looked at what is happening, if people understood statistics and forecasts, we might be able to have a proper discussion on the EU, the UK’s place in the EU and what world economics are really like. If we did, I am certain virtually no one would be happy to leave with no deal, and a majority would not be happy to leave at all.
Instead, we have opinions and faith acting as facts. When Johnson is asked how we might actually get the Withdrawal Agreement he has promised – he says we just have to ask for the impossible with a bit more “oomph.” We just need confidence and we can get out cake and eat it.
Thanks again for a very good piece.
Get a grip! What a load of hyperbolic nonsense. Perhaps next time the boy cries wolf, he’ll be telling the truth, but the woefully inaccurate economic predictions made before the referendum make it impossible for a rational person to have faith in any but the most obvious predictions currently being peddled by economists and politicians who are ideologically opposed to Brexit.
The Treasury and the Bank of England predicted that a Leave vote alone would cause a 500,000 increase in unemployment within 2 years of the referendum. The opposite happened and we had the lowest unemployment figures since shortly after we joined the EEC.
You may turn out to be right on this occasion, but the evidence suggests we are entitled to be sceptical.
As for democracy, of course we did not vote specifically to leave without a deal, but neither did we vote to leave with a deal. The choice was to leave or remain and the majority of voters voted to leave -unconditionally. Leaving without a deal certainly satisfies the democratic mandate and any attempt to suggest otherwise is absurd.
The rejection of democracy is far more dangerous than a ‘no deal’. It is time to stop this hysteria.
@Stephen Doughty. “The rejection of democracy is far more dangerous than a ‘no deal’.”
It is ridiculous statements like this that poison our democratic discourse, that are actually anti-democratic. We have an officially advisory referendum in which lies were told with complete abandon. It was impossible to make a democratic decision about something which didn’t exist. “Leave the EU” doesn’t men anything by itself, it had to be defined. It wasn’t at the time of the referendum because those running the leave campaigns knew they would never get agreement about what the future course of the UK should be.
Now three years down the line we finally know what it means. It means to leave with no deal. To erect a border on the island of Ireland and to leave the EU with no future arrangement even hinted at, let alone decided. None of this was ever put forward at the referendum. For us to swallow this now is anti-democratic. We have a new government which was foisted upon us by a political party with a membership of 150,000 people – anti-democratic. They are threatening to prorogue Parliament – anti-democratic. They are ignoring the lives of the Northern Irish – anti-democratic.
Don’t talk such complete nonsense. It’s no deal that is anti-democratic and it will be a disaster for the UK, economically and socially.
Sorry, but this is a perfect example of the hysterical nonsense I was talking about.
Of course inaccuracies which might be regarded as ‘lies’ were put about during the referendum, as is the case during any democratic campaign. Indeed I referred to the woeful projections put out by the Treasury, and given the trusted and official nature of the source, teejay (above) is right to argue that there ought to be a inquiry. I know people who voted remain on the basis of misleading and false information put out by the remain campaign and by economic institutions wrongly described as ‘independent’ by George Osborne. Were it not for these grotesque remainer ‘lies’, it seems likely that Leave’s margin of victory would have been much greater. However, I never doubted that establishment disinformation would dominate the campaign and just hoped that most voters would see through it. Fortunately they did. Had they not done so, I could hardly have asked for the decision to be reversed.
I appreciate the technically advisory nature of the referendum, but the party manifestos (Tory 2015 and 2017, Labour 2017), the government and parliament all made it very clear that the advice was to be accepted. Can you recall politicians on either side of the campaign repeatedly reminding the electorate that this was merely an advisory referendum, and that parliament might choose to ignore the advice? Did you go into the voting booth thinking that even if remain won, parliament might reject your vote and trigger Article 50? And if that had happened, would you have happily accepted leaving the EU because, after all, the vote was merely advisory? I very much doubt it. Democracies rely on trust and if a decision of the electorate is not implemented, democracy dies.
Of course leaving the EU is meaningful. It means no longer being subject to the EU’s institutions and laws, much as India is no longer subject to ours. Although, there are possible compromises (some of which were outlined during the campaign) in which we might accept EU rules in some areas, leaving without ‘a deal’ is obviously the purest form of leaving the EU and the only form that leaves no doubt that we have left. There is a case for arguing that May’s ‘deal’ was not really Brexit, but you cannot say the same for leaving the EU without a deal. If we leave without a deal, we definitely leave the EU; to leave the EU is what the referendum decided and that is what democracy requires, with or without a deal. Anything else means we are no longer a democracy.
Incidentally, the U.K. Government has said it will not erect a hard border in Ireland, the Irish government has said it does not want one, the Good Friday Agreement says there shouldn’t be one. So who is going to build it?
Stephen I’m not sure it is a very well read and respected economist. Whatever you are smoking can I have some?
If it doesn’t turn out better will you eat humble pie?
The main remain mistake was to focus on the negatives and not get the young to vote. Leave branded everything perfectly.
The swing is 700,000 that’s all. That decides our future? Based on a rhetoric of a better deal? Yet noe the narritives has change to out means out. As an educated person you must see the irony in that.
Parliment is split but now looses more of its balance. Its interesting our growth is less than any other g7 country. That has not happened before and we’ve not even left. Pissing off your largest trade partner in a negotiation is never a great idea…..
Great contribution to the dialogue. I somewhere recall an angry brexiteer shouting on camera he’d, “rather eat grass than be in the EU”. In the event of shortages, it’s comforting relief to consider the pro-Brexit citizenry in the midlands being able to feed themselves.
The very significant inaccuracy (relative to the actual outturn) of the main HMG analysis regarding the immediate consequences of a “Leave” vote (see Cm 9292, May 2016, see particularly the table on p.8) has led to considerable scepticism regarding the value of projections regarding the longer term consequences of Brexit. Real wages haven’t flatlined as projected (where the projected figure is arrived at by adding the 2.8% decline projected in Cmd 9292’s “Shock Scenario” on top of the 3% increase projected in the OBR’s March 2016 economic and fiscal outlook Cm 9212 which forms the baseline for the Cm 9292 analysis) – they’re rising faster than they have for four years. The unemployment rate hasn’t increased to 6.6% – it’s fallen to 3.9%. The sterling exchange rate index projection has turned out to be the only projection that hasn’t been significantly outperformed by actual events.
Thx for the reference: Shock Scenario on the “Immediate economic impact…” Reminds one of the IPCC’s model results versus observed data. Also found para 1.47 an interesting read. 🙂
My understanding is that the reason the Treasury assumed that Article 50 and its consequent economic impact would take effect immediately after the referendum is that that is what they were instructed to do by the then prime minister.
Can we please put this £350million nonsense to bed once and for all. Remainers would have a point if the net figure were zero or if the net payments were actually in the reverse direction. They would even have a point if the true figure were a matter of hundreds of thousands instead of hundreds of millions.
But no Remainer I’ve seen has ever made such an argument.
The bottom line is that we pay billions annually to the EU and this money could be used differently. Whether the billions we pay works out at £350m per week, £300m or even £250m would have made absolutely no difference to the persuasiveness of the bus, which was trying to persuade members of the public, not financiers or LSE professors. The implication that the accuracy of the figure affected the outcome of the referendum is laughable.
As far as 99.99% of normal people are concerned, hundreds of millions per week is a lot of money. And according to the bus, that’s what we pay for our EU membership. We pay £ to the EU.
@P Souza: “The implication that the accuracy of the figure affected the outcome of the referendum is laughable.” I don’t think it is laughable. I agree that to the Great British Public there is not much difference in itself beween 350 million or 250 million. However if the Leave Campaign hadn’t deliberately provoked controversy by this particular lie, hardly anyone would have heard of the lie at all. How many people would even have known what was written on the side of that bus if it hadn’t been for the media and the Remainers jumping up and down about the Leave campaign’s dishonesty?
Of course there were other lies in during the referendum, on both sides. The bus lie was unusual in that it was obvious that it was a lie, even at the time.
Interesting, but in Northern Ireland, Scotland and Wales unionists were more likely to vote for Brexit. You can’t really count the various independence parties as wanting Britain to stay in the EU as they are actively fighting to gain independence from Britain, thus ending Britain/British as an entity and identity.