At 6 pm today, former prime minister Gordon Brown will give the keynote speech at the launch of the Centre for European Reform report, The economic consequences of leaving the EU.
His speech will be followed by a debate on the economics of Brexit. Stephanie Flanders of JP Morgan Asset Management and Martin Wolf of the Financial Times will argue that Brexit would damage Britain’s economy. Roger Bootle of Capital Economics and Gerard Lyons, economic advisor to Boris Johnson, will argue the reverse, chaired by Evan Davis of BBC Newsnight. The audience – a specially selected panel of 100 economists from the academic and business worlds – will vote on the issue.
The CER's report shows that the US’s free trade agreements have been less effective than the EU’s single market at reducing trade costs.
The reason is that the single market is a much more advanced form of trade agreement. It has not just abolished tariffs, but has gone a long way to breaking down non-tariff barriers to trade that arise from different national regulations.
A post-Brexit Britain will struggle to offset higher trade barriers with the EU by signing FTAs with other countries. According to the CER’s analysis, Britain’s trade costs with the EU fell by 0.4 percentage points a year between 1996 and 2010. By contrast, FTAs between the US, Canada and Australia did very little to reduce the cost of trade. Australia’s cost of trade with the US fell by 0.05 percentage points a year. In Canada’s case, trade costs increased with the US after it signed the North American Free Trade Agreement in 1994. (See chart.)
Other highlights from the report include:
- EU membership has boosted Britain’s trade significantly. The CER constructed a ‘gravity’ model to quantify how much trade is down to the EU itself, rather than the simple fact that Europe is comparatively rich and nearby. It shows that Britain’s EU membership has boosted its trade in goods with other member-states by 55 per cent: this ‘EU effect’ amounted to around £130 billion. By contrast, the value of Britain’s trade with China was £43 billion that year.
- European rules are not a major constraint upon Britain’s economy. According to the OECD, Britain has the second least regulated product markets in the developed world, after the Netherlands. Both are EU members. The OECD’s labour market protection index shows that Britain has similar levels of labour market regulation to the US, Canada or Australia – and far lower than continental European countries. EU employment rules therefore do little to inhibit Britain’s flexible labour market.
- Finally, in a new analysis of the effect of EU immigration on UK wages, the CER finds that immigration from the EU between 2004 and 2015 has reduced the wages of low-skilled services workers by 0.8 per cent. For comparison, the government’s tax increases and benefit cuts between 2010 and 2019 will reduce the incomes of the poorest tenth of Britons by 10.6 per cent, according to the UK’s Institute for Fiscal Studies.
Commenting, one of the report’s authors, John Springford said: “Britain would face an invidious choice after Brexit. The EU would insist that in return for full access to the single market, the UK must continue to sign up to EU laws, pay budget contributions and accept the free movement of people. As Britain would have voted to escape these perceived burdens, higher barriers to trade with the EU are all but certain. The higher the barriers, the greater the damage to the British economy.”
Notes for editors:
John Springford, senior research fellow, can be contacted about the report on +44 20 7227 1199 or at john@cer.org.uk
Simon Tilford, deputy director on +44 20 7227 1199 or at simon@cer.org.uk
The members of the CER commission are:
Kate Barker, Former Member, Monetary Policy Committee, Bank of England
Sir Brian Bender, Former Permanent Secretary, UK Department of Business, Innovation and Skills
Wendy Carlin, Professor of Economics, University College London
Nicholas Crafts, Professor of Economics and Economic History, Warwick University
Paul De Grauwe, John Paulson Professor of European Political Economy, London School of Economics
Gérard Errera, Chairman, Blackstone Group France and former Secretary-General of the French Foreign Ministry
Martin Hatfull, Director of Government Relations, Diageo and former UK Ambassador to Indonesia
Sony Kapoor, Director, Re-Define
Sir Richard Lambert, Former Director, Confederation of British Industry and former Editor, Financial Times
Lord Mandelson, Former European Commissioner for Trade, and former Secretary of State for Business, Innovation and Skills
Mariana Mazzucato, RM Phillips Professor of Science and Technology, Sussex University
Lord Monks, Former General Secretary, Trades Union Congress and former General Secretary, European Trade Union Confederation
Kevin O'Rourke, Chichele Professor of Economic History, Oxford University
Andrew Oswald, Professor of Economics, Warwick University
Christopher Padilla, Vice-President, Governmental Programs, IBM and former Under-Secretary of Trade in the US Department of Commerce
Jonathan Portes, Director, National Insitute of Economic and Social Research
Sir Michael Rake, Chairman, BT Group plc and former President, Confederation of British Industry
André Sapir, Senior Fellow, Bruegel and Professor of Economics, Université Libre de Bruxelles
Simon Walker, Director, Institute of Directors
Sir Nigel Wicks, Former Chairman, British Bankers' Association and former Chairman, EU Monetary Committee
André Villeneuve, Advisory Council Member, TheCityUK
Martin Wolf, Chief Economics Commentator, Financial Times