The Chancellor has announced the Cross Whitehall Briefing (CWB) prepared in January 2018 is undergoing some "refinement" ready for the meaningful vote to take place in the House of Commons later this year - or next. The CWB is the secret briefing with various economic forecasts (HERE - page 16). The original April 2016 forecast by the Treasury (HERE - page 7) was that GDP, in the event of moving to WTO rules, would suffer a drop of 7.5% after 15 years. By January this year in the CWB, it was 7.7% by 2033-4, so very close if not identical. Obviously, nothing had changed the Treasury view in eighteen months.
But now it is to undergo some "refinement" and nobody knows if this is going to increase or decrease the forecasts - I assume it won't stay the same otherwise why refine it?
My money would be on an increase. Why so? Well, first of all I should say these are already very big numbers. Remember the UK economy is worth two trillion pounds, that's £2000 billion - at current prices. Cutting it by 7.7% would be £154 billion today. By the time we get to 2030 we are looking at even more, closer to £200 billion. Government takes 35-40% of this so we are looking at a hit of perhaps £80 billion on tax revenues. This rather dwarfs our payments to the EU. It would also be sweet revenge for the Brexiteer's attacks on him personally.
Before the referendum the economy was growing at about 2.5% a year, afterwards it has slowed to about 1.5%. The difference is 1% a year and cumulatively, so in two years we are 2% down. The Bank of England governor confirmed in May this year, that we are indeed already 2% down.
Now bear in mind (a) we are still in the EU and apart from a lot of uncertainty, things are the same as before the referendum, nothing has changed, (b) we are only two years after the referendum and (c) we are already a quarter of the way to the forecast.
What does this tell us? If I was impartial I think it means things will be worse than the original forecasts. And this will be seriously bad news for the Brexiteers. By the end of the year the government is going to be faced with three simultaneous problems:
- A slowing economy with a worsening forecast of future revenues
- More (and more serious) technical notices of the consequences of no deal with the obvious conclusion that the UK is entirely unprepared for Brexit in March 2019
- Falling support for Brexit in the polls
What will it do? It can apply to extend Article 50 (leaving without a deal is just never going to happen), stack up more wasted time and money and uncertainty in pursuing the Chequers plan or one of the other more acceptable options - or be honest with the British people, go for another referendum and put an end to it all. This latter option might - just - save the Conservative party as well.
Incidentally, re-reading the Treasury Analysis I was struck by what Osborne said in the Executive Summary:
"It is widely accepted that leaving the EU would mean a new relationship based on one of the following models:
- Membership of the European Economic Area, like Norway
- A negotiated bilateral agreement, like those of Switzerland, Turkey or Canada, or
- Membership of the World Trade Organisation without any specific agreement with the EU
No country has been able to negotiate any other sort of deal, and it would not be in the EU’s interest to agree one".
Remember this was in April 2016 and it was remarkably prescient. Of the options outlined, Mrs May has rejected the first, the EU has offered the second (a Canada style deal, they won't offer a Swiss deal because it's so complex and Turkey is out of the question) but we have ruled it unacceptable and the Brexiteers are pushing for the third. But the government, two and a half years on, is still resolutely pushing for a bespoke, mixed solution that satisfies no one and doesn't address the frictionless trade we need at Dover or the Irish border question.
We will have to accept one of the three options in the end.
But we knew all of this in April 2016. If Mrs May had decided to pursue one clear option we would probably be in EFTA and the EEA now, or we would be well on the way to sorting out a Canada style (CETA) trade agreement. Even if we had gone for the nuclear WTO option it would have given much more time to plan.
As it is, we have wasted seventeen of the twenty four months trying to obtain the unobtainable. And by delaying the whole process we have ceded 100% control to the EU, which started with most of the cards and now has the whole pack.
