We’ve another of these reports which insists that Brexit is going to impoverish the nation, have us all succumbing to phossy jaw as matchmaking becomes our only option. There is just the one little problem with it. They’ve missed – or rather imported from an earlier report – that WTO tariffs are a ceiling on what could be charged upon imports, not a level which must be charged upon anything at all. Thus, sadly, their fourth option is wrong:

Each of the government’s four Brexit scenarios, including a bespoke deal, would leave Britain poorer and cost the taxpayer hundreds of millions of pounds each week, analysis has shown.

The study for the thinktank Global Future by Jonathan Portes, a professor of economics and public policy at King’s College, London, found that a bespoke deal, the government’s preferred option, would have a net negative fiscal impact of about £40bn a year.

One useful answer is so what? Cuban socialism has impoverished the place but just feel the width of the free health care! And yes, there are substantial numbers who argue this is a good deal for the place.

However, the error is really here:

After looking at all four options available to the prime minister, the study established that in the long-term, the amount of money available for spending on public services would fall. Under the so-called Norway option, there would be £262m less a week, under the Canada model it would be £877m, while under a no deal it would be £1.25bn.

No deal leads to WTO tariffs. These are not rates which must be charged – they are maximums which may be charged. Given the current misunderstandings about trade we can imagine that they will be charged to our exports to other countries. But note who pays tariffs – consumers in the country levying them. So, sticking WTO maximum tariffs upon what we want to buy ourselves, taxing ourselves for buying foreign, is ludicrous. Therefore we shouldn’t do it. But the assumption is that we will at the maximum rate possible:

To insist, meanwhile, that we must raise tariffs on the imports we desire is to misunderstand the WTO system. As a source in Geneva explains, Britain is a WTO member in its own right and will still be so even after Brexit happens. This means that we have promised not to charge higher than the allowable ceilings in tariffs upon imports from other WTO members. The Most Favoured Nation clause also states that whatever we do decide to charge ourselves, we must apply the same rate to the same products from all different WTO countries.

But not charging higher than the allowable ceilings does not commit us to charging anything at all. We can apply a 0 per cent rate (yes, I checked) if we so wish.

That is, being outside the EU means we do not have to charge the EU external tariff rates upon anything and can insist that we pay ourselves nothing on all sources of food from everywhere. Economists are reasonably certain this is going to lead to lower food prices in Britain.

By the way, just about every Brexit report makes this same mistake. Or, in at least some cases, deliberate error. Correcting for it gives us Patrick Minford’s estimate of Brexit making us 3% richer, quite a long way from it having a cost really.

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  1. They say, in other words, that when Britain escapes from the harmful policies of the EU, the only future is Britain enacting equally harmful policies. As the only alternative to government grade schools is no schooling anywhere in the nation. Global Future is more proof that one doesn’t move to the capital to measure but to prevail, and there are no studies, only sales pitches. The Guardian reporter amps up the manipulation by putting this froth in terms of how much Ms May will snatch out of Your Pocket.

  2. The few people who have understood this when I explain it to them then cry: but if we don’t have tariffs where will the government get the money from? I then have to patiently explain that the government currently does not get any money from tarrifs, it all goes to the EU. So by leaving the EU and by chucking out all tariffs there is no change to UK government income. They usually get stuck at “but all that money…..”

    • Do we have any reason to think that it is politicians being politically entrepreneurial and trying to find policies that people will actually buy, rather than just their basic ignorance or even rejection of the principles of liberal trade.

      • Good question. It is hard to tell the difference between genuine ignorance, a principled politico prepared to die on the wrong hill, an opportunist and one who sees a bigger picture. I am only doing occam’s razor in concluding that someone’s whose job depends to some extent on public opinion will tend to repeat those opinions back at them rather than the more arduous task of persuading your employer they’re mistaken.

        • Part of this is the eternal dilemma between the putative and the actual job description. No matter how you word the Oath of Office, the pol will disobey it if it gets him re-elected. Awareness of how societies and economies actually work is a distant third. Your four possibilities call for evaluating the character of the people you vote for.

    • Christian, that is what is going on in the U.S. Trump is whipping up workers that “foreigners are taking your jobs,” when he knows that shoes are stitched not by swarthy foreigners but by machines, which the adaptable among them are earning twice as much as before to program up. This is mercantilism (government will eliminate any potential competition to me) adapted to the blue-collar worker.

  3. I think there’s a fighting chance British politicians will not be able to figure out how to do this. Either we will have domestic industries crying for protection against “uncontrolled imports” (farming?), or people will say it’s wrong to charge nothing on imports from x if x charges duty on our exports to them (Trump etc etc). That doesn’t make it a Brexit problem as such, but it would be wise to temper the “of course we won’t be so stupid” argument when we know damn well we might be just that stupid. It goes in the same box as the argument that the Germans won’t let us leave without a good free trade deal because we import so many cars from them, so it’s in their best interest to give us a good deal, which I think has shown that just because something is common sense and rational doesn’t mean people will do it.