Is the CBI admitting defeat?

The article, The CBI has admitted defeat – and the economic case against Brexit is collapsing, appeared on the City A.M. website on 22 March 2016. The author, Richard Tice (co-founder of Leave.eu) is commenting on a PwC report, Leaving the EU: Implications for the UK economy. I have read the PwC report—admittedly I mostly skimmed the annexes—and don’t see how Mr Tice’s comments are supported. I’ve annotated the article with my remarks and quotes from the PwC report, the CBI announcement on their website and other sources.

For the avoidance of any doubt, I am in favour of remaining in the EU despite the problems.Diaper Screenbean

The TL;DR version of this post is that the City A.M. article is a steaming pile of falsehood and misdirection.

I don’t propose to delve deeply into the methodology of the PwC analysis, but it’s important to note that the authors looked at three scenarios:

  1. The UK remains in the EU.
  2. An ‘FTA scenario’ in which the UK negotiates a Free Trade Agreement (FTA) with the EU and both this and other aspects of post-exit uncertainty are resolved within five years of the referendum (i.e., by 2021).
  3. A ‘WTO scenario’ in which negotiations on post-exit arrangements prove more difficult and prolonged, and trade between the UK and the EU defaults to being conducted under World Trade Organisation (WTO) rules.

So to the City A.M. piece, which begins:

Monday 21 March will go down as a seminal moment in the campaign for the UK to leave the European Union. It was the day the CBI conceded defeat in the economic argument. [City A.M.]

Except they didn’t:

CBI Director-General, Carolyn Fairbairn, has warned that leaving the EU would cause a serious shock to the UK economy, with a potential cost to UK GDP of £100 billion and 950,000 jobs by 2020 and negative echoes that could last many years after that. [CBI]

That, funnily enough, was on the 21 March.

From this point forward, following the publication of a study it commissioned from PwC, the business group will have to explain why economic growth will be higher in the long term if we leave the EU. It’s an admission that higher costs through taxes and regulatory compliance make us less competitive than we should be. [City A.M.]

They didn’t say that either:

We estimate that total UK GDP in 2020 could be between around 3% and 5.5% lower under the FTA and WTO scenarios respectively than if the UK remains in the EU. [PwC]

Here’s the summary table of results.

Exit Scenario Results

The “counterfactual scenario” is staying in.

Tice continues:

PwC offered two alternative scenarios compared to remaining in the EU: the first with a free trade agreement between the UK and the EU, and the second with World Trade Organisation rules governing our trade. Under both these scenarios, UK growth was projected to be higher after 2020 than if Britain remained in the EU. The area of dispute is what would happen between now and 2020, with PwC arguing that there would be pain. [City A.M.]

The second sentence is a flat-out lie as you can see from the table I copied from the report.

By 2030 this post-exit uncertainty should be resolved, but we estimate that the net longer term impact of other changes related to EU exit could result in total UK GDP in 2030 being between 1.2% and 3.5% lower in our two exit scenarios than if the UK remains in the EU (around £25–65 billion, at 2015 values). [PwC]

Not much ambiguity about that statement, is there?

But this is unnecessarily pessimistic. Leaving the EU requires that we follow Article 50 of the Lisbon Treaty, meaning we would continue to have full access to the Single Market in the two years stipulated for negotiating our disentanglement. We already have all the necessary regulations so should not expect trade to be disrupted. [City A.M.]

The PwC report is clear that the uncertainty created by Brexit will last for several years, certainly, beyond the two years the treaty provides for divorce negotiations. In fact, it might be argued that the assumption (stated in the report) that the UK will negotiate an FTA with the US is optimistic, given that Michael Froman, a senior US trade official has said that the US is “not particularly in the market for FTA’s with individual countries.” 5

There is considerable uncertainty around how long the formal exit process would last. For example, the UK Government has suggested that negotiating trade agreements can take up to ten years or more so a two-year period could be relatively optimistic. [PwC]

The EU’s FTA with South Korea took four years to negotiate, the agreement with Canada seven years (and it is still not operational), Switzerland’s multiple agreements took 10 years to negotiate.

We also need to remember that, following Brexit, the UK saves £12bn net per annum in EU membership fees and can tailor regulation to meet its needs. This would be a spur to significant growth. [City A.M.]

The PwC report clearly explains that the fiscal savings achieved from not contributing to the EU budget are factored into their models.

Open Europe has calculated that the most wasteful 100 EU regulations cost over £33bn each year and there are thousands of others on top of that. These could be greatly reduced or simplified, helping small businesses, job creation and the consumer. [City A.M.]

Annex E of the report looks at regulation in some detail in the context of the Open Europe study. Tice’s focus on the headline figure of £33 bn is typically misleading. Open Europe’s own work indicates that for various reasons not all regulations could be repealed, and, therefore, savings of only £12.8 bn are feasible. Among reasons for not repealing are: it would politically sensitive, existing UK regulation is already more stringent EU requirements, some regulation (e.g., protection from noise and asbestos) are clearly beneficial. A recent example of the benefits of regulation is University of Leeds study showing the saving of lives attributed to EU regulations on air pollution. The benefits from regulation are not included in anybody’s calculations (that I have come across yet).

Savings from regulation are clearly included in the modelling. Tice’s weasel-wording implies they are not.

Separate studies by academics such as professors Patrick Minford and Tim Congdon, as well as a UK Treasury cost-benefit analysis commissioned by Gordon Brown, have all shown the EU is a drag on UK economic growth in a range from 4 to 12 per cent. [City A.M.]

And there are studies indicating the opposite:

The Single Market has been the source of sizable benefits for the EU economy as a whole. Over the period 1992–2006, of the part of the gains of the Single Market that can be measured, it has been estimated that:
– EU Gross Domestic Product (GDP) in 2006 was 2.2% higher than it would have been without the Single Market – an average increase in benefits to consumers of €518 per person.
– An additional 2.75 million jobs across Europe.

BIS

On average, trade agreements the EU has entered into over the past two decades increased the quality of UK imports from its FTA partners by 26 per cent and lowered the quality-adjusted price of imports by 19 per cent.

CEP

Add to this the admission by chairman of the remain side, Lord Rose, that wages would rise once outside the EU and we see the economic case for staying in is collapsing [City A.M.]

Lord Rose is also standing by the statistic that EU memberships is worth £3000 per year per household.

As a result, the Single Market may be responsible for income gains in the UK between 2% and 6%, that is between £1100 and £3300 a year per British household.

BIS

People have every right to be concerned about their jobs and future prospects, but the reason Project Fear is not working is because the scaremongers got it wrong before. It was the CBI, the big corporates and the establishment politicians that told us we could not survive if we did not join the euro. [City A.M.]

This is just emotional tosh. If the pro-EU crowd are scare-mongering, the pro-Brexit crew are fantasy-mongering that Britain outside Europe will be the world power it once was; that negotiating trade agreements will be a quick and straightforward process; that being outside the club enables you to negotiate a better deal than when you were in; that the rest of the world will be more interested in the UK outside the EU than as part of the largest single global market.

Now, with cheerful repetition, every week international bodies are declaring that they’re putting their faith in the UK. Last week we had the cosmetics company Avon announcing that, after 130 years, it would be moving its HQ from New York to Britain rather than Paris, while at the weekend Boeing broke the news that its European HQ would be in the UK not Germany. [City A.M.]

No-one is saying the UK will be a terrible place outside the EU, but a bunch of Americans will surely be more comfortable living and working somewhere that speaks the same language—more or less.

We also had the Norwegian Sovereign Wealth Fund say it would be investing at least as much in the UK following Brexit, while some 70 per cent of chief financial officers surveyed world-wide said they believed Brexit would make no difference to their business plans.

Yes, but only 2.1% said they would be more likely to do business with the UK, and 16.7% said they would be less, or significantly less, likely to do business with the UK. That sounds like more pain. Again, nobody said the world will explode if we leave the EU.

We even find that the Pentagon is to locate its new European Intelligence Centre in Northamptonshire rather than the Azores, belying the nonsense that our security will be at risk if we leave the EU. [City A.M.]

Did you read what I said about speaking English? And here are a few people who think the UK should stay in the EU: Dr Ian Robertson, BMW AG; Nigel Stein, Chief Executive, GKN PLC; Dr Graham Cooley, Chief Executive, ITM Power PLC; Gamil Magal, Group Chief Executive, Magal Engineering Limited; Tony Walker, Deputy Managing Director, Toyota Motor Manufacturing UK; Rory Harvey, Managing Director and Chairman of Vauxhall. 13 These people are just from one industry sector.

The scare stories about doing business, international investment, access to markets, recruitment of talent and security are all being shown by real decision-makers to be based on false assumptions. The CBI knows this and from now on will be in retreat. [City A.M.]

No, they won’t.

It is, however, predicted by PwC’s analysis that the UK will be better off in 2030 than in 2015 whether we stay in or leave. But, we will be more better off, if we stay in.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: