by John Poynton FCAAs a desperate rear guard action Remainians have come up with the idea of a 'soft' Brexit in which the UK would remain a member of the Single Market. They claim that Britain would not have trading access to the EU members' markets unless we remain a member of the Single Market (which is different and would involve accepting all its rules including uncontrolled borders), and love to say that Brexiteers have no clear picture of what Brexit would actually look like!
This is all of course complete nonsense. We know exactly what Brexit should look like, because that is what we voted for. Complete restoration of our independence and sovereignty. That specifically excludes any compromise over the Single Market, and I for one have always said so very clearly.
Consider the following points:-
1. It would be illegal under WTO rules for the EU to ban us from trading with its members. There is no prospect therefore of any kind of Napoleonic blockade against our exports. The US, Australia and many other countries already trade extensively with the EU without any free trade agreements (FTAs). All we are talking about therefore are tariffs.
2. The average tariffs we shall have to pay on our exports to the EU after we leave their customs union is around 4.5%. It varies according to the type of product, and there are no WTO permitted tariffs on services anyway. The maximum is 10% which will apply to motor vehicles and food, and the rest very much lower. But we have already gained an advantage in excess of 10% from devaluation so we are already ahead. Even a primary school maths pupil could work out that if you have a top line gain of 10% and a cost of 4.5%, then your bottom line is still a gain in excess of 5%! We therefore do not need ANY new deal with the EU, and there is NOTHING to hold up Brexit.
3. We have a massive trade deficit with the EU. Again our friends in primary school will be able to advise us that if you conclude an FTA when you already have a deficit you will only increase that deficit. Assuming it is a balanced deal, both exports and imports will go up by roughly the same percentage, and so therefore will the deficit! FTAs with countries with whom we have a deficit will only make matters worse, and we must avoid them like the plague. Our policy must be for balanced trade.
4. Mervyn King, who was Governor of the Bank of England between 2003 and 2013, has traced in his new book, The End of Alchemy, the causes of both the banking crisis and the low interest rate / low growth paradigm we are stuck in to the huge structural trade imbalances that developed around the world with globalisation. He makes it crystal clear we must take trade deficits far more seriously that we have done in the past.
Think of our economy as a barrel - full of jobs and consumer demand. Normally jobs and consumer demand will simply circulate and the barrel is full at full employment. Unfortunately we have a ruddy great hole in the bottom of our barrel, caused by the trade deficit. So far the Bank of England has been topping up the barrel with Quantitative Easing, which has the effect of reducing interest rates and encouraging people to borrow and thus spend their future earnings now. But as Lord King points out, this cannot go on for ever. Before long tomorrow becomes today and we have to borrow even more to pay off the debts we have built up, as well as plugging the continuing hole in our barrel. Diminishing returns inevitably set in. Thus the only way we can avoid a massive increase in unemployment is by eliminating our trade deficit, and the only way we can do that is through devaluation and import tariffs, and those measures are only available through Brexit. Remainiacs therefore pose a very real danger to our future economic security and prosperity.
5. Exporters clamour for FTAs regardless because they are only looking at one small part of the picture - the increase in exports. What they overlook is:
(a) The loss of jobs. Because imports destroy jobs just as exports create them the higher rise in imports produces a net rise in unemployment,
(b) The increase in the trade deficit as mentioned above and consequent loss of future economic growth as a result of low interest rates, savings and hence investment,
(c) The loss of import tariff revenues.
We must of course put in place a mirror of the EU's tariffs ourselves. With imports running at c.£650bn pa, and assuming an average tariff at 4%, that produces annual revenues for the taxpayer of just over £25bn pa. In reality it would be less than that because of pre-existing FTAs and because it may be to our net advantage to conclude FTAs with surplus countries such as the US and Australia, but the number would still be substantial. With the massive fiscal deficit we are also running we desperately need that money. Yet the Remaniacs propose to throw it away for NOTHING!
So Final Score: Brexit 3 , Exporters 1
Remainiacs will still doubtless accuse me of protectionism. The principal argument against protectionism where you already have a deficit (I don't advocate running a major surplus like the Chinese) is that both devaluation and increasing import tariffs are likely to cause a trade war to no-one's advantage. This is normally true, but not in the case of Brexit. The rest of the world already pays the tariffs to Brussels so all we are doing is diverting the revenues to London. As for the EU countries themselves they can hardly complain if we charge them the same tariffs as they do to us. So Brexit gives us a golden, once-in-a-lifetime opportunity to correct our terms of trade and get growth going again without starting a trade war. Let's not waste it.
Of course nothing worthwhile in life is ever achieved without taking a risk. Here the principal risk is inflation. It comes from three sources - devaluation, import tariffs and wage rises. We shall have to hold the economy flat for at least a couple of years so these pressures do not develop into an inflationary spiral. That was however achieved in the 1990s after the exit from the ERM and we can do it again. It also means we must avoid stupid policies like increasing business rates just when we need business to absorb those inflationary pressures.
EVERY DAY this government dithers and delays over Brexit costs the taxpayer over £100m from a combination of continued budget payments into the EU and the loss of import tariff revenues. We also remain at risk of having to bail out possible continental bank failures such as Deutsch Bank to the tune of tens of billions of £s. Brexit is URGENT.