The Debate on Prime Minister May's Brexit Deal: An Economist's Perspective

Prime Minister May's Brexit deal has garnered a mixed response from the economic community. While a minority of economists advocate for the deal, the broader consensus is less optimistic. This article delves into the arguments presented by these economists and the overall economic impact of the deal.

Economic Benefits of the Deal

The proponents of Prime Minister May's Brexit deal argue that certain aspects of the deal could yield significant economic benefits. Key among these is the cessation of payments to the UK, estimated to be around 0.4% of GDP. Other potential benefits include:

Repealing certain financial and transport regulations, estimated to be around 0.09% of GDP. Reforming the Common Agricultural Policy in the UK, estimated to be around 0.15% of GDP. Removing student loan tax credits and housing benefit from new EU immigrants, estimated to be around 0.075% of GDP.

Despite these potential benefits, the deal does not allow for tariff reductions. This omission means that the full benefits of some reforms cannot be realized. Adding up these potential benefits, the total estimated gain from the deal is 0.675% of GDP.

Drawbacks of the Deal

However, the deal introduces non-tariff barriers on the services sector. Each service provider will need to demonstrate compliance with each EU country's standards to provide services in those countries. This process is expensive and can require setting up separate offices in each country due to differing regulations and compliance methods. The cost of this process is estimated to be around 1.3% of GDP. Even if there were further benefits from changes in behavior due to regulatory changes, they would not be enough to close this gap.

Furthermore, staying in the single market would eliminate these non-tariff barriers, but it would reduce the benefits to around 0.49% of GDP.

Broader Economic Consequences

Much of the economic analysis by economists focuses on the broader consequences of Brexit, which are largely seen as negative. For instance, economists agree that Brexit will raise both tariff and non-tariff barriers to trade with the EU. This will increase consumer prices for the UK's exports when not reciprocated by the EU, and will disadvantage producers when reciprocity is established. The decrease in the exchange rate, as per the Marshall-Lerner condition, will not mitigate these price increases.

Economists’ Disagreements

There is debate among economists regarding the potential advantages of the deal. Here are some of the areas where they could differ:

Strength of the UK: Some economists argue that the UK can improve its trading terms with the rest of the world, which would offset the increased costs of trading with the EU. However, this would require a significant rebalancing of the economy away from manufacturing towards financial services and gold trading. Protection of Workers and Consumers: Other economists argue that the UK can gain cheaper prices for some goods, which could outweigh increased prices in others. This might require trading standards different from those of the EU. Ethical Considerations: Some economists believe that the UK benefits economically from allowing in rich oligarchs rather than lower-skilled workers. They argue that the overall benefit to the economy justifies the distribution of the benefits.

The majority of UK economists, however, still hold the view that the UK is better off remaining in the EU. This belief is primarily due to the calculated risks of losing EU trade, a view which has become even more pessimistic since 2016.

Conclusion

While a small minority of economists advocating for Prime Minister May's Brexit deal see potential in the deal, the broader consensus among economists is that there are significant drawbacks to the deal. The economic benefits, if realized, are likely to be outweighed by the non-tariff barriers, lack of tariff reductions, and overall negative impact on trade and prices. The future of the UK economy under this deal remains a subject of considerable debate and analysis.