Brexit: Economic Analysis of Various Scenarios
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The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, with the leave of the House, I will repeat the Answer to an Urgent Question given in another place earlier today by my honourable friend the Financial Secretary to the Treasury:
“Mr Speaker, today the Government published the analysis of the economic and fiscal effects of leaving the EU, honouring the commitment made to this House.
It is important to recognise that the analysis is not an economic forecast for the UK economy; it only considers potential economic impacts specific to EU exit and it does not pre-judge all future policy or wider economic developments. The analysis sets out how different scenarios affect GDP and the sectors and regions of the economy against today’s arrangements with the EU.
Four different scenarios have been analysed: a scenario based on the July White Paper; a no-deal scenario; an average FTA scenario; and an EEA-type scenario. Given the spectrum of different outcomes, and ahead of the detailed negotiations on the legal text of the deal, the analysis builds in sensitivity, with effectively the White Paper at one end and the hypothetical FTA at the other.
I turn now to the outcome of the analysis. The analysis shows that the outcomes for the proposed future UK-EU relationship would deliver significantly higher economic output—around 7 percentage points higher—than a no-deal scenario. The analysis shows that a no-deal scenario would result in lower economic activity in all sector groups of the economy compared to the White Paper scenario. The analysis also shows that in the no-deal scenario, all nations and regions of the UK would have lower economic activity in the long run compared to the White Paper scenario, with Northern Ireland, Wales and Scotland all being subject to a significant economic impact.
What the Government have published today shows that the deal on the table is the best deal. It honours the referendum and realises the opportunities of Brexit. It is a deal that takes back control of our borders, our laws, and our money. Let me be very clear to the House and to those who say that the economic benefits of staying in the EU mean we should overturn the result of the referendum: to do so would open up the country to even further division and turbulence and undermine the trust placed by the British people in our democracy. What this House and our country face today is the opportunity presented by the deal: a deal that honours the result of the referendum and safeguards our economic future; or the alternative, the risk of no deal or indeed of no Brexit at all”.
Lord Davies of Oldham (Lab)
My Lords, I am grateful to the noble Lord for that short series of comments on this important issue.
Of course Her Majesty’s Opposition respects the referendum result but no one can offer much respect to the botched Brexit negotiations, in which the Prime Minister neither meets our six points nor her own red lines. Do the Government accept that the choice cannot be between her deal and no deal? Do they not recognise that we need a deal to support jobs and the economy, and which guarantees that important standards are sustained and protections are clearly in place?
There is a real worry about the Government’s position as a result of the negotiations, and this House and the other place will hear a great deal about that in the next few weeks.
Lord Bates
The choice before us is clearly between a deal and no deal. Many people have speculated over the past two and a half years as to what would happen. They said that no agreement would be reached in December and that we would not get the EU (Withdrawal) Act through Parliament. Both those things have happened. Also, crucially, they said that we would not reach a deal this November, which the Prime Minister has secured. It is a good deal for this country, which is being put before Parliament as promised. Also as promised, we are supplying, in a transparent way, the economic analysis of that, included in technical notes, so that the House can come to an informed decision.
Baroness Kramer (LD)
My Lords, the Chancellor this morning—I am sure quite inadvertently—suggested in a number of media interviews that the deal being presented to Parliament would offer a level of prosperity only marginally poorer than that of remaining in the EU. Of course, he was reading from the wrong column of his own report. Is he now willing to make the correction and confirm, as the Institute for Government and others have, that the nearest comparison to the proposed deal is the column entitled “Modelled White Paper with 50 per cent NTB”—non-tariff barrier—“sensitivity”, which blows a complete cannonball through that assertion and, indeed, shows that the option on the table is far more damaging even than the EEA or Norway option?
Lord Bates
The analysis shows a range of possible outcomes because we do not know, at this stage, what the outcome will be of the negotiations. We have set out a proposal in the White Paper that is backed up by the political declaration, and we want to see that achieved. To help the House and indeed others to prepare for that, we have provided for a whole range of scenarios. That includes sensitivity analysis, which would allow for just the point the noble Baroness has highlighted—about different types of trade outcomes—to be factored in before people come to a conclusion.
Baroness Quin (Lab)
My Lords, is it not clear from what the Minister has said that what is in front of us is not delivering exactly the same benefits, which is what we were promised by the former Brexit Secretary in the other place? What discussions have the Government had with the City of London about the exclusion of services? The figures seem to show that the economy of London—which, it was previously thought, would do rather well out of this situation—is being quite badly affected because of the exclusion of the service sector which is so important to our economy.
Lord Bates
I can confirm that the economic analysis being undertaken is for the economy as a whole—goods and services—and that is reflected in the regional pages. Further analysis by the Bank of England, which we believe will be released in about 40 minutes’ time, will give another view that will be helpful to Parliament and to others who wish to see what the impact would be. But we are absolutely confident that the deal as presented represents the best opportunity for this country, and that is backed up by the analysis.
Lord Dobbs (Con)
I wonder whether my noble friend could help me understand this. He said, in his own words, that there is a clear choice between this deal and no deal, but the Statement finished off with a third alternative: no Brexit at all. Could he elaborate: in what circumstances could there be no Brexit at all?
Lord Bates
We have the EU (Withdrawal) Act which, of course, commits us to a course of action. The choice I mentioned was clearly the preference that we would have a deal as negotiated by the Prime Minister, but that is subject to the will of Parliament as expressed in a meaningful vote on 11 December, and we are seeking to inform that debate.
Lord Wigley (PC)
My Lords, the Minister will be aware that the Welsh economy benefits substantially from European structural funds. At the time of the referendum, guarantees were given by those campaigning for Brexit that these funds would continue way into the future, not just up to 2020. What assumption was made in this document about the continuation of such funding for the Welsh economy?
Lord Bates
I do not have specific information on that. I know that, when we leave the European Union, the intention is to establish a fund to seek to address the points that the structural funds dealt with. On whether Wales will continue to benefit from or be eligible for the structural funds, I am very happy to write to the noble Lord on that and what is covered in the analysis.
Lord Fox (LD)
My Lords, the tabulation clearly links the importance of migration to future GDP. In fact, going from free movement to zero migration reduces GDP by a further 2%. In that case, does the Minister share my frustration that his colleague in the other place is still delaying publishing the immigration Bill? When will it be published? It is extremely important to this country’s future.
Viscount Ridley (Con)
Is my noble friend at all concerned about what appears to be a circular argument in the analysis of the Treasury, in which it assumes its own conclusions? Essentially, it says that if there are no gains from separating from the EU, there will be net losses from that separation in proportion to the degree to which we separate.
Lord Bates
This is not Treasury analysis; it is government analysis. It has been drawn up in collaboration with departments such as BEIS, Defra and DExEU, which have had a significant input. We believe that the analysis supports the case for backing the deal that has been presented to us.
Lord Stoddart of Swindon (Ind Lab)
My Lords, does the Minister agree that the forecasts made during the referendum have proved utterly false and that we should therefore take note of what is being said by the Bank of England and others? Secondly, does he agree that the referendum was not simply about trade or money, but whether this country makes its own laws and decides not to continue to pay into the EU’s coffers?
Lord Bates
All of those points were made, but the important one concerns the nature of the analysis itself. It is analysis, not a forecast. The forecast will take into account many other things, such as productivity improvements and demographic changes—those are for later. What was promised was economic analysis of the impact of leaving the European Union in different scenarios.