Brexit: Withdrawal Agreement and Political Declaration

Lord Stern of Brentford Excerpts

Monday 14th January 2019 Lords Chamber

[Lord Stern of Brentford (CB)]

My Lords, I have spoken before in this House on the economics of Brexit, but in many ways the political arguments are still more important. My father, a refugee from Hitler’s Germany, experienced directly—like so many others of his generation—the consequences of extremism and conflict in Europe. For all its faults, the EU has brought Europe together and made both Europe and the world more secure.

Internationally, our country has already suffered serious reputational damage from our Brexit convolutions. There is now less confidence in the UK as a rational, reliable and serious player standing for enduring values in the world. This was made crystal clear by the distinguished contributors from five major countries in Neil MacGregor’s outstanding Radio 4 programmes “As Others See Us”, and it is the experience of so many of us who work internationally.

Brexit, particularly a no-deal Brexit, will weaken the shared European voice in an increasingly challenging world at a time when international collaboration, democracy and human rights are under increasing threat. I have seen at first hand, in climate negotiations on the 2015 Paris agreement and beyond, how effective the UK within the EU can be on the international stage.

Brexit, particularly a no-deal Brexit, would damage our universities and research because we would lose some of the outstanding staff and students who come to us from the EU. They, and those from outside the EU, see growing hostility to perceived outsiders and worry about the kind of society we may become. Those of us who work in universities are seeing this now. We could lose access to crucial research funding and vital research collaborations. All this would put at risk one of our most precious assets in a competitive world where skills, innovation and research will become ever more important.

We also risk deep damage to other institutions right across British life, including our National Health Service, which relies so much on European staff over the whole range of its activities. The head of the Met has emphasised strongly the risks to our security from no deal.

On the economics, while I am an economics professor at the LSE and president of the Royal Economic Society, I stress that I speak personally, not on behalf of those institutions. I shall focus on the medium term. The markets have spoken: since the referendum in 2016, the exchange rate has been around 15% lower, indicative of a perceived weakening of medium-term prosperity. Business has described no deal as a wrecking ball. Serious economic modelling whether in international institutions such as the IMF and OECD, our own Treasury, the CBI or in research institutions and universities, has indicated medium-term losses—that is 10 to 15 years from now—from a no-deal Brexit of 5% to 8% or more of GDP. Of course, we cannot predict with certainty, but the evidence points overwhelmingly one way.

The losses arise in large measure from the new barriers—both non-tariff and tariff—erected by such a Brexit to our trade and investment with our major partner. The losses from the barriers embedded in the PM’s proposition would also be large, albeit somewhat less. Let us be clear: the losses are likely to be most severe for the poorest people.

Markets, business, economic analysis and, common sense all point the same way. A no-deal Brexit produces great harm in the future and still more harm for decades to come. It cannot be a serious option. The best we can say about the PM’s proposition is that the damage is a bit less.

We are British, of course, and we would, I hope, keep calm and carry on, and make the best of it. But what is the point of self-harm? Some appear to think that the substantial short-term damages from no deal would just be uncomfortable initial steps on the road to some sunny uplands. It is remarkable that hardly any credible analysis is offered for such a story. It is just bluster, embellished by the odd confused number or modelled argument.

For example, we are told that £10 billion or so in saved net EU contributions would cover any costs of a no-deal Brexit. That is nonsense, when potential medium-term costs of 5% plus of GDP could be £100 billion to £150 billion a year or more. We are told, probably correctly, that other markets will grow faster than the EU. However, there is little evidence that trade with those markets would be enhanced by being outside the EU. Indeed, investing in and trading with the UK is much more attractive if we are inside the EU and a gateway to its markets.

A rational, analytical assessment of the evidence leads inexorably to these conclusions: no deal is deeply damaging; the Prime Minister’s proposition would diminish us economically, politically, socially and internationally; both are greatly inferior to what we have within the EU. Given that the people voted in a referendum in 2016, given that we now have, as we did not have then, a specific proposition, and given that we now know so much more, we must, as a matter of responsible, open and informed democracy give the opportunity to the people of the UK to vote on the Government’s deal versus staying in the EU.

Brexit: Negotiations

Lord Stern of Brentford Excerpts

Tuesday 20th November 2018 Lords Chamber

[Lord Stern of Brentford (CB)]

My Lords, the Prime Minister has told us that we have three options: no deal, this deal or no Brexit. I want to speak on the economics of these options. I am a professor of economics at the London School of Economics but of course I do not speak on behalf of that institution.

Let us examine the medium-term effects rather than the very short run, which many have spoken about this evening. These medium-term effects operate through trade and investment. Trade creates opportunities and increases incomes; barriers to trade reduce incomes, and similarly with investment. Thus, economic analysis of the medium term compares the losses from increased barriers with the EU arising from Brexit with any potential gains from possibly reduced barriers elsewhere. In thinking about no deal, the comparisons are clear. In the medium term, it involves major net losses, which, drawing on work by the OECD, the National Institute of Economic and Social Research, the Centre for Economic Performance at the LSE and others, are estimated to be between 5% and 8% of GDP per annum. That means a loss of £100 billion to £150 billion per annum, which is very large compared with the net payments to the EU of around £10 billion per annum.

Although the basic intuition behind these numbers is clear and commonsensical, models make assumptions, so what do the markets say? Sterling has been 10% to 15% below the pre-referendum levels. What does business say? The CBI has described no deal as a wrecking ball. Common sense, the models, the markets and business all point the same way: no deal is a terrible option. Let us take it off the table.

So what about the deal on the table? It is too early for detailed analysis, external to government, of the kind I have described but, unsurprisingly, previous analyses of halfway houses give net losses relative to staying in the EU of roughly half those of a no-deal Brexit. The economic ranking is clear: no deal is by far the worst; this deal is less bad; but both are much worse than no Brexit.

There are two crucial examples that go beyond economics. First, I have witnessed at first hand in climate negotiations, including in Paris in 2015, how effective the UK’s leadership can be when working with and within the EU. Secondly, I work in a truly international university, where the best from Europe and the world come to us and we are the best because they do, and our students and young people across the country are in deep anguish about what we are doing to them. Let us take great care. I am deeply worried that we will do major collateral damage in areas that are at the heart of our well-being and our leadership in the world.

In conclusion, we now have a much clearer understanding of the options that we face than we did in June 2016. Surely it is right to lay the options and the evidence before the people of the UK and ask them to make a choice they have not made before: to choose between this deal and no Brexit. No deal cannot be regarded as a serious option.