One of the newest advisors to the Secretary of State for Exiting the European Union warned earlier this year that Brexit would be a “dead weight” on the British economy creating a “permanent cost” of up to 1.2% of GDP every year.
Brexit minister David Davis hired Raoul Ruparel earlier this month as a special advisor on his mission to extract Britain from the EU. Ruparel was previously a co-director of the Open Europe think tank. He is pro-Brexit, but according to a blog post and a policy paper he cited earlier this year, he believes leaving the EU will hurt the economy.
Davis has complained that leaks from the Treasury suggesting that Brexit will damage the UK economy are making his job as the government’s chief negotiator harder. But his appointment of Ruparel suggests that he is getting similar advice from his own people.
In July 2016, a month after the EU referendum, Ruparel wrote that there will always be a “negative cost” to Brexit “no matter what is negotiated:”
“What we found is that, in the long run (up to 2030), there will be a permanent cost to leaving the customs union. This cost is around 1% to 1.2% GDP …
“The cost comes in the form of the imposition of new time and out-of-pocket expense on cross-border trade, for example time spent at customs and the administrative cost of getting through customs.
“… Importantly, nearly all of this is a cost which will occur no matter what is negotiated between the UK and the EU and it is a dead weight cost for the economy (not a transfer as with tariffs). This goes someway to explaining why there is always likely to be a small negative cost to leaving the EU in the long run.”
He cited this chart from Open Europe’s research, which estimates that leaving the EU customs union would add £25.63 billion ($31.4 billion) in annual costs for UK businesses, and a £22 billion net cost after payments to the EU are factored out:
In some years, 1.2% of GDP would be the difference between growth and recession:
Ruparel argued that it is a price worth paying:
“But this cost is clearly not prohibitively high. Furthermore, as shown above, both Norway and Switzerland are outside the EU’s customs union and do significant levels of trade with the EU — over 70% of Norway’s total trade is with the EU for example. So while it will take some adjustment, it is far from impossible to adjust to.”
In March 2016, in a paper cited by Ruparel, Open Europe concluded that Brexit might result in a “worst-case scenario” that would wipe 2.2% off GDP.
Open Europe estimates for post-Brexit GDP
- Worst-case scenario: -2.2%
- Best-case scenario: +1.6%
Only if the UK managed to win a favourable free-trade agreement from both the EU and the rest of the world, would the UK economy see a benefit from Brexit, the report said:
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