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What Thatcher’s favourite economist thinks about Brexit
Far from damaging the UK economy, Brexit could boost GDP by up to 7% by cutting red tape and striking new trade deals, says economist Patrick Minford.
Many economists think Brexit will damage the UK economy, at least in the short run. However, there are a few who don't. One of the most prominent of these is Professor Patrick Minford of Cardiff Business School (Minford has experience of being in a minority in 1981, when 364 economists attacked Thatcher's economic policies, he wrote a letter to The Times arguing that the then PM needed to stick to her guns).
His latest research argues that, far from damaging the UK economy, Brexit could end up permanently boosting GDP by around 7%, thanks to both reductions in regulatory red tape and freedom to strike new trade deals.
Taking back control of regulation will allow the government to implement supply-side reforms that could increase productivity, says Minford. Using the "Liverpool Model" that he has developed over the years, he calculates that removing all regulations imposed by Brussels would boost GDP by around 6%. Of course, he accepts that some of those laws would have been implemented anyway, and others will be politically difficult to roll back. However, even if two-thirds of them remain on the books, GDP will rise by at least 2%, especially in the areas of energy, finance and industry.
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The second major Brexit boost will come from changes to trade policy. Minford considers the EU customs union "protectionist", producing high tariff and non-tariff barriers. Indeed, even if you just count tariff barriers, the EU is responsible for raising food prices by 20%.
Overall, Minford's trade model, which he claims "fits the actual data much better than the gravity model used by most economists" suggests that overall, EU membership makes prices in Britain around 8% higher than they should be, and "distorts the economy by keeping inefficient producers in business". A more open trade policy "will provide a 4% boost to GDP, much more of which will go to the poorest via cheaper food".
Another set of benefits will come from "regaining control of unskilled migration". Minford has calculated that access to in-work benefits means that every unskilled EU migrant is effectively having their wages subsidised by 20%. This makes freedom of movement rules (at least in the way that they are currently applied) "extremely expensive for the UK taxpayer". What's more, low-skilled migration also increases inequality "by driving down the wages of native born low-skilled workers".
Given these benefits, Minford thinks that there is no point in trying to arrange a transition period, since such an arrangement would postpone the date of our effective exit and "only delays the benefits that we get from our departure".
The UK "has no obligation to pay the EU anything", he says. In fact, the EU should end up paying us "because we have a right to demand the return of our capital that we have invested in the European Investment Bank". Despite the EU's "bloody minded" rhetoric, it needs to realise that "the boot is on the other foot".
Minford also scoffs at any ideas that British industry needs time to adjust. In his view, any short-term problems have already been more than compensated for by "the huge Brexit devaluation which has raised the profits of manufacturers and farmers".
Not only has been "no evidence" of a post-referendum slowdown, but he predicts "that a huge boost to the economy is coming down the line". Reform of agricultural policy will also help companies by lowering the cost of land, providing further benefits.
He is similarly upbeat about the prospects for the City of London. Not only will it quickly start to benefit from "more pragmatic regulation", but there is "business to be had all over the world that has been diverted by our EU membership". Even the 9% of financial jobs that are dependent on access to the single market are safer than many people think, because Brussels is obliged under its own equivalence rules to give our banks, funds and other institutions access to their markets. Any attempt to punish us by blocking our financial institutions will be "in flagrant breach of WTO rules".
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