What Thatcher’s favourite economist thinks about Brexit

Margaret Thatcher © Getty Images

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.

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”.

  • AAJ

    “reductions in regulatory red tape ”

    I hear a lot about red tape from those in favour of leaving the EU. Can someone tell what red tape they mean? Do they mean taking away worker’s rights? Because this of course will reduce costs and make the UK more attractive. Does this mean reducing health and safety, because this will reduce costs and make the UK more attractive place to invest in. Does this mean removing financial legislation such as MiFID II? What about environmental legislation? Could we go back to pumping sewage into rivers/sea in order to save money?

    Can anyone see the problem with removing these? Would removing them end up in a landslide for the next Labour government? [considering https://moneyweek.com/voters-everywhere-are-fed-up-and-thats-bad-news-for-investors/%5D

    • Rea List

      I think they mean environmental protection, workers’ rights, health and safety and other elements of “Brussels bureaucracy”. It’ll be a great place to live soon. Presumably this is why we didn’t have any bureaucracy whatsoever before joining the EU.

      • Guest 2

        No worries. Jezza will ensure the State bureaucracy more than makes up for it.

    • Cameron Holder

      I love the assumption that the UK is better at red tape than the EU. Anyone who had had to deal with the DVLA knows we can tie ourselves up on knots without any help from Brussels.

    • Guest 2

      Love how you all gloat on doomy economic forecasts – yet refuse to accept any other economists point of view which differs.

    • Karim Ayoubi

      Allow me to give you an example – the tachometers you find in goods vehicles. I have a vintage vehicle that I take to shows on a trailer. If this is just a hobby, I don’t need a tachometer. If, however, it is related in any way to a business activity, I do, by law, need a tachometer. Same vehicle, same driver, same journey. Clearly this regulation is just about allowing the government to pick the pockets of small business owners, like me, while leaving the general electorate undisturbed (for if they were affected by it, they might actually vote against this sort of thing!)

      The source of this bit of regulation, I understand, is the EU. It is completely unnecessary and of no benefit to society whatsoever, it just makes it more difficult for small businesses to make ends meet. There are many more examples like this.

  • Rea List

    Yes, isn’t it all marvelous, chaps? Also, don’t forget that there will soon be a £350 million per week windfall which we can then spend on the NHS. This was written on a big red bus, so it must be true. Also, remember these other wise prophesies by the pro-Brexit camp which are making us all richer and everyone will agree has only enhanced Britain’s standing internationally (if you exclude everyone but Marine Le Pen and Donal Trump):

    1. The day we vote to leave, we hold all the cards

    2. German car manufacturers will march into Angela Merkel’s office the day after we vote for Brexit and ensure we get an amazing deal.

    3. A trade deal with the EU will be the easiest in history.

    4. My personal favourite: We will have our cake and eat it.

    As far as evidence for a post-Brexit slowdown, may I suggest to a visit to the website of the Office for National Statistics? I think it is pretty clear now that Brexit is a slow motion car crash. And when Corbyn becomes the next PM, you will wish for nothing more than the constraints of the EU to protect you from his socialist utopia. Wake up!

    • Peter Edwards

      Nothing wrong with Corbyn, at least his heart is in the right place if not his policies.

      We will reach that socialist utopia one day for all not just the rich and well connected.

      • Rea List

        Yes, and won’t it be funny when the Captains of Brexit on the far right fringe of the Tory party realise how the whole thing has spectacularly backfired. Corbyn is hardly going to deliver the Singapore-on-Thames they dream of.

      • AAJ

        “socialist utopia one day”

        Sadly, not in our lifetime. Globalisation in its present form is simply a race to the bottom. I do agree with Corbyn having “heart is in the right place”, however, for his economics to work it also needs world leaders to be the same. You really need people to work together in order to make the world a better place. One country on its own will, sadly, drive business to other countries who are more willing to sacrifice their population in order gain that business.

        • crickhowell

          You mean Back to the 70’s!! Ah yes, they were the good old days. When union barons strode with confidence and told the PM just what this country needed. In reality it wasn’t even a great time to be dead, because even the grave diggers were on strike!
          Why are you afraid of Brexit? Have you ever exported within Europe. The reality is that until there is a total fiscal union, a United States of Europe, each country will continue to be protected by Language, Culture and local laws – which are punitive barriers to outsiders. There is no Single Market – at best it’s 50 + different entities. It isn’t a place for SME’s and we are a nation of SME’s. What about the lies told by the Remain side: Osbourne’s threats, BOE, even Obama had a meddle, Every household had a leaflet telling them the dangers of voting out. In reality the exit has been simmering since 1973. Heath deluded us that the Common Market was a trade organisation, Blair obfuscated and bottled a referendum and now you want the EU to protect us against Coryn! That’s the politics of despair.

          • Adrian Smith

            As an SME who exports to the EU I disagree with “punitive barriers” 50+ entities (from 28 countries? howso?) we are a nation of smes – like Germany – brexit has destroyed/delayed most of my projects as the threes stooges and clueless May have no idea what they are doing

      • Guest 2

        Save time, move to Venezuela. It’s a socialist paradise…

    • Guest 2

      1. Where’s the EU outline for UK migrant citizen rights?
      2. Where’s the EU outline of what the UK supposedly ‘owes’?
      3. Where’s the EU outline of what it owes the UK on us leaving? (capital investment, 7 billion Greek bailout etc etc).
      It’s all a one way street at present.

    • dulls

      Will BMWs be for sale the day after we leave? Will trade stop with the EU the day after we leave? I dont want cake it is bad for you. Will the Eu borrow money from the EU or will it stick to London because it is cheaper to borrow money from? The red bus is irrelevant because we have no leave party in government. We have a remain party in government so take up the red bus issue with the remainers who are still running this land.

  • Warun Boofit

    Minford is right. I voted to join the EU and had to wait nearly a lifetime to rectify my error. In the meantime I worked exporting to Europe building up a network of agents and distributors for products we made in the UK. At the same time we also exported worldwide, the effort and resource needed to break into European markets was many times more than needed to get way better returns outside the EU. Hindsight is wonderful but the only thing Europe is good for is its medieval cities and nice weather. Minford refers to ‘non tariff barriers’ , one of these is the closed shop, its not written down anywhere or covered by the rule book but there are many industries and markets in mainland Europe use it to keep out competitors. For a large non EU company the closed shop is easily circumvented by buying a local company and its market share, shut down local production, bring in transfer pricing and you are up and running, no need to bother about tarrifs and closed shops any more.

    By contrast the UK is pretty much an open shop, the sooner we leave the EU the better.

    • George Watkin

      Sir,if I might take the liberty to correct you. I voted with many others to join The Common Market which was sold to Mr General Public as a Free Trade set up.John Major signed us up to the EU with out our permission.

      • Warun Boofit

        I agree the vote to join the EU was a farce but I always thought that it was Ted Heath that did the dirty deed without asking our permission ? Because the vote went the way the politicians expected there was no great outcry other than a small number of people who it now appears got it right. The leave referendum is the first time in my life that my vote has actually counted for anything, I will not rest until I see us leave as its clear the remainers will do everything they can to try and reverse the decision.