Useful Data

15 March 2017

Cogito Ergo Non Serviam

UK Government Has Not Assessed No-Deal Brexit Impact

Her Majesty is to give Her Royal Assent to the government's Brexit bill tomorrow. When that occurs, Prime Minister Teresa May will be legally empowered to invoke Article 50 of the Brussels Treaty, taking the UK out of the European Union two years later. She will do so without a very useful set of data, namely the economic impact of Brexit in the event she is unable to reach a deal with Brussels on a new relationship. In the months since the June 23 referendum, it appears the government has not bothered to run the numbers on that scenario. The data from the one study before the referendum are dated. Political malpractice is an apt phrase for a government this clueless.

Yesterday, Brexit Secretary David Davis appeared before the parliamentary committee overseeing Britain's departure from the EU. He stated, "They [Whitehall] made an estimate during the referendum campaign, but I think one of the issues that's arisen is that those forecasts don't appear to have exactly been very robust since then."

When asked why a new forecast hasn't been attempted, he told the committee, "Much of this is about mitigation. Any forecast that you make depends on the mitigation. As a result, it is rather otiose to do the forecast before you have concluded what mitigation is possible."

For instance, he discussed border checks and the extension of electronic, light-touch customs checks after the EU and Britain go their separate ways. He claimed 90% of cross-border traffic could be cleared in five seconds, but without knowing that that will be how things work in the future, the assessment of what the economic impact of these customs (checks) is not possible to calculate. The simple truth is that you've got to do this in sequence. All of these things are being done piece by piece. When we have finished making the Lego blocks, we will build the house. And then we will have the forecast you are talking about."

This is best described as piffle. Mitigation is, indeed, a significant component of any forecast, but since the future is unknown, analysts must make assumptions about various mitigating factors and how they will affect the arrangement. In truth, one cannot know what mitigation is possible until the mitigation has happened. Another way to put it is that Mr. Davis is perfectly content to make forecasts about the past but not about the future. Mr. Davis said 90% of border checks could be done in five seconds. Well, use that as the basic assumption and see what the result it. Expand it to 10 or 20 and run the numbers. Presume no light touch is possible and look again.

It is entirely possible for three, four or five different forecasts to be made based on different assumptions about mitigation. The worst-case scenario would be no mitigation whatsoever. How bad is that? Government policy ought to be informed by that. What is the best-case? That should help set goals, legislation and regulations. What is the most likely outcome given a middle range of mitigation? What is truly otiose is a Brexit Secretary who doesn't know what his job entails.

Finally, Mr. Davis remarked, "The prime minister said no deal is better than a bad deal. Why did she say that? She said that because in the emotional aftermath of the referendum, with lots of threats of punishment deals and all the rest of it, I made it clear that actually we could manage this in such a way as to be better than a bad deal. And this is true.

"I can't quantify it for you in detail yet. I may well be able to do so in about a year's time. But it's certainly the case. It's not as frightening as, frankly some people think. But it's not as simple as some people think."

If one doesn't know the economic effect of any particular outcome, it most certainly isn't simple. But not knowing shouldn't be government policy.

© Copyright 2017 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

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