The Economist UK - 27.07.2019

20 Britain The EconomistJuly 27th 2019

2 (a charge he denies). Sir Michael Fallon, an-

other campaign stalwart, resigned for in-

appropriate behaviour with female jour-

nalists. Ms Patel, the incoming home

secretary, stepped down in 2017 after she

was caught running diplomatic back-chan-

nels with the Israeli government.

A government laced with Brexiteers will

have to force Britain’s departure from the

euthrough a much less gung-ho Parlia-

ment. Mr Johnson must woo two very dif-

ferent caucuses. On one side sit the self-

styled “Spartans”—the two dozen mps who

voted against Theresa May’s exit deal every

time it came before them. By its third out-

ing, other hard-core Brexiteers such as Mr

Raab, Mr Rees-Mogg and even Mr Johnson

had folded and voted for the deal. The hold-

outs are a tougher bunch—and, having

crushed one pragmatic deal, they are un-

likely to vote for a dolled-up version of the

same document. On the other side sit in-

creasingly recalcitrant Remainers. Former

cabinet ministers such as David Gauke and

Philip Hammond have made it clear that

they will fight any attempt by Mr Johnson

to leave without a deal.

It only takes one

Mr Johnson’s government hangs by a

thread that is easily snipped. If his majority

falls to one, a single hitherto unknown

Conservative mp, hardly recognised be-

yond close relatives, could decide the fate

of Britain by backing a no-confidence vote.

Mr Johnson’s supporters insist that

tough talk about Conservative mps being

willing to bring down their own govern-

ment, or cross the floor to the Liberal

Democrats or Plaid Cymru, is just bluster.

They point out that Labour mps were ex-

pected to pile in and support Mrs May’s

deal earlier this year; in the event, few de-

fied the party line. But there is a difference

of scale. Whereas it would have taken a

squadron of rogue Labour mps to force

through Mrs May’s deal, Mr Johnson could

be brought down by just a few. “You blow

your career up,” admits one former cabinet

minister, before adding: “Some won’t care.”

An election without Brexit being sorted

would be hazardous for the prime minis-

ter, as some Tory voters switch to a surging

Brexit Party. A ballot after a no-deal Brexit,

with chaos at British ports, livestock

slaughtered en masse and medicine short-

ages, could be a massacre. By comparison,

a vote following a successful Brexit deal

could easily become a victory lap. Suppor-

ters predict an election this autumn re-

gardless. If Brexit is sorted, it would make

no sense for a government to limp on with-

out a majority, explains one aide. If Brexit

rumbles on, then fed-up hardliners may

bring down the man who once led them. Ei-

ther way a vote is coming. Mr Johnson the

statesman may be short-lived. Mr Johnson

the campaigner will return soon. 7

A

part from Economists for Free Trade

(eft), a pro-Brexit group, almost no

wonks believe that leaving the euwithout a

deal would be good for the economy. The

majority flinch when Boris Johnson, the

new prime minister, promises that Britain

will push off by October 31st “come what

may”. Yet the question of just how bad a no-

deal Brexit would be has many answers.

On July 18th the Office for Budget Re-

sponsibility (obr), the fiscal watchdog,

warned that a no-deal exit would “push the

economy into recession”. The next day Ox-

ford Economics argued that “no-deal Brexit

might be bad, but not obr bad.” Capital

Economics, another consultancy, wrote

last year that in its central no-deal scenario

“we don’t expect...a full-blown recession.”

Estimates of the long-term effect on gdp

are even more varied (see chart).

If Britain leaves without a deal it will be-

come a member of the World Trade Organi-

sation on its own, not as part of the eu. Brit-

ain would generally have to charge the

same tariffs on eu imports as on non-eu

ones. Regulations governing everything

from medicines to electricity connections

to financial services could lapse.

Three big judgments shape economists’

views of the eventual impact of this. The

first is precisely what happens to tariffs.

The eft assumes that Britain unilaterally

cuts all of them to zero, boosting trade and

thus economic growth. Most economists

think that too optimistic.

The second issue is what happens to

non-tariff barriers, such as regulations, be-

tween Britain and its trading partners.

Plenty of academic work looks at the eco-

nomic impact of entering a big trading

bloc, but there is much less on countries

leaving, since this rarely happens. Will the

non-tariff barriers that were lowered dur-

ing Britain’s membership of the eu rise

again when it pushes off? The government

estimate shown in the chart assumes that

the majority will be. Others, including

from Rabobank, use estimates of non-tariff

barriers between the eu and America as a

guide to what Britain could face.

The third judgment concerns so-called

“dynamic effects”. Economists often as-

sume that a reduction in openness to trade

will crimp long-term productivity growth,

in part because specialisation is more diffi-

cult and in part because inward investment

from abroad would be lower. One paper

from the London School of Economics,

which looks at the impact of Britain mov-

ing to wto rules, finds that including these

dynamic effects triples the estimate of lost

gdp per person.

Brexiteers argue that most economists

are too negative—just as they were about

the impact of the vote to leave the euin

2016. Following a chaotic exit, the Bank of
      England could radically loosen monetary
      policy, and the government could ramp up
      spending or slash taxes. Perhaps. But even
      the gloomiest economic forecasts only
      paint a partial picture of what could hap-
      pen following a chaotic exit. Shortages of
      medicines, violence at the Irish border,
      shuttered farms and panicky immigrants
      might not affect the economy much. But
      there is more to life than gdp. 7

Why predicting the impact of a no-deal exit is so hard

The economics of no-deal Brexit

How bad, exactly?

Shades of gloom

Source: Institute for Government *To around 2030

Britain, long-term* impact of Brexit scenarios

% change to GDP

-20 -15 -10 -5 0 5

Rabobank

LSE

Government

Forecaster

Oxford Economics

Economists for

Free Trade

European Economic Area

Free Trade Agreement

World Trade Organisation

Unilateral Free Trade