25 March 2016

IN Facts: The Brexit camp’s own goal

Boris Johnson’s adviser, Gerard Lyons, has set out his view on the consequences of a Brexit for the UK's capital as the most prominent European financial Services hub in “London: The Global Powerhouse”, a recent study from the London mayor’s office.

The report makes so many reasonable points on the Remain side that it sounds like an advertisement for staying in the European Union. Britain’s economy has flourished by being open to Europe: London has made itself the headquarters for 40 per cent of Europe’s top companies, while 60 per cent of global non-European firms have chosen London as their base within the bloc. Membership of the EU—having a seat at the table when the EU debates policy—is “of high importance” for industries accounting for a third of London’s output: “finance and insurance, the professional, scientific and technical sector, and transport,” as Lyons’s report confesses. Presumably retailers, bookmakers and hairdressers are also going to earn less if their globally connected neighbours get whacked by Brexit.

How much will the economy suffer if the Brexit camp wins? Again, Lyons sounds like a closet Remainer: the uncertainty engendered by a leave vote would depress London’s economy for two years, he admits. But now, belatedly, Lyons attempts a pivot. Brexit should be tested not against a two-year forecast but rather against a 20-year one, he ventures. Of course, as a respected forecaster, Lyons understands that 20-year prognostications cannot possibly be precise.

Now committed to his line of argument, Lyons grits his teeth and rolls out ultra-precise figures anyway. He proposes two Remain scenarios—one in a reformed EU, and one in an unreformed one—and claims that London’s output would grow from its current £350 billion to either £640 billion or £490 billion. Likewise, Lyons considers two Brexit scenarios—a rosy one and a dark one—yielding forecasts of £615 billion and £430 billion. But, aside from their spurious precision, the forecasts are not exactly friendly to the Brexit camp’s position. On Lyons’s numbers, the average Remain scenario is 24 percent better than the average of the two Brexit options.

Boris’s optimism about the economic costs of Brexit is contradicted by studies from the CBI, the London School of Economics, and Oxford Economics. But what is more remarkable is that it is barely supported by his own economic adviser.

Full article on In Facts

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