13 October 2019

UK in a Changing Europe: The economic impact of Boris Johnson’s Brexit proposals

The Prime Minister has set out a means of escaping the Brexit stalemate, but his new Brexit proposals have, as yet, not managed to overcome the impasse. What, though, would the plan mean for the UK economy? That is the question researchers seek to answer in this paper.

Conclusion

As this report makes obvious, modelling economic impacts of hypothetical scenarios is fraught with difficulty. And the purpose of attempting it has not been to reach fine-grained conclusions about the economic impact of various Brexit scenarios. Rather, authors hope to have established the broad impacts of leaving the EU, taking into account the major determinants: trade, migration and, indirectly, productivity.

Their findings suggest that the economic impact of Mr Johnson’s proposals are substantially negative relative to the status quo of EU membership. Researchers modelled four scenarios based on hypothetical liberal and restrictive migration policies, and with and without a productivity adjustment. Their most optimistic scenario—assuming no productivity effect and a relatively liberal approach to migration—suggests that income per capita would by 2.3% lower in the long term. A more restrictive approach to migration would push this figure up to 2.7%.

As authors explain, the impact on productivity is difficult to infer, as trade and migration affect productivity indirectly. Nevertheless, the productivity effects as modelled here are substantial. In the liberal migration scenario, they push the fall in income per capita from 2.3% to 5.5%, and in the restrictive scenario from 2.7% to 7%. Broadly speaking, based on our previous modelling of Theresa May’s Withdrawal Agreement and a WTO scenario, they find that Mr Johnson’s proposals fall somewhere between those scenarios in terms of lost economic growth.

Researchers have not looked at what might happen to the UK economy as a whole, but the isolated impact of a change in the UK’s relationship with the EU. Overall economic performance obviously depends on many other factors, including global economic trends and domestic policy choices.

One obvious policy lever is migration policy. This is an area where under Mr Johnson there is perhaps more scope for mitigation than under Mrs May, given his relatively more liberal approach. That said, there are clearly other important mechanisms, such as fiscal and regulatory policy, where choices will be crucial in determining overall economic performance.

As with all forecasts, the findings of this report should be used with caution. Researchers have set out explicitly our assumptions and highlighted the many uncertainties involved in producing forecasts of long-term economic performance. The forecasts give an indication of the scale of the impact of Mr Johnson’s proposals. Their main insight is that his proposals sit somewhere in between Mrs May’s deal and a WTO scenario in terms of negative economic impact. The impact on income per capita is negative in all scenarios, but Mr Johnson’s proposals would be more damaging than Mrs May’s deal. 

Full paper

© UK in a Changing Europe