Tuesday, 20 March 2018

"Brexit boost for consumers short-lived says IFS"

From the BBC:

Consumers could see prices fall by up to 1.2% if Britain were to abolish all tariffs once it has left the European Union, a report says.

But the study by the Institute for Fiscal Studies warns that any gains would be small and were based on "optimistic" assumptions. It also said that consumers had already seen prices rise by 2% since the referendum due to the weaker pound.

Costs linked to new EU trade barriers could also hit consumers, it said.
Those increased costs would "offset" any "rather limited" gains from becoming tariff free in the future, the report from the think tank says.

Agreed. EU tariffs (in £ or % terms) are not particularly high, ergo benefit from removing them not that great either. But that's only one aspect and not the only benefit in leaving the Customs Union.

What is relevant is that

1. The IFS has grudgingly admitted that there might be some benefits.

2. The IFS also now accepts that fall in GBP only led to a 2% increase in prices (it's probably less than that if truth be told). Observation tells us that a 10% change in GBP only leads to a 1% change in domestic prices so all the Brexit could result in high inflation and low growth, warns Mark Carney headlines were just Project Fear.

3. If removing tariffs only leads to a small fall in consumer prices, then why all the horror stories about the UK being forced to impose WTO tariffs and the impact on prices? There's no such thing as WTO tariffs - the WTO stipulates only maximum tariffs, so the UK could trade under WTO rules with zero tariffs - as the IFS now also admits. Even if the UK imposed higher tariffs, the upwards impact on prices would be just as small as the estimated downward impact of being free of EU import tariffs.

4. And so on.


paulc156 said...

OTOH Patrick Minford presumes that unilaterally abolishing tariffs and other barriers "mostly eliminates manufacturing".

Lola said...

Paul156 - 'potentially' eliminates manufacturing. That still comes under the 'so what' tag. In any event manufacturing is only a relative struggle in the UK due to all the rents and taxes applied to it. Furthermore 'comparative advantage' comes into play. And if you look at outfits like Jaguar Land Rover they are already manufacturing elsewhere but keeping the design and engineering in the UK. (Which is what Minford said). There is no particular merit in manufacturing over any other economic activity. Why not let the UK become the most successful offshore financial centre on the planet if that's what we do best?

Lola said...

1. 00.00 Hrs. 19th March 2019 - bye bye EU with no 'deal'.
2. 00.01 Hrs. 19th March 2019 UK declares unilateral free trade.
3. 00.01 Hrs plus 5 seconds. Who else wants to come and play?
4. 00.01 Hrs. plus 10 seconds. The EU have another problem.
5. We all get rich.

Mark Wadsworth said...

PC, typical you. A brexiteer points out that even the cleanest brexit will not be all sweetness and light and that's the only bit you repeat.

L, 6, lovely.

paulc156 said...

7. Alarm goes, you wake up?

Lola said...

8. And it's a bright sunny day and the magnificent extent of the wonderful opportunity that liberty brings dawns on you as once again you breathe the free air of England.

DBC Reed said...

Meanwhile land values which the Tories have given up on as being too difficult for their fluffy little brains,surpass their present average of £800+ a month rent so people cant save for a house and a are pushed to feed their families in the Henry George manner by which inflated land prices drastically decrease effectual demand . All a bit too hard for the fluffies.
You are falling for all this jingoistic Brexit+ nonsense which is meant to cover Tory Establishment panic that homeownerism is failing in front of our eyes.It could be the end of an era (which most people had n't realised had started).

Lola said...



Brexit has sod all to do with land prices.

Arguably being in the EU and the open boarders / massive EU credit expansion / Euro fall out etc. has aggravated the UK land price issue, and getting out would allow us to address it - if anyone was so minded which pretty well all of the establishment (including the Labour party), aren't.

DBC Reed said...

@L Nope what? Homeownerism isn't falling apart in front of our eyes? Last election the Tories were desperately trying to scoop up anti-immigrant UKIP votes.Why were n't they tapping up the next generation of homeowners as per the last forty years? Because their old offer/bribe did n't cut it any more.They are now resorting to Cold War posturing although they claim to have won the Cold War years ago.
They'll try any right wing/ even white trash policy to divert attention from the fact that they are bereft of ideas.
I wouldn't know which way this is going to go: the present mess is not politics as we know it.If the Labour Party have any sense they won't try too hard to gain power.

Lola said...

DBCR . Apologies. Not clear in my reply. You know full well that I think homeownerism is a crock.
There is nothing wrong in being anti (un managed) immigration. It's essentially a defence of the realm thing.
You also know that I hold no candle for Tory landlordism policies.
I really did not think that that needed to confirming?

ontheotherhand said...

I read their paper and it's a bit back-of-the-fag-packet. One of their footnotes, "These tariffs do not include anti-dumping duties that are levied on goods which are deemed to be sold into the EU market below production cost or other ‘temporary trade barriers’. The trade-weighted value of such duties was 1.91 percentage points in 2013 and the simple average tariff was 2.98 percentage points."

These 'temporary' anti-dumping duties are important. There has been a 48.5% anti-dumping duty on China for bicycles for decades for example. This means of course that us consumers are not permitted to buy lower cost bicycles.