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Brexit: Economic Forecasts

Volume 793: debated on Wednesday 24 October 2018


Asked by

To ask Her Majesty’s Government whether their forecasts for the next ten years show a better outcome for the United Kingdom economy if the United Kingdom were to remain in the European Union than if it were to leave.

My Lords, the UK is leaving the EU on 29 March 2019 and will begin to chart a new course in the world. The Government’s proposals set out in the 12 July White Paper are the best way to protect jobs and avoid a hard border between Ireland and Northern Ireland. When we bring forward the vote on the final deal, Parliament will be presented with the appropriate analysis to make an informed decision.

My Lords, as full EU members we currently enjoy the best possible trading terms with the EU 27. Any other deal must, by definition, be worse. Our Government are striving for a deal with our biggest trading partner that can only downgrade what we have now—that is worth thinking about. Does the Minister know of any other country that has deliberately degraded its trading relationship with its biggest customer?

I do not accept the proposition behind that question. The world is changing. Some 90% of the growth that will happen over the next 10 years will be outside the European Union. Six of our largest trading partners are in the EU, including Germany, France and the Netherlands, but the United States is No. 1, China is growing very significantly and there is Switzerland too. This is a great country in which to invest and trade. That is why we have the largest stock of foreign direct investment and why our exports and employment continue to grow, and I expect that to go on happening once a deal is reached.

My Lords, the Minister is answering on a hope and a prayer. In this age of uncertainty, to claim categorically that Brexit will be beneficial to the nation is extraordinary. Will he not accept that economic predictors in the past have been broadly correct? They have been right over the last seven or eight years that the economic growth rate in the United Kingdom would decline to one of the lowest in the G7. They also got right that the people who would pay for austerity would be working people, as their wages would not increase over this period. But there was one prediction that the Government got wholly wrong; the Minister partially reflected on it a moment ago. That was for the Prime Minister to go post-haste to the President of the United States to take steps towards an advantageous trade deal after Brexit. What was the reply? “America first.”

As far as we are concerned on this negotiation, we want a deal, we expect a deal and we want good, positive relations with our European friends. If it is important that we continue to have access for goods worth £423 billion into the EU, is it not also crucial that it continue to have access so that it can sell us goods worth £518 billion each year? It is in the enlightened self-interest of both parties to reach a deal, and that is what the Prime Minister seeks.

My Lords, in dealing with this Question, would it not be best to ask what will happen to the European Union over the next 10 years? Visegrad countries are pulling away, nationalism is growing in many European member states, Italy is considering whether it should leave the European Union, and Greece continues to have difficulties. Would it not be wise for us to work for a modern and completely different kind of European co-operation in the future, which might be better for Europe and us?

My noble friend speaks with great knowledge and expertise in these areas. Of course, one of his points is the one I made right at the beginning: the fastest-growing economies will be outside the European Union. Last year, our exports to India rose by 31% and to China by 15%. Those are significant sums. Not just the UK but the EU needs to wake up to the competition around the world, and to ensure that we have markets that can compete in that new environment.

My Lords, what are the Government’s economic forecasts for the next 10 years worth when their forecast of catastrophe in the 12 months following the referendum was so abjectly wrong?

The noble Lord will remember the catastrophe that happened in 2008. I do not necessarily want to remind him of that. Growth has continued in every quarter since the referendum. We expect that to continue and that is what we are working for. We are also working for a deal—that is what the Prime Minister is working for tirelessly. She deserves our full support.

My Lords, I am tempted to comment on our shocking growth numbers at 1.2% compared with those of the US and the EU, which are close to 6%. The noble Lord is relying on future free trade agreements. I am shocked to learn how low the utilisation of free trade agreements is. The requirements to qualify for zero tariffs under any existing free trade agreement are so heavy in documentation on rules of origin, certification, dealing with royalties and valuation that the overwhelming majority of companies choose to pay the tariff rather than opt for the zero. In some free trade agreements only 10% of qualified transactions opt for the zero tariff because of the costs; at best it is only 60%. Does that not damn the future trading relationships that he describes?

I point out to the noble Baroness that some of the markets in which we are trading most successfully and where growth is increasing are ones that we do not have a formal free trade agreement with and where we operate on WTO terms. But that is not the objective we are setting for the future; we want a good trade agreement with our friends in the European Union and good free trade agreements that we will be able to negotiate with other countries around the world.

My Lords, I have had the advantage of listening to the noble Lord, Lord King of Lothbury, speak about the reliability of economic forecasts. In summary it was, “Stuff happens”. No one 11 years ago would have foreseen what would happen in 2008 or the problems with the eurozone ever since. Indeed, the Treasury document that we had to see in private across the road itself fluctuated 5% this way and 5% that. Will the Minister understand if we take the forecasts with a great dose of salt?

We should do, although of course we look at them. We somehow behave as though economic forecasts are some kind of target that we have to meet, when they are not. Our future is entirely in our own hands. What is better news for us is that it is entirely in the hands of British businesspeople, who have shown themselves to be world leaders the world over. I have great confidence in them and their ability to continue.