While Theresa May will today be feeling enormous relief at having successfully agreed the first round of Brexit negotiations, there is little chance that the UK will ever actually leave the EU, a leading UK economist predicts.
Samuel Tombs, pictured left, is an adviser to Pantheon Macroeconomics, a subscription-based, data-driven research consultancy that seeks to offer unbiased, independent economic intelligence to financial market professionals around the world that pay for such advice.
Tombs, a graduate of Birkbeck and Oxford University and former senior economist at Capital Economics, is perhaps best known for correctly predicting that the Conservatives would fail to win an outright majority in June’s snap general election.
That situation led to the fragile coalition with the Democratic Unionist Party in Northern Ireland that has proved a difficulty in negotiating on Brexit as it is implacably opposed to any special arrangement that would ease difficulties over its border with the Republic of Ireland post-Brexit.
Negotiations are proving politically divisive, with Brexit minister David Davis narrowly surviving a vote this week by MPs to censure him for contempt of Parliament.
Today’s so-called “breakthrough” confirmed some of the “red lines” that the EU has imposed, as well as confirming that the bill must pay to the EU will be between £35bn and £39bn (more here).
In a briefing to Pantheon subscribers this week, Tombs argued that the reality of taking the UK out of the EU will prove so damaging to the country’s economy that, once its consequences become apparent, no political leader will take that step.
It would be, he argues, unpalatable not just because of the economic fallout but also because of the terminal damage it would cause to that politician’s reputation, and to that of their party.
He predicts that the UK will enter into transitional arrangement with the EU, but that it will decline to leave the EU when the deal is up.
“A transition deal—which keeps the U.K. inside the single market and customs union but gives it no say over its rules—is the only viable outcome in 2019,” he said.
“The U.K. likely will go into a transition deal intending it to last for only two years, but we see a high chance of it becoming permanent.”
“The key issue is that leaving the single market would entail short-term economic pain in return for the possibility of long-term gain, in the form of closer ties with fast-growing emerging market economies.
This sequencing of the costs and benefits means Brexit always will be unpalatable for any politician, given their myopia. It will be particularly unattractive for the Conservatives to implement Brexit in 2021, one year before the deadline for the next election.”
Tombs points to polls that suggest appetite for a so-called “hard Brexit” is falling away, meaning that political will would not support a withdrawal, and therefore no political capital could come from such a withdrawal.
“Public enthusiasm for a clean break from the EU has ebbed,” he wrote, pointing to the below YouGov poll that showed 46% now against such a move, with only 42% supporting it.
One of the key drivers in people’s decision to vote Leave in last year’s referendum was immigration, a factor that was now dropping in importance.
“Pressure on the government to leave the EU in order to reduce immigration also is fading.” he said.
“Official figures last week showed that net migration fell to 230,000 in the year ending June 2017, from 336,000 in the previous year,” he noted.
“In addition, the proportion of people saying that controlling immigration should be the government’s priority has declined to just 11%, less than half the level at the time of Brexit vote, when it was voters’ top concern.”
In short: “No politician will ever implement Brexit, as the costs are upfront, but the potential benefits are far ahead.”
