Catch Up: Slower Growth and a Brexit to hurt the Poor
Resolution Foundation: Brexit Would Make the Poor Poorer
If the UK reverts to most-favoured-nation (MFN) tariffs with the EU under a “no deal” Brexit scenario, then tariffs on clothing, footwear, beverages and tobacco will rise by 10 per cent. Tariffs on dairy products will rise by 45 per cent and by 37 per cent for meat products.
Tariff changes will feed through into consumer prices. As a result of reverting to MFN tariffs with the EU we estimate the price of clothing will rise by 2.4 per cent, and the price of transport vehicles will rise by 5.5 per cent. Prices will rise even more for food products. The prices of dairy goods will rise by an average of 8.1 per cent and by 5.8 per cent for meat products.
Overall such price rises will have a significant impact on consumer spending. annual spending for the average family could rise by around £260. However this is just an average effect. Some households would experience more significant price rises; 3.2 million households would see price rises of £500 or more. There is also evidence that poorer households and less affluent parts of the country will be harder hit.
If we leave the EU without a free trade agreement some have argued that the UK should unilaterally reduce all tariffs to zero. Our analysis indicates that should the country do this the benefits to consumers would be low. Across those goods affected by the tariff cuts prices would fall by just 1 per cent. Aside from the fact that unilateral tariff elimination would give up the UK’s best leverage in future trade negotiations, it is also likely that some sectors and parts of the country would struggle to adjust to a sharp increase in competitive pressure. While, business and industries should not necessarily be shielded from such competition, it is important that the government is aware of where job losses may occur. The evidence suggests that 1.4 million people are employed across all the sectors that could be affected by trade liberalisation and that the majority of these are in rural areas and in the Midlands and the North.
The heart of a “no deal” Brexit outcome is that the UK and EU fails to sign a new trade agreement. In that scenario government policy (and WTO rules) are that we would levy the same, so-called most-favoured-nation (MFN), tariffs on imports from the EU as from other partners where no separate agreement exists. That means either from March 2019 (or after any transition period agreed), tariffs on clothing and drink from the EU would rise from zero to 10 per cent, those on dairy products like milk and cheese by 45 per cent and those on meat by 37 per cent. The level of these new tariffs is as close to facts as we get in current Brexit debates.
Crucially they would feed through into consumer prices. The extent of that impact depends on the size of tariffs imposed on trade with the EU, the extent to which the UK currently relies on imports of that good, and how much of that reliance is in practice on imports from the EU. Our preference for EU built cars means vehicle would see a 5.5 per cent price increase, while the price of clothing would rise by 2.4 per cent, partly because we buy clothes from a wider range of countries outside the EU.
Food would be the area most affected – not only because the tariffs would be substantial but because we both import a lot of it and do so overwhelmingly from the EU.
Tosten Bell, The Resolution Foundation
IMF: World Economy Strengthening
The earlier projected increase in growth is strengthening. Notable pickups in investment, trade, and industrial production, coupled with stronger business and consumer confidence, are supporting the recovery. With early 2017 growth generally stronger than expected, upward revisions to projections are broad based, including for the euro area, Japan, China, emerging Europe, and Russia, more than offsetting downward revisions for the United States, the United Kingdom, and India. After disappointing global growth over the past few years, this recent pickup provides an ideal window of opportunity for policymakers to undertake critical reforms to stave off downside risks, raise potential output, and improve living standards more broadly.
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