“The analysis does not show that we will be poorer than the status quo today.” Theresa May, Prime Minister’s Questions, 28 November 2018

There was a ding-dong in parliament today after the government published a new Treasury analysis of the possible economic effects of Brexit.

Theresa May insisted the forecast did not show that Britain “will be poorer than the status quo today”.

Ian Blackford, the leader of the SNP group in the Commons, responded by saying: “I do wonder if the Prime Minister has read her own analysis.”

We think Theresa May is technically right to say that the Treasury is not predicting that Britain will be poorer after Brexit than it is now, but it needs some unpacking.

The analysts have modelled different scenarios about how the economy might look 15 years from now.

They assume that there will be more barriers to UK-EU trade after Britain leaves the EU, but that we will go on to strike free trade deals with major global economies like the United States.

And they assume that lower migration of workers from the European Economic Area will hurt the economy.

The higher the cost of trade, and the greater the fall in migration from Europe, the bigger the drag on national wealth, according to the forecast.

The paper sets out what the economists think will happen under different scenarios, from the hardest possible Brexit – where there is no full trade deal with the EU and we trade according to World Trade Organisation rules – to the softest.

The Treasury thinks the “no deal” scenario will be the costliest: GDP could be up to 9.3 per cent lower 15 years from now, compared to what it might have been if we were not leaving the EU.

The variation of Brexit preferred by the government might mean GDP is up to 2.5 per cent lower in the long term compared to Remaining in the EU.

Under every scenario here, the analysts do not actually think the British economy will shrink because of Brexit.

They think GDP will continue to grow, just not as fast as it might have done if we stayed in the EU.

So Theresa May can say, truthfully, that Britain is not expected to be poorer than today.

But the country is expected to be poorer than it might have been, thanks to the decision to leave the EU.

There’s no option here than is better than remaining in the EU, according to the Treasury.

“Our deal is the best deal available for jobs and our economy that allows us to honour the referendum and realise the opportunities of Brexit.”
Theresa May, Prime Minister’s Questions, 28 November 2018

So we’ve established, that according to the Treasury, the best option for the UK economy would be to remain in the EU.

But the politics of Brexit is just as important as economics, and Theresa May has consistently ruled out holding a second referendum or keeping Britain in Europe by other means.

On the Treasury analysis, it does appear that Theresa May’s preferred deal is the best politically realistic option on the table.

That’s slightly surprising, as previous analysis suggested that leaving the Single Market and the Customs Union would put a serious dent in Britain’s growth prospects, compared to staying in the EEA – a scenario sometimes called the Norway option.

But there’s something in the small print. The Treasury analysts have included a further scenario where the Prime Minister’s plan for frictionless trade outside the EEA doesn’t go as well as she is hoping.

Assuming higher trade costs, the Treasury thinks the Norway option is less damaging than the deal Downing Street is pushing.

A Norway-style relationship would mean agreeing to the free movement of EU citizens, making it harder to cut immigration, and was quickly written off by the government as politically impossible.

Theresa May has consistently ruled out staying in the Single Market and the Customs Union as something people did not vote for. That’s the implication in the quote from Mrs May above – an EEA option would not “honour the referendum”.

It’s a very obvious point, but one that is often forgotten: the EU referendum made no mention of what kind of Brexit people wanted.

It just offered the choice of staying in the EU or leaving. There was no further choice that indicated whether voters wanted to leave the EEA and end the free movement of people.

The government has concluded that this would not be acceptable to most voters, but opinion polling has tended to be ambiguous on this point. It’s possible to find a number of polls where a majority back EEA membership.