Dr Eamonn Butler is Director of the Adam Smith Institute.
George Osborne’s warning, that a vote to leave the EU would cause UK house prices to fall by between 10 per cent and 18 per cent makes me wonder: has the entire world establishment gone nuts?
Given the daily complaints about unaffordable house prices, in the South-East at least, a fall might not be a bad thing. But even so, the rise in house prices has been caused by low interest rates on mortgages, massive immigration, and hugely restrictive ‘green belt’ planning policies. Brexit would not change any of those. Migrants come to the UK because we are liberal-minded, growing faster than the rest of Europe and speak English. Planning restrictions show little sign of being lifted. And the Bank of England says that Brexit would probably require a fall in interest rates to stem the economic shock – though this only makes me think that they have gone nuts too.
The Treasury, on the basis of some pretty dodgy assumptions, came up with the claim that UK GDP would fall by 6.2 per cent (the famous £4,300 per household figure – though that was calculated on the current number of households, not the number in 2030). If we joined the EEA the fall would be smaller (3.8 per cent), they said, but if we throw ourselves on the mercies of the World Trade Organization it would be larger (7.5 per cent).
Pardon? UK GDP fell by less than that (about 6 per cent) during the Great Depression of the 1930s (before recovering rather strongly). But don’t let me stop the Treasury flow. The (bogus) £4,300 per household fall, they went on, would mean £36 billion lower tax receipts, which is over a third (35 per cent) of the NHS budget (in England). Basic tax would have to rise 8p to 28p in the pound to compensate.
Once again, the cynic in me says that the NHS budget rose by a third over the years when Gordon Brown was Chancellor, and it did not seem to make any difference. Maybe it’s the nationalised-industry structure that is the problem, not the cash. But never mind that. The fact is that such figures are plainly and obviously daft. If you start with a Keynsian-inspired model that regards the economy as a mechanism, rather than something driven by human values and incentives, you will inevitably get a silly answer.
The International Monetary Fund thanked the Treasury for its research help, as it blithely forecast that Brexit could bring the UK anything from a one per cent to 9 per cent fall in GDP. Now that is getting ridiculous. The more pessimistic figure is on the scale of the chaos at the end of the First World War and the bust-up of the Gold Standard. I suppose the IMF based its figure on the fact that in 1919 we were pulling out of Europe too – but then the circumstances were rather different.
It looks as if the OECD has been getting its legal highs on the Treasury forecast too, since it said that GDP would fall by 5.1 per cent (£3200 per household) by 2030. Its most pessimistic figure was 7.7 per cent: £5000 per household.
Just for perspective, look at the economic shocks that the UK has suffered over the years (caused mostly by inept government monetary policies of course). In the Great Recession of 2008-09, growth fell by just over one per cent a quarter for five quarters. In the Early 1990s recession, after the ERM crisis, it fell less than that, as it did during Margaret Thatcher’s sado-monetarism clampdown of the early 1980s and after the Oil Crisis in 1973.
In other words, the worst and longest economic crises of the past are hardly a patch on the economic Armageddon that our leaders say will follow Brexit. I wonder how they can keep putting out this nonsense with a straight face.