NIESR Researchers react to Theresa May’s Brexit speech

18 Jan 2017 11:45 AM

Senior members of the National Institute of Economic and Social Research offered their reactions following the PM’s speech on Brexit.

NIESR’s Director, Prof Jagjit Chadha said: ‘Whilst we welcome clarity about the Government’s preferences for the forthcoming Article 50 negotiations: we will leave the Single Market and seek bilateral Free-Trade Agreements.  It is worth noting that as soon as the UK establishes its independent WTO status, we would lose automatic access to the EU's trade agreements with 50 countries. The UK would be confronted with a large number of trade agreements to negotiate, where the ones with the WTO and the EU will be the most pressing.  The increases in the UK's total trade from agreeing FTAs have been estimated by the Institute to be some 2.0% for the Anglo-Saxon world and some 2.2% for BRICS, which stands against the losses of some 22% of exchanging single market membership for a free trade deal with Europe.  This long run compression in trade and the prolonged uncertainty over forming agreements will present a significant challenge to the economy and one from which consumers cannot be called upon to buy our way out’.

Dr Heather Rolfe, NIESR’s Associate Research Director, said: ‘Theresa May says she wants Britain to become ‘a magnet for international talent’ talked about wanting to attract the ‘brightest and best’. This is clearly something that everyone can sign up to and which new immigration policies should ensure can happen. However, she made no mention of wider skill and labour needs which are currently met by EU workers through free movement. From our research with employers in sectors such as hospitality, food and drink and construction we are aware of a concern that new immigration policies will restrict their access to labour which has enabled them to expand. Theresa May has said she will not give a running commentary on immigration policies, yet employers need reassurance that their needs will be considered.

There is no doubt, as Theresa May stated, that the referendum result was an expression of concern about levels of immigration and a vote against free movement. However, it is unfortunate that she repeated claims about downward pressure on wages and the impact on services such as schools when these are not supported by evidence. At the same time, the public will be looking for reductions in immigration, and it will be difficult for these to be achieved without damage to the economy. The Government should consider ways in which the public could be engaged in discussing the options and trade-offs, costs and benefits of reducing immigration. One consequence may be that British workers will need to do more of the low skilled work that is currently carried out by migrants in sectors such as hospitality and social care. Employers may need to change the nature of some of these jobs in order to attract more British workers, and our research suggests that this is something they are willing to do.

Early in her speech Theresa May remarked on the importance of equipping young people with the education which can ensure they thrive in post-Brexit Britain. If the Government keeps to its target of reducing immigration to the tens of thousands, it will be more important than ever that Britain can meet its skill needs internally and employers are certainly keen to attract young people. However, young people are adopting an increasingly global outlook and value being able to live and work outside of the UK to gain skills and experience. Equally, employers and employees themselves value individuals with international experience. It is important that this continues and that our workplaces retain diversity of background, experience and outlook’. 

Dr Monique Ebell, NIESR’s Research Fellow, yesterday said: ‘In today's speech, Theresa May seems to rule out UK membership in the EU customs union, while claiming to want to maintain frictionless trade with some sort of a 'customs agreement'. Three comments:

  1. Leaving the customs union might disrupt the supply-chains in which UK manufacturing participates. This might particularly affect UK suppliers to the automotive industry in Europe, and UK automakers who rely on imported components from the EU.
  2. The main benefit to leaving the customs union is the freedom to negotiate new free trade deals with non-EU countries. Our research shows, however, that the potential benefits are small. On average, NIESR research published in the November issue of the National Institute Economic Review shows that existing non-EU FTAs do nothing to increase trade in services, and are about half as effective at generating goods trade as is the EU single market.
  3. The ambition seems to be to maintain frictionless trade without customs checks whilst retaining the freedom to set our own tariffs with non-EU countries. This seems inconsistent. For example: If the UK were to agree to a lower  tariff on cars with Korea, then anyone could circumvent the EU's higher tariff by first importing a Korean car to the UK and then exporting it on - without further customs checks - to the EU. Similarly, setting a higher tariff on Korean cars would be useless, as it could be circumvented by first importing the Korean car to France, and then sending it on to the UK’.

For more information on NIESR’s work on the EU Referendum see here.

For more information on NIESR’s estimates of the short and medium term impact of the UK’s decision to leave the EU, see here and for the long term impact see here. The Institute’s November forecasts, published in the National Institute Economic Review, will be released on 2nd November 2016.

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