Juno News - In conversation with leading Brexit economist Andrew Lilico

00:00:00.000 I'm very pleased to be sitting down right now with Andrew Lillico, the lead economist

00:00:07.960 for the official Leave campaign for Brexit, also managing director at Europe Economics,

00:00:13.280 where we are right now.

00:00:14.960 Andrew, good to be with you.

00:00:15.960 Thanks very much for your time.

00:00:16.960 Good afternoon.

00:00:17.960 We've spoken on the radio before.

00:00:19.320 Very good to be doing it on your turf right now at a very critical time.

00:00:23.360 Let's talk about where we are right now, because I know that we've had a lot of people, certainly

00:00:28.560 from the Remain side of the Brexit discussion, try to force another vote.

00:00:33.640 And I think there seems to be this general sense among that side that if you were to do

00:00:38.940 this all over again, people wouldn't want the Leave to happen.

00:00:43.700 Do you think that's actually a valid analysis, that if you were to do this all over again,

00:00:49.100 the same result wouldn't emerge?

00:00:50.800 Well, I don't think there's any realistic chance that we're going to have a second vote.

00:00:56.320 And if we did have a second vote, I think that would, first of all, I mean, that would

00:01:00.780 be so enormously anti-democratic, it would make a huge change.

00:01:04.860 I think that people need to understand what's being suggested there.

00:01:08.700 It's a fairly sacred principle of British democracy, that when you vote for something,

00:01:14.200 that's the thing that happens.

00:01:15.440 You can vote later to do something else.

00:01:17.780 But imagine if we elected an MP and then somebody said, oh, I don't really like that MP.

00:01:23.720 So we're going to have another election.

00:01:25.280 But that MP doesn't sit whilst we have the other election.

00:01:28.020 The original MP sits.

00:01:29.480 What's being suggested here isn't that we, the objection isn't to we leave the EU and

00:01:34.200 then sometime in the future we might have a vote on rejoining.

00:01:37.120 That would be fine.

00:01:38.120 I mean, I don't think we'd probably want to do that very soon.

00:01:40.780 But there's no objection in principle to doing that.

00:01:43.580 But what's being proposed by these people is that even though we voted to leave, we

00:01:47.880 then shouldn't leave, but instead have another vote.

00:01:51.280 I think that that would have absolutely enormous ramifications for the whole way that politics

00:01:55.960 is done.

00:01:56.960 And I think there would be an enormous boycott by Leave campaigners.

00:02:00.280 I think it would shatter confidence in British democracy.

00:02:02.960 I think it would have implications for things like, suppose that a Jeremy Corbyn government

00:02:06.520 were elected in the future.

00:02:07.460 Are people saying then that the establishment would say, well, we don't like Jeremy Corbyn,

00:02:11.160 so we're not going to let him be the prime minister.

00:02:13.240 We're just going to have another election and another one and another one until the people

00:02:16.980 pick something else.

00:02:17.680 I think it's an absolutely extraordinary claim.

00:02:20.000 And I think it's a very dangerous claim as well.

00:02:23.180 And that people underestimate what's being proposed here.

00:02:26.120 I don't think mercifully there's any realistic chance of it happening.

00:02:29.960 The reality is that we're going to be leaving next March.

00:02:33.840 That's what's going to happen.

00:02:35.900 And that means that the entire discussion at this point is coming down to what that looks

00:02:40.840 like and what that departure from the European Union actually manifests itself as.

00:02:46.100 And you've got a number of discussions that have happened around this, and I'll talk about

00:02:50.720 the Chequers proposal in a moment, but where there are a lot of people that are pushing

00:02:54.720 for suggestions that are not actually what Brexit was supposed to be.

00:02:58.320 And you've said what I think should be common sense, Brexit means Brexit.

00:03:02.200 But why has this become so overcomplicated?

00:03:05.200 And why have people tried to find a lot more of a complicated workaround to what should be

00:03:10.200 and what, if we go by the referendum, was a very simple and direct premise?

00:03:15.200 I think there's been a key error in the way that the government has approached the issue

00:03:20.400 of Brexit, of making the negotiations with the European Union be what Brexit was about.

00:03:25.840 And so people still, they ask, well, what kind of Brexit do you want, or that kind of language.

00:03:31.080 Now, to me, what that would mean is, well, once we've left the EU, do we want to have some

00:03:36.080 new alliance with, say, the United States, or an alliance with Canada and Australia, or do

00:03:41.680 we want to work together with countries around the periphery of Europe, a kind of ring donut

00:03:45.760 alliance, or do we just want to stand by ourselves in the world?

00:03:50.300 Do we want to, when we do those things, do we want to cut regulation, taxes, do a kind

00:03:54.400 of Singapore-esque model or something?

00:03:57.100 Those are the questions, right?

00:03:59.280 After we've left, how do we conduct ourselves around the world?

00:04:02.580 What people have tried to do instead is to say, what Brexit's about is what we do with

00:04:06.580 the EU, I mean, that's, we're not leaving the EU in order to have another relationship

00:04:11.380 with the EU, that's renegotiating your relationship with the EU.

00:04:14.580 We had a go at that under David Cameron, it didn't work, and people didn't like the renegotiation

00:04:19.500 that he'd achieved, and so we then chose to leave.

00:04:22.340 So then having another renegotiation is just the wrong way of framing the question.

00:04:27.100 We've chosen to leave the EU.

00:04:28.880 So although in due course, doubtless, we'll have some sort of trade deal with the EU, it may

00:04:35.300 not be next year, it might not be in five years' time, but by 2030, we'll certainly

00:04:39.620 have some sort of trade deal with the EU, it has a trade deal with all of its near partners.

00:04:44.420 And I don't see why that needs to be controversial at all, make more than page eight of the newspapers,

00:04:50.580 it doesn't have to be that big a deal.

00:04:53.160 But what people have tried to do instead is to cling on to as much of EU membership as

00:04:58.660 they possibly could.

00:04:59.520 It's just a mistake.

00:05:00.940 The EU has been our central geopolitical partnership for more than 40 years, and we've done quite

00:05:05.280 well, out of it as a geopolitical partnership, we faced down the Soviet Union, we absorbed

00:05:10.840 the post-fascist states of the Iberian Peninsula, we absorbed the post-communist states of Eastern

00:05:15.960 Europe.

00:05:16.180 We did all kinds of wonderful things together.

00:05:19.080 At the same time, we developed in Europe an economic philosophy much more in line with

00:05:23.720 British traditions.

00:05:25.220 But that's all over now.

00:05:27.360 And we've chosen to leave that geopolitical partnership.

00:05:31.800 So saying, well, we're leaving that geopolitical partnership, but now we're going to have

00:05:35.960 the EU as our main geopolitical partnership, seems to me to be just absurd.

00:05:39.680 It's just not what the vote was about at all.

00:05:42.020 And that seems to me to be the root cause of the problem.

00:05:44.840 One kind of iconic illustration of this came early on, when even though we were leaving

00:05:49.900 the EU, we decided that we weren't going to negotiate new trade deals with the US or Canada

00:05:55.780 or Australia or whoever, whilst we were in the process of leaving.

00:05:59.820 Well, what did our post-Brexit trading arrangements with the US have to do with the EU?

00:06:06.860 Nothing to do with them at all.

00:06:08.200 We should have just said, well, we're doing that.

00:06:10.260 I mean...

00:06:10.540 Yeah, something like that could have happened and would have happened irrespective of Brexit.

00:06:14.640 Even if Remain had won, there still could have been and should have been a trade discussion

00:06:18.900 with the United States.

00:06:19.900 Well, there would have been a trade discussion at EU level.

00:06:21.820 But whilst we're in the EU, we don't have any competence to negotiate our own trade deals.

00:06:26.840 So what we should have said was, well, we're leaving.

00:06:29.020 Obviously, we can't negotiate a trade deal that will start before we've actually left.

00:06:32.940 But if we're negotiating a trade deal that starts after we've left, that's nothing to do with the EU.

00:06:37.020 It doesn't have any competence over what we do after we've left the EU.

00:06:40.140 There's been a lot, I think.

00:06:42.000 In some way, it's been a novelty.

00:06:43.780 But I think there is a serious discussion to be had about KANZUK, this idea of an alliance between

00:06:48.700 Canada, Australia, New Zealand, and the UK.

00:06:52.220 And those countries, obviously, are as geographically disparate as countries can be.

00:06:57.520 But do you think that is the future of these sorts of trade and other geopolitical relationships,

00:07:02.340 that geography in this day and age is far less significant than other factors?

00:07:06.980 I don't really think that's right, no.

00:07:08.940 Because I think that in the case of KANZUK, that is true. 1.00

00:07:14.140 But I think that's a fairly unique case.

00:07:16.320 Because there aren't that many other kinds of arrangements where you have such culturally

00:07:21.760 similar people, so geographically diverse.

00:07:24.560 More normally, one needs geographical similarity in order to have the cultural and linguistic

00:07:30.900 and political traditions similarity, traditions of regulation and so on.

00:07:38.240 Otherwise, the distance tends to break those things up.

00:07:43.340 And so I don't think that it's going to be true in general that everybody's going to be

00:07:46.980 forming alliances of that sort.

00:07:48.280 I think that it's important that normally geography dominates.

00:07:55.040 And I'm not even sure that there's room in the world for that many geographically disparate 0.62

00:08:00.280 arrangements.

00:08:01.140 I think that it is quite likely we will see increased concentration on regional alliances

00:08:05.880 of various sorts, increased concentration of political union within the European Union.

00:08:11.600 We have the Russians forming their zone. 0.97

00:08:13.720 We've got ASEAN and the East Asians, and we've got the new NAFTA II. 0.70

00:08:20.120 I can't believe it's not NAFTA on there.

00:08:23.700 But I would see KANZUK as almost like a... 1.00

00:08:30.260 If you imagined you cut out some felt shapes from a square piece of felt, then you'd have

00:08:37.420 something, a shape left over at the end.

00:08:39.460 That's almost what KANZUK's like. 0.99

00:08:41.080 It's the thing that can be one of those that fills in the world in that kind of way, as

00:08:48.200 the bit that's left over.

00:08:49.900 Why is that able to, in your view, overcome those geographical barriers, though?

00:08:56.480 I think that it is because the political traditions and the ways of approaching things are so similar.

00:09:05.680 When people from Britain meet people from Australia or Canada or New Zealand, they get along immediately, right?

00:09:13.480 People understand.

00:09:14.680 You understand the humour.

00:09:16.000 We watch many of the same daytime soaps and comedy shows.

00:09:21.440 And there's a natural sense, even body language and things like that work in much the same way.

00:09:26.960 People understand each other in a different way.

00:09:28.980 It's not the same when you're dealing with people, even from continental Europe, who are quite similar, much more similar to people from Britain than people from China or Japan or many other parts of the world are.

00:09:40.940 But the people from the KANZUK countries, there's a very natural and automatic alignment.

00:09:45.840 And one of the things about the European Union was, as it's moved towards its deeper political union, we in Britain have found that, although we were happy to go along with it quite a long way, in the end, there was just a little bit too much difference between us.

00:10:00.920 Some of our constitutional traditions, the ways that they thought of things, the balance between the individual and the state, the attitudes to regulation and freedom, and the balance between diversity of approaches and the level playing field.

00:10:19.200 It isn't that the Europeans were enormously distant from us.

00:10:22.180 They're much more similar to us than the Japanese or some others.

00:10:25.840 But they were different enough that we found that we couldn't quite go along with it.

00:10:29.600 And if you think, from a British perspective, that that's why we're leaving the EU, that they were pretty happy to be together with medium-sized countries of similar values, and by working together, we can achieve more than we would individually, but found that, in the end, we just couldn't quite go along with it.

00:10:46.800 The natural thing, from the British point of view, is to think, well, is there anyone else out there that might be more similar to us, that we might not face that particular barrier of finding that, in the end, we couldn't take that final step?

00:10:58.400 And I think if you frame the question in that way, it answers itself.

00:11:02.140 There's nobody in the world that's remotely as close to the UK as the New Zealanders, Australians, and Canadians.

00:11:09.260 So that's the natural thing for us to try doing in that context.

00:11:12.800 And I think that one important feature of that, relative to the European Union, is because we have natural affinities, it won't be necessary to impose the same kind of one-size-fits-all approach.

00:11:26.760 Within the European Union, they were trying to force together countries that had quite different political traditions, cultural traditions, in many cases, had been at war with each other historically.

00:11:36.300 So they had to overcome natural antipathies rather than natural alignments.

00:11:42.340 And whereas in the case of the Kansak countries, you don't need to do any of that.

00:11:47.060 And so I don't think we would need to have anything like the same forcing of regulatory convergence, legal convergence.

00:11:55.140 These things will just happen quite naturally.

00:11:56.920 That doesn't mean you wouldn't have any institutions at all.

00:11:59.140 I mean, even the UN has some kind of institutions.

00:12:02.480 But it does mean that the things that you had wouldn't be anything like the European Union's agenda at all.

00:12:08.460 To bring it back to that very idea that seemed to drive Brexit for so many people, there was a lot that, certainly in Western press coverage, we were seeing that was framing it as about immigration wholly.

00:12:20.720 Or about, you know, just this populist wave that we're seeing in other parts of the world really coming home to roost in the UK.

00:12:26.820 And there were, I think, a number of people that were saying that the arguments for Brexit on the immigration, on the anti-elite, on the populism were in spite of the economics of it.

00:12:37.100 Whereas there was this entire other stream that I don't think got as much play outside of the UK, and perhaps not even in the UK in some of the media coverage,

00:12:45.560 which was that it was an economically positive move, or even in some cases economically neutral, but not as catastrophic as some of the Remain alarmists were saying.

00:12:55.020 And we've now seen a little bit of a bump, I'd say, or I'd say a negative bump immediately in sort of that shock reaction to the Brexit vote, which seemed to rebound in terms of the markets.

00:13:07.580 But when we look at the economics of this, what's the part of the story that you find is missing from the people that say a leave, a true Brexit is going to be economically disastrous?

00:13:18.140 OK, so two things there. First of all, just a little point about the immigration.

00:13:23.360 So the immigration issue, I think, should be understood as being the most retail or the most everyday life version of the loss of sovereignty.

00:13:33.280 So when people said, oh, well, we've lost sovereignty, and that means that we don't have the ability to set some obscure piece of financial services regulation,

00:13:41.920 or some engineering company can't do quite what they want to do, that all might seem, for most people, very distant to them.

00:13:48.700 They don't quite know what that means or why they would care.

00:13:51.140 But when the government says, well, we would like to keep immigration to the hundreds of, to the tens of thousands instead of the hundreds of thousands,

00:14:01.100 and then every year it's the hundreds of thousands, and the government says, well, that's because the EU says we have to let lots of people in.

00:14:06.640 And actually, for all the talk that much of the immigration, the net immigration from outside the EU is larger than the EU,

00:14:14.860 it's actually the EU bit, which the government, which hasn't worked out as the government expected,

00:14:20.420 that tells people what losing sovereignty means.

00:14:23.700 What losing sovereignty means is you can't, our government can't do what it wants to do.

00:14:29.180 And people see that. People visibly see that in their neighborhoods and in their communities.

00:14:32.700 And that, of course, then translates, that then gives them a sense of what that might mean for the businesses and so on and other parts.

00:14:39.780 So I see the immigration question as just a reflection, a retail version of the sovereignty question.

00:14:45.900 And that has implications for all kinds of business regulation and lots of other things as well.

00:14:51.480 Now, the thing that I would say about the economics of Brexit,

00:14:56.140 I don't think you should assume that Brexit is going to make a large difference economically either way.

00:15:03.960 So it isn't really about we leave the EU so as to make some enormous, at least in the short term, economic gain.

00:15:11.160 I think that would be a mistake to imagine that's the point.

00:15:14.100 The key thing about the economics of Brexit is that they're not sufficiently negative

00:15:18.500 to deter us from grasping the very considerable self-determination opportunities,

00:15:24.180 the increased stability of the union, less likelihood of Scotland leaving, for example,

00:15:29.720 now that we're leaving the EU,

00:15:32.000 and a greater ability to direct and choose the sort of structure of economy that we want.

00:15:39.000 So it gives us more control over what we do.

00:15:41.680 For good or ill, we might well use it to screw up.

00:15:44.060 We might elect Jeremy Corbyn and do all kinds of catastrophic things.

00:15:48.280 Absolutely, that's the choice that you make by increasing your freedom.

00:15:53.900 You increase your freedom to make errors as well.

00:15:56.820 But that's our call.

00:15:59.620 I rather like the...

00:16:01.000 So there used to be a famous saying of Chesterton's that there were two kinds of activities in life.

00:16:08.240 So one was things like being a polar explorer,

00:16:10.200 which if somebody did it, you'd rather he did it well.

00:16:13.800 Whereas another thing he said was like blowing your nose,

00:16:17.040 that once you're past being a child, we'd rather a person blows his nose for himself,

00:16:21.720 be he ever so bad at doing it.

00:16:24.580 And the point of that is that the key things that we would want to do for ourselves,

00:16:31.160 post-Brexit, the way we manage our economy and our society and so on,

00:16:34.140 are like that blowing of our nose.

00:16:35.660 Whether we do it well or whether we do it badly, we want to do it for ourselves.

00:16:39.440 And when we think of the economics of that, though,

00:16:45.300 it's a mistake, I think, to imagine that...

00:16:48.440 First of all, it's a mistake to think that the EU is primarily a trade deal.

00:16:51.740 It isn't a trading agreement.

00:16:52.900 It's a political union.

00:16:54.000 That's the point of it.

00:16:55.200 And so by leaving the European Union,

00:16:57.160 the key loss that you make is losing having the EU set your policy for you.

00:17:02.800 Because the EU is quite good at setting policies in all kinds of ways.

00:17:05.580 And most of the countries that you benefit from that,

00:17:07.460 if you're Italy or if you're Poland or lots of other countries,

00:17:10.280 the fact that the EU overrides your national government

00:17:12.700 and makes you do various things that your political system wouldn't choose to do for itself

00:17:17.460 is an enormous gain.

00:17:19.040 For us, not so much.

00:17:20.540 At least we hope that we can outperform the EU

00:17:25.320 in terms of the things which are best for us

00:17:27.420 by making choices for ourselves.

00:17:29.520 So one of the things that you should expect is,

00:17:32.580 it won't happen straight away,

00:17:33.960 but over time, as new things turn up to do,

00:17:37.840 we would expect that by doing them our own slightly different way,

00:17:41.780 we will end up doing them better.

00:17:43.580 Now, one illustration of that is,

00:17:46.240 many of the things that the EU has done,

00:17:49.360 and part of the EU's traditions involved a ratchet.

00:17:52.100 So once any measure is in place,

00:17:54.600 it's enormously difficult to undo it, to reverse it.

00:17:57.020 Because you have to get 28 sets of countries,

00:17:59.100 28 sets of ducks in a row,

00:18:00.760 in order to decide to undo it.

00:18:03.740 Now, that means that either the EU

00:18:06.520 is sometimes deterred from acting early enough when it should,

00:18:10.560 or it acts.

00:18:12.700 And if it's not clear what the right thing to do is,

00:18:14.620 it can get it wrong and be stuck with that.

00:18:16.820 Whereas the British political system,

00:18:19.400 for good or real,

00:18:20.500 and it leads to lots of political controversy of various sorts,

00:18:25.380 is very good at U-turns.

00:18:26.660 So we try something,

00:18:27.780 we got it wrong,

00:18:28.460 we'll go back,

00:18:29.400 we have another go,

00:18:30.200 we try it again.

00:18:31.120 So people have a sense of being empowered

00:18:32.680 to try and experiment to make mistakes.

00:18:35.540 When the best things to do are obvious,

00:18:37.960 like reducing tariffs,

00:18:39.700 or stripping away non-tariff barriers

00:18:41.820 in well-trailed areas.

00:18:43.000 Should be obvious, anyway.

00:18:43.980 Yeah, when the best things to do are obvious,

00:18:47.720 then there are advantages in the ratchet process.

00:18:49.940 You don't want the forces of reaction,

00:18:51.400 once you've finally decided to strip away

00:18:53.100 that silly agricultural subsidy or whatever,

00:18:55.700 you don't want the forces of reaction coming in

00:18:57.800 and saying,

00:18:58.360 oh, that's going to destroy everything,

00:18:59.960 we best undo that measure.

00:19:01.600 Right?

00:19:02.000 Whereas,

00:19:03.640 if you don't know what the best thing to do is,

00:19:06.780 if you're working out how to regulate

00:19:08.260 something completely new,

00:19:09.800 commercial exploitation of space,

00:19:12.120 or artificial intelligence,

00:19:13.840 or driverless cars,

00:19:15.920 or vaping,

00:19:17.720 or green technologies,

00:19:19.300 or hyperloop systems,

00:19:21.020 or all kinds of things

00:19:22.000 that will turn up in the future,

00:19:23.520 if you don't know what the best way to regulate is,

00:19:26.060 there are enormous advantages

00:19:27.080 in being able to experiment,

00:19:28.900 get it wrong,

00:19:29.660 and have another try.

00:19:30.440 And I think that the UK

00:19:32.240 has a considerable opportunity

00:19:33.860 over the next decade or 15 years

00:19:36.200 to become a world leader

00:19:37.600 in the regulation

00:19:38.340 of many of these new and emerging technologies.

00:19:40.600 It will be able,

00:19:41.580 through experimentation,

00:19:42.620 through getting it wrong and trying again,

00:19:44.180 to move faster,

00:19:45.420 to be more flexible than the EU,

00:19:46.840 and it will gain from that kind of regulation.

00:19:49.800 A second set of areas

00:19:51.220 where we should be able to gain

00:19:52.200 relative to the EU

00:19:53.060 is that we will be able to do trade deals

00:19:57.060 with countries that the EU

00:19:58.580 would struggle to do trade deals with.

00:20:00.080 Now, it isn't that the EU

00:20:01.180 is disastrously bad,

00:20:02.760 but the EU gets a bit of a bad press

00:20:04.260 on trade deals

00:20:04.960 because the EU for many years

00:20:08.020 was quite a keen supporter

00:20:09.460 of the global process.

00:20:11.280 So it was hoping to force things through

00:20:13.820 at the global level

00:20:14.740 rather than making specific deals.

00:20:17.980 Then it switched to doing specific deals later.

00:20:20.300 But nonetheless,

00:20:21.280 I think that the fact

00:20:22.200 that the average US trade deal

00:20:24.160 takes about 18 months to,

00:20:25.800 whereas the average EU trade deal

00:20:27.300 is what, seven years or something,

00:20:28.660 is rather telling

00:20:29.740 of the difficulties that you have

00:20:31.280 when you have to get

00:20:32.320 so many different interests

00:20:33.880 to agree in order to do anything.

00:20:36.800 And so I would expect

00:20:38.140 that the UK will make

00:20:39.660 quite a rapid trade deal

00:20:41.580 with the United States,

00:20:43.600 with Australia.

00:20:44.240 Australia,

00:20:45.320 it may well do trade deals

00:20:47.200 with Japan,

00:20:48.360 even though the EU

00:20:49.940 has already

00:20:50.860 a draft agreement with Japan.

00:20:52.820 It may well be

00:20:53.300 that the UK gets its agreement

00:20:54.760 through finally with Japan

00:20:55.920 before the EU does.

00:21:00.240 As things stand,

00:21:01.360 even the Canadian deal

00:21:02.400 is in question

00:21:02.940 with the Italians

00:21:03.980 at this stage saying that.

00:21:06.380 Even when you get

00:21:07.420 that far down the road,

00:21:08.600 the EU still looks like

00:21:09.860 it might reverse

00:21:10.960 certain trade deals.

00:21:12.180 You can't really imagine

00:21:13.140 that happening with the UK.

00:21:14.860 So the UK will do

00:21:16.080 extra trade deals

00:21:17.020 around the different countries.

00:21:18.340 So a second area,

00:21:19.300 as well as better regulation,

00:21:20.600 will be better trade deals.

00:21:23.500 A third area,

00:21:24.360 which is quite important for us,

00:21:25.780 is I think that by being in the EU,

00:21:28.340 we tended to destabilise it.

00:21:29.880 So the EU tried

00:21:31.720 for far too long

00:21:32.840 to accommodate

00:21:34.200 the possibility

00:21:34.860 that the UK might

00:21:35.720 eventually join the euro.

00:21:37.460 And by doing that,

00:21:40.480 it progressed

00:21:41.440 political integration

00:21:42.740 within the eurozone

00:21:43.580 too slowly.

00:21:44.620 It should have moved

00:21:45.580 some years,

00:21:46.640 a decade and more ago,

00:21:48.440 towards an elected president,

00:21:50.180 a treasury function,

00:21:52.420 debt raising at euro level,

00:21:54.940 which was properly backed

00:21:56.200 by the EU,

00:21:57.860 sorry, by the ECB,

00:21:59.620 by the European Central Bank,

00:22:01.120 backing this sovereign debt

00:22:02.380 off the EU.

00:22:03.520 And the fact that it didn't move

00:22:05.400 down those proper governance paths

00:22:07.320 that were required

00:22:08.720 to make the currency stable

00:22:09.920 has led to some of the problems

00:22:11.280 that you had with the eurozone.

00:22:13.000 I believe and I hope

00:22:14.520 that with the UK leaving,

00:22:16.360 that really strips out,

00:22:17.740 that guts the non-euro EU.

00:22:22.740 There's really,

00:22:23.620 after the UK,

00:22:24.480 there's really only Poland left 1.00

00:22:26.580 that's still a serious

00:22:28.040 non-euro EU member.

00:22:31.500 Which, no offence to Poland,

00:22:32.680 doesn't have the same implications

00:22:34.060 as the UK.

00:22:34.900 Exactly.

00:22:35.500 It's not nearly so significant.

00:22:37.620 It's still big,

00:22:39.320 but it's not nearly as big

00:22:40.680 as the UK.

00:22:42.300 And so I would expect

00:22:43.940 that what will happen

00:22:44.680 is now that the UK is left

00:22:46.520 quite quickly,

00:22:47.420 say by 2025,

00:22:48.420 all the countries

00:22:51.920 who are in the EU

00:22:52.880 will have to choose

00:22:54.200 between joining the euro

00:22:55.480 or being rolled together

00:22:57.800 with Norway

00:22:58.500 into a second tier

00:23:00.420 of EEA slash non-euro EU.

00:23:02.780 That'll all just become one thing.

00:23:05.640 Incidentally, by the way,

00:23:07.020 I think that that would

00:23:07.920 probably have happened

00:23:08.800 even with the UK

00:23:10.740 in the EU.

00:23:12.340 I think that would have

00:23:12.960 eventually happened,

00:23:14.080 which is one reason 0.54

00:23:15.220 why it's silly

00:23:16.140 to suggest that we leave the EU

00:23:17.900 and then go for

00:23:19.880 a Norway-type model

00:23:20.900 or a Norway-plus-customers-union

00:23:22.640 type model

00:23:23.060 or any of those kind of things.

00:23:24.320 Being a bit like Norway 1.00

00:23:25.760 is where we would have ended up

00:23:27.400 if we remained in the EU.

00:23:28.480 So it would have come full circle

00:23:29.640 to had no Brexit happened

00:23:31.580 in the first place.

00:23:32.440 Exactly.

00:23:32.900 So I don't understand

00:23:33.700 what the point is

00:23:34.800 of leaving the EU

00:23:35.740 in order to get us

00:23:37.160 to where we would have been

00:23:38.220 if we'd stayed in the EU.

00:23:39.400 But just coming in terms

00:23:41.260 of the white-sand-advantage,

00:23:42.560 so if the EU integrates

00:23:43.820 better politically,

00:23:44.800 then I think that

00:23:45.980 that will enable it

00:23:46.660 to grow faster,

00:23:47.880 which is good for us

00:23:48.660 because we'll be able

00:23:49.280 to export more to it.

00:23:50.460 So that's a third area of growth.

00:23:51.900 Just a couple more quick ones.

00:23:53.360 Yes, absolutely.

00:23:54.260 So we obviously won't have

00:23:56.120 to make our...

00:23:56.800 send money to the EU,

00:23:58.180 so that will save us some money.

00:23:59.600 So although I have

00:24:00.900 every confidence

00:24:01.460 that the government

00:24:01.960 will spend the same money

00:24:03.660 incompetently,

00:24:04.800 it will at least spend

00:24:05.800 the money incompetently

00:24:06.620 within the UK.

00:24:07.360 It's like the nose-blowing.

00:24:08.340 At least they're doing it here

00:24:09.640 instead of somewhere else.

00:24:10.800 Exactly.

00:24:11.060 So the government

00:24:12.420 will squander lots of money

00:24:13.680 in the UK

00:24:14.160 instead of squandering money

00:24:15.260 in Italy or Bulgaria

00:24:17.080 or Poland.

00:24:17.620 Or Poland. 0.88

00:24:19.800 Quite an important thing

00:24:23.120 is it'll make the Union

00:24:24.520 more secure.

00:24:25.620 So we're less likely now

00:24:27.600 that over the medium term

00:24:28.680 Scotland will end up

00:24:29.620 leaving the United Kingdom.

00:24:31.400 It's a much bigger step

00:24:33.300 for it to leave the UK

00:24:34.800 if we're outside the EU

00:24:36.940 than it would have been

00:24:37.720 if we were both inside the EU.

00:24:39.480 So even though I think...

00:24:41.660 I mean, we weren't

00:24:42.120 fairly handily 11% in 2014

00:24:44.740 to maintain the Union,

00:24:47.220 it's whatever residual risk

00:24:49.660 there was that eventually

00:24:50.820 Scotland might leave

00:24:51.800 has probably been eliminated

00:24:53.760 by four, you know,

00:24:55.240 who can say after 30 years ahead.

00:24:57.440 But probably for the next 30 years

00:24:59.160 there's not much chance now

00:25:00.340 that Scotland will leave.

00:25:02.380 So that again,

00:25:03.880 that increased stability

00:25:04.800 to the Union

00:25:05.340 is another potentially important

00:25:07.080 economic gain

00:25:07.700 quite apart from the political

00:25:09.260 and other kinds of gains

00:25:10.240 associated with it.

00:25:11.320 Those are a few.

00:25:12.320 There are some other things

00:25:12.980 we could carry on all day.

00:25:14.020 But that gives you some sense.

00:25:16.260 Now, I expect that those...

00:25:17.600 One thing about that

00:25:18.360 is it's lots of different

00:25:19.460 little sorts.

00:25:20.280 What people want

00:25:21.300 in economic arguments,

00:25:22.540 they don't want anything

00:25:23.220 as complicated as

00:25:24.160 there are nine ways

00:25:25.800 you gain or something.

00:25:26.740 What they want to do

00:25:27.320 is they want to say,

00:25:28.380 well, we estimate

00:25:29.560 that you lose this amount

00:25:30.740 of trade by leaving the EU

00:25:32.120 with the EU

00:25:33.060 and we want the one factor

00:25:34.460 that balances that.

00:25:35.540 But it isn't like that.

00:25:36.860 Brexit isn't.

00:25:37.920 When you're taking control

00:25:39.480 of your ability

00:25:40.160 to execute policy

00:25:42.220 right across the board,

00:25:43.780 it isn't about there being

00:25:44.820 one thing that you object to.

00:25:46.800 No, and that speaks to,

00:25:48.060 I think,

00:25:48.360 how linked

00:25:49.880 to the point of excess

00:25:51.180 the EU has become

00:25:52.320 in all of these different areas

00:25:53.640 that should be sovereign

00:25:54.840 United Kingdom areas

00:25:57.600 and files.

00:25:58.840 And I guess that brings us

00:26:00.180 to a question I want

00:26:02.100 to close on

00:26:02.800 that I fear the answer to,

00:26:04.440 but I have to ask it nonetheless.

00:26:06.180 Are you,

00:26:06.860 given the current political

00:26:07.820 and economic climate,

00:26:09.520 confident or,

00:26:11.380 dare I say,

00:26:11.860 optimistic

00:26:12.400 that what you would like

00:26:14.360 to see happen

00:26:15.060 with Brexit

00:26:15.580 actually happens in March?

00:26:17.660 What would have been best

00:26:19.100 would have been

00:26:19.740 if we'd been able

00:26:20.360 to do a fairly rapid

00:26:22.080 free trade agreement

00:26:23.800 with the EU.

00:26:24.860 I don't think

00:26:25.340 it was absolutely crucial,

00:26:26.460 but that would have been

00:26:26.960 the best scenario.

00:26:27.760 I think it's now,

00:26:30.040 we're now probably looking

00:26:31.080 at 60 to 70% chance

00:26:32.880 of no deal at all.

00:26:34.720 And there's a pretty high probability,

00:26:37.880 perhaps 25%,

00:26:39.120 that we just tough out no deal.

00:26:41.440 And so it's like

00:26:42.780 both sides decide

00:26:43.760 that they don't like

00:26:44.640 each other that much

00:26:45.520 for the medium term.

00:26:47.240 Perhaps 35%,

00:26:48.580 maybe a percent probability.

00:26:50.240 The single most likely thing

00:26:51.700 is that we have no deal

00:26:53.140 and then fairly quickly

00:26:54.920 we cobble together

00:26:56.060 some sort of face-saving

00:26:58.100 just enough

00:26:58.900 that we get along.

00:26:59.740 Just to tie this over

00:27:00.660 even until a bigger deal

00:27:02.060 could happen.

00:27:02.840 Well, yeah,

00:27:04.280 not necessarily committing

00:27:06.220 to any longer term deal.

00:27:07.500 Maybe some very vague

00:27:08.480 political commitment

00:27:09.320 to seek to have no tariffs

00:27:11.800 at some point in the future.

00:27:13.520 But nothing,

00:27:14.400 but some very minimalist

00:27:15.620 kind of arrangement.

00:27:17.100 I think that those

00:27:18.080 sorts of no deal scenarios

00:27:20.440 are the most likely now.

00:27:21.340 And they're not that desirable,

00:27:22.260 but I didn't know.

00:27:25.040 To me,

00:27:25.740 we aren't leaving the EU

00:27:26.700 in order to have a deal

00:27:27.360 with the EU.

00:27:27.900 So if we don't have a deal

00:27:28.640 with the EU straight away,

00:27:29.820 I don't think that should be

00:27:30.820 considered to be

00:27:31.500 that much of a problem.

00:27:32.640 But are you optimistic

00:27:33.560 that the sovereignty

00:27:34.820 that the Leave campaigners

00:27:37.840 sought

00:27:38.340 will actually be realized?

00:27:40.720 Well, it does in a

00:27:41.160 no deal scenario, right?

00:27:42.800 And apart from no deal scenarios,

00:27:44.980 there's some probability still

00:27:46.460 that the EU panics a bit

00:27:48.820 and we end up with

00:27:49.640 a Canada Plus.

00:27:51.200 That's what we refer to

00:27:52.880 our preferred free trade agreements

00:27:56.360 as by the model

00:27:57.460 of the Canadian deal

00:27:58.320 with the EU.

00:28:00.020 So there's a non-tribial chance

00:28:01.720 of that.

00:28:02.360 There are some,

00:28:03.160 there's some outside chance

00:28:04.460 that we end up with

00:28:05.360 some quite bad thing happening,

00:28:07.520 like committing to remain

00:28:08.560 in the customs union

00:28:09.960 over the long term

00:28:11.260 or something of that sort.

00:28:13.840 There's some risks

00:28:15.080 that we end up with

00:28:16.000 with those scenarios.

00:28:17.100 Again, politicians might panic

00:28:18.720 and we might end up

00:28:19.600 with an EEA plus customs union

00:28:21.980 thing for quite a long time.

00:28:25.740 I think that that would simply

00:28:27.020 lead to a Brexit 2.0 movement

00:28:29.300 where we'd have another movement

00:28:31.440 to try to get us out of that

00:28:32.760 over the medium term

00:28:33.680 because it would be

00:28:34.240 so restrictive.

00:28:35.180 And as I say,

00:28:35.760 that would,

00:28:36.660 all that that would achieve

00:28:37.840 is to get us

00:28:39.160 two or three years earlier

00:28:40.880 to exactly where we would have

00:28:42.080 ended up if we'd remained

00:28:42.960 in the EU anyway.

00:28:43.860 So there's absolutely no point

00:28:45.140 in committing to an EEA plus

00:28:47.380 customs union arrangement

00:28:48.480 over the medium term.

00:28:49.640 It's just silliness.

00:28:51.260 I think that,

00:28:52.420 I think that the likelihood

00:28:55.560 is that we will end up

00:28:56.620 with either a no deal

00:28:58.180 or a Canada plus type deal

00:28:59.640 in the short term.

00:29:00.520 That's the vast majority

00:29:01.580 of the probability.

00:29:02.620 If we don't do that,

00:29:03.880 then most of the rest

00:29:05.160 of the probability

00:29:05.660 is we end up,

00:29:07.000 we have a Brexit 2.0

00:29:08.240 and after another six painful years

00:29:10.960 of arguing about this,

00:29:11.720 we finally get ourselves out.

00:29:13.720 I think that would be quite bad

00:29:16.680 for British politics

00:29:17.660 to carry on.

00:29:19.340 It's been quite bad.

00:29:20.560 It's a fairly toxic

00:29:21.960 political environment

00:29:23.020 we've had for the past

00:29:23.900 couple of years,

00:29:24.820 even as things stand.

00:29:26.860 I've never seen anything

00:29:28.080 like the unwillingness

00:29:29.380 of the Remain side

00:29:30.360 to accept that they lost

00:29:31.560 in this particular campaign.

00:29:33.580 I've never seen,

00:29:34.400 and that's just,

00:29:35.180 politics doesn't really work

00:29:36.460 if you don't accept

00:29:37.580 that the other team can win.

00:29:39.400 And I don't think

00:29:40.600 the Remainers have really accepted

00:29:42.820 that the,

00:29:43.560 some of them have,

00:29:44.460 right?

00:29:44.620 There's been a reasonable number

00:29:45.500 of had,

00:29:45.920 but there's been a hard core

00:29:47.200 of Remainers

00:29:47.740 who've just refused

00:29:48.520 to accept that they lost.

00:29:50.780 And I find that extraordinary.

00:29:52.620 And if we were to establish that,

00:29:54.060 if we were to have,

00:29:54.840 say, a second referendum

00:29:55.760 or something like that,

00:29:56.740 that could really poison 0.71

00:29:57.840 UK politics

00:29:58.800 for a very long time.

00:30:00.960 So I really hope

00:30:02.400 that that doesn't happen.

00:30:03.260 But as things stand,

00:30:05.940 I would say the most likely scenario

00:30:07.420 is no deal

00:30:08.720 or perhaps a Canada Plus deal.

00:30:10.680 If there's no deal,

00:30:11.680 we'll end up with a Canada Plus deal

00:30:13.040 in a few years' time.

00:30:14.180 I really hope it doesn't have to make

00:30:15.680 more than page four of the papers.

00:30:17.320 And like a true economist,

00:30:18.680 I ask a yes or no question

00:30:19.760 and I get an answer

00:30:20.460 with probabilities,

00:30:21.380 which I like.

00:30:22.120 So we've got the options.

00:30:23.560 Dr. Andrew Lillico,

00:30:24.560 thank you very much

00:30:25.320 for your time and insight.

00:30:26.740 I really appreciate it.

00:30:27.840 You're welcome.

00:30:29.280 For the True North Initiative,

00:30:30.420 I'm Andrew Lutton.

00:30:33.260 Thank you.

Juno News - March 18, 2019

In conversation with leading Brexit economist Andrew Lilico

Episode Stats

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