Andrew Lillico, the lead economist for the official Leave campaign, and managing director at Europe Economics, joins me to talk about the possibility of a second referendum, and why he thinks there's no realistic chance of it happening.
00:09:14.920We watch many of the same daytime soaps and comedy shows.
00:09:20.360And there's a natural sense, even body language and things like that work in much the same way.
00:09:25.880People understand each other in a different way.
00:09:27.920It'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.
00:09:39.860But the people from the KANZUK countries, there's a very natural and automatic alignment.
00:09:44.760And 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.
00:09:59.840Some of our constitutional traditions, the ways that they thought of things, the balance between the individual and the state, the attitudes to regulation and the freedom and the balance between diversity of approaches and the level playing field.
00:10:18.120It isn't that the Europeans were enormously distant from us.
00:10:21.120They're much more similar to us than the Japanese or some others.
00:10:24.760But they were different enough that we found that we couldn't quite go along with it.
00:10:28.540And 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.
00:10:45.780The 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?
00:10:57.320And I think if you frame the question in that way, it answers itself.
00:11:01.060There's nobody in the world that's remotely as close to the UK as the New Zealanders, Australians and Canadians.
00:11:08.180So that's the natural thing for us to try doing in that context.
00:11:11.720And I think that the 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.
00:11:25.540Within 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.
00:11:35.220So they had to overcome natural antipathies rather than natural alignments.
00:11:41.260Whereas in the case of the Kansak countries, you don't need to do any of that.
00:11:46.020And so I don't think we would need to have anything like the same forcing of regulatory convergence, legal convergence.
00:11:54.040These things will just happen quite naturally.
00:11:55.840That doesn't mean you wouldn't have any institutions at all.
00:11:58.060I mean, even the UN has some kind of institutions.
00:12:01.360But it does mean that the things that you had wouldn't be anything like the European Union's agenda at all.
00:12:07.360To 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 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.
00:12:25.740And 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.
00:12:36.020Whereas 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, 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.
00:12:53.920And 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.
00:13:06.500But 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?
00:13:17.060OK, so two things there. First of all, just a little point about the immigration.
00:13:22.280So the immigration issue, I think, should be understood as being the most retail or the most everyday life version of the loss of sovereignty.
00:13:32.200So 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 or some engineering company can't do quite what they want to do, that all might seem for most people very distant to them.
00:13:47.620They don't quite know what that means or why they would care.
00:13:50.060But when the government says, well, we would like to keep immigration to the tens of thousands instead of the hundreds of thousands, 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.
00:14:05.560And actually, for all the talk that much of the net immigration from outside the EU is larger than the EU, it's actually the EU bit, which hasn't worked out as the government expected, that tells people what losing sovereignty means.
00:14:22.620What losing sovereignty means is our government can't do what it wants to do.
00:14:28.100And people see that. People visibly see that in their neighborhoods and in their communities.
00:14:31.640And 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.
00:14:38.780So I see the immigration question as just a reflection, a retail version of the sovereignty question.
00:14:44.840And that has implications for all kinds of business regulation and lots of other things as well.
00:14:50.420Now, the thing that I would say about the economics of Brexit,
00:14:55.060I don't think you should assume that Brexit is going to make a large difference economically either way.
00:15:02.880So it isn't really about we leave the EU so as to make some enormous, at least in the short term, economic gain.
00:15:10.080I think that would be a mistake to imagine that's the point.
00:15:12.720The key thing about the economics of Brexit is that they're not sufficiently negative to deter us from grasping the very considerable self-determination opportunities,
00:15:23.120the increased stability of the union, less likelihood of Scotland leaving, for example, now that we're leaving the EU,
00:15:30.920and a greater ability to direct and choose the sort of structure of economy that we want.
00:15:37.560So it gives us more control over what we do, for good or ill.
00:23:03.060Incidentally, by the way, I think that that would probably have happened, even with the UK in the EU.
00:23:11.100I think that would have eventually happened, which is one reason why it's silly to suggest that we leave the EU and then go for a Norway-type model or a Norway-plus-customers-union-type model or any of those kind of things.
00:23:23.280Being a bit like Norway is where we would have ended up if we remained in the EU.
00:23:27.380So it would have come full circle to had no Brexit happened in the first place.
00:23:38.880But just coming in terms of what's an advantage.
00:23:41.520So if the EU integrates better politically, then I think that that will enable it to grow faster, which is good for us because we'll be able to export more to it.
00:23:53.160So we obviously won't have to make our... send money to the EU, so that will save us some money.
00:23:58.520So although I have every confidence that the government will spend the same money incompetently, it will at least spend the money incompetently within the UK.
00:24:20.740Quite an important thing is it'll make the union more secure.
00:24:24.540So we're less likely now that over the medium term Scotland will end up leaving the United Kingdom.
00:24:30.200It's a much bigger step for it to leave the UK if we're outside the EU than it would have been if we were both inside the EU.
00:24:37.980So even though I think, I mean, we won fairly handily 11% in 2014 to maintain the union, it's whatever residual risk there was that eventually Scotland might leave.
00:24:50.720It's probably been eliminated by four, you know, who can say after 30 years ahead, but probably for the next 30 years, there's not much chance now that Scotland will leave.
00:25:00.260So that, again, that increased stability to the union is another potentially important economic gain, quite apart from the political and other kinds of gains associated with it.
00:25:15.200Now, I expect that those, one thing about that is it's lots of different little sorts.
00:25:19.200What people want in economic arguments, they don't want anything as complicated as there are nine ways you gain or something.
00:25:25.640What they want to do is they want to say, well, we estimate that you lose this amount of trade by leaving the EU with the EU and we want the one factor that balances that.
00:25:35.360In fact, it isn't that when you are taking control of your ability to execute policy right across the board, it isn't about there being one thing that you object to.
00:25:45.440No, and that speaks to, I think, how linked to the point of excess the EU has become in all of these different areas that should be sovereign United Kingdom areas and files.
00:25:57.760And I guess that brings us to a question I want to close on that I fear the answer to, but I have to ask it nonetheless.
00:26:04.560Are you, given the current political and economic climate, confident or, dare I say, optimistic that what you would like to see happen with Brexit actually happens in March?
00:26:16.540What would have been best would have been if we'd been able to do a fairly rapid free trade agreement with the EU.
00:26:23.780I don't think it was absolutely crucial, but that would have been the best scenario.
00:26:26.680I think it's now, we're now probably looking at 60 to 70% chance of no deal at all.
00:26:33.640And there's a pretty high probability, perhaps 25%, that we just tough out no deal.
00:26:40.360And so it's like both sides decide that they don't like each other that much for the medium term.
00:26:45.620Perhaps 35%, maybe a percent probability.
00:26:49.140The single most likely thing is that we have no deal, and then fairly quickly we cobble together some sort of face-saving just enough that we get along.
00:26:58.660Just to tie this over even until a bigger deal could happen.
00:27:01.460Well, yeah, I mean, not necessarily committing to any longer term deal.
00:27:06.420Maybe some very vague political commitment to seek to have no tariffs at some point in the future.
00:27:12.240But nothing, but some very minimalist kind of arrangement.
00:27:15.960I think that those sorts of no deal scenarios are the most likely now, and they're not that desirable.
00:27:21.200But I didn't, no, to me, we aren't leaving the EU in order to have a deal with the EU.
00:27:26.820So if we don't have a deal with the EU straight away, I don't think that should be considered to be that much of a problem.
00:27:31.480But are you optimistic that the sovereignty that the Leave campaigners sought will actually be realized?
00:27:39.640Well, it does in a no deal scenario, right?
00:27:41.660And apart from no deal scenarios, there's some probability still that the EU panics a bit and we end up with a Canada Plus.
00:27:49.660That's what we refer to our preferred free trade agreements as by the model of the Canadian deal with the EU.
00:27:58.940So there's a non-tributeal chance of that.
00:28:01.280There are some, there's some outside chance that we end up with some quite bad thing happening,
00:28:06.440like committing to remain in the customs union over the long term or something of that sort.
00:28:12.720There's some risks that we end up with with those scenarios.
00:28:15.640Because, again, politicians might panic and we might end up with an EEA plus customs union thing for quite a long time.
00:28:22.540I think that that would simply lead to a Brexit 2.0 movement where we'd have another movement to try to get us out of that over the medium term
00:28:34.100And as I say, that would, all that that would achieve is to get us two or three years earlier to exactly where we would have ended up if we'd remained in the EU anyway.
00:28:42.600So there's absolutely no point in committing to an EEA plus customs union arrangement over the medium term.
00:29:51.400And if we were to establish that, if we were to have, say, a second referendum or something like that, that could really poison UK politics for a very long time.
00:29:59.920So I really hope that that doesn't happen.
00:30:02.900But as things stand, I would say the most likely scenario is no deal or perhaps a Canada Plus deal.
00:30:09.600If there's no deal, we'll end up with a Canada Plus deal in a few years' time.
00:30:13.100I really hope it doesn't have to make more than page four of the papers.
00:30:16.240And like a true economist, I ask a yes or no question and I get an answer with probabilities, which I like.