Matthew Lynn

A Brexit delay would be bad news for Britain’s economy

A Brexit delay would be bad news for Britain's economy
Text settings

It would stop us crashing out. It would give us enough time to negotiate a free-trade deal. It would allow business time to prepare, and for the government to put in place all the extra infrastructure we might need once we are outside the European Union. As the deadline draws closer and closer, the pressure is mounting for a delay to our departure from the EU. At first that was just likely to be a few week or months. But now Brussels is talking about two years.

But hold on. That is crazy. Sure, plenty of big businesses will be supporting that, and lots of people will be arguing it is the only way to avert a potential economic catastrophe. They are understandably nervous about leaving without a deal. But in fact, it would be the worst possible outcome for the economy. Why? Because it would only prolong the uncertainty. And because it would stop us from concentrating on all the other reforms our economy needs.

With a month remaining before we leave the EU, no one yet knows what form our departure will take. Theresa May’s deal? The deal with some tweaks to the backstop? A managed no deal? Tumbling off the cliff-edge with no safety net? Amid all that uncertainty, it is perhaps no great surprise if some officials think the whole process should simply by extended until a compromise can be reached. After all, the two-year deadline imposed by Article 50 is completely arbitrary. Lots of divorces take longer than that to settle, and our split from the EU is far more complex than most marriages. Certainly, the CBI and most major companies would rather delay the whole process than risk no deal at all.

It is easy to understand why that looks tempting. It would still be a mistake, however, and potentially an expensive one. Here’s why.

First, it would simply prolong the uncertainty. No one really knows what leaving the EU will do to trade. No major economy has ever left before. A few tariffs and exclusion from the Single Market might turn out to be a disaster, with food shortages, and a full-scale collapse in exports. Or we might find that it doesn’t make a whole lot of difference and apart from filling in a few dull forms we can trade as usual with the rest of Europe just like all the other World Trade Organisation countries that aren’t members of the EU. Who knows? We’ll find out once we are out. The important point is this. It is better to get on with it. At least companies will then know where they are, and what they need to do. If there are problems, they can almost certainly be fixed but that can’t start until everyone knows what they are.

Next, and probably more seriously, it will mean we spend two more years arguing furiously about Brexit, rather than getting on with all the other reforms the economy needs. We should be improving our infrastructure, simplifying our tax system, boosting our often dismal productivity, working out how many immigrants we need – and from where – dealing with the rise of self-employment and the gig economy, extending careers for an ageing population, building more homes in the right places, and reinventing competition rules for a tech dominated economy. And that’s just for starters. When was the last time anyone had time to debate any of those issues? Sure, membership of a European trade bloc is important, but only up to a point. The long-term wealth of the country will actually be determined by skills, tax rates, education, entrepreneurship, competition and innovation. We need to get back to thinking about all that stuff – because it is what actually matters.

Leaving the EU might be good or bad for the economy. You can argue about that for a long, long time, and no doubt we will. But if we are leaving then there is no point in endlessly delaying it. Business should have the courage to make it clear it would be better to leave next month – and postponing it for two years will only make it worse.