Sadiq Khan’s new Brexit report requires a health warning

Sadiq Khan’s new Brexit report requires a health warning

Today, the Mayor of London has released an impact assessment of Brexit. If you had time to read the Treasury’s bleak assessment before the Referendum, you will already be familiar with some of the messages of today’s report: a negative stance.

The Mayor will tell us that this report has gone one step further, looking at the sectoral assessment, and that is true. But, wherever it can, it has taken the stance that even by 2030 (the end period of today’s forecast), Brexit is about making the best of a bad job, not seizing the opportunity to sort out our domestic economy and position ourselves globally.

Since the Referendum, Project Fear has moved on. Before the Referendum the threat, we were told, was imminent Armageddon. The economy would suffer immediately. Since the Referendum there has been a subtle shift. Instead of saying we would suffer, the stance is now that we are doing fine, but we could have done better.

This report tells us, prominently, on page 12 that, “The literature on Brexit often tends to focus on headline outcomes, e.g. an X% fall in GDP by 2030…. it is not the primary focus here.” Perhaps the authors should have made that clear to the Mayor and those who wrote the press release as the immediate focus has been along the lines of the Treasury’s Project Fear: we will be worse off.

Except the report does not say that! Take its forecasts for Inner London. The average growth rate between now and 2030 will vary between 1.75% in their worse case and 1.92% in their best case scenario. In fact, in tables at the back, the outcome is – and remember they have taken a downbeat view of things – that London will grow and employment will rise. Also they see Inner London’s share of the capital falling, consistent with a rebalancing of growth towards other parts. The London boroughs will be pleased at that prospect.

Perhaps I am disappointed – but not surprised – that the authors of this report did not did not find time to even reference the independent 300 page report “London: The Global Powerhouse” I authored in February 2016 for the previous Mayor, or the “Europe Report of August 2014”, plus its detailed sectoral appendices, compiled by GLA staff and containing econometric forecasts carried out by independent experts Bridget Rosewell and Professor Paul Ormerod of Volterra. But at least they were able to reference a host of anti-Brexit reports compiled by others whose immediate post Referendum views have been proved wrong. Our reports were positive about what lay ahead for London and the UK, based on innovation, investment, infrastructure and a positive vision.

I don’t dismiss the downside scenarios in today’s report. I just don’t expect them to happen. In fact our 2014 report saw a bigger fall in employment in our “inward looking” scenario than this report sees in any of theirs. Yet our 2014 report forecast that London would add 1 million jobs and see its economy grow £145 billion over twenty years.

One thing I would agree with in today’s report on is the outcome depends on the policy decisions we take. Indeed the outcome for any economy depends upon the interaction between economic fundamentals, policy and confidence. When the UK political establishment continues to try to tear itself apart rather than unite in the national interest we should not be surprised if some investors take fright. When leading politicians talk down prospects, why should we be surprised if some international firms are cautious?

Thankfully, however, since the Referendum, the leading tech firms, among others, have seen through the haze, to announce sizeable investment in London, effectively choosing it as the fin-tech capital of the world. Given the interaction between technology and finance this is good news for The City. The good news over the last year is that there is more reason to be confident about London remaining the EU’s financial capital.

Indeed, it was only at the start of last year that the European Commission, in their detailed analysis of 263 regions across the EU, said 3 of the top 5 are in the south of England: with London in first. The UK’s challenge has been across the rest of the country. The problem for London, perhaps not covered enough in this report, has been the uncertainty over EU citizens rights, which thankfully now looks like being solved. We are told on page 49 of this report that “London residents who were unemployed or inactive may be employed following migration restrictions.” Perhaps. But surely the key is to have a sensible migration policy – no discussion of that in today’s report – that serves both London and the UK, and to recognise that over recent decades UK based firms have under-invested in UK staff.

Today’s report acknowledges the flexibility of the London economy, and its ability to cope with shocks, which is good as there is no doubt – as I have written – that leaving the EU is an economic shock. My view is still that it is like a ‘Nike swoosh’ which dampens growth, because of uncertainty, in the near-term, but where the economy still grows, particularly further ahead. In a nutshell, Brexit is good news for the economy.

All economic models require a health warning. This one is no different. To quote directly from today’s report, “The spread of results (in this report and others) are usually due to how the models deal with the additional effects on productivity caused by changes to FDI, openness to trade, degree of regulation, innovation, and other factors that are not directly captured by the main model structure.” Exactly. This report does not even mention China, nor the fourth industrial revolution. Nor, that at a time when globalisation, technical change and innovation are driving the world economy, it is only by being outside the EU that the UK can position itself. It does not talk about the UK’s new found freedoms on regulation, industrial strategy or indeed on a host of areas where we will return competencies from Brussels.

I welcome the Mayor adding to the debate. The message to take from this report is not to be downbeat, rather it is to highlight the future importance of the policy decisions we take. The UK needs to boost its domestic economy, position itself with the rest of the world as well as have a good relationship with the EU. The choice is ours and making Brexit work for the many.