Econometrics team puts facts into Brexit
Fact-starved Britain responded vigorously to Cambridge Econometrics' recent 'Preparing for Brexit' study, commissioned by London mayor Sadiq Khan.
Commissioned by London mayor Sadiq Khan, Cambridge Econometrics’ ‘Preparing for Brexit’ report caused quite a stir when it was published.
The study was timely, since the government is reluctant to publish its own data. Its ‘sector analysis’ on the consequences of Brexit contained merely the most banal of generalisations, and the Brexit impact studies leaked on Buzzfeed this month have only stoked a firestorm of controversy.
Cambridge Econometrics’ study made a significant contribution to the discussion by analysing outcomes of the Brexit process at a sub-national level. The headline figures said that the net effect could be 500,000 fewer jobs and £50billion of investment lost across the UK. London is assessed as being the most resilient economic area, with the carnage worsening as you go further north.
Ben Gardiner, director of the firm based off Mill Road, had overall control of the process.
“The Greater London Authority (GLA) provided the framework,” Ben said. “We are one of five or six organisations who are fed invitations to tender from time to time. We had seen the London School of Economics (LSE) study on localising the effects of Brexit (published last year) and thought we could improve on their analysis.”
The proposal was submitted to the GLA in September and research began in October.
“It involved three months’ work, so we gauged the resources we’d need for a modelling study which is our forte. Because we only had three months we couldn’t go back to first principles, so it was useful to build on the LSE study.
“They had used an equilibrium model to produce output effects by sector at the UK level. We didn’t use their results but did adopt their inputs – that is, the assumptions they made on, for example, taxes and tariffs, and how they affect exports and imports. We took those and applied them to a number of scenarios including WTO rules, a soft Brexit, a hard Brexit, and a two-year transition.”
Four people worked on the project. “The study involved working with colleagues in our macro modelling team, and we developed localised impacts from the macroeconomic scenario results.”
The findings had a huge impact on fact-starved Britain on their release last month.
“It was a bit like a tidal wave and it depends how you ride it, or manage it, so yes we were a little bit surprised in that we weren’t prepared for some of the vitriol.”
“We had one or two interesting emails,” Ben acknowleged. “The Daily Express and Guido Fawkes incorrectly reported about our leadership structure and dismissed it as ‘Project Fear’. Then there’s the likes of the Financial Times and the Independent, which are more interested in the details. Plus of course the Institute of Economic Affairs. which is a right-wing free-market think tank.
“The Institute had a pop at the scope of the study and the assumptions but in a polite and informed way. It was all quite friendly in the end, and the comments were equally balanced.”
Did the team get a sense that the study affected the national debate?
“My feeling is that there is an acknowledgement of the price to pay for leaving the European Union but those on the leaving side think it’s a price worth paying. But I think it’s still very early days. People are still not seeing the tangible effects of Brexit on their day-to-day lives. There is some inflation but there’s a lot more to come through and it’s crucial everyone involved sees the logic of their decisions.”
Maybe we’re still at the phoney war stage?
“We could be! There’s still so much uncertainty out there, and contradictory evidence. The government still thinks a good trade deal is possible along with control of immigration, which is not possible as it conflicts with one of the four freedoms of the union – freedom of movement of people. There’s a lot of misinformation and misunderstanding still.”
And the two main political parties are ideologically divided on the issue?
“Indeed, and the irony of it is that the right wing of the Conservative Party and the left wing of the Labour Party are on the same side [in supporting the Brexit vote].”
Cambridge Econometrics was founded in the early 1980s by the university “as a way of commercialising forecasts and reports”. It provides data-driven analysis and interpretation to policymakers at local, national and international levels. The agency is owned by a charitable trust, The Cambridge Trust for New Thinking in Economics.
Other studies it has carried out recently have included the economic impacts of the Oxford-Cambridge rail link but the Brexit impact analysis – “the most comprehensive so far”, says marketing and communications manager Emma Fitzgibbon – is on a whole different level. Half a million jobs lost is catastrophic, but the Cambridge study errs on the side of caution by suggesting that a no-deal Brexit will cut three per cent from the UK’s GDP – where the Treasury, in the days of George Osborne’s chancellorship, predicted that Brexit would cost every household £4,300, or six per cent of GDP. In other words, ‘Preparing for Brexit’ could be offering a conservative (with a small ‘c’!) estimate.
“We’re exploring the possibility of doing something for Cambridge,” added Ben. “To extend the work it has to be funded by somebody. We have the method and the approach could, in principle, be applied for combined local authorities such as Cambridge and Peterborough. But we’ll have to see.”