Thursday, April 28, 2016

The OECD's creative accounting on Brexit

The OECD published it's report on the upcoming referendum and the consequences of Brexit. We'd all be worse off by £3,200 per household by 2030! The BBC covered it here, and George Osbourne seems desperately pleased.

It's shorter than the treasury report, being a mere 37 pages including the cover. What it lacks in length it makes up for with hyperbole and ridiculous assumptions though, so read it and enjoy!

It comes to some stark “We'd be doomed! Doomed I tell you!” conclusions, though it seems to lack detail on where to check its figures. It also uses the same brand spanking new favourite of remain economists of the GDP per household which no one else actually uses because it's meaningless.

The biggest hole in its numbers is there is no information on what figure it uses for the number of households and indeed what it expects either an in or out GDP to be in 2030. In one way, that's not a bad thing because frankly they don't know, no one does, including me. However if you're going to make a claim that household GDP will fall by £3200 you need to know how much GDP will be, and how many households will be in the country.

Those numbers don't exist in the report so I will run with some of the assumptions from the treasury report but the OECDs changes to GDP.

To recap, from my article here, Remain GDP in 2030 if we stay in will be 36% above what it is now.  GDP in 2015 was £1.808 trillion.

From his number we will deduct the OECD's doom and gloom: a drop in GDP of 2.5% (optimistic) 5% (central) and 7.5% (pessimistic).

Lets run with a 7.5% drop in GDP. I don't want to be accused of being over optimistic.

The OECD suggests  that if we leave, in the worse case scenario, immigration would drop to below 100,000 per year (which is what we were promised), and implies net immigration will remain over 300,00 a year if we stay. It doesn't seem to pin it self to either an in or an out figure for number of households though.

We can only work on what we know which is the household growth figures for Remain from the ONS in the treasury report (31 million) and working off a net migration of less than 100,000 in the event of BREXIT, which I estimated at 28 million.

So, time for a little bit of simple maths.

Current GDP (2015) of £1.808 trillion.

Remain GDP 2030 of £2.45 trillion. (+36%)

Leave GDP 2030 of £2.323 trillion  (+28.5)

Remain households, 31 million.
Remain GDP per household:  £79,384

Leave households, 28 million
Leave GDP per household: £82,964.

That's £3,580 per household better off!

I'm sure they didn't want you to know that.

As a footnote the IMF, OECD and HM Treasury all disagree. They all think we would be much better off remaining in the EU.

The IMF, OECD and HM Treasury also thought we would be mad not to join the ERM (That turned out well… after we crashed out of it in some pain) and also thought we should definitely have joined the Euro which would have been a disaster for both us and the rest of the Euro zone.

Andrew Lillico has this analysis here.

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