A further report of doom and gloom after Brexit has been released, this time from the institute of Fiscal Studies (IFS), claiming the Brexit would bring two more years of austerity. Is the body of evidence from independent analysts really increasing?
The IFS is a charity, based in London specialising in taxation and public policy, claiming to be politically independent. Its formation had its roots in opposition to Labour Party policy in 1964, formalised in 1969 with a cross party Council being established the following year.
Of its funding, 54% comes from the Economic and Research Council (ESRC) whose parent body is the Department for Business, innovation and Skills. The bulk of the rest comes from foundations and charities (14%), the EU (11%) and other government departments (8%) with only 1% from corporations.
It is always interesting to look at personnel on any of these bodies, certainly well respected people with august backgrounds. President of the IFS is certainly august, in fact Lord Augustine O’Donnell, better known as Gus O’Donnell. Gus is not unaccustomed to public scrutiny having featured in the delayed Chilcot Inquiry over his decision not to publish correspondence between Blair and Bush.
On a more operational level, it is interesting to see the Director is Paul Johnson. Curiously, Johnson studied at Oxford, Keble College, a short walk along Parks Road from Brasenose College where David Cameron also read PPE at the same time.
It is not unusual to see a flow of personnel from the IFS to the Treasury and back. Another Old Etonian who was also a PPE graduate moved from the IFS to work with the Oxford educated George Osborne, both in opposition and for the Treasury. Nobody would suggest that the Oxford educated Chancellor, godfather to one of Cameron’s children, could be guilty of providing “jobs for the boys”.
Given that obvious total impartiality, it is worth a closer look at the IFS document which can be found here.
As ever, the report starts with an executive summary, which is expected to outline objectively how the study will be carried out. Surprisingly, as early as the first page, we see the pejorative use of the word “absurd” in relation to the commonly used figure of £355 million which is sent on average weekly to the EU.
Certainly, it is fair to question figures using non-emotive language. The language used appears to illustrate a potential bias. They are correct to highlight that part of that is what they call the “rebate”, which in fact should be correctly identified as an “abatement”. They might also point out the resources that are allocated by the EU which might be more efficiently allocated by a UK government.
There is a delicious irony in that having disparaged the total resource that the EU reallocates, the IFS argue that it “is not necessarily inappropriate to describe the deterioration in the government’s finances as making households worse off”.
In short, funds that households do not see are not equivalent to funds that households do not see. There is logic and consistency in there somewhere.
The IFS proceed to well worn arguments and, perhaps unsurprisingly given the movement of personnel between Treasury and the IFS itself, return to use the Treasury’s own figures. These have been widely discredited.
They also refer briefly to the 8 economists’ report, after 2 mentions consigning independent and eminent economists, including those who arguably steered Britain to above average growth rates, to the dustbin of “outliers”.
In essence, the IFS has fallen in, whether consciously or otherwise, to the myopic view induced by the Remain campaign, that there are a limited range of options available but not including those that come from an inspired generation of free thinkers associated with economic success.
Much of the report refers back to other reports, the Treasury and the apparently closely linked OECD report as well as NIESR and CEP. The Norway and WTO models seem to be interpreted as the only ones that are feasible. Unfortunately, the report was written before Bank of England Treasury Select Committee appearances by external members of the Bank of England presented their own views (here) , putting the risk and policy in context.
The “shock absorber” effects in an efficient Foreign Exchange market provide stabilisers, as does the potential monetary policy brief of the Bank of England. The Governor does not necessarily speak for those who have direct input into decisions.
The IFS ignores what Bank of England members consider as potentially greater risks to stability within the EU and indeed the global stage.
On a deeper level, in not having been able to consider the TSC questioning of Bank of England members, any contingency planning on how to deal with potential fall outs the IFS report can in no way claim to have been a comprehensive, therefore rigorous, analysis of Brexit.
In summary, the IFS have compiled a variety of reports before supporting the Treasury line. Their integrity is beyond question, despite the various links with the Treasury personnel movements, old school and university contacts. The report is just not sufficiently thorough.
To their credit, later in the text when many readers will be bored, the IFS group take steps to provide caveats that the central assumptions, therefore the outcomes may be wrong. In doing so, in the future, they provide Osborne with excuses for not hitting his own targets or to change policy, which Osborne and his neighbour are doing a lot of at the moment.
That may be a subjective judgement. Look at the documents and the TSC recording, you can decide for yourself. One of the great lessons is how to recycle the same dubious evidence to build a body of opinion.