Brexit tariff cuts on imports won't help UK consumers in the shops, IFS warns

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Cutting tariffs on imports after Britain leaves the European Union will make little difference to prices paid by consumers in the shops, a leading economic think tank has warned.

The Institute for Fiscal Studies (IFS) said that even if all tariffs were scrapped, the reduction in prices would be less than the increase which followed the referendum vote in 2016 as a result of the fall in the value of the pound.

Some supporters of Brexit have argued that the Government should take the opportunity to abolish tariffs unilaterally to lower prices for UK consumers, bringing down the cost of living.

However the report by the IFS said tariffs imposed by the EU on the sort of goods imported into the UK were "not particularly high" - averaging around 2.8 per cent.

Even under some "quite optimistic assumptions" about the likely effect on prices paid by households, it said the complete abolition of tariffs would lead to a reduction of between 0.7 per cent to 1.2 per cent.

That compares with the estimated 2 per cent increase in consumer prices which resulted from the depreciation of sterling following the Brexit referendum.

The IFS said that while getting rid of tariffs could bring economic benefits in the long run, it could be "very damaging" for some UK firms in the short term.

However if tariffs were only removed from goods which the UK does not produce itself - in order to protect such businesses - the fall in prices would be 0.4 per cent at most.

At the same time, the report said that any benefits to consumers from abolishing tariffs had to be set against the "inevitable costs" to UK trade that would result from leaving the EU customs union.

"Firms will likely be affected by customs delays and storage costs that would result from the erection of customs barriers on trade with the EU," the report said.

"New regulatory differences between the EU and the UK are also likely to create various non-tariff barriers to trade.

"Such changes would, other things equal, be expected to increase costs for consumers and work to offset the (already rather limited) gains from tariff reductions."

PA