As one of Britain’s foremost economists, Paul Johnson’s view on Brexit is sought after, trusted and condemned. The director of the revered Institute for Fiscal Studies (IFS) tours media studios after every Budget and Autumn Statement to give an independent, expert verdict on what Governments’ plans could mean. Journalists, who rarely have backgrounds in number-crunching, crave this. Robert Peston has called the IFS’ pronouncements “the word of God”.
But economists’ warnings of what leaving the EU could do have earned them scorn from Brexiteers. In November, the Daily Mail accused the IFS of “Brexit doom mongering” after it published a report warning it had been the worse decade for growth in living standards since the 1920s. The tabloid, which backed Brexit, called the IFS “an establishment Think Tank awash with Remainers”, suggesting it lacked credibility because of its associations with people who opposed leaving the EU.
The report on living standards was not about the EU vote. But the Mail’s reaction reflected two things: Brexiteers’ belief that economists have been proven wrong and how politicised economics has become as the country grapples with the referendum result. Add in Michael Gove’s claim we’ve “had enough of experts” and Britain has never looked so sceptical of figures like Johnson. It has been, he tells me, a “bruising” time, though he thinks the view that Brexit will do harm will still prove right.
Johnson qualifies nearly every one of his answers to my questions. The word “probably” comes up several times during our conversation. But on one fact about Brexit, he doesn’t hesitate to be definite. “If you come out of the EU, particularly if you come out of the Single Market, you’ll make trade with the partner with whom you do half of your trade more expensive,” he says. “Making trade more expensive with your biggest and nearest partner is not good for you. But that hasn’t happened yet.”
Britain’s political class may seem frozen in the face of what to do next but the IFS continues as normal. As Johnson leads me through his Fitzrovia office, we pass people seated at computer screens, pouring over data sets. Last week, it published a report saying young people’s wealth today depends on inheriting wealth from their parents more than ever before, one of countless pieces of routine research that make headlines.
“We tried not change anything we do,” Johnson says about the IFS’ life after Brexit. “We have continued to say no to requests for interviews and pieces where we don’t think we have the expertise. Our reputation is based on our expertise, on the fact people spend their time doing really really serious technical research.”
He gestures to the people at banks of computers outside his office. “I can’t stress enough what you see is the top of the iceberg. What’s actually going on here is people are spending 90% of their analysing very big datasets to understand in depth what’s going on.”
Johnson, 50, does not look or sound like you might expect from a so-called ‘prophet of doom’. His sense of humour and perspective never abandons him as he summarises a huge amount of information for a lay person. He wears a polka dot tie and red socks as we sit on the lime green sofas and chairs in his small, fourth-floor office.
The IFS works on microeconomics, analysing issues like income distribution, pensions, earnings, inequality and poverty. Journalists always want to know what will happen next but Johnson reminds me the IFS doesn’t make independent projections. This is why he found The Daily Mail’s attack on it “a bit odd”.
“What we were saying wasn’t even a projection. It was saying ‘the last 10 years have been the worst for earnings growth...’ 95% of what we were saying was backward looking not forward looking and [the Mail] said it was forward looking.” The only part of the report that looked forward was based on forecasting by the Office of Budget Responsibility (OBR), the quango that makes projections independently of Government.
But the hostility to economists is not limited to Gove, the Mail and other Brexiteers, he says. He is stunned by an “extraordinary attack on economists from the Left” in the previous day’s Guardian. “It was essentially implying that all economists were A) conservatives, B) never looked at data and C) responsible for the financial crisis,” he says. “It’s not just a Michael Gove, Brexit thing, I think there’s been a more general trend on both sides.”
He admits the hostility the reaction economists faced “took us by surprise”. Johnson is used to intervening in politics and getting “pushback” from politicians. During the General Election campaign in 2015, he called the main parties’ knowledge of tax avoidance economics “deeply depressing”. He says debate then was “relatively civilised”. But the referendum’s binary question drove both sides to insist they were totally right and attack those they deemed critics, Johnson says.
“You have the Remain side, not only talking about the economy but apparently suggesting we could control immigration if we’re in the EU, that everything everything about the EU is fantastic when patently it isn’t... Leave [were] claiming we’d be economically better off outside the EU, which seems highly likely to be untrue. It’s an incredibly difficult choice. We’ve got things to balance on both sides.”
He adds the IFS was neutral but “came across as being pro-Remain because the economics seem to favour the one thing”. He won’t tell me how he voted, or even whether he voted at all. He says he does not know whether the mistrust of economists will be lasting. IFS has spent nearly 50 years building its reputation. Johnson adds: “We are very, very careful about how we say it and what we do... The response to what we said around the referendum was different to the response to what we said at other moments but I’m hopeful that’s not going to have a long-run impact.”
He worries the hostility could make “the next generation of the economists they’re going to be even more inclined to keep below the parapet”. “I genuinely believe economic insights have done a lot for the world. You don’t really have people making that case. Of course economists have got stuff wrong in substantial ways of course they need to be challenged,” Johnson says. “I think economists have been incredibly effective... One shouldn’t start from the assumption this is in any sense a failed profession.”
I ask whether Remainer warnings about Brexit have fuelled the scepticism of experts. “I know the Treasury numbers suggested we might go into recession the Bank said things would be worse. So I think part of the problem was probably some of those things were said with more certainty than they should’ve been said,” he says. In May, the Treasury said a vote for Brexit alone could deliver an “immediate and profound” shock to the economy and leave half a million people unemployed. It did also say, accurately, the pound would be weaker and its warnings of lower wages, higher public borrowing and lower house prices could still be realised.
“The problem with the short term projections is they were based on much less robust assumptions about what would happen to confidence”, Johnson says. He calls this “animal spirits”, economists’ phrase for the human instincts they can measure but find it harder to predict. “The assumption was the degree of uncertainty would grow so much that consumers and businesses would stop spending and investing. But certainly for consumers that hasn’t happened.”
The IFS doesn’t make independent forecasts but the scale of Brexit made it feel it had to say something. Using others’ forecasting data, it warned the economy would grow slower and borrowing would be higher by 2019. In November, the OBR said borrowing would be around £30 billion higher than it previously thought. “That’s almost exactly what we said pre-referendum!” Johnson shouts.
He does not think anything has happened since June to change his view on what will happen once Article 50 is triggered. The pound’s fall in value could mean the damage is gradual rather than sudden, he says. “It will be boiling the frog. It won’t be that we’ll suddenly see a great recession or suddenly see lots of things closing. It will mean we get another decade of stagnant earnings.”
He returns to the point he has made over and over again: if trade with our biggest partner is harder, it will make us poorer. “If that doesn’t have a negative economic effect then frankly the economics profession really is in trouble,” he laughs.
In the run up to the vote, Johnson found most of the Treasury’s warnings “at least credible, arguable, but credible”. But a week before the vote George Osborne undermined them, Johnson says. The Chancellor threatened a budget after any Brexit vote that would cut spending and raises taxes to fill a £30 billion hole in public finances. Johnson calls this “ludicrous”, saying it was “clearly not going to happen and clearly helped undermine some of what was being said”.
Such drastic spending cuts would have made things “a lot worse in the short [term]... particularly given how significant cuts to spending had already been”.
“What it did was undermine the credibility of other things the Treasury was saying. Most of what the Treasury was saying up to that point was at least credible, arguable, but credible. At that point, in my view, it stopped being credible. That statement, in my view, was not credible.”
Politicians are not good of talking about “trade-offs,” Johnson says, preferring to simplify things and say “everything is good on that side” or “everything is good on the other side”.
“Economists rather miserably say: ‘Well, on the one hand and on the other hand. It depends how you want to balance this off’,” Johnson says. “If you want control of borders, which seems to me to an entirely sensible thing for a sovereign country to want to do, then you’ve got to move out the Single Market and that’s a trade-off. It’s costly to move outside the Single Market. Politicians can’t say that. They find it really hard to explain trade-offs... That’s why economists have a really important role, which is to point out those trade-offs.”
Seen in this light, the Brexit referendum was an “extreme example of stuff that’s always happening”, he says. “[Economists] often then get misrepresented because, if you’re on one side or the other, you either take the bit you like or you attack the bit you don’t like... It’s always a kind of tricky thing.”
Journalists have an appetite for decisive judgements on whether Brexit will work, something Johnson is reluctant to provide. “Whatever happens I’m sure we’ll be arguing in 20 years’ time,” he says, adding it will be difficult to say definitively even then. “My expectation is, in the long run, living standards will be a bit lower than they otherwise would have been,” he says. He adds that, if the impact of living standards is at the lower end of what’s been forecast - around 2% - it will be hard to prove this was down to Brexit.
“If you think a sovereign state ought to have control of its borders, you may well be willing to give up, two, three four, five per cent of GDP for it. But don’t think that the likely cost is zero because it’s not,” he says.
“Probably.”