A report from the Institute for Fiscal Studies (IFS) has said consumers may see prices fall by up to 1.2% if Britain decides to abolish all tariffs following Brexit, according to BBC News.
However, the think tank said any gains would be very small and were based on ‘optimistic’ assumptions. Consumers have already seen a 2% increase in prices since the EU referendum due to a weaker pound.
The IFS also said new EU trade barriers could cause extra costs for consumers in the UK, which would offset any gains from cutting tariffs.
The report says: “We estimate that complete abolition of all tariffs would reduce prices faced by households by about 0.7-1.2%. This could have additional positive economic benefits inn the long run but could also be very damaging for some UK industries in the short run.”
Tariffs are paid on imports to a country, usually in a bid to protect key sectors such as farming and manufacturing from foreign competition. Cutting all tariffs would increase competition from companies abroad, resulting in UK job losses. However in the long term it is likely that prices for consumers would fall.
The IFS suggests that only reducing tariffs on products that are not produced in the UK in high quantities, such as olives and oranges, could help to avoid economic damage.
Paul Johnson, director of IFS said: “If we leave the customs union, we can come to our own trade deals with other countries, we can reduce tariffs. But even if we reduce that as much as possible, the effect on prices will be really quite small relative to what is still a big cost of leaving the customs union because it would make trade with the rest of Europe so much more expensive.”
The report found that average tariffs on UK imports within the EU customs union are around 2.8%.