Prices for UK consumers could drop by 1.2% if all tariffs are abolished

A report by the Institute for Fiscal Studies says that prices for British consumers could drop by as much as 1.2% if the UK abolishes all tariffs once it leaves the European Union.

Prices for British households have increased by 2% since the referendum because of the plunge in the value of the pound sterling.

The IFS estimates that abolishing all tariffs would reduce prices by 0.7-1.2%.

However, completely abolishing tariffs could harm some parts of domestic industry, the IFS said in its report.

Instead, tariffs could be cut strictly on goods where there is little UK production – for example where exports are on fifth of imports – which would result in a price reduction of up to 0.4%.

“Such goods accounted for 22% of the value of UK imports in 2016,” the IFS said. “Tariffs on these sorts of products are higher than average. But because they only account for a small fraction of imports, even under the same strong assumptions we made above, cutting these tariffs could result in an overall price reduction of 0.4% at most.”

Peter Levell, a senior research economist at IFS and the author of the analysis, said:

“One argument put for the UK leaving the EU Customs Union is the chance to reduce tariffs that the EU currently levies on imports in order to reduce prices faced by consumers.

“Complete abolition of tariffs would reduce consumer prices by at most 1.2%, a figure which is not large when compared with the estimated 2% increase in prices due to the sterling depreciation that followed the referendum result, and one that is likely to be an overestimate. This is because tariff rates are not particularly high on average, especially when one accounts for the EU’s various trade agreements.

“In addition, the costs of goods imported from outside the EU make up only a relatively small fraction of UK household spending.

“If tariff reductions were restricted to products that the UK did not produce domestically, as some have proposed, the impact on prices would be smaller still.”