As he struggled to save his job this month, Boris Johnson warned lawmakers not to engage in “some hell of a debate on Marmot Day on the merits of belonging to the single market.” Brexit, he warned his rebel party in the sweaty meeting room of the House of Commons, has been settled.
Later that day, Johnson won the vote of confidence, but only after 41 percent of lawmakers voted to oust him from Downing Street. For now, he is safe, but the defining project for his presidency – Brexit – still hangs like a cloud over the fragile British economy.
Johnson may not want his party to “remove” Brexit, but so can Sir Keir Starmer, leader of the opposition Labor Party, about a third of whose supporters voted to leave the 2016 referendum. Nor did Andrew Bailey, the bank’s governor. of England. Rishi Sunak, the chancellor, prefers to talk about something else. Brexit has become a major British taboo.
But as the sixth anniversary of the UK’s vote to leave the EU approaches, economists are beginning to quantify the damage caused by raising trade barriers with the largest market, separating the Brexit effect from the damage caused by the Covid-19 pandemic. . . They conclude that the damage is real and not over yet.
Business investment seen by Boris Johnson and Rishi Sunak as a panacea for slow growth is lagging behind other industrialized countries © Scott Hepel / Reuters
The United Kingdom is lagging behind the rest of the G7 in resuming trade after the pandemic; business investment, seen by Johnson and Sunak as a panacea for slow growth, is lagging behind other industrialized countries, despite generous tax breaks from the Treasury to try to increase it. Next year, according to the OECD think tank, the United Kingdom will have the lowest growth in the G20, apart from sanctioned Russia.
The Office of Budget Responsibility, the official British forecaster, sees no reason to change its forecast, made for the first time in March 2020, that Brexit will eventually reduce productivity and gross domestic product of the United Kingdom by 4 percent compared to the world, in which the country remains within the EU. It says just over half of that damage has not yet occurred.
This level of decline, worth around £ 100 billion a year in lost output, would lead to a loss of revenue for the treasury of approximately £ 40 billion a year. That’s £ 40 billion that may have been available to besieged Johnson for the radical tax breaks demanded by the Tory right – the equivalent of 6 pence of 20 pence at the base rate of the pound income tax.
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Despite these sobering figures, Johnson’s complaints about the prospect of “canceling” Brexit were exaggerated, aimed at portraying him as a victim of an alleged conspiracy by lawmakers supporting the rest. In fact, British politicians – and the whole country – are still traumatized by the bitter Brexit saga and are deeply reluctant to reconsider it.
However, this month saw the first stir in a debate that has been buried so far as evidence of Brexit-induced economic self-harm begins to pile up. Few talk of a complete reversal of Brexit, but another question arises: should the UK start exploring ways to soften its edges with Brussels?
Show me, don’t say
Downing Street insisted this week that it was “too early to judge” whether Brexit was having a negative impact on the economy, which could turn into a recession. “The opportunities offered by Brexit will benefit the UK economy in the long run,” said Johnson’s spokesman.
Both Johnson and Sunak insist that at this stage it is difficult to separate the economic impact of Brexit from the Covid shock. Meanwhile, the prime minister promoted the “benefits of Brexit”, such as new trade agreements with Australia and New Zealand and the UK’s freedom to set its own rules.
Sunak has promised to reform the rules of the City of London, including reforming the EU’s Solvency II rules to allow insurers to spend more money on infrastructure projects. He announced eight new free ports with special tax privileges.
But economists have not yet been able to find significant positive effects from these policies. Some, including Johnson’s patriotic promise to put a “crown seal” on pint cups in pubs and allow merchants to sell their wares in pounds and ounces, are largely symbolic.
Johnson promised to put a “crown seal” on pint cups in pubs and allow traders to sell their wares in pounds and ounces © Ben Birchall / PA
Critics of Brexit government policy are routinely ridiculed. Suela Braverman, Attorney General, last week accused ITV presenter Robert Peston of “fake fabrication” after he challenged her over the government’s unilateral plan to break the Brexit deal with Northern Ireland. Braverman claims that the so-called Northern Ireland Protocol has left the region “behind the rest of the United Kingdom”. In fact, Northern Ireland (the only region of the United Kingdom that remains in the EU’s single market) is the best performing part of the country, with the exception of London.
When Bailey appeared before the House Finance Committee in mid-May, BoE Governor acknowledged that his predecessor, Mark Carney, had become “unpopular” that Brexit would have a negative effect on trade, but the bank maintained that view. .
Kevin Hollinrake, a Tory member of the committee, says Bailey tried to avoid becoming a political target and “deliberately avoided” talking about Brexit. “This is the only problem for the United Kingdom,” he said. “We have changed our immigration rules. These are non-tariff barriers. You have to be ready to look at what’s happening on earth. “
Kwasi Kwarteng, business secretary, recently focused on the UK’s ability to respond quickly to Russian aggression in Ukraine © Sharron Floyd / PA
Although some grim predictions have failed to materialize, such as former Chancellor George Osborne’s 2016 warning of a recession immediately after the exit vote, there is growing evidence that Brexit is doing more lasting damage to the UK’s economic outlook.
Ministers are becoming increasingly reluctant to announce the economic benefits of Brexit. Kwasi Kwarteng, business secretary, was asked at the FT Global Boardroom last week to list some of the benefits of Brexit. He focused on the UK’s ability to react quickly to Russian aggression in Ukraine – “this has significant benefits, especially in international politics” – instead of on business. Sunak’s allies say the chancellor’s approach is to “show, not say” about Brexit, pushing through City’s regulatory reforms instead of giving encouraging speeches about its economic merits.
Consequences in the data
The first and most obvious economic blow inflicted by Brexit came when sterling fell by almost 10 percent after the June 2016 referendum against currencies that matched the UK’s import model. He did not recover. This sharp depreciation was not followed by a boom in exports as UK goods and services became cheaper on world markets, but still raised the price of imports and increased inflation.
Until June 2018, a team of academic economists at the Center for Economic Policy Research estimated that there was an inflationary effect of Brexit, which increased consumer prices by 2.9 percent, without a corresponding increase in wages.
Some households, such as those relying on state pensions, were compensated with higher benefits, but the CEPR team did not find total compensation with higher incomes. “The Brexit vote led to a rapid negative shock to the standard of living in the United Kingdom,” they wrote.
While the United Kingdom was still in the EU during the Brexit transition phase, there were no significant effects on trade flows. But that has changed since stricter border controls were introduced in early 2021, imposing not tariffs but significant checks and friction-free border controls.
Johnson may not want his party to “repeal” Brexit, but so can Sir Keir Starmer, leader of the opposition Labor Party © Charles McQuillan / Getty Images
Economists have used this moment in time to contrast how the UK’s trade performance compares to that of other countries before and after the imposition of the TCA. The results are getting uglier, especially for small companies trading with Europe.
Bureaucratic actions have caused a “sharp decline” in the number of trade relations since January 2021, according to a study by the Center for Economic Performance at the London School of Economics. The number of buyer-seller relationships has fallen by almost a third, it was found.
The same group found that food prices had risen as a result of Brexit. Comparing the prices of imported foods such as pork, tomatoes and jam, which come mainly from the EU, with those from further afield, such as tuna and pineapple, found a significant effect of Brexit. “Brexit increased average food prices by about 6% in 2020 and 2021,” according to the study.
Summing up the effects on trade, with EU imports declining while exports not increasing, Adam Posen, head of the Peterson Institute for International Economics, said “everyone else sees a resumption of trade after Covid and the UK is ruthless.”
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The third visible effect of Brexit on the UK economy is to discourage business investment. In the first quarter of 2022, real business investment was 9.4% lower than in the second quarter of 2016. This decline was mainly due to Covid, but it declined after the referendum, ending a period of growth since 2010 and …
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