At 11pm on 31 January 2020, the UK ceased to be a member state of the EU and Boris Johnson, then prime minister, proclaimed that Britain would “rediscover the muscles that we have not used for decades”.
But what’s changed since that day and is the country reaping the Brexit dividends it was promised?
How is it affecting the economy?
The broad consensus is that Brexit has had a substantially negative, but not catastrophic, effect on Britain’s economy: economists often liken it to a slow puncture. Given the turmoil of the period since Britain left the EU, it is hard to disentangle it from other factors, such as Covid and supply-chain snarl-ups, Russia’s invasion of Ukraine and rocketing energy prices.
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Economists try to do so by measuring Britain’s performance against comparable countries, or modelling a “doppelgänger” UK that hasn’t left the EU. Last month, Bloomberg Economics concluded that Brexit is costing the UK economy £100bn a year, leaving it 4% smaller than it would have been. The Office for Budget Responsibility (OBR) similarly thinks it will end up 4% smaller than it would have been.
In the real world, the UK has underperformed compared with every other G7 nation; it is the only economy yet to return to the size it was in late 2019.
Why has Brexit had these impacts?
Sterling depreciated by about 10% after the 2016 vote, and has remained at around the same level since, raising import prices and inflation. The second factor is the significant hit to business investment, driven by uncertainty and the fact that Britain is no longer inside the EU single market. A series of large companies have chosen not to invest in the UK: Bloomberg estimates that investment has trailed the G7 average by 19%. Trade has also been affected by new technical barriers and border checks. Trade figures are hard to interpret, and estimates vary, but the OBR thinks that both imports and exports will be around 15% lower than they would have been. In services, the effect has not been as drastic as feared, but the consultants EY found last year more than 7,000 finance jobs had moved from London to the EU because of Brexit.
What about the new trade deals?
While it’s good to have them, nearly all the post-Brexit trade deals replace agreements the UK had signed as a member of the EU. For example, the Government says the deal it made with Japan in 2020 will increase the UK’s GDP by 0.1% – but only relative to not having a deal with Japan, and the UK had one before Brexit. The three genuinely new deals – free trade agreements with Australia and New Zealand, and a digital trade agreement with Singapore – don’t come close to making up the shortfall. (The Government expects the first two to add 0.08% and 0.03% to the UK’s GDP). Deals with India and the Pacific trade bloc are still a possibility, but really big trade agreements aren’t currently on the table: the US has suspended negotiations, and the UK isn’t pursuing a deal with China.
Has immigration been affected?
On its own terms, the Government’s post-Brexit migration policy has succeeded. As intended, there’s reduced immigration of lower-skilled workers from the EU, and increased immigration of higher-skilled workers from the rest of the world, mostly for jobs in health and social care, IT, business services and finance. The recruitment of nurses from abroad, for instance, has risen under the new system. But hospitality, agriculture, transport and retail have been badly hit by an estimated shortfall of 330,000 lower-skilled workers. At the same time, overall net immigration reached a record high of 504,000 last year – perhaps not an effect that most Brexit voters envisaged.
What about farming and fishing?
The “Environmental Land Management schemes” being rolled out to replace the EU’s Common Agricultural Policy (CAP) in England are likely to be a substantial improvement: unlike the much-derided CAP, which rewarded farms largely based on their acreage, it will pay farmers for protecting nature and improving the environment. However, the transition has been difficult, and the agricultural sector as a whole is struggling with the increased difficulty of exporting to the EU; and the deals with Australia and New Zealand have been widely criticised as bad for UK livestock farmers. There have been benefits to UK fisheries since Brexit, but they have fallen far short of Brexiteer rhetoric. A recent study calculated that the UK catch will increase by 107,000 tonnes per year, or 12.4% by value for all species, by 2025. But set against this is the increased difficulty of exporting seafood to Europe.
What other successes can Brexiteers point to?
The fast rollout of Covid vaccines is often claimed as a Brexit benefit: although technically European law allowed the UK to act independently, arguably the UK would have faced political pressure to join the EU’s common vaccine strategy. More broadly, Britain has regained regulatory independence, which ought to yield benefits, particularly for financial services. Reforms of the EU’s Solvency II rules that govern insurance, for instance, could allow £100bn to be invested in productive finance, according to the Association of British Insurers. Leaving the EU’s state aid regime gives British governments more leeway in industrial policy, although the EU and US are now giving themselves more leeway, too. And of course the UK no longer pays its contribution to the EU budget, of £12.6bn net in 2020.
Can Remainers say I told you so?
There’s little doubt that, economically, Brexit has proved painful. Remainers can point to negative effects on everything from small businesses to cross-Channel traffic to universities to touring musicians. The question of the Northern Ireland border remains unresolved. A majority of the public now seems convinced by such arguments and, across the world, Brexit is widely seen as an act of self-harm. But Brexiteers argue that, in future, it should allow the UK to be nimble in crucial areas such as life sciences and the digital economy – and that even if it has disappointed so far, in the long run we’re better off as a sovereign nation than delegating decisions to a bloc beyond the reach of our elected representatives.
