Counting the Cost of Failure: Brexit Has Failed on Its Advocates’ Own Terms

Written by | Wednesday, January 12th, 2022

Now that the Brexit deal has been in force for a year, it’s worth looking at initial claims from the politicians who forced through an exit from the EU’s single market. David Davis said the trade deal would deliver “the exact same benefits” as membership of the EU. Boris Johnson asked: “Do you seriously believe that they would put up tariffs against UK produce of any kind?” Michael Gove claimed Brexit would encourage member states to take back powers from the EU, saying, “what will enrage and disorientate EU elites is the UK’s success outside the union” and that, “the EU’s peoples … will see that a different Europe is possible”. All those claims turned out to be false. We now know that the UK-EU trade deal has imposed sizable costs on importers, exporters and employers. The EU did put tariffs up. And the EU has gained more powers, rather than dissolving into a looser federation.

Since March, my monthly cost-of-Brexit estimate has found that leaving the single market has reduced UK goods trade – including trade with the EU and trade with the rest of the world – by between 11 and 16%. That’s very close to the range of forecasts made before Brexit, from 10% (Theresa May’s government) to 17% (we at the CER). The UK hasn’t even imposed full checks on imports yet – the full border will be in force by July 2022 – and they will impose further costs on businesses. The Office of Budget Responsibility has been using my estimate to test its long-term forecast for the impact of Brexit on GDP, and sees no reason to change its assumption that the economy will be 4% smaller. Far from strengthening the British economy, Brexit has made it more vulnerable to shocks. Take the pandemic: within the EU, goods trade volumes have recovered, which has meant EU citizens have suffered from fewer shortages than the UK.

We know there has been a big net outflow of EU citizens during the pandemic as jobs dried up, although we don’t know how big it was (the UK’s migration data continues to be poor). That exodus has fueled labour shortages when combined with British citizens seeking better jobs or taking early retirement. These supply constraints have meant that UK inflation has been higher than other countries, which thanks to their similarly poor management of the pandemic, have suffered equivalent falls in GDP. Most pre-Brexit forecasts assumed the economic costs of a free trade agreement would be closer to no-deal than staying in the single market. That’s because the frictions at the border are similar in terms of proving compliance with EU standards and the origin of goods (among other things). According to research by the University of Sussex, tariffs were paid on around a quarter of British exports that qualified for tariff-free entry to the EU, either because exporters would not or could not prove their product was largely made in the UK – or because it was too costly to fill in the paperwork.

The EU has changed since Brexit, but by becoming more integrated. Support for staying in the EU has risen in most member states, partly because Brexit is perceived as a failure, and partly because the Euro and migration crises have been largely overcome. The UK’s early start on vaccines was a Brexit victory of sorts, but a short-lived one: it has now vaccinated the same share of its population as the EU, and a lower share than most countries in Western Europe. The recovery fund has created a fiscal capacity at the EU level that will make it less likely that Italy or Poland will follow Britain out. And since Brexit, the EU has evolved in a direction that is less favorable to the UK’s interests. The EU is more French in its thinking on trade, with a new set of policies to impose a level playing field internationally, such as the carbon border adjustment mechanism and screening of inward investment to keep out China and other autocratic countries. The City of London, which has largely been left out of the TCA, faces more moves by the EU to onshore financial services activity in the next few years.

As the evidence of Brexit’s costs has mounted, Brexit’s champions have started to argue that you cannot judge a project by its first year, and that it will take many years before we can say whether it has been a success or not. Perhaps. But it will require concerted government action to make it work. We have not yet seen a list of EU red tape that the government will repeal. With luck, free trade agreements will raise trade with fast-growing countries outside Europe, but there’s little hope of offsetting barriers with the EU, even with deals with the US and China. The first year of Brexit has failed on its advocates’ own terms, and it is looking unlikely that their claims will ever come true.

‘One Year On, It’s Clear That Brexit Has Failed on Its Advocates’ Own Terms’ — Opinion by John Springford — Centre for European Reform / CER.

The Opinion can be downloaded here

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