As he struggled to save his job this month, Boris Johnson warned his MPs not to get into “some hellish Groundhog Day debate over the merits of belonging to the single market.” Brexit, he warned his rebel party in a sweaty meeting room of the House of Commons, was resolved.
Later that day, Johnson won by limping in a vote of confidence, but only after 41 percent of his deputies had voted to oust him from Downing Street. At the moment it is safe, but the project defined by its Prime Minister, Brexit, still hangs like a cloud over the fragile British economy.
Johnson may not want his party to “reread” Brexit, but neither does Sir Keir Starmer, leader of the opposition Labor Party, who around a third of his supporters voted Leave in the 2016 referendum. Nor did Andrew Bailey, Governor of the Bank of England. Rishi Sunak, the chancellor, would rather talk about something else. Brexit has become the big 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 the erection of trade barriers with their larger market, separating the “Brexit effect”. of the damage caused by the Covid-19 pandemic. . They conclude that the damage is real and is not over yet.
Business investment, seen by Boris Johnson and Rishi Sunak as a panacea for low growth rate, continues in other industrialized countries © Scott Heppell / Reuters
The UK is lagging behind the rest of the G7 in terms of trade recovery after the pandemic; Business investment, seen by Johnson and Sunak as the panacea for a poor growth rate, lags behind other industrialized countries, despite generous Treasury tax cuts to try to increase it. Next year, according to the OECD think tank, the UK will have the lowest growth in the G20, apart from the sanctioned Russia.
The Office for Budget Responsibility, the UK’s official forecaster, has seen no reason to change its prediction, first made in March 2020, that Brexit would reduce UK productivity and gross domestic product by 4%. compared to a world where the country stayed inside. the EU. He says just over half of that damage has still occurred.
This level of fall, which is worth about £ 100 billion a year in lost production, would result in a loss of revenue for the Treasury of about £ 40 billion a year. That’s £ 40 billion that could have been made available to the harassing Johnson for the radical tax cuts demanded by the Conservative right, the equivalent of 6 per cent. 20 p. discount of the basic rate of income tax on the pound.
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Despite these overwhelming figures, Johnson’s complaints about the prospect of “relit” Brexit were exaggerated, with the intention of presenting himself as the victim of a putative conspiracy by pro-Remain MPs. In fact, British politicians, and the country at large, are still traumatized by the bitter saga of Brexit and do not want to see it again.
However, this month saw the first ups and downs of a debate that has so far been buried as evidence of Brexit-induced economic self-harm begins to accumulate. Few are talking about completely reversing Brexit, but another question is: Should the UK start exploring ways to soften its borders with Brussels?
Show, don’t say
Downing Street insisted this week that it was “too early to pass judgment” on whether Brexit was having a negative impact on the economy, which could be heading for a recession. “The opportunities that Brexit offers will be a great help to the UK economy in the long run,” Johnson’s spokesman said.
Both Johnson and Sunak insist that it is difficult at this stage to separate the economic impact of Brexit from the Covid shock. Meanwhile, the Prime Minister is promoting 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 a reform of the rules in the city of London, including the reform of the EU Solvency II rules to allow insurers to spend more money on infrastructure projects. It has announced eight new free ports with special tax privileges.
But economists have not yet been able to find any significant positive impact of these policies. Some, including Johnson’s patriotic promise to put a “crown seal” on pubs ’pint glasses and allow traders to sell their wares in pounds and ounces, are mostly symbolic.
Johnson promised to put a “crown seal” on pub glasses and allow traders to sell their goods in pounds and ounces © Ben Birchall / PA
Critics of the government’s Brexit policy are often mocked. Advocate General Suella Braverman last week accused ITV presenter Robert Peston of “Remainiac fantasy” after challenging her for the government’s unilateral plan to break the Northern Ireland-related Brexit treaty. Braverman claimed that the so-called Northern Ireland Protocol had left the region “behind the rest of the UK”. In fact, Northern Ireland (the only area in the UK that remains in the EU’s single market for goods) is the best performing part of the country, apart from London.
When Bailey appeared before the House Treasury Committee in mid-May, BoE Governor acknowledged that his predecessor Mark Carney had become “unpopular” in saying that Brexit would have a negative effect on trade. , but that the bank maintained this view.
Kevin Hollinrake, a Conservative member of the committee, says Bailey was trying to avoid becoming a political target and “deliberately avoided” talking about Brexit. “It’s a unique issue for the UK,” he said. “We’ve changed our immigration rules. These are non-tariff barriers. You have to be willing to look at what’s happening on the ground.”
Kwasi Kwarteng, business secretary, recently focused on the UK’s ability to respond quickly to Russian aggression in Ukraine © Sharron Floyd / PA
While some gloomy predictions have failed to materialize, such as former Chancellor George Osborne’s 2016 warning of a recession immediately after a dropout vote, there is growing evidence that Brexit is causing more damage. lasting effects on the UK’s economic outlook.
Ministers are increasingly reluctant to proclaim the economic benefits of Brexit. Kwasi Kwarteng, business secretary, was asked last week in the FT global boardroom to list some of the benefits of Brexit. He focused on the UK’s ability to respond quickly to Russian aggression in Ukraine, “has substantial benefits, especially in international politics,” rather than in business. Sunak’s allies say the chancellor’s approach is to “show, not explain” Brexit, pushing the city’s regulatory reforms instead of delivering reinforced speeches on its economic merits.
The fall of the data
The first economic and most obvious blow to Brexit came when the pound fell by almost 10 per cent after the June 2016 referendum, against currencies that match the UK’s import pattern. 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 the price of imports rose and inflation rose.
In June 2018, a team of academic economists from the Center for Economic Policy Research estimated that there had been an inflationary effect of Brexit, which raised consumer prices by 2.9 percent, with no corresponding increase in salaries.
Some households, such as those that depend on state pensions, were compensated with higher benefits, but the CEPR team did not find any general compensation with higher incomes. “The Brexit vote caused a rapid negative shock to the standard of living in the UK,” they wrote.
While the UK was still in the EU and during the “transition phase” of Brexit, there were no significant effects on trade flows. But that has changed since stricter border controls were introduced in early 2021, not imposing tariffs, but significant border controls and controls before without friction.
Johnson may not want his party to “reread” Brexit, but neither can Sir Keir Starmer, leader of the opposition Labor Party © Charles McQuillan / Getty Images
Economists have used this moment to compare how the UK’s business performance compares with that of other countries before and after the imposition of the ATT. The results have been increasingly ugly, especially for small businesses trading with Europe.
The bureaucracy caused a “sharp decline” in the number of business relationships after January 2021, according to a study by the Center for Economic Performance at the London School of Economics. The number of relations between buyers and sellers fell by almost a third, he 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 came mainly from the EU, with those from further afield, such as tuna and pineapples, a substantial Brexit effect was found. “Brexit increased average food prices by 6% during 2020 and 2021,” according to the research.
Summarizing the effects on trade in which EU imports have fallen while exports have not risen, Adam Posen, head of the Peterson Institute for International Economics, says that “everyone else is seeing a recovery in trade after Covid and the United Kingdom are sitting. “
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The third visible effect of Brexit on the UK economy has been to discourage business investment. In the first quarter of 2022, real business investment was 9.4 percent lower than in the second quarter of 2016. This fall was mainly due to Covid, but had been aligned since the referendum, ending a period of growth since 2010 and …