And now we read that not only have we left the Single Market, but the UK economy will be 4% smaller than it would have been without Brexit.
The UK economy is about £2 trillion in size, so 4% amounts to around £80 billion – that is the annual cost. That is well over £1,000 for every man, woman and child in the UK.
So why haven’t we all noticed it? Why aren’t we up in arms about it? Why isn’t it dominating the front pages of our newspapers?
In G K Chesterton’s short story The Sign of the Broken Sword, the following exchange takes place between Father Brown and Flambeau:
After the first silence the small man said to the other: “Where does a wise man hide a pebble?”
And the tall man answered in a low voice: “On the beach.”
The small man nodded, and after a short silence said: “Where does a wise man hide a leaf?”
And the other answered: “In the forest.”
The reason we are not all more aware of the impact of Brexit may simply be that it is a leaf – or rather a tree – hidden in a forest:
- The impact of Brexit is real and significant – and of course some people have felt its effects so seriously that they are fully aware; but
- In the short term, Brexit has had a smaller impact than COVID; and
- In the long term, Brexit is dwarfed by the impact of austerity.
The impact of Brexit is real and significant
Farmers are well aware of the impact of Brexit. The Metro quoted a fruit farmer concerned about the imminent collapse of his business:
“We are ‘taking back control’ as Boris would say, but when we are ‘taking back control,’ we are actually deliberately throttling our own businesses because we know the thing we haven’t got control of is labour.”
And fishermen have been disabused of any notion that Brexit was about protecting their interests. As the Guardian put it, “For the fishing community of Humberside, on the austerity-battered north-east coast of England, it is as if a slow-motion car crash has suddenly been fast-forwarded.”
But, of course, it is not just smaller businesses that have been hit. Finance is seriously under threat. Bloomberg put it starkly:
“The damage isn’t yet fatal, and London has a long history of reinvention. The UK’s finance chief, Chancellor of the Exchequer Rishi Sunak, is aware of the risks for an industry that provides 10% of the British tax take and has plans to secure its future. The question is whether Brexit marks the start of an irreversible demise for the City of the Big Bang as thousands of cuts merge into a single bleeding wound.”
And the Office for Budget Responsibility confirms the overall impact:
“In the near term, trade disruption associated with the implementation of the new trading relationship (the ‘Trade and Cooperation Agreement’ or TCA) will temporarily reduce GDP by 0.5 per cent in the first quarter of 2021. … The new trading relationship will reduce long-run productivity by 4 per cent relative to remaining in the EU. … Both exports and imports will be around 15 per cent lower in the long run than if the UK had remained in the EU. … New trade deals with non-EU countries will not have a material impact. This is because most of these largely replicate deals that the UK already had as a member of the EU and, in any case, they are likely to have only a very small and gradual impact on GDP.”
So if new trading deals will not help, what is the upside? According to the Economist:
“The government is hopeful that its new freedom to diverge from EU regulations will pay dividends, but a paper in 2018 put the likely impact at 0.1% of GDP. Open Europe, a think-tank, managed to find measures worth some 1.3% of GDP, but only by assuming the public would tolerate an extremely liberal [i.e. market fundamentalist] regulatory system. Filling the long-term Brexit-shaped hole in growth will be hard.”
In the short term, Brexit has had a smaller impact than COVID
One reason for the relative lack of attention to Brexit is COVID. The virus has hit all countries hard and the UK particularly badly. This chart shows the global picture of the death toll – from the Statista database – and the economic impact – from the IMF via Statistics Times.
UK GDP fell by over 9% in 2020 – that is more than after the Global Financial Crisis, and in the short-term, is enough to dwarf the 4% hit due to Brexit. Of course, in any normal circumstances, a 4% hit would be considered an extreme recession – but these are not normal times.
In the long term, Brexit is dwarfed by the impact of austerity
When we look at the long-term picture, however, what we see is even more dramatic:
The chart shows extrapolations (not forecasts) of what might have happened to the economy if we had followed previous trends. If we had followed the pre-austerity trends, GDP per capita would have been almost £38,000 in 2020, as opposed to under £30,000 in reality. If Brexit and COVID had not happened, GDP per capita would have been around £33,000. So the impact of austerity is actually larger than the combined impact of COVID and Brexit.
But, of course, COVID and Brexit did happen. And the end of the implementation period for Brexit corresponded with the second peak of COVID. The damage from Brexit – at least in the short term – is therefore coinciding with the economic bounce-back from COVID. Disentangling the two effects is far from straightforward. The tree is hidden in the forest.
Is this a coincidence? Of course, the advent of COVID during the Brexit process is a coincidence. But the precise timing of Brexit – and the timing of the end of the implementation period in particular – was predictably, and avoidably, set to overlap.
As Martin Wolf wrote in May, 2020 in a Financial Times article titled A No-Deal Brexit Amid The Pandemic Would Be Disgraceful:
“The least wise thing to do of all would be to break its promises and cast the country loose into a dangerous world in the midst of the steepest downturn of the British economy in three centuries.
Only lunatics or fanatics would consider doing something like this. How did it happen that the once-sensible UK is being governed by people like this?”
Of course, we have a hard Brexit rather than a no-deal Brexit, but Wolf’s point remains valid: the government could and should have protected the UK by extending the implementation period until the virus was under control. But to do so would not have been politically expedient.
A government which places political expediency above the interests of its population has effectively gone rogue, and we have written previously about the risks to British democracy posed by this government. The government also has a large majority, which of course reduces the power of the opposition parties to oppose effectively.
A recent development which may help to redress this balance of power is the emergence of a group of one-nation Conservatives within the Tory party who are now prepared to hold government to account.
Without such a group, even working together, the opposition parties face an uphill struggle. But a progressive alliance with membership ranging from one-nation socialists to one-nation conservatives opens the possibility of a return to fully-functioning democracy in the UK.
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