Brexit at 10: Economic
Costs Mount While Benefits Remain Limited
Citing lower trade and investment,
analysts broadly agree that Britain’s economy is smaller than it would have
been if the country had stayed in the E.U.
1.
Brexit's economic impact emerged gradually
·
Pre-referendum warnings of an immediate economic
shock did not materialize.
·
Economists argue the damage accumulated over time
as new UK-EU trading arrangements took effect from 2021.
2.
Political instability followed the referendum
·
The UK is set to have its seventh prime minister
since the 2016 Brexit vote.
·
Years of negotiations and policy uncertainty
contributed to political turbulence.
3. Public
regret over Brexit has increased
·
Nearly half of Britons believe Brexit has performed
worse than expected.
·
More than half of respondents in recent surveys
support rejoining the EU.
4. UK
economy is smaller than it would have been
·
Most economists estimate Brexit has reduced UK GDP
by about 4–6%.
·
Some studies suggest the loss could be as high as
8%.
·
Lower GDP translates into weaker tax revenues and
slower growth in living standards.
5.
Productivity has been negatively affected
·
The UK's fiscal watchdog estimates Brexit will
lower long-term productivity by around 4%.
·
This adds to the country's existing productivity
challenges.
6. Trade
barriers with the EU increased
·
Although tariffs were largely avoided under the
UK-EU trade agreement, businesses face:
o
More paperwork.
o
Border checks.
o
Additional regulatory requirements.
·
These barriers have increased trading costs.
7. Trade
with the EU has declined
·
UK exports to the EU are estimated to be about 12%
lower.
·
Imports from the EU are estimated to be about 16%
lower.
·
Trade friction remains the largest economic cost of
Brexit.
8.
Agriculture and food exports suffered heavily
·
Agricultural and food exports to the EU have fallen
by nearly 30%.
·
Sectors such as shellfish farming faced major
difficulties due to new border controls.
·
Many small exporters reduced their presence in
European markets.
9.
Services exports remained relatively strong
·
Professional services, consulting, and legal
sectors performed better than goods trade.
·
Increased global demand for digital and online
services during the pandemic supported growth.
10. New
trade deals have not offset EU losses
·
The UK signed 39 trade agreements covering 72
countries after Brexit.
·
However, the EU still accounts for over 40% of UK
trade.
·
New agreements have not compensated for reduced
trade with Europe.
11.
Business investment weakened
·
Brexit uncertainty initially caused firms to delay
investment decisions.
·
Long-term business investment is estimated to be
about 4% lower than it otherwise would have been.
12.
Limited beneficiaries emerged
·
Consultants, lawyers, customs agents, and
regulatory specialists benefited from new compliance requirements.
·
These gains have been small compared with the
broader economic costs.
13.
Migration patterns changed significantly
·
Immigration from non-EU countries increased rather
than overall migration falling.
·
Labor shortages emerged in sectors that previously
relied on EU workers, including hospitality, food processing, and care
services.
14.
London retained its financial dominance
·
London remains Europe's leading financial center.
·
However, some financial activities shifted to
Amsterdam and Dublin.
·
The relocation of financial business has been
gradual rather than sudden.
15.
Opportunity costs may be the largest loss
·
Economists argue Brexit's biggest cost is the
investment, trade, business expansion, and job creation opportunities that
never materialized.
·
These missed opportunities are difficult to
quantify but likely significant.
Conclusion
·
Ten years after the referendum, most economists
conclude that Brexit has had a net negative impact on the UK economy.
·
The main effects include lower GDP, weaker trade,
reduced investment, slower productivity growth, and labor
market disruptions.
·
While the UK gained greater policy autonomy and
retained London's status as a financial hub, the economic benefits have so far
been limited compared with the costs.
Just
before Britain’s fateful referendum on its membership to the European Union 10
years ago, the government of the day gave a stark warning. A vote to leave the
bloc would lead to “an immediate and profound shock” to the economy. By a slim
margin, the public voted to leave anyway.
The
economic warnings were wrong, but only in their timing.
Brexit
has damaged the British economy and the costs have steadily accumulated over
the past decade, greatly outweighing any benefits, economists say. More
visibly, Brexit has unleashed a torrent of political instability: The country
will soon get its seventh prime minister since the June 23, 2016 vote, after
Keir Starmer announced his resignation on Monday.
The
turmoil has led to a sense of regret: In a recent poll, nearly half of Britons
said that Brexit was going worse than expected, up sharply from five years ago.
Another survey found that just over half would support rejoining the European
Union.
It
is hard to be precise about the cost of Brexit, given the other hits to the
British economy since the referendum, including the Covid-19 pandemic,
President Trump’s tariffs and the wars in Ukraine and Iran. Here’s what to know
about the economic impact so far, according to several recent reports.
The
economy is smaller than it would have been.
In
2016, Britain’s government assumed that a vote to leave would mean an immediate
rupture of the country’s trade ties with the 27 other members of the European
Union. Instead, there were years of negotiations. Britain didn’t officially
leave the bloc until the end of January 2020, and even then
there was an 11-month transition period. That obscured the economic effects
because trading rules didn’t fundamentally change until 2021, four and a half
years after the vote.
The
Covid pandemic, an energy crisis and other events have made it difficult for
economists to untangle Brexit’s effect on the economy. But many have tried. One
widely referenced study, led by Nicholas Bloom, a Stanford professor, estimated
that Brexit has reduced Britain’s gross domestic product by up to 8 percent,
“with the impact accumulating gradually over time.”
While
other economists quibble with that study’s methodology, broadly they agree that
Britain’s economy is 4 to 6 percent smaller than it would have been if it had
stayed in the European Union, a substantial loss of output. That means lower
tax revenues to fund government spending and a slower improvement in people’s
living standards.
The
Office for Budget Responsibility, Britain’s independent fiscal watchdog,
believes that Brexit will reduce the country’s long-run productivity, which has
lagged other major economies’ since the global
financial crisis, by 4 percent.
New trade deals haven’t
made up for Brexit losses.
Most
of the economic cost has come from adding trade friction with the market of 450
million people on Britain’s doorstep.
A
2021 trade agreement kept tariffs mostly at zero, but it raised other barriers
to trade by introducing extra paperwork, border checks and new regulations.
Brexit reduced Britain’s exports of goods and services to the European Union by
about 12 percent and imports from the bloc by about 16 percent, according to
the Centre for European Reform, a research group.
British
agriculture and food exports have been hit particularly hard, falling by nearly
30 percent, the C.E.R. found. For some, like shellfish farmers, the additional
border checks made exporting goods nonviable. Many small businesses, in
particular, have curtailed their efforts to court European customers because of
the added time and expense.
Britain’s
trade in services has performed better. But most economists attribute this to
the pandemic, when a demand spiked for services, especially those delivered
online. Britain’s well-established service providers, including consultancies
and legal firms, stood to benefit.
Brexit
has freed Britain to sign its own trade deals, replacing agreements set by the
European Union. But while Britain has since signed 39 trade deals covering 72
countries, that hasn’t made up for lost trade with the European Union.
Despite
the extra costs and hurdles introduced by Brexit, Europe is still Britain’s
largest trading partner by far, accounting for more than 40 percent of its
trade, only marginally lower than before the referendum. In its regular
forecasts for the British economy, the Office for Budget Responsibility simply
assumes that new deals with non-European Union countries “will not have a
material impact.”
Britain’s businesses still
feel the pain.
One
of the first and largest economic effects of the Brexit vote was a freeze in
business investment as companies retrenched during the uncertainty of
protracted trade negotiations and political instability.
Eventually,
business investment grew again, but less vigorously than it might otherwise
have, economists say. The National Institute of Economic and Social Research,
an independent think tank, said recently that Brexit-induced uncertainty has
reduced long-run business investment by around 4 percent.
Has
anyone benefited? “The professions and sectors that benefit are the
consultants, lawyers and probably custom agents,” said Anton Spisak, a senior
research fellow at the Centre for European Reform. But overall, Brexit has had
a “very negative effect” on the economy, he added.
One
of the biggest effects has been on migration. Rather than lowering immigration,
as many of Brexit’s supporters suggested, there has been a large influx of
people from non-European Union countries. They face different visa requirements
and bring different skills, reshaping the labor
market.
Many
industries, such as hospitality, food processing and health and social care,
have been struggling with extra costs and disruptions after losing their
traditional worker base.
“We’re
only really in the early stages of knowing how that really profound shift in
U.K. immigration patterns post-Brexit will play out,” said Sarah Hall, an
economic geographer at the University of Cambridge and deputy director of U.K.
in a Changing Europe, a think tank.
London has retained its
spot as Europe’s financial center.
In
2016, the financial services sector loudly opposed Brexit, which threatened
London’s role as a gateway to Europe. A decade later, London has maintained its
position as Europe’s biggest financial hub.
No
other European city has become the financial industry’s destination of choice,
Ms. Hall said. But London has still lost substantial parts of its business,
such as some stock trading to Amsterdam and asset management to Dublin.
It’s
been “like a slow puncture,” Ms. Hall added. Instead of a sudden transition,
there have been “a whole series of relocations and now, increasingly, new job
openings that aren’t taking place in London.”
What about the next 10
years?
As
the British economy struggles under stubborn inflation, a heavy debt burden and
higher borrowing costs, the idea of reversing some of Brexit’s effects has
grown more alluring. The front-runner to become the next prime minister, Andy
Burnham, has called Brexit “damaging.”
Last
year, Mr. Starmer’s government held a summit with European leaders to “reset”
their relationship. But over a year later, progress has been halting. Another
summit, scheduled for next month, was postponed by the Europeans after Mr.
Starmer’s resignation.
While
aiming for a closer relationship, the Labour Party has ruled out a return to
Europe’s single market and customs union, or allowing freedom of movement
across its borders. Analysts also say there is limited interest in Brussels to
renegotiate deeply with Britain.
“Quite
a lot that can change in the next decade,” said Mr. Spisak of the Centre for
European Reform. But he doesn’t expect major changes in the next two or three
years, before the next general election is due.
And
so the costs will continue to add up, and the biggest
one has been the hardest to quantify, Mr. Spisak said.
“The
more important cost of Brexit is the opportunity cost,” he said. “That is, all
the things that have not happened because of Brexit.”