It feels like this has been a week of gloomy introspection as the UK confronts the grinding reality of its post-Brexit bind: persistent inflation, stagnant growth and entrenched battles over public sector pay and really no particularly good ideas about what to do about it.
Obviously, everyone agrees the economy needs to grow faster, but the launch of Liz Truss’s Growth Commission this week was long on diagnosis (global trade has stagnated over the last 20 years) and short on remedies, beyond a promise to model the benefits of smarter deregulation.
My colleague Robert Shrimsley wrote an incisive column exploring the internal conflict this has created in the Tory party between Trussite ideas for growth, Govean desire for place-making and the orthodoxies of “Osborneomics” espoused by the current occupants of 10 and 11 Downing Street.
Nothing is ever entirely all about Brexit, but this being the ‘Britain After Brexit’ newsletter, I’ll focus on the bits that are.
Robert writes that Brexit emerged from the economic malaise that followed the 2008 financial crisis and a sense that the traditional market economics in which the Conservative party had long reposed its faith wasn’t delivering sufficiently broad-based prosperity.
Brexit was therefore a “reaction to that failure”, with Boris Johnson’s idea being that the economic shock of Brexit would be countered by “investment in skills, infrastructure, science and public services” which was then kiboshed by the Covid-19 pandemic and its wrecking of public finances.
Back-to-front thinking
That’s a reminder of quite how obviously back-to-front the original thinking was — deciding that Brexit, onshoring and economic nationalism would really be a tonic for the British economy when nearly 50 per cent of UK trade goes to the EU.
Johnson himself, in his first big Brexit speech in Greenwich, came close to acknowledging as much. The UK was embarking on a solo mission to boost its global trade at a time when geopolitics and rising mercantilism had “choked” the global trading system.
As Johnson rather forlornly observed: “Trade used to grow at roughly double global GDP — from 1987 to 2007. Now it barely keeps pace.” Hardly a propitious moment to launch ‘Global Britain’.
And trade is important — as this UK government analysis from 2021 explains — when making the case for faster export growth while highlighting the growing impact of rising ‘non-tariff barriers’ (the same barriers that David Frost refused to acknowledge as he negotiated the TCA and continues to deny now).
The Department for International Trade analysis found that goods exporters have a “productivity premium” of 21 per cent, with exporting firms paying higher wages and showing more resilience to economic cycles than non-exporting firms.
“This means higher-skilled, higher-paid jobs for people across the UK and a more competitive domestic economy,” wrote Richard Price, the chief economist at the then DiT.
Post-Brexit trade record
This is a political point that the Labour party has thus far not dared to try and land on their Tory opponents: Brexit has hammered UK goods trade (goods exports were 17 per cent below pre-Trade and Co-operation Agreement levels in Q1 2023) and that blow lands hardest in the Midlands and the North, where manufacturing provides a greater proportion of high-productivity jobs.
I’ve written recently, with the help of the Resolution Foundation, about UK high-productivity manufacturing being squeezed out of EU supply chains, but this week the British Chambers of Commerce launched its Trade Manifesto setting out what needs to be done to get trade back on track.
It starts by flagging that the post-Brexit record is not good. As the BCC says, exports from small and medium-sized enterprises “continue to languish”. In the second quarter of 2023, half of all SME exporters (50 per cent) saw no change in overseas sales, and almost a quarter (24 per cent) reported a decrease.
The BCC manifesto is full of good ideas about how to help trade: digitising documents, better communications with business, capitalising on UK strength in greentech and creating an exports council to try to join up hopelessly fractured Whitehall trade machinery.
But even though (for understandable political reasons) Brexit is only actually mentioned once in the 20-page document, it is the EU-sized elephant in the room since — as the document notes — “42 per cent of our goods and services exports still go to the EU”.
In her remarks, Shevaun Haviland, the director-general of the BCC, doesn’t shy away from this. As she says: “We need to look again at ways of improving trade with the EU. It remains our biggest trading partner, but firms continue to express huge frustration with the complexity and costs involved — which go beyond what they face elsewhere.”
I’ll be exploring in the coming days elsewhere in the FT why that complexity and cost is going to increase, not decrease, as the EU continues to diverge from the UK, bringing in a host of new regulations on carbon border taxes, supply chain due diligence and other environmental areas, like plastic waste management.
The BCC goes on to list what needs to be done to try to reduce these short, medium and long term frictions but only a cursory glance at the first list (see page 17) makes you realise how tough this is going to be.
It includes an agreement on VAT co-operation, for example, to reduce the need for UK companies to have a “fiscal intermediary” in the EU — something the UK has already requested but the EU has decided is not in its best interest.
It says the EU should extend the deadline for the rules of origin requirement on electric vehicles — but the Commission is dead set against that, not least because it wants to send the message that the TCA is not open for endless renegotiation.
And it suggests the UK should work on deals for the mutual recognition of professional qualifications which is provided for in the TCA. However, it’s worth recalling that Canada’s basic trade deal with the EU has the same facility and has managed a single deal on architects and that took nine rounds of negotiations.
There are things the UK can do for itself like give up on its UKCA mark, make sure trusted trader schemes are accessible as we bring in our own border for EU imports from October, expedite the creation of a ‘single trade window’. But this will only marginally shrink the inbuilt disadvantages facing UK firms compared to competitors in the EU single market.
If the Labour party is serious about delivering growth and investment where the Tories have failed, then sooner or later it will have to ask itself whether it can deliver this without actually engaging substantively on the challenges caused by Brexit — and what would move the dial in Brussels in order to begin addressing them.
Brexit in numbers
This week’s chart comes from the European Movement Ireland’s annual survey of attitudes towards the EU, which this year also covers Northern Ireland for the first time.
That means there are no previous surveys to compare this year’s findings to, but I was struck by the answer to the question from Northern Ireland voters about where they felt the closest connection (political, social or cultural) — Europe, Great Britain or the US.
Nearly two-thirds (60 per cent) of Northern Ireland voters chose “Europe” as their political and cultural lodestar — double the number that chose “Great Britain”, which raises a bunch of fascinating questions.
This is not so much about a Border Poll (which is still some way off, although of course a vote for unification is also a vote to rejoin the EU) but more about the extent to which Brexit and the Windsor framework inevitably orientates Northern Ireland towards the EU.
Kathryn Simpson, associate professor in EU Politics & Economics at the University of Keele, says the findings perhaps reflect the fact that Brexit has actually increased the everyday presence of the EU in the North.
She argues that even though Northern Ireland voted to remain by 56 per cent to 44 per cent, it had widely expected to be higher.
“But the presence of the EU in Northern Ireland has become so much stronger post-Brexit, because the EU is now perceived to have more active influence on day-to-day life than when the UK was a member of the EU,” she added.
That said, one notable finding in the survey (done by Lucid Talk in Northern Ireland and Amárach Research in the Republic) is that contrary to the UK, younger voters in the North identify less strongly with the EU than their older counterparts.
Among voters over 25, around 60 per cent identify with “Europe”, with only 30 per cent choosing “Great Britain”, but among 18 to 24-year-olds that gap shrinks markedly, with only 48 per cent identifying with “Europe” and 40 per cent for “Great Britain”.
Katy Hayward, professor of political sociology at Queen’s University Belfast, said the split among the younger generation reflects the fact that Brexit has politicised “Europe” as an issue — both negatively and positively — given the EU’s inextricable association with the Northern Ireland protocol.
“So the EU’s influence is no longer just about positive things, like the Erasmus student exchange programme or EU-funded roads. The intense debate over the Protocol now means it’s also seen in highly negative terms by some.
“So you could say Brussels is more politically significant — and, with that, more contentious — than it was pre-Brexit,” she said.
Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.
Source: Economy - ft.com
