Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
Next week will see another Brexit anniversary as we reach six years since the 2016 referendum. Meanwhile, the UK-EU Trade and Cooperation Agreement (TCA), which marked the beginning of the UK’s new relationship with the EU has been in place for nearly 18 months. No doubt we will be debating the merits and consequences of Brexit for many years to come, but what can be said at this point?
Much of the Brexit debate has focused on trade and the economy, and the deteriorating economic situation has prompted some commentators to lay the blame squarely at the door of Brexit. However, it is almost impossible to disentangle any Brexit effect from the much larger economic shock resulting from the pandemic, and now the war in Ukraine, which have taken a heavy toll on the global economy.
Due to the volatility caused by these global events, it is difficult to make short-term comparisons across economies. However, according to OECD figures, the UK economy exceeded its pre-pandemic (Quarter Four, 2019) level of GDP for the first time in the first quarter of 2022, by 0.7 per cent. I
By contrast, German and Italian GDP was still below pre-pandemic levels (by 1.0 per cent and 0.4 per cent respectively) in the first quarter of 2022. And while UK inflation is at the high end compared to other economies, the Netherlands and Poland are both experiencing higher levels, illustrating that the UK is not a particular European outlier.
Given the degree of change to the UK’s trading arrangements, it would be a surprise if Brexit had no impact. At the time of the Spring Statement, the Office for Budgetary Responsibility noted that UK trade had not recovered as quickly as other advanced economies and that the trade intensity of the UK economy had fallen as a result. However, looking beyond the headline figures presents a complicated picture, not easily explained by Brexit alone.
The biggest contributors to the UK’s decrease in trade intensity are from a decline in imports of goods and services from the EU, even though the barriers to trade have overwhelmingly been erected on the EU side of the border (the UK has delayed imposing checks on EU goods entering the UK).
Equally, UK exports of goods to the EU have recovered more strongly than UK exports to non-EU countries. The reorientation of supply chains may have played a role in this. However, much of the global demand for goods was generated by US consumers, and the UK is not a major exporter of the products (computers and electrical equipment) that the US imported over this period.
Finally, the UK’s export mix is more dominated by services than its competitors. The pandemic has had far-reaching consequences for trade in services and, paradoxically, again it is imports rather than exports of services to the EU that have seen the biggest falls since the pandemic. This evidence would suggest that greater barriers to exporting to the EU seem to be playing only a limited role in the UK’s disappointing post-pandemic trade performance. This shouldn’t be cause for celebration, but it is important to diagnose the problem properly.
On the question of immigration, which dominated political debate prior to the referendum, it is notable that the UK has remained open to global talent and skills. The tight labour market is primarily to do with older UK workers exiting the market rather than the loss of EU workers, the vast majority of which have been replaced from outside the EU under the UK’s liberalised visa system.
Net migration to the UK was estimated by the Office of National Statistics to be 239,000 in the year ending June 2021 and work-related immigration to the UK has recovered strongly in the wake of the pandemic. There were 277,069 work-related visas granted in the year ending March 2022 (including dependants). This was a 129 per cent increase on the year ending March 2021 and is 50 per cent higher than in the year ending March 2020.
It is also clear that despite continuing high numbers of arrivals, public attitudes on immigration have softened significantly now that the UK is able to devise its own policy without the strictures of EU freedom of movement. According to Ipsos-Mori, the proportion of people wanting to see immigration reduced has fallen from around 65 per cent in 2015 to 42 per cent in 2022. The share saying immigration levels should stay the same or be increased has risen to 50 per cent from around 30 per cent. Those dissatisfied with the Government’s handling of immigration are largely concerned with illegal Channel crossings.
Meanwhile, there was a fear that Brexit would consign the UK to geopolitical irrelevance on the global stage. However, the UK entered into the new AUKUS security partnership with the US and Australia and it has played a leading role in the international effort to support Ukraine.
The crisis with Russia has not united the EU behind a common foreign policy to the exclusion of Britain. As I noted in a previous column, Emmanuel Macron’s drive for EU “strategic autonomy” on foreign and security policy has been severely undermined, probably fatally, by the fact that many in Northern and Eastern Europe have concluded that the US and the UK are more reliable partners in this field than France and Germany.
This is not to suggest that Brexit has been plain sailing or that the UK does not face significant difficulties. Clearly, the row between London and Brussels over the Northern Ireland Protocol has the potential to escalate and fundamentally destabilise the UK-EU relationship yet again. The domestic economic and political challenges of increasing productivity, improving economic performance across the entire country, and reforming public services pre-date Brexit.
Some Brexiteers are impatient for greater divergence from the EU. Some Remainers will continue to see Brexit as the root of every problem. However, Brexit is a process rather than an event and the experience of the past six years should demonstrate that the UK’s decision to leave the EU does not in of and itself mean it is on the road to success or failure.