The cost of independence?: An unsettling economic outlook for post-Brexit Britain

Photo by Habib Ayoade on Unsplash

Written by Jacob Starr

A trade deal between the UK and the EU arrived on Christmas Eve, just before the end of the transition period on 31 December. Since the withdrawal of the UK on 31 January, negotiations regarding the future trade relationship between the two parties have proceeded, albeit with persistent stalling of trade negotiations. With our agreed trade deal, many economists point to difficult economic consequences. 

Large economic consensus suggest that Brexit will have negative consequences for British citizens. With both a trade deal with the EU and Free Trade Arrangements (FTA) with non-EU countries, the UK government’s own economic analysis estimates a reduction of 4.9% GDP per capita in the long-term (regarded as 15 years). A 2019 study by the University of Leuven estimated a decrease in UK employment of between 140,000 and 526,000, depending on the nature of any deal agreed.  

Moreover, concerns have been raised by the Chartered Institute of Personnel and Development that 1 in 5 companies have considered relocation, largely to continental Europe, due to unfavourable conditions in post-Brexit Britain. This problem would contribute to the loss hundreds of thousands of jobs, and is particularly critical in manufacturing industries. Of course, this bleak economic forecast acts in parallel to the unprecedented economic distress from the coronavirus pandemic. 

Brexiteers will naturally point to the new-found economic possibilities enabled by Britain’s withdrawal from the EU, namely the prospect of new global trade deals free from the constraints of EU trade regulations. Many point to trade deals with Canada and Japan as indication of global opportunities for British business. International trade secretary Liz Truss described the Japan deal as creating opportunity and prosperity for all parts of our United Kingdom and driving the economic growth we need to overcome the challenges of coronavirus.

While we could also consider the UK’s annual contribution of £13 billion, compared to the EU’s spending on the UK of merely £4 billion, the economic benefits of Brexit appear to be fairly marginal relative to the loss of EU trade fundamental to the UK economy. Furthermore, the benefits primarily serve particular business interests. 

While the aforementioned industry challenges remain relevant, certain sections of the British elite are incentivised in supporting Brexit. There is confidence amongst portions of the business elite that increased profit could be obtained after the British economy is free from the constraints of EU regulation. As such, many wealthy donors, such as prominent financier Jeremy Hosking, financially contributed to Nigel Farage’s Brexit Party.

Alarmingly, it is the exact demographic in neglected post-industrial areas, particularly in the North, the Midlands and Wales, who elite-backed Brexiters had the greatest success in mobilising during the referendum that will suffer the greatest economic distress from the result. The government analysis estimates that the North East will be most severely impacted, with a decrease of over 6% in Gross Value Added.

This is in part due to the greater reliance of leave voting regions on EU trade, with Wales, Yorkshire and the North East exporting the most to the continent. Meanwhile, low-paid employment is likely to be more severely impacted by Brexit. Therefore, considering that lower income was positively correlated with likelihood to vote to leave, Brexit is likely to exacerbate such regional and income inequalities that helped facilitate its existence. 

During the referendum, Brexit was sold as an ambition to regain British sovereignty and independence through invention of false nostalgia and an idolisation of flawed notions of British exceptionalism, as the economic consequences were ignored or misrepresented. Consequently, while the results may be distorted by coronavirus, the material economic conditions in post-Brexit Britain look likely to deteriorate.