Does Brexit work? Four key tests | Brexit
Does Brexit work? For the diehards on either side, the answer is obvious. But for those interested in objective analysis, it’s vital to have at least some way of asking the question. This is why, in the UK in a changing Europe, we have defined four key ‘tests’ to assess the consequences of leaving the EU.
We observed that while Remainers and Leavers disagreed vehemently on whether to stay in the EU, there was considerable common ground on what we as a country should seek to achieve. achieve. Generally, both sides argued that Britain should remain an open and outward-looking country; whereas economic growth and social cohesion both matter; that we should invest in and improve our public services; and that we must maintain Britain’s international influence, while preserving democratic control of our own destiny. Remainers and leavers did not disagree on these goals; the question was whether Brexit would make their achievement easier or more difficult.
We concluded that Brexit could be considered a success – in its own words – if, overall, it passed the following tests. So what’s the story so far?
economy and public finance
Overall, the UK’s economic performance has been disappointing, but not disastrous, since the referendum and since the implementation of the trade and cooperation agreement with the EU. Three factors weighed on growth: the sharp fall in the pound sterling immediately after the referendum which was not recovered, the persistent low levels of business investment, partly due to Brexit, and, since the implementation of the ATT, the reduction of trade.
The impact of the pandemic makes it very difficult to quantify these effects, but there is a clear consensus among independent economists that Brexit has made us poorer. The current estimate from the Office of Budget Responsibility is that Brexit has so far reduced UK GDP by around 1.5%, with a further reduction of 2.5% to come. This would in turn result in a reduction of around £12billion a year in tax revenue, reaching well over £30billion, partly offset by the reduction in the UK’s net contributions to the EU . The Center for European Reform estimates that the UK has experienced a growth deficit compared to economically comparable countries of more than 5% over the period, although it recognizes that this is not all due to Brexit. These negative impacts are significant, although far from catastrophic.
On the other hand, it is difficult to show any significant overall economic benefits of Brexit to date. So while Brexit supporters can still point to potential future benefits, so far the first test has failed.
Brexit promised to make Britain “fairer” in two ways: by raising the relative wages of low earners and by reducing regional disparities. Although the referendum generated increased political interest – and rhetoric about it – there is no suggestion that it contributed to either of these goals.
In the pre-pandemic period, wage growth was higher at the lower end of the income distribution, but this was mainly due to above-inflation increases in the national minimum wage, a pre-referendum policy . Since the pandemic and the introduction of the post-Brexit migration system, many salary increases have been reported in some sectors where the reduction in EU migration has reduced the labor supply. However, this has not yet led to an overall improvement in the situation of low wages.
In fact, income inequality has widened compared to the pre-pandemic period, with the strongest wage growth in the finance and ICT sectors. The top 1% seem to be doing particularly well. Meanwhile, there is no sign that regional disparities have narrowed, and they may in fact be widening: the ONS believe that London, along with Northern Ireland, are the best performing regions. Other analyzes show that Brexit has reduced growth the most in areas most dependent on manufacturing, particularly in the North. So far, test 2 has failed.
There is clear evidence that, as expected, Brexit has had a negative impact on UK trade, although some aspects of the data remain puzzling. Export performance has been weak but, contrary to expectations, this is particularly the case for extra-EU exports. Meanwhile, imports from the EU have fallen sharply, with considerable evidence of substitution from non-EU sources – somewhat surprising given that the UK has yet to impose the full set of controls import to EU suppliers. It should be noted that although the ACT theoretically provides for trade between the UK and the EU to be free of customs duties and quotas, this is not necessarily the case in practice, given the requirements sometimes binding to demonstrate eligibility. Overall, the OBR concludes that its estimate of a 15% impact on UK trade remains appropriate.
Meanwhile, however, the new post-Brexit immigration system has proven to be considerably more liberal in policy and practice than expected. While EU migration has fallen sharply since the referendum, and even more sharply since the pandemic and the introduction of the new system, it has largely or entirely been replaced by non-EU migration, with study visas and well above pre-pandemic levels, even after taking into account new visa requirements for EU citizens. It has also led to a change in the sectoral composition of labor migrants, with large increases in the health and ICT sectors; it also means that the average skill and wage levels of new migrants are higher than before Brexit. So overall, the verdict here is mixed: negative on trade, but positive on migration.
In formal terms, there is no doubt that Brexit delivered on its promises; the European Communities Act, which enshrined the supremacy of EU law, has been repealed, the European Court of Justice no longer has direct jurisdiction in the UK (with some minor exceptions) and our contributions to the budget of the EU are being phased out. The main exception here is the Northern Ireland protocol, which is still very much in flux. The EU was of course not the only external obstacle to control.
Some government plans to change procurement rules, for example, have been thwarted by the need to meet other international trade obligations. Beyond the legal position, arguably the main impact of Brexit has been to transfer power to the executive, rather than to parliament or the public, as ministers have given themselves substantial powers to change the law European retained by secondary legislation.
Meanwhile, public opinion is mixed. Data from the UK Social Attitudes Survey suggests that public trust in government fell during the prolonged political and parliamentary deadlock over Brexit, but recovered during the pandemic and with the resolution of the Brexit debate. Brexit, returning to pre-Brexit levels, although levels of dissatisfaction and distrust remain high. However, on immigration – perhaps the issue where the lack of control has been felt most strongly – there has been a very substantial and persistent movement towards more positive attitudes and less anxiety, both among those who voted Stay and those who voted Leave. While it’s unclear whether this is associated with a greater sense of control – and the public still believes the government is handling the problem very badly – the change is still very noticeable, and it seems plausible that it is associated, directly or indirectly, with Brexit. Overall, the verdict is therefore generally positive.
We will debate whether or not Brexit will succeed for decades. However, that doesn’t mean we can’t draw tentative conclusions about the results so far. By itself, Brexit clearly did not produce better overall performance or greater fairness: for most indicators, the opposite is happening. But if the United Kingdom has become an economy less open to trade, this is not the case for migration, where the optimistic scenario has largely prevailed. And while levels of public distrust and dissatisfaction with the government as a whole remain high, Brexit itself may have improved things somewhat, particularly when it comes to immigration.
Jonathan Portes, Professor of Economics and Public Policy at King’s College London, and Mathias Wosyka come from the UK in a changing Europe