No monsieur, Brexit was not a terrible mistake
We have not seized the economic opportunities offered – but claiming it was a disaster is nonsense
This week we will mark the fourth anniversary of the UK’S departure from the European Union on Jan 31 2020. All the usual suspects are again pouring scorn on that momentous event and attributing many of our current ills to it. But does a sober assessment support this conclusion?
As many readers will know, I have form on this issue. I was an outspoken supporter of Brexit and, indeed, I wrote a book entitled The Trouble with Europe.
My view has not changed since. That said, it is difficult to argue that Brexit has yet brought any large economic benefits. Indeed, both theory and evidence suggest that it has brought some net economic losses, although these are probably fairly minor. It was always on the cards that there would be losses in the immediate future because leaving the single market made trade between ourselves and the EU more difficult, through increased paperwork and border delays. These difficulties weigh disproportionately heavily with small businesses.
Trade brings economic benefits as costs are cut and economies of scale are realised. Accordingly, reduced trade should negatively affect productivity and real incomes. In turn, these factors should have an adverse effect on investment and thence, again, on productivity.
Potentially offsetting these costs, there were four sorts of benefit. First, the UK would be able to strike free trade agreements (FTAS) with other countries. Second, it would be able to diverge from European regulations. Third, it would save its annual contributions to the EU budget. Fourth, it could operate a completely new migration policy.
In the event, although we have managed to roll over many pre-existing EU deals, we have only secured new FTAS with a few countries, principally Australia and New Zealand, as well as joining the trans-pacific trade group CPTPP. The really big potential FTA, namely with the United States, is effectively blocked by the Biden administration.
Meanwhile, for all sorts of reasons ranging from not wanting to cause difficulties in Northern Ireland to rank timidity, the UK has done next to nothing to recast its regulatory regime.
Moreover, under the deal we struck, we are still making budgetary contributions to the EU, although now much lower than before. This year they should be just over £2bn, down from £12.5bn in 2020.
We have substantially reduced immigration from EU countries but under the new migration system, much increased immigration from the rest of the world has caused the overall number of workers coming here to soar. Many economists have tried to estimate the losses from Brexit. It is often suggested that GDP is 4pc-6pc lower than it would have been.
Such estimates require elaborate economic guesswork involving some heroic assumptions, principally that the UK would have continued on its previous path of outperformance against most other EU members. In regard to what has actually happened, however, the facts are rather different. Since the Brexit vote in 2016, UK GDP is up by 8pc. The equivalent figures for France, Germany and Italy are 8.5pc, 5.8pc and 6.5pc respectively. And since the expiry of the Brexit transition period at the end of December 2020, the UK has outgrown not only France, Germany and Italy, but also the US.
This is owing to the depth of our Covid-related downturn in 2020 rather than to any Brexit benefits finally coming through. But it just goes to show the perils of trying to extract meaning from economic statistics covering such a turbulent period.
A fair assessment should acknowledge that although Brexit has not proved to be the economic nirvana that some naive over-optimists imagined (I plead not guilty), neither has it brought the disaster that some other economists envisaged.
Remember the Treasury forecast that after a vote for Brexit, unemployment would rise from 5pc to 6.6pc and house prices would fall by 10pc. By the end of 2018, unemployment had fallen to 4pc and house prices had risen by 5pc.
Compared with some of the really big issues confronting the economy, Brexit is a sideshow. So why bother to leave the EU? The issue is essentially political. It is about the ability to vote in and out of office politicians who make the key decisions affecting our country. The EU is a profoundly undemocratic institution.
The fact that our leaders have not yet followed through on this vote and put in place policies and laws that would make a big difference does not mean that the Brexit vote was a mistake. It is early days. The UK joined what we now know as the EU in 1973. Do Remainers ask themselves if there were clear benefits from this decision in the years immediately afterwards? In fact, those were difficult times for the UK.
The EU is an institution pointing in several directions at once, trying to reconcile the irreconcilable, with forces pushing towards full union side by side with forces still trying to preserve the powers of nation states. Its economic performance has lagged behind the leading economies in the world because it tends to make the wrong decisions on a whole host of economic and other questions. Forming the euro has been the biggest mistake of all.
We managed to dodge that one but if we had stayed in the EU, we would have struggled to retain our semi-detached status. In all probability, eventually we would have been dragged into all sorts of madcap integrations ranging from currency and fiscal matters to defence and foreign affairs.
The benefits of being outside this failing organisation will manifest themselves over the coming decades as we are able to take different decisions from the EU on a wide range of issues, including the regulation of artificial intelligence.
Admittedly, if the UK makes a mess of its independence while the EU gets its act together, then we will have paid a not inconsiderable price for our exit. On the balance of the evidence, I believe that is unlikely. But only time will tell.
‘Since the end of 2020, the UK has outgrown not only France, Germany and Italy, but also the US’