Britain’s Chancellor of the Exchequer has warned of “terrible decisions” ahead of today’s (Thursday) “autumn statement” on the budget as it seeks to fix the country’s dire financial problems.
Jeremy Hunt admitted there would be spending cuts and “we’ll all be paying a bit more tax” to cover an estimated £55bn (€63bn) fiscal hole.
The UK is not alone in having to deal with the consequences of the coronavirus pandemic, a supply crisis, rising inflation and rising interest rates, not to mention Russia’s war on Ukraine which has sent energy prices skyrocketing.
It has indeed suffered the aggravating effect of Liz Truss’s disastrous fiscal experiment.
But many economists say that Brexit has worsened the country’s finances to a far greater extent and will continue to do so.
‘Half fiscal hole until Brexit’
“About half of the fiscal hole and the political instability that comes with it is down to Brexit,” John Springford of the Center for European Reform he said on Twitter in October, in a conversation about the relationship between the UK’s membership in the EU and its economic results.
IN CER report in Junehe was commenting on a package of £29bn (€33.2bn) tax increases announced at the start of the year by Rishi Sunak, then finance minister — to “their biggest share of GDP since the 1960s”, he said.
“These tax increases would not have been necessary if the UK had remained in the EU (or in the single market and customs union),” Springford argued.
He quoted the official assessment by the Office of Budget and Accountability (OBR) in March 2021, predicting that Brexit would reduce UK long-term productivity by 4%.
“All told, the net cost of (Boris) Johnson’s Brexit to the public finances will be almost £30 billion (€34.2 billion) every year,” Ian Mulheirn of the Tony Blair Institute for Global Change wrote in the article the same month. He also concluded that “none of these taxes would have been necessary if we had stayed in the EU”.
Mulheirn cited lower tax revenues, the loss of income due to immigration restrictions and the £25bn (€29.7bn) annual bill for the UK leaving the EU as reasons for the “economic anchor of Brexit”.
Springford attributed the drop in UK GDP and goods trade performance compared to other advanced economies to “Brexit, not Covid” and identified a “clear effect of Brexit” on the country’s “flat” investment. “The jury is still out on trade in services,” he added.
Trade ‘bound by bureaucracy’
“Growth, growth and growth,” the short-lived British prime minister Liz Truss listed as her priorities. But there is growing evidence that a significant obstacle to that goal is Brexit itself.
A number of studies have documented the decline in trade between the UK and the European Union, its largest trading partner, since the UK left the bloc.
The British wine industry is one of the sectors significantly affected. Many companies struggle with importing wine across the English Channel from the continent because of the extra bureaucracy and costs.
Independent wine merchants Lant Street Wine say they are trying to bring in “interesting wines from small quality producers” to sell in the UK market. But while it used to take a few days for delivery, now it can take months.
“There are so many companies out there that are really struggling. It annoys us every day,” company director Ben Wilcock told Luke Hanrahan in A recent Euronews report.
British voluntary exit from the EU single market and customs union — i the bare nature of the Brexit trade deal negotiated by Boris Johnson — raised a host of non-tariff barriers such as customs declarations, rules on verification of origin, regulatory controls and health checks.
“Brexit is tearing the union apart and destroying our biggest manufacturing sector – food and farming,” says the campaign group Save British Food – also called Save British Farming.
“Trade is held back by so much red tape. It can’t be worse for us. There are two things, yes, you’re selfish, you’re a business. But I’m also looking at it for the whole country and I’m really concerned about food safety, food supplies and food supply,” the group’s president, Liz Webster, told Euronews.
AND report of the Irish Institute for Economic and Social Research (ESRI) compared UK-EU trade to “a scenario in which Brexit never happened” in October. It calculated that trade in goods from the UK to the EU was down 16% on what it would have been, while trade from the EU to the UK suffered a 20% drop.
Trade has recovered since the start of 2021, the report said, but “significantly below the levels that would have been expected if it had been at a comparable level with other trading partners”. Across the EU, “Brexit led to a significant fall in trade with the UK in almost all cases, albeit by different magnitudes,” it found.
The report’s findings mirror those of several other studies highlighted by Euronews, see for example here and here.
Meanwhile, evidence suggests that the UK financial sector has also been damaged, as illustrated by reports that Paris overtook London as the largest European stock exchange.
“A smaller economy means higher taxes are needed to fund public services and social care,” the CER report said in June, agreeing with “OBR predictions that the consequences of Brexit will be greater than those of Covid”.
Labor shortage ‘crippling the economy’
“A desperate shortage of workers is inflating wages and stunting business growth,” said Tony Danker, chief executive of Britain’s main employers’ body, the Confederation of British Industry, as The CBI called the government “make tough political decisions” to boost the faltering economy.
Among other measures, his Nov. 14 statement recommends “using existing flexibility in the immigration system” to help companies find workers. He wants an updated list of sectors identified as having gaps and more flexibility on visas.
Many employers made similar appeals, but in vain. “We need to take a different approach to economically productive migration,” the boss of the Next retail chain, Lord Simon Wolfson, said recently.
Although he supported the UK leaving the EU, he complained that “on immigration, definitely not the Brexit I wanted“, calling for controlled migration that benefits, not cripples, the economy.
AND a report by the Peterson Institute for International Economics In May, the UK’s higher inflation rate compared to European countries was blamed on Brexit — with the impact on migration a leading factor.
“By ending the free movement of migrant workers from the EU to the UK, the UK government has unilaterally reduced the supply of labor and its elasticity,” it said.
Calls for rejoining the EU’s single market are growing
The trickle has yet to become a flood, but calls are growing among British businesses for the country to rejoin — if not the EU itself — then the bloc’s single market. Many frustrated frontline politicians seem reluctant to discuss this.
“I was standing here, amazed that they are not talking now,” wine merchant Ben Wilcock told Euronews. “We need to have honest talks about the customs union and the single market.”
“The quick fix is to free up our trade by returning to the single market as soon as possible,” said Liz Webster of Save British Food.
“It was the biggest lie of them all: that we can trade the economic advantage of being part of the most advanced free trade area in the world. No independent trade agreement can trade its economic advantage. It’s time we face this as a country,” he wrote. Jürgen Maier, Vice President of the Northern Powerhouse Partnership and former CEO of Siemens UK, d article for the Guardian in October, calling for Rishi Sunak to bring the UK back into the EU’s single market and customs union.
Others who have extended the invitation include London Mayor Sadiq Khan, the Liberal Democrats and Conservative MP Tobias Ellwood, a former minister.
AND research published in October Tony Blair’s Institute for Global Change revealed extremely negative opinions of the British public about the impact of Brexit. Many wanted closer ties between the UK and the EU.
However, her findings on the single market are unlikely to increase pressure on the UK government from business.
“Only a third of the public think the UK should at least seek membership of the EU’s single market,” the report said.
Nor is there significant political momentum for such a move. The main opposition Labor Party has ruled out rejoining the single market, with leader Sir Keir Starmer instead promising “Make Brexit work“.
Many critics say the UK’s failure to deal with the damage Brexit has done to the economy means the underlying problems are not being addressed.
“It may be difficult for British politicians to ignore the centrality of Brexit to the UK’s economic woes for long,” John Springford of the Center for European Reform concluded in his report.
That was in June. But as Jeremy Hunt prepares to make his autumn statement, there is little sign of any change.