Covid was an easy scapegoat for economic disruption, but Brexit is biting | Anand Menon

IIt’s been two years since the UK left the European Union, just over a year since it left the single market and customs union. But as a prominent Brexit supporter did pointed out, nobody seems to have starved. Admittedly, a low bar, but one takes what one can in these pandemic-ravaged times. While we may still have groceries on the shelves, Brexit has already started to weigh on the UK economy. It seems clear that this will continue, although what impact this will have on the ongoing Brexit debate is less clear.

Think back to the feverish atmosphere of the referendum and its aftermath. There was much gossip on all sides. Claims such as the £350million for the bus or George Osborne’s warning of the need for an emergency budget in the event of a Brexit vote have generally been exaggerated. And the residual rhetoric offered Brexiters an opening. Responding to 2017 warnings of a Brexit ‘cliff’, a spokesman for Welsh Conservative leader Andrew RT Davies scathingly noted that ‘Project fears meanwhile we should be hunkering down in threadbare clothes and eating canned goods in a post-apocalyptic wasteland’.

But Brexit was already starting to bite. Well before the departure date, the work of John Springford of the Center for European Reform showed that UK GDP fell short of expected levels. By September 2021 he had concluded that UK trade in goods was 11.2% or £8.5 billion lower than if the UK had stayed in the EU single market and customs union. In fact, one reason the much-touted ‘cliff edge’ didn’t materialize is that we’ve been sliding down it for a while and consequently have less far to fall.

And that’s starting to come home. Ian Mulheir of the Tony Blair Institute for Global Change has pointed out that the latest tax hikes – £29 billion in additional taxes to be introduced by the government by 2025 – would not have been necessary if the UK had stayed in the EU. Brexit is forecast to weigh on public finances at a net cost of around £30bn a year.

Why don’t we talk about this more? Well, for a number of reasons, but primarily because of the pandemic. Covid has drowned out everything else and has been an easy scapegoat for all economic disruption. It has also meant that many economic activities that would have been – and will be – affected by Brexit (think service providers traveling to the EU to sell their goods) have been suspended.

So what’s next? Trade is becoming more difficult: the British government will not finally introduce the remaining controls from the trade agreement with the EU until July. And longer term, the OBR has estimated the aggregate impact on UK GDP at 4%. Our estimates for the UK in a changing Europe are slightly higher, ranging from 5.8% (under a liberal migration policy scenario) to 7% (under a more restrictive regime).

Then what about claims that Brexit offers us opportunities to offset those losses through trade deals and more effective domestic regulation? The former seems hopelessly optimistic considering not only the impact of geography on trade, but also the limited nature of the deal signed with Australia so far. While the UK does have opportunities to regulate more effectively than the EU, particularly in emerging areas of economic activity such as robotics or AI, these gains have yet to be secured and, as things stand, it is impossible to see how they might offset the magnitude of the negative impact of declining trade with the EU.

Of course, Brexit has shaped much more than just our economy. It was also central to a political realignment that saw Boris Johnson eventually elected at the head of an 80-seat majority, with his exit coalition including a large number of traditional Labor voters. Still, there are recent signs that this coalition may not be as robust as it first appeared.

More than half of people now think Brexit has had a negative impact on the supply of food and goods, while 51% think it has negatively impacted the cost of living, including more than a third of exit voters. Overall, 57% of Brits think the government is doing a poor job of dealing with Brexit. Just under half say the same about handling the economy – the worst rating for a government since 2013.

Indeed, for the first time among exit voters, Johnson is being credited with a poor job. After winning the “Brexit election” in December 2019, 74% of exit voters said Johnson was doing a good job. When the pandemic broke out in April 2020, that number rose to 86%. Now the number of exit voters who view the Prime Minister positively has fallen to 36%.

So Brexit may not be the catnip it used to be. With the ongoing impact and particularly the waning of Covid, it is at least conceivable that more and more people will link the decision to leave the EU to the economic woes they are facing at home. Namely as Peter Foster from the Financial Times put it“It’s angina, not a heart attack,” living with angina can be an uncomfortable experience in the long run.

This is far from implying a desire for the trial to be reopened, much less contemplating a reopening. But it speaks to the unpredictability of the political implications of Brexit.