Brexit chickens come home to roost

A particularly stark report on the cost of Brexit was published on Wednesday by the Centre for European Reform (CER) think tank, which describes itself as “pro-European but not uncritical” and is “devoted to making the European Union work better and strengthening its role in the world”.

CER deputy director John Springford’s latest report on the impact of leaving the EU on the UK economy estimates that Brexit had, by the second quarter of 2022, reduced the country’s gross domestic product by 5.5 per cent. That is a very big amount indeed.

And Mr Springford calculated that the UK’s tax revenues would be £40 billion a year higher on an annual basis had Brexit not happened.

Households and businesses which are having to deal with enormous increases in their tax burdens, at the most difficult of times, are entitled to be mighty annoyed about a Brexit folly which has hit the UK’s public finances and resulted in them being asked to foot a huge bill for this Tory incompetence.

It is noteworthy but not at all surprising that Chancellor Jeremy Hunt did not mention the effect of Brexit on the public finances as he unveiled a huge fiscal tightening in his Autumn Statement in November.

Read more: All staff made redundant as Scottish manufacturer collapses

He mentioned Brexit only once during what seemed like a long speech, talking about “smart regulatory reform” and using “Brexit freedoms” to “confirm the next step in our supply-side transformation”.

It was all rather woolly, to put it mildly, with Mr Hunt declaring: “By the end of next year, we will decide and announce changes to EU regulations in our five growth industries: digital technology, life sciences, green industries, financial services, and advanced manufacturing.”

We have since had a bit more from him on plans for a major relaxation of financial sector regulations. This includes the easing of regulatory measures for banks put in place in the wake of the global financial crisis. And this drive to loosen financial sector rules looks very unwise indeed.

It seemed utterly bizarre from an economic perspective that there was nothing at all from Mr Hunt about the effect of Brexit on UK gross domestic product and consequently tax revenues in the Autumn Statement.

However, this chimes with the relentless refusal by the Tories to provide figures on the impact of Brexit.

The Theresa May government’s forecasts of November 2018 made it plain that a hard Brexit, of the type ultimately delivered by former prime minister Boris Johnson, would be hugely detrimental if it were to come to pass.

Sadly, it did come to pass, and Mr Johnson refused to publish an economic impact assessment of the hard Brexit he agreed with the EU at the end of 2020. It should go without saying, however, that the effects are both vast and negative.

In contrast, the Conservative Government has produced detailed reports on minuscule benefits from trade deals done with the likes of Australia and New Zealand.

Mr Springford’s estimates of the cost of Brexit are based on the “doppelgänger” method, with an algorithm used to select countries with an economic performance closely matching that of the UK before Brexit. The method provides a “counterfactual UK” that did not leave the EU.

In terms of the estimates of the cost of Brexit to the second quarter of 2022, UK GDP is 5.5% lower than that of the doppelgänger, investment is 11% adrift, goods trade is 7% behind, and services trade is around the same.

Read more: Brexit home truths undeniable but not to Tories: Ian McConnell

Mr Springford said: “If the UK economy had grown in line with the doppelgänger, tax revenues would have been around £40bn higher on an annual basis, if we apply the same tax-to-GDP ratio as in 2021/22 – 34%.”

The UK Government has seemed at pains in recent years to highlight the impact of the coronavirus pandemic, as opposed to Brexit, on the economy.

However, Mr Springford noted: “All of the 22 countries used in the study had almost entirely reopened by June 2022, and yet Britain continued to lag behind the doppelgänger. And, as measured by excess deaths through the pandemic, Britain ranked in mid-table globally – so there’s little reason to believe the long-term scars on the economy are larger than in other countries, on average.”

And he declared that “those who claim Brexit has had no discernible impact on GDP should explain why the UK’s growth rate fell so markedly after the referendum” in June 2016.

Read more: Scottish income tax – so who is afraid of the bogeyman?

Mr Springford said: “If the cost of Brexit is a lot smaller than my estimate, why did the UK’s average quarterly growth rate fall so much more than other advanced economies after the referendum – especially those whose economic performance was similar to the UK’s before 2016?”

The CER research is undoubtedly a very valuable piece of work.

And it is important that the electorate not only knows the scale of the impact of Brexit on economic output and living standards but also understands the implications of this for the public finances and taxes. Especially so given the Tories seem to like to paint a picture that they care so deeply about the public finances and would do nothing to jeopardise them, even as Brexit takes a huge toll on them.

The more research that is published on the effects of the hard Brexit, the more the chickens will come home to roost for those who delivered it. These individuals include Prime Minister Rishi Sunak, who was Chancellor at the time the deal was done, and some other current members of the Cabinet.

The Conservatives might be continuing to refuse to provide an official assessment of the cost of their foolish Brexit, to date and in terms of what is to come, but they surely have a lot of explaining to do.