Brexit ebullience gone, two years on from single market exit

Neither of these things should come as any surprise to anyone.

The Conservatives’ promises of a bright post-Brexit future always looked preposterous, and so it has proved. The Brexiters have had years, since the June 2016 referendum, to show some meaningful benefit of leaving the European Union, and have inevitably failed to do so.

And it was surely always the case that many people persuaded to vote for Brexit by a Leave campaign which trumpeted noisy and ideological arguments at odds with reality were going to realise before too much time elapsed that they had been hoodwinked.

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We have, of course, for a long time been hearing from companies about the detrimental impact of Brexit on them in terms of skills and labour shortages arising from the ending of free movement of people between the UK and EU. Net immigration to the UK from the EU plunged in the wake of the Brexit referendum result, so this negative labour market effect began well in advance of December 31, 2020, when the country left the single market and free movement ended.

Exporters have meanwhile laid out plainly the scale of the damage to them from the ending of frictionless trade with the EU and broader European Economic Area, the world’s largest free trade bloc.

In a survey published last week by British Chambers of Commerce, 56% of firms for which the Trade and Cooperation Agreement signed by the Boris Johnson administration is applicable say they face difficulties in adapting to the new rules for trading goods following the exit from the single market. Meanwhile, 45% face difficulties adapting to the new rules for trading services. And 44% reported difficulties in obtaining visas for staff.

Meanwhile, 80% of firms have seen the cost of importing increase since January, and 53% have seen their margins decrease. Moreover, 70% of manufacturers have experienced shortages of goods and services.

This is clearly not good for the UK economy.

The Office for Budget Responsibility has been among those to highlight the major damage from Brexit.

Last month, in an assessment coinciding with Chancellor Jeremy Hunt’s Autumn Statement, the OBR said: “Our trade forecast reflects our assumption that Brexit will result in the UK’s trade intensity being 15 per cent lower in the long run than if the UK had remained in the EU. The latest evidence suggests that Brexit has had a significant adverse impact on UK trade, via reducing both overall trade volumes and the number of trading relationships between UK and EU firms.”

The OBR has for years been highlighting the detrimental impact of Brexit.

The reality of the situation laid out by so many experts has, however, taken a long time to catch up with many Brexiters.

Households have been paying a heavy price for a long time for the Brexit folly.

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The Big Brexit report, published in June by the Resolution Foundation, observed the plunge in sterling triggered by the Leave vote and associated jump in the price of imported products had given rise to an inflationary effect equivalent to an £870 increase in the cost of living per year for the average household.

The report was written by the think-tank’s own economists and experts from The London School of Economics and Political Science (LSE).

It seems, however, that many people needed to see the reality close up and very simply, and they have certainly done so in their food-shopping baskets.

Leaving the EU added an average of £210 to household food bills over the two years to the end of 2021, costing UK consumers a total of more than £5.8 billion, research published earlier this month by the Centre for Economic Performance (CEP) at The London School of Economics showed.

The authors of the report noted: “And since low-income households spend a greater share of their income on food than richer families, these Brexit-driven price rises had a proportionately greater impact on the poorest people.”

The research confirmed the price of food products had increased by 6% as a result of leaving the EU.

Setting out their findings, the authors declared: "The latest study – Non-tariff barriers and consumer prices: Evidence from Brexit – confirms that food prices increased by 6% and finds that for the poorest households, this feeds through into a Brexit-induced rise in the overall cost of living of 1.1% – 52% more than the 0.7% rise felt in the top 10% of households.”

They noted there are now, post-Brexit, more non-tariff barriers between the UK and the EU, adding: “These include new comprehensive customs checks, rules of origin requirements and sanitary and phytosanitary measures for trade in animals and plants.”

The authors found that it is these non-tariff barriers that have affected prices, declaring: “The rise in consumer prices was driven only by products with high NTBs and there was no significant rise in prices for products with low NTBs – suggesting that EU exporters and/or UK importers face higher costs due to these new barriers and between 50% and 88% of these costs have been passed on to consumers.”

Annual UK consumer prices index inflation hit a 41-year high of 11.1% in October, before dipping slightly to 10.7% in November.

Richard Davies, an associate of CEP’s growth programme and a professor at Bristol University and study co-author, said: “The UK inflation rate rose above 11% in 2022, the highest rate in 40 years. Many factors, affecting both supply and demand for goods and services, are involved. One factor in this high inflation has been the rise in non-tariff barriers for trade with the EU.

“In leaving the EU, the UK swapped a deep trade relationship with few impediments to trade for one where a wide range of checks, forms and steps are required before goods can cross the border. Firms faced higher costs and passed most of these on to consumers. Over the two years to the end of 2021, Brexit increased food prices by around 6% overall.”

Nikhil Datta, an associate of CEP’s labour markets programme and an assistant professor of economics at Warwick University and study co-author, said: “The policy implications are stark: non-tariff barriers are an important impediment to trade that should be a first-order concern, at least on par with tariffs, for policymakers interested in low consumer prices.

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“We calculate that Brexit caused a loss of £210 for the average household, or £5.84 billion overall, when looking at its impact on the food market alone. Since poorer households spend a larger fraction of their income on food, they are hit harder.”

This is a lamentable situation indeed. And it certainly should be a priority for the Conservative Government. Of course, a clear solution to this and myriad other woes would be a swift return to the European single market. Sadly, both the Conservatives and Labour appear to be against such a move.

However, they might want in this regard to reflect on the rapidly changing mood among the Brexiters of 2016.

A poll published earlier this month by YouGov showed, nearly two years since the UK left the European single market on December 31, 2020, support for Brexit is at a record low.

Only 32% of the British public said it was right to vote to leave and 56% declared it was wrong to do so.

As we approach the second anniversary of the European single market exit, it seems clear that more and more people have woken up to the reality of the Tories’ hard Brexit, and realise that behind all that ebullience lay an erroneous and damaging decision.