Is Brexit working? Four key tests

Is Brexit working? For diehards on each side, the answer is obvious. But for those who are interested in objective analysis, it’s vital to have a way at least to ask the question. That’s why we at UK in a Changing Europe set out, four key “tests” by which to assess the consequences of leaving the EU.

We observed that, while Remainers and Leavers disagreed vehemently about whether to remain in the EU, there was considerable common ground about what we, as a country, should be seeking to achieve. Generally, both sides argued that Britain should remain an open, outward-looking country; that both economic growth and social cohesion mattered; that we should invest in, and improve, our public services; and that we need to maintain Britain’s international influence, while preserving democratic control of our own destiny. Remainers and Leavers didn’t disagree about these objectives; the issue was whether Brexit would make achieving them easier or harder.

We concluded that Brexit could be judged a success – on its own terms – if, on balance, it passed the following tests. So what’s the story so far?

The economy and the public finances

Overall, the UK’s economic performance has been disappointing, but not disastrous, since the referendum, and since the implementation of the Trade and Co-operation Agreement with the EU. Three factors have weighed on growth – the sharp fall in sterling immediately after the referendum which has not been recovered, the continuing poor levels of business investment, driven in part by Brexit, and, since the implementation of the TCA, reduced trade.

The impact of the pandemic makes it very difficult to quantify these effects, but there is a clear consensus among independent economists that Brexit has made us poorer. The Office of Budget Responsibility’s current estimate is that Brexit has, so far, reduced UK GDP by about 1.5%, with a further reduction of 2.5% still to come. This would, in turn, translate to a reduction in about £12bn a year in tax revenues, rising to well over £30bn, partly offset by the UK’s reduced net contributions to the EU. The Centre for European Reform estimates that the UK has seen a growth shortfall relative to economically comparable countries of more than 5% over the period, although it recognises that not all of this is down to Brexit. These negative impacts are significant, albeit far from catastrophic.

By contrast, it is difficult to point to any significant overall economic benefits of Brexit to date. So while Brexit proponents can still point to potential future benefits, so far test one has been failed.

Fairness

Brexit promised to make Britain “fairer” in two ways: by boosting the relative wages of the low paid and by reducing regional disparities. While the referendum has spawned increased political interest in – and rhetoric about – the issue, there’s little to suggest that it has contributed to either of these goals.

In the pre-pandemic period, pay growth was higher at the lower end of the earnings distribution, but this was primarily driven by above-inflation rises in the national minimum wage, a policy that predated the referendum. Since the pandemic, and the introduction of the post-Brexit migration system, there have been widespread reports of pay rises in some sectors where reduced EU migration has reduced labour supply. However, as yet, this has not resulted in an overall improvement in the position of the low paid.

In fact, earnings inequality has widened compared to the pre-pandemic period, with the highest wage growth in the finance and ICT sectors. The top 1% appear to be doing particularly well. Meanwhile, there is no sign that regional disparities have narrowed, and they may in fact be widening: the ONS estimates that London, along with Northern Ireland, are the best performing regions. Other analysis shows that Brexit has reduced growth most in areas that are most dependent on manufacturing, especially in the North. So far, test two has been failed.

Openness

There is clear evidence that, as predicted, Brexit has had a negative impact on UK trade, although some aspects of the data remain puzzling. Export performance has been weak, but, contrary to expectations, that is particularly the case for non-EU exports. Meanwhile, imports from the EU have fallen sharply, with considerable evidence of substitution to non-EU sources – somewhat surprising given that the UK has yet to impose the full set of import controls on EU suppliers. It is notable that although the TCA notionally provides for UK-EU trade to be free of tariffs and quotas, this is not necessarily the case in practice, given the sometimes burdensome requirements to demonstrate eligibility. Overall, the OBR concludes that its estimate of a 15% hit to UK trade remains appropriate.

Meanwhile, however, the new post-Brexit immigration system has proved to be considerably more liberal in both policy and practice than predicted. While EU migration has fallen sharply since the referendum, and even more sharply since the pandemic and the introduction of the new system, it has largely or wholly been replaced by non-EU migration, with both study and work visas well above pre-pandemic levels, even after taking account of new visa requirements for EU citizens. This has also resulted in a shift in the sectoral mix of migrants for work, with large increases in the health and ICT sectors; this is also likely to mean that the average skill and salary levels of new migrants is higher than before Brexit. So overall the verdict here is mixed: negative on trade, but positive on migration.

Control

In formal terms, there is no doubt that Brexit has delivered; the European Communities Act, which enshrined the supremacy of EU law, has been repealed, the European Court of Justice no longer has direct jurisdiction in the UK (with some minor exceptions) and our contributions to the EU budget are being phased out. The major exception here is the Northern Ireland protocol, which remains very much in flux. The EU of course was not the only external impediment to control.

Some governmental plans to change procurement rules, for instance, were stymied by a need to abide by other international trade obligations. Beyond the legal position, it is arguable that the main impact of Brexit has been to transfer power to the executive, rather than Parliament or the public, as ministers have given themselves substantial powers to change retained EU law by secondary legislation.

Meanwhile, public opinion is mixed. Data from the British Social Attitudes Survey suggests that public trust in government fell during the prolonged political and parliamentary stalemate over Brexit, but recovered during the pandemic and with the resolution of the Brexit debate, returning to pre-Brexit levels, although levels of dissatisfaction and distrust remain high. However, on immigration – perhaps the issue where the lack of control was felt most strongly – there has been a very substantial and persistent move towards more positive attitudes and lower concern, among both those who voted Remain and those who voted Leave. While it is unclear whether this is associated with a sense of greater control – and the public still believes that the government is handling the issue very poorly – the shift is still very notable, and it seems plausible that it is associated, directly or indirectly, with Brexit. Overall, then, the verdict is broadly positive.

We will be debating the success or otherwise of Brexit for decades. However, that does not mean we cannot draw tentative conclusions about the results to date. On its own terms, Brexit has clearly not delivered either better overall performance or greater fairness: for most indicators, the opposite is the case. But while the UK has become a less open economy to trade, this is not the case for migration, where the optimistic case has largely prevailed. And while levels of public distrust and dissatisfaction with government overall remain high, Brexit itself may have improved matters somewhat, especially on immigration.