Comment

Project Fear was bad but the PR guff about ‘Global Britain’ never ceases to amaze

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Map of Europe, passport, lorry, waiter and money

Five years after the vote for Brexit, and six months after Britain left the EU’s single market, it is regrettably much easier to see the economic downsides of the divorce than its upsides.

This diagnosis obviously ignores the issue of whether Britain would have gone it alone on vaccine strategy had it remained in the EU. Being ahead of Europe on vaccine rollout has undoubtedly been an economic as well as a public health boon, allowing the economy to open up again more swiftly than otherwise.

But if Brexit can take the credit for the economic benefits of going it alone on vaccines, in other respects… not so much.

So far, the two main economic impacts have been a significant deterioration in trade with Europe, and, thanks to the end of free movement, an acute shortage of labour in some parts of the economy.

It is admittedly hard to be certain quite how much of these effects can be directly attributable to Brexit. Covid has made precise judgements virtually impossible, with the pandemic quite plainly a much bigger immediate impact on the economy than Brexit. Yet whereas the former will likely prove transitory, the second threatens to be much more enduring.

When the pandemic hit, international trade was badly affected almost everywhere. But as economies adapt to life under Covid, trade with the rest of the world has been quick to bounce back. That’s not the case with the EU. This fairly convincingly suggests a negative effect from greater, Brexit related, barriers to trade.

Certainly that’s the anecdotal evidence, particularly from smaller firms, many of whom say it is no longer worth the administrative hassle and costs of selling into the European market. Larger companies will on the whole have developed the systems for coping. But it is a different story among small exporters, previously selling quite marginal amounts of perhaps as little as a couple of boxes of product a month into the European market. Individually, the loss of this business is unlikely to be a life or death issue to the firms involved, but collectively, it all adds up.

To be drawing comfort from the consequent erosion in volumes on the grounds that the effect is to reorientate Britain’s trade away from Europe to the rest of the world – particularly Asia and the Anglosphere – is almost laughably ridiculous. You would not deliberately swap the larger whole for a greater proportion of a smaller one. The fact is that it is going to require very considerable growth in trade with the rest of the world to fully compensate for the loss of trade with Europe.

True enough, plans by Nissan to build a giant new batteries gigafactory to supply its Sunderland manufacturing plant for next generation electric cars provides vindication for the free trade deal Lord Frost managed to negotiate with the EU. But universal free trade this is not; it is only because Nissan needs to source a large proportion of components from either the UK or the EU to qualify for tariff and quota free exports to the EU that the plant is being built where it is. The FTA with Europe works well for the car industry, not so well for almost everyone else.

Now obviously, there will come a time when trade with the EU grows back to its pre-Brexit levels; simple increases in output at home and abroad ought to ensure it, regardless of the additional barriers. But the proportion will nevertheless be permanently smaller than otherwise.

Boris Johnson with Australian Prime Minister Scott Morrison
The UK has signed a free trade agreement with Australia, but will need to add many more deals to replace lost business with Europe Credit: Dominic Lipinski/PA

Trade deals with the rest of the world that are more finely tuned to British needs may help in the long term, but the real biggies – the US, China and India – are proving tough to crack; the problem with British exports in any case has very little to do with membership of the EU as such, but is largely down to structural issues. Other European countries seem to do much better in non-EU markets than we do, suggesting that the fault in British trade lies much closer to home.

Leaving the EU may in time start to address this lack of balance in the UK economy – too much weight on consumption and imports, and not enough on investment and exports. But it’s a long game, and it’s an odd kind of strategy which says that you must damage your trade with one region in order to improve it with another.

That people seem to believe the sort of drum-beating PR guff that comes out from the Department for International Trade – plucky little Global Britain at last free to pursue its own trade deals – never ceases to amaze. The exaggeration of Project Fear was bad enough, but this is in some ways equally disingenuous. More astonishing still is that ministers actually expect anyone to believe it. Mainly it’s hot air.

Deregulation that would not have been possible while a member of the EU might be of some benefit over time, making UK industry and finance more competitive, but there is not much evidence of it to date and as far as I can see, even less of a domestic appetite for it.

Rather more arguable as an economic negative is the end of free movement of labour with Europe. If fewer people chasing the same number of jobs has a positive effect on wages and productivity-enhancing investment, that might be judged a good thing. Growth in overall GDP isn’t the only way by which to judge economic success.

The fact that quite a bit of migrant labour has gone home – hard to tell exactly how much at this stage because of the pandemic and furlough – and theoretically at least won’t find it at all easy to come back again, might reasonably be seen as an economic positive. Certainly it ought to help mitigate the effect on unemployment as the furlough scheme comes to an end; and there is already much evidence of it pushing up wages.

The Brits are on the whole not at all keen on service and the various other forms of employment migrant labour has tended to fill, not least in our “precious NHS” – understandably so given their generally poor levels of pay and prestige. Perhaps attitudes will now change for the better.

In any case, labour shortages provide a powerful incentive for higher business investment. At the same time, greater barriers to trade with Europe ought to make British firms more competitive at home, thereby leading to a degree of import substitution.

I’m well aware that both these arguments are essentially from the protectionist end of the spectrum. Less trade, less migration – this is not obviously good for the economy. If Brexit was meant to be an economically liberating endeavour, these barriers to entry pull in the other direction.

But maybe not as much as sometimes portrayed. Robert Colville, formerly of this parish and now director of the Centre for Policy Studies think tank, had an interesting article in The Sunday Times at the weekend which claimed that for all the fanfare around Britain‘s new points-based immigration policy, Boris Johnson and his Home Secretary, Priti Patel are actually running a more permissive regime than David Cameron. Only it applies to Europe, as well as the rest of the world. Plus ça change.

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