Why Brexit Didn’t Work

The EU’s new trade chief has said the bloc could consider including the UK in a pan-European trade agreement, but emphasised that “the ball is in the UK’s court”.

While the UK’s Labour government has ruled out returning to the single market and customs union after Brexit, the possibility of joining a continent-wide deal could open the door to closer cooperation with the EU and bolster much-needed economic growth.

Maroš Šefčovič, who led post-Brexit negotiations for the EU, told the BBC that allowing the UK to join the Pan-Euro-Mediterranean Convention (PEM) is “something we could consider”.

The PEM is an agreement was originally agreed in 2012 and allows goods to flow tariff-free across borders. Members include the EU, as well as some north African countries, Switzerland, Norway, Georgia and Ukraine.

Some businesses have supported UK joining the PEM, saying it could help their complex supply chains, cut red tape and improve trade.

The UK’s food and farming industry could benefit from such a move. “We would have to have the same rules and we have to upgrade them at the same time, we call it dynamic alignment,” Šefčovič said, speaking at the World Economic Forum meeting in Davos, Switzerland.

Šefčovič, who is commissioner for trade and economic security, admitted that the idea had not been “precisely formulated”, but said that the “ball is in the UK’s court”, putting pressure on Keir Starmer to decide on a position on closer trade ties with the bloc.

Starmer’s government hopes to “reset” ties with Brussels after taking power last year.

Membership of the PEM was ruled out by the previous, Conservative government, but Labour ministers are reportedly starting to consult businesses on the benefits of taking part, according to the BBC.

Šefčovič, who took up the trade chief position late last year, said UK-EU relations were “definitely” in a better place and that his British counterpart Nick Thomas-Symonds, the minister in charge of EU relations, was “on speed dial”.

Asked about Šefčovič’s suggestion on BBC Radio 4’s Today programme, the housing minister, Matthew Pennycook, said the UK government was “not seeking to participate in that particular arrangement”.

“In general the government has been very clear … that we do want a closer relationship with our European partners both in trading terms but also importantly, in terms of security and defence cooperation,” he said.

But he added: “As for this particular arrangement, no, we’re not seeking to participate in it at the present time.”

The Labour MP Stella Creasy, who is also the chair of the party’s affiliated campaign group, the Labour Movement for Europe, supported the potential deal. “Red tape from Brexit hits British business in many ways – joining PEM would help cut the paperwork connected to rules of origin requirements which is why we have long argued it should be a priority for the UK as one way to undo the damage to trade leaving the EU has done,” she said.

Earlier this month, the Lib Dem leader Ed Davey used a speech in London to say that a customs union with the EU would be “the single biggest thing we can do to turbocharge our economy in the medium and long term”. He also argued that closer links with the EU in both trade and defence could help the UK “Trump-proof” itself against the US president’s second term.

Nick Thomas-Symonds, the Cabinet Office minister in charge of post-Brexit relations with the EU,... said
"We, of course, welcome the positive, constructive tone from Commissioner Šefčovič.

We’re always looking for ways to reduce barriers of trade, but within our manifesto red lines, because we take a pragmatic view as to where the national interest lies."

ithin minutes of Donald Trump’s announcement on so-called “reciprocal tariffs” around the world, Brexiteers were claiming victory because the UK escaped with half the rate imposed on the EU.

But if the UK’s 10 per cent import tariffs to the American market compared to the EU’s 20 per cent, is the best economic justification for Brexit that can be made, then supporters of leaving the EU are clutching at straws.

The first and most obvious point is that Brexit has not spared the UK from having tariffs imposed on it by the one world leader who was the biggest cheerleader outside Britain for the UK leaving the EU.

Far from the trade deal that Brexiteers promised would follow with the US, there is still none in place nine years after the referendum. And even if Keir Starmer lands one, it is likely to be highly focussed on specific areas and may not avoid tariffs altogether.

Even Tory Brexit supporter Mark Wallace, now chief executive of the Total Politics magazine, cautioned his fellow Leavers from “cheering” tariffs this morning, even if 10 per cent is better than 20 per cent.

Even with half the rate of tariffs compared with those imposed on the EU, the difference barely goes anywhere near undoing the economic harm that Brexit has done to the UK economy.

The Cambridge Econometrics report commissioned by London Mayor Sadiq Khan last year found that the UK economy was £140bn smaller as a result of Brexit. London alone had lost £30bn as a result, with 300,000 fewer jobs, the report found.

Its economists concluded the average Briton was nearly £2,000 worse off in 2023, while the average Londoner was nearly £3,400 worse off last year as a result of Brexit.

It is a long way from the £350m a week extra for the NHS promised on the side of the Vote Leave bus by Boris Johnson and Dominic Cummings in 2016.

In its latest report, the Office for Budget Responsibility (OBR), whose job it is to scrutinise public finances, estimates that exports by the UK will be 15 per cent lower in the long run than if the UK had remained in the EU.

In January, the National Institute of Economic and Social Research think tank noted that “at least 30 per cent of firms have consistently identified Brexit as one of their top three concerns” every year since 2016.

It also concluded that “UK business investment could have been about 12.4 per cent higher in 2023 if Brexit did not happen”.

The Independent’s own research was even more damning - revealing that the cost of leaving the EU was £30.2bn alone.

The food industry has seen a £2.8bn annual drop in exports, including 118,000 less tonnes of seafood exported and 56 per cent of dairy producers now struggling to make ends meet.

Across all sectors around 16,400 businesses stopped exporting altogether as a result of Brexit.

And things are set to be even worse when the new border checks are finally operational later this year.

Meanwhile, the claims that it would end uncontrolled immigration have also proven to be false with an average of 3.6m people entering the country legally since Brexit - far higher than when free movement was in place.

No wonder two thirds of Britons think Brexit has gone badly in the latest polling.

Donald Trump may have been slightly less nasty to Britain than the EU with his tariffs but it goes nowhere near fixing the economic damage that Brexit has already done.

Britain has watched President Trump’s tariffs with a mix of shock, fascination and queasy recognition. The country, after all, embarked on a similar experiment in economic isolationism when it voted to leave the European Union in 2016. Nearly nine years after the Brexit referendum, it is still reckoning with the costs.

The lessons of that experience are suddenly relevant again as Mr. Trump uses a similar playbook to erect walls around the United States. Critics once described Brexit as the greatest act of economic self-harm by a Western country in the post-World War II era. It may now be getting a run for its money across the Atlantic.

Even Mr. Trump’s abrupt reversal last week of some of his tariffs, in the face of a bond-market revolt, recalled Britain, where Liz Truss, a short-lived prime minister, was forced to retreat from radical tax cuts that frightened the markets. Her misbegotten experiment was the culmination of a cycle of extreme policies set off by Britain’s decision to forsake the world’s largest trading bloc.

“In a way, some of the worst legacies of Brexit are still ahead,” said Mark Malloch Brown, a British diplomat who served as deputy secretary-general of the United Nations. Britain, he said, now faces a hard choice between rebuilding trade ties with Europe or preserving them with Mr. Trump’s America.

“The fundamental issue remains the breach with our biggest trading partner,” Mr. Malloch Brown said, adding, “If the U.K. ends up in the arms of Europe because neither of them can work with the U.S. anymore, that’s only half a victory.”

Mr. Trump was a full-throated champion of Brexit in 2016, drawing explicit parallels between it and the political movement he was marshaling. He initially imposed lower tariffs on Britain than the European Union, which some cast as a reward for Britain’s decision to leave.

Brexit’s drag on the British economy is no longer much debated, though its effects have been at times hard to disentangle from subsequent shocks delivered by the coronavirus pandemic, the war in Ukraine and, now, Mr. Trump’s tariffs.

The government’s Office of Budget Responsibility estimates that Britain’s overall trade volume is about 15 percent lower than it would have been had it remained in the European Union. Long-term productivity is 4 percent lower than it would have been because of trade barriers with Europe.

Productivity was lagging even before Brexit, but the rupture with Europe compounded the problem by sowing uncertainty, which chilled private investment. The years between the referendum and Britain’s formal departure at the end of January 2020 were paralyzed by debate over the terms of its exit.

By the middle of 2022, investment in Britain was 11 percent lower than it would have been without Brexit, based on a model by John Springford, who used a basket of comparable economies to stand in for a non-Brexit Britain. Trade in goods was 7 percent lower and gross domestic product 5.5 percent lower, according to Mr. Springford, a fellow at the Center for European Reform, a think tank in London.

Mr. Trump has kicked off even more volatility by imposing, redoubling and then pausing various tariffs. His actions, of course, affect dozens of countries, most dramatically the United States and China. Already, there are predictions of recession and a new bout of inflation.

Brexit and its aftermath had multiple second-order effects, both economic and political. Ms. Truss’s plan for debt-funded tax cuts, which were driven by a desire to jump-start Britain’s torpid economy, instead triggered a sell-off of British government bonds as investors recoiled from her proposals.

A similar sell-off of American bonds began last week, with far-reaching implications for the United States. Rising bond yields put pressure on governments because it means they must pay more to borrow funds. Sell-offs are also destabilizing because they signal deeper anxiety about a country’s creditworthiness.

The Digestible Politics of the Message Tee
In Britain’s case, fears of a credit crisis forced Ms. Truss to shelve the tax cuts, and she soon lost her job. While that calmed the markets, it left a residue of doubt among investors about Britain. Mortgage rates remained elevated for months, reflecting what one analyst unkindly labeled a “moron premium.”

This skittishness among investors has constrained Britain’s chancellor of the Exchequer, Rachel Reeves, from taking bolder measures to recharge the economy. Prime Minister Keir Starmer last week ruled out relaxing the government’s self-imposed fiscal constraints, citing the blowback to Ms. Truss’s free-market experiment.

“I would argue that the reason we have such a small-c conservative chancellor is due to the experience we had with Truss,” Mr. Malloch Brown said. “It is directly related to not wanting to prompt the Truss effect again.”