Summary of Brexit facts
Section contents
Introduction
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Last updated on 27th August 2024 by Richard Barfield
A Current opinion of Brexit
- EU is no longer a top issue – around 5% see it as the most important issue (July 2024)
- Top five issues in July 2024 were:
- NHS/hospitals/healthcare (47%)
- Economy (34%)
- Immigration/immigrants (31%)
- Inflation/prices (21%)
- Housing (18%)
- Polls indicate that public opinion has reversed significantly compared to 2016 referendum result
- Majority (~65%) in May 2024 thought, in hindsight, that it was wrong to vote for Brexit vs ~35% who didn’t
- In June 2024:
- 55% said they would vote to rejoin
- 35% said they would vote to stay out
- 10% didn’t know
B What is the EU?
- Unifying ideal: a peaceful, united and prosperous Europe
- Four freedoms established in 1958
- When UK joined in 1973, it was clear that membership involved much more than trade
- EU uses a democratic model to govern the European Commission and approve laws
- EU now has near-frictionless trade in goods and services between member states
- UK as a member state had strong influence in the EU
- EU has areas to address but democratic deficit often exaggerated
C Sovereignty and law
- UK was sovereign throughout its EU membership
- Minority of policy areas (or ‘competences’) determined exclusively at EU level
- Majority of UK law determined by UK – not by EU
- UK had a strong influence in the EU – shaped and voted for the majority of EU law
- Each member state has right of veto over major decisions
- Lisbon Treaty means that national parliaments are better able to express views on draft EU legislation
- In 2014, a UK government review identified areas for EU to improve (e.g. democratic accountability and application of subsidiarity)
- Cameron renegotiation gained major win: ‘UK excluded from closer political union’
- EU recognises issues to address and has its own reform agenda on e.g. eurozone and further reform of CAP
- UK came before ECJ less frequently than most member states
- UK was subject to EU law during the transition period
D EU budget and UK contribution
- UK net contribution was about 0.4% of GDP a year: less than 1.2% of public expenditure in 2019
- For 2019, UK contribution was:
- £14.4 billion gross after rebate;
- £7.9 billion after public and private sector receipts
- £152 million a week (or 32p per person per day)
- Economic benefits of EU membership added an estimated 4% to UK GDP (IFS)
- Benefits to UK were about 10x UK’s net contribution to EU
- In 2019, GDP was £2.3 trillion and EU membership was worth:
- ~£90 billion
- ~£1,700 million a week
- ~£450 per person for the year
- UK financial settlement (2020-2065) was estimated at £30.2 billion in March 2024
- £23.8 billion 80% had been paid by December 2023
- Balance outstanding at March 2024 – £6.4 billion
- Separately, UK pays to participate in any EU programmes that it joins post Brexit (e.g. Horizon)
E Economic context
- In terms of international ranking, the UK economy is:
- 6th largest global economy in nominal terms
- 9th globally in terms of relative purchasing power
- 28th globally in economic output per capita
- Higher in income inequality than nearly all other European countries
- 80% of UK economy is devoted to services; 10% is devoted to manufacturing
- Manufacturing accounts for over 50% of UK exports – so critical for trade (and vice versa)
- Services sector output has grown faster than manufacturing output since Brexit
- Trade plays a critical role in the UK economy
- UK economy has recovered to pre-pandemic levels, but growth rate was bottom of G7 in 2023 and early 2024
- Since referendum, £ has weakened against $ and €
- Brexit trade barriers mean UK’s trade openness has declined
- UK has high employment but low labour productivity (a key drag on nation’s wealth)
- Real wage levels in 2024 are still below levels before the global financial crisis
- In 2022 and 2023, real wages fell before rising in 2024
- Productivity growth slowed after the crisis of 2007/8 and has been patchy
- Brexit has hindered UK economy, but views differ on size of impact and timing
- UK is growing more slowly than its peers with Brexit than without
- Central estimate of long-run on GDP is reduction of 3% to 5%, compared to remaining in EU
- Majority of impact may have already happened
- Long-run impact of ~£95 billion lost GDP (based on 4% of 2023 GDP)
- Reduced productivity
- Business investment has weakened
- Exports and imports around 15% lower in the long run
- Trade deals with non-EU countries have an immaterial impact
- Reduced EU immigration has caused labour shortages
- Increased non-EU immigration has had a positive effect
F World trade and arrangements
- About 4/5 of world trade is in goods and 1/5 is in services
- Services trade is growing faster than goods trade
- Recent trends in world trade:
- In 2022, global trade dipped by 3%
- Developing countries bore the brunt, but most regions contracted
- Contraction partly due to trade and geopolitical tensions between large players
- Prevailing focus on inflation overshadows urgent issues like trade disruptions, climate change and rising inequalities
- Main players in world trade:
- EU, US and China dominate world trade
- UK ranks 6th for trade after Germany and France
- UK ranks 10th for goods exports
- UK ranks 2nd for services exports
- Preferential trade arrangements reduce tariff and non-tariff trade barriers
- Non-tariff barriers have much bigger impact than tariffs
- EU single market and customs union remove the most barriers globally
- UK’s red lines limited post-Brexit deal to a basic FTA
- FTA removes tariffs but does little for non-tariff barriers or services
G UK trade and Brexit impact
- EU is UK’s major trade partner, followed by the US
- In 2023, UK trade (exports + imports) was £1.4 trillion with deficit of £47 billion:
- Surplus on services – £114 billion; deficit on goods – £161 billion
- Deficit with EU – £99 billion; surplus with non-EU – £52 billion
- Trade statistics in ‘real’ prices
- Most EU trade is with other EU27 countries
- Single Market, Customs Union, VAT area and customs cooperation create near-frictionless trade within EU
- 57.2% of EU27 exports went to other EU27 countries (2022)
- 4.9% of EU27 exports went to the UK (2022)
- The TCA is inferior to EU membership and creates new trade barriers
- Brexit trade barriers reduce UK-EU trade volumes and profitability
- Non-tariff barriers (such as rules of origin and leaving EU VAT area) have much bigger impact than tariffs
- New red tape means extra costs for UK government and business
- One-off cost of installing UK border infrastructure: £4.7 billion (NAO) – operating costs will be extra
- Annual cost of customs declarations: £7.5 billion (HMRC)
- Annual cost to traders of border checks on food and animals: £0.5 billion (HMG)
- Economic costs of TCA far outweigh potential benefits of UK trade deals with non-EU countries
- Long-run annual cost of Brexit ~4.0% of GDP (OBR)
- Rollovers of pre-existing EU trade agreements achieve no gains for UK
- Long-run annual benefits of new trade deals (Australia, NZ, CPTPP): ~0.18% of GDP (HMG)
- ‘Global Britain is a fantasy’
- From 2018 to 2023, compared to G7
- UK goods exports performed 15% worse
- Goods imports 8% worse (current prices)
- UK services exports performed better at 17% growth, but behind EU (23%) and Germany (20%)
- Services imports (12% growth) were middle of the G7 pack (above Italy, Japan and France)
- In real prices, from 2018 to 2023
- Total exports increased by only £5 billion (1%) and imports were up by £30 billion (4%)
- Increase of £49 billion (15%) in services exports exceeded fall in goods exports of £44 billion (-12%)
- Total exports to EU fell by £12 billion (-8%) with goods down by £22 billion (-13%) and services up by £10 billion (8%)
- Total non-EU exports grew by £17 billion (4%), with services up by £39 billion (35%) but goods down by £22 billion (-8%)
- Total imports increased £30 billion (4%) where a £49 billion (22%) increase in services imports exceeded fall in goods imports of £19 billion (-4%)
- Goods imports from EU hardly changed but non-EU goods imports fell by £18 billion (-12%)
- Services imports from EU were up by £14 billion (13%), but non-EU imports up by £35 billion (32%)
- For SMEs
- Challenges include high shipping costs, transit delays, and lack of clear guidance
- Supply chain disruption raises costs and reduces availability
- 8,000 firms (mainly SMEs) stopped trading goods solely to the EU between 2021 and 2023
- EU trade reduced due to 20-42% loss in the product varieties of goods being exported to EU
- Reduced participation of UK in global supply chains
- Total exports increased by only £5 billion (1%) and imports were up by £30 billion (4%)
H Immigration
- Government wishes to reduce immigration, but an ageing population means UK needs migrant workers
- Policy initiatives to reduce migrant workers (e.g. increasing retirement age) will take years to be effective
- Freedom of Movement rules include controls over EU citizens, but UK decided not to implement them
- Net migration from non-EU countries has significantly exceeded that from EU (by four to one over the last decade)
- Net migration is expected to fall from high levels of 2022/23
- Migration benefits UK economy overall
- EU27 citizens of working age are more likely working than UK or non-EU citizens
- EEA citizens in 2016-17 contributed about £5 billion towards UK public finances
- Effects of EEA migration on UK workforce wages and employment are small
- Brexit has already caused:
- Fewer EU/EEA citizens to arrive and more to leave
- Rising net migration from non-EU countries
I Investment
- UK is a ‘low investment nation’ relative to its OECD peers (pre- and post-Brexit)
- Business investment is estimated to be 10% lower than without Brexit (reducing GDP by about £29 billion)
- If UK GFCF matched OECD average as % of GDP, it would be investing about £30 billion a year more
- UK business investment has only recently exceeded pre-pandemic levels
- FDI plays an important role in UK economy
- In 2023, global FDI flows declined for second year running
- UK ranked 4th globally for FDI inward stock (behind US, EU, China)
- UK’s stock of FDI comes mainly from its top trading partners – EU (34%), US (34%) and rest of Europe (14%)
- Top three UK sectors for FDI are financial services (29.8% of total), manufacturing (15.2%), and professional services (13.9%)
- Freeports provide limited economic benefits
J TCA: EU-UK trade agreement
- UK left EU on 31 December 2020
- From 1 January 2021, TCA applied and came into force 1 May 2021
- Tariff-free, quota-free UK-EU trade for qualifying goods
- Creates many new trade barriers for goods and services
- TCA does little to remove barriers for services trade
- EU applied its controls to imports from the UK from 1 January 2021
- UK controls on goods imports from EU being introduced in phases in 2024
- UK excluded from EU programmes (eg Erasmus, Horizon)
- Windsor Framework refines operation of Northern Ireland Protocol, to be phased in by 2025
- First five-year review of the implementation of the TCA in 2026
- Economic benefits from refinement will be small
- UK Trade and Business Commission ‘Blueprint for Policymakers’
- 114 recommendations to improve trade relationship
- Evidence-based
- Major economic benefits would come from rejoining Single Market and Customs Union