Brexit has left the UK economy 5.5 percent smaller than it would have been, says the Center for European Reform (CER), proving those right who had warned that the tall promises were a bundle of lies although the British voters decided otherwise.
The decision to leave the European Union (EU) also added to the squeeze on public services which has triggered strikes, crippling the railways and National Health Service.
Slower growth is also weighing on the Treasury’s revenue and that the tax increases announced in the autumn fiscal statement wouldn’t be necessary if the UK were still in the European Union’s common market, the prominent research group concluded.
These findings are in line with an earlier report which had said, “Brexit has not had the expected effect of narrowly reducing exports to the EU, but has instead more broadly reduced how open and competitive Britain’s economy is, which will reduce productivity and wages in the decade ahead.”
Hence, the latest findings also highlight the costs of Brexit, which are limiting Prime Minister Rishi Sunak’s effort to pull the UK economy out of a recession that may last until the next election. Sunak is holding firm in his determination to limit pay increases for nurses, ambulance drivers and railway staff, who are walking off the job in protest.
“The Brexit hit has inevitably led to tax rises, because a slower-growing economy requires higher taxation to fund public services and benefits,” John Springford, CER deputy director, said in the report.
Departing the EU single market reduced investment by 11 per cent and goods trade by 7 per cent in the second quarter of 2022. That has contributed to Britain trailing behind almost all other major economies since the end of the pandemic, the CER said.
The comments follow assertions from Michael Saunders, a former Bank of England policy maker, who said that without Brexit, “we probably wouldn’t be talking about an austerity budget – the need for tax rises, spending cuts wouldn’t be there.”
Springford said had the UK economy grown in line with his model, tax revenues would have been about 40 billion pounds higher on an annual basis, lessening the need for the 46 billion pound tax hikes announced by Chancellor of the Exchequer Jeremy Hunt in mid-November.
Instead, the government borrowing in November was almost triple the level of a year ago and well above the rate economists had expected, according to official figures released on Wednesday.
The shortfall in the first eight months of the fiscal year climbed to 105 billion pounds, the fourth highest on record. The Office for Budget Responsibility expects the total to reach 177 billion pounds for the full 12 months.
In June, a joint research by Resolution Foundation and LSE had noted that Britain had experienced a sharp decline in trade openness (total trade as a share of GDP) since 2019 – a fall of 8 percentage points. France, which has a similar trade profile to the UK, has experienced a far smaller 2 percentage-point fall over the same period.
“This decline is not explained by changes in the pattern of global trade during the pandemic. The report notes that the UK also lost market share across three of its largest non-EU goods import markets in 2021: the US, Canada and Japan.”
Moreover, the research had estimated that labour productivity will be reduced by 1.3 percent by the end of the decade by the changes in trading rules alone. “This will contribute to weaker wage growth, with real pay set to be £470 per worker lower each year, on average, than it would otherwise have been.”