Weighing costs and benefits of Brexit in first year and in future when membership costs skyrocket in entitlements
To those who favoured Brexit, the UK's departure from the European Union, face gloomy told-you-so assessments of its effect as it moved into the second half of its first year.
With the impact of the Covid crisis, together with its curfews and lockdowns, and a foot-dragging media, academic, bureaucratic complex, it is not surprising that early reviews are negative. But looking through the retrospectoscope, were they correct in their judgments?
Before the referendum, the City of London warned that a mere a vote to leave would trigger massive job losses. PricewaterhouseCoopers said 100,000 jobs in financial services alone would go. But as of the first quarter, only 7,600 went, according to EY, a consultancy. And PricewaterhouseCoopers didn’t respond to a request for an interview when Bloomberg News came calling.
Perhaps that can be viewed as something of a barometric reading on the predictability of Project Fear proponents. One must agree there was a downturn resulting from full Brexit on January 1, but it turned out to be 10 times less severe than predicted. And the impact might have been far less, had Covid-19 not struck as that crisis had not been factored in to the PricewaterhouseCoopers's predictions. Taking that into account, it makes the doomster forecast doubly wrong.
Membership of the single market, despite all the hype around it, didn't make much difference to most exporters, noted the London Spectator, a pro-Brexit conservative opinion journal.
"True, there was some disruption in January. But figures show that trade has bounced back. The UK’s exports to the EU rose to GBP11.6 billion (US$16.02 billion) in February, up from GBP7.9 billion in January. Overall, they were only slightly below last year’s GBP12 billion monthly average. That is a remarkably small difference, given that we were still effectively inside the EU last year and this year we are not," the Spectator said.
"We should keep in mind as well that Europe, like us, is still in the middle of lockdown, and in a deep recession, so that will have depressed demand for British exports. But if this month's figures are anything to go on, the impact from leaving the EU may well have been less than GBP400 million a month," said the Spectator.
This appears to demonstrate that membership of the single market, despite the hype doesn’t make much difference to most exporters. There is no question that it has an impact on a few, especially in sectors such as food and drink where the EU is very strict about what it allows into the bloc to protect its farmers from competition. For the vast majority, however, once a few pieces of slightly dull paperwork have been sorted out, it is neither here nor there.
In the 2016 referendum, the British Treasury predicted also that a vote to leave, followed by the immediate triggering of the Article 50 withdrawal process, would see national income decline by as much as 3.6 per cent within two years, 520,000 more people unemployed, and house prices fall by 10 per cent. But GDP was up three per cent, unemployment had fallen by 280,000, and the average house price had gained more than seven per cent.
To be fair, Brexiteer campaign promises of economic benefits of Brexit were also off the mark. One pledge stands out as a commitment to re-direct the GDP350 million a week the UK sent to the EU to the British National Health Service.
That figure was too large given the UK’s net weekly contribution to the EU only totaled GBP250 million once the rebate Britain received from the bloc is included. A significant chunk of that payment also came back to the UK in the form of EU public sector spending.
In 2018, the UK announced plans to boost spending on the NHS by GBP394 million a week in real terms from 2023, an increase the then Prime Minister Theresa May said would be partly paid by funds that would otherwise have gone to the EU.
But the UK will still have to send GBP20 billion to the EU over the next seven years as part of its divorce settlement. And Brexit’s negative impact on GDP and tax receipts is expected to outweigh any cost savings from no longer making contributions to the bloc, according to the Institute for Fiscal Studies.
The government said leaving the EU would make it more difficult for firms to export goods to the bloc, and that businesses would face higher costs.
This turned to be true. British companies have had to grapple with additional red tape such as export health certificates to shift goods into the EU. In January, exports to the continent shrank by 41 per cent from the previous month.
David Frost, who negotiated the post-Brexit trade deal with the EU and is now minister responsible for Britain’s relations with the bloc, has blamed stockpiling in December and the coronavirus lockdown for the reduction in trade. He says trade recovered to its normal level at the start of February. The data that will confirm or disprove that won’t be published until Tuesday.
In the meantime, the City has lost business. Almost all trading of EU shares on UK exchanges - more than EUR6 billion (US$7 billion) in daily transactions - shifted to the bloc in January. And banking giants such as JPMorgan Chase and Goldman Sachs have moved hundreds of billions of euros to their new or expanded hubs across the bloc.
GDP shrank almost 10 per cent last year, the deepest slump since the Great Frost of 1709. The economy has only partially recovered from the huge losses incurred during the first lockdown last spring, leaving Britain further below pre-pandemic levels of output than any other Group of Seven nation.
In April 2016, the government sent a leaflet to all households, urging them to vote in favour of staying in the EU. It warned that leaving would increase the cost of living, because a falling pound would make imports more expensive.
That prediction turned out to be true. The pound fell by as much as 18 per cent against the euro within two years of the referendum, and remains 12 per cent below its level on the day of the Brexit vote.
Consumer-price inflation reached a 5 1/2-year high of 3.1 per cent in November 2017, squeezing living standards. It remained above the Bank of England’s two per cent target for almost all of the following two years. But inflation has since slumped.
The Treasury predicted that if Britain left the EU and managed to reach a trade deal with the bloc, the country’s economy would be between 4.6 per cent and 7.8 per cent smaller in 15 years’ time than if it would have been had it stayed in the EU.
Britain had been formally out of the EU’s single market for three months 100 days, when the Office for Budget Responsibility said Brexit lowered GDP by 1.4 per cent since the referendum.
Looking at the evidence, one is inclined to regard Brexit as a mistake now that Britain is shivering in the cold outside what remainers saw as the EU gravy train.
One could also look at postwar Germany and Japan as it lay in ruins and see their futures as bleak. Yet these countries, as bombed out and wretched as they were, picked themselves up and by the dint of free market activity, lifted itself from the unenviable grime in which they found themselves and within 10 years pulled off economic miracles that were the envy of the world.
It is also good to assess what is the likely to be the outcome of the profligate European Union and its desire to provide equity and a decent standard of living to all resulting into an explosion of entitlements, which Britain being the No 2 national net contributor after Germany would have had to pay dearly. The UK has every reason to believe that the outstanding divorce bill will the regarded a trivial compared to the membership dues to come.
Just translation costs alone are staggering. Canada with only two languages spends more of translation than it does on its armed forces. There are 24 official languages in the EU, though it is said that the working languages of the EU is "bad English". What makes this ironic is that with the UK's departure from the EU, English is no longer an official language of the EU, because the only EU member that uses English as its lingua franca is Ireland, which because of its antipathy to England, lists Irish as its official language, a tongue hardly anyone speaks.
An organisation that insists that all its rules and regulations, of which it is prodigious producer, be translated into a language no one but the translators understand, is an organisation one would wisely avoid, especially if one is paying to have such futile tasks done.