Brexit: Did the UK commit 'economic suicide' by exiting the EU in 2016? Find out how much it has cost the British people!
Over the years, the lessons we learn from past experiences provide us with valuable insights on how to approach the future.
One of the major events of 2016 was Brexit. This emblematic case illustrates the extent to which far-fetched initiatives led by irresponsible politicians with no long-term vision prove detrimental to a country's economy.
On June 24, 2016, many Britons were stunned to discover that their country had chosen, by a slim majority (52% to 48%), to leave the world's largest political and economic bloc: the European Union (EU). At the time, they had underestimated the threat of an EU exit, which would spell economic disaster.
What was the rationale for exiting the EU?
Pro-Brexit campaigners such as Nigel Farage, Dominic Cummings and Boris Johnson, who led the ‘Leave campaign’, portrayed Brexit as a movement led by ordinary citizens seeking to counter an out-of-touch liberal elite and a malevolent European Union (EU). Opponents of the Brexit were generally described as 'fearful' alarmists.
A variety of other factors were also raised, including sovereignty, immigration and the economy.
During the referendum campaign, the ‘Vote Leave’ supporters pledged 6 promises that would help Britain ‘take back control’:
1) 'Stop handing over £350 million a week to Brussels';
2) 'Takeback control of our borders’: immigration was a big issue. According to Brexit proponents, once the UK regained full control of its borders, illegal immigration would be under control;
3) 'Free our businesses from damaging EU laws and regulations’. Hard Brexit included leaving the single market, as well as all the various EU agencies (e.g. EU Court of Justice) and programs;
4) 'Take back the power to make our own trade deals’ so UK would be free to establish commercial relationships with anyone;
5) 'Have better relations with our European friends’;
6) 'Regain our influence in the wider world and become a truly global nation once again’. This particular one resonates with the previous glory of the Britannic empire.
Eight years on, have those promises been kept?
Brexit is costing the UK economy £100 billion a year ($124 billion), with effects ranging from lower business investments to a labor shortage, according to Goldman Sachs. Admittedly, it is difficult to isolate the impact of Brexit from other simultaneous economic events, such as the Covid-19 pandemic or the 2022 energy crisis.
Since the 2016 referendum, Britain has ‘performed significantly worse’ than other advanced economies, says Goldman Sachs. Over the past 8 years, Britain's economic output has lagged that of comparable countries by 5%.
This underperformance is attributed to 3 key factors: reduced international trade; falling business investments; and labor shortages due to declining EU immigration.
Reduced international trade
This is because Brexit has led to the re-establishment of trade barriers with Europe, disrupted supply chains and affected access to service markets, with a major impact on businesses. The implications of trade changes following the EU exit far outweigh the £350 million savings each week on the UK membership fees to Brussels.
Thus, to mitigate the costs of Brexit, the UK needs to strike new trade deals with non-EU countries. However, estimates suggest that the benefit is likely to be small.
For example, the British government estimates that its free trade agreement with Australia will boost U.K. GDP by 0.08% per year, while the economic impact of a new trade deal with Switzerland is unclear.
Meanwhile, timetables for potential new trade agreements with major partners such as the U.S. and India have yet to be announced.
Falling business Investments
When it comes to attracting new investments, the UK has still a long way to go before it catches up with its major peers. At present, new investments account for around 9% of GDP, which is below the Group of Seven average of 13%.
Labor shortages due to lower EU immigration
It is estimated that there are 370,000 fewer EU workers in the UK than if it had remained in the single market, a decline partially offset by the substitution of a cohort of less active non-EU migrants, mainly students.
Brexit has had a considerable impact on the NHS workforce. It has exacerbated the shortage of doctors in certain key specialties such as anesthesia, pediatrics, psychiatry, cardiology and pulmonology, specialties hitherto heavily dependent on European immigration. Nuffield Trust Health estimates that the UK has 4,285 fewer doctors and 58,000 fewer nurses than in the pre-Brexit period. This staff shortage is seriously hampering the day-to-day operations of the NHS, and considerably lengthening patients' waiting lists for medical care and surgery.
Yet, the overall immigration rate in the UK is higher than before the EU referendum, reflecting the rise in non-EU immigration. Illegal immigration figures are much worse than in 2016. Government statistics show a fourfold increase between 2018 (n=13,377) and 2022 (n=52,126). [1]
Record Inflation
The shift in post-Brexit immigration flows has reduced the elasticity of labor supply in the UK, contributing to the post-pandemic inflation spike and heralding a more cyclical labor market and inflationary pressures going forward.
Inflation hit a record high in the UK since mid-2016, with consumer prices rising by 31%, compared with 27% in the U.S. and 24% in the Eurozone.
A new study unveils an even bleaker economic picture
An independent analysis was carried out by Cambridge Econometrics at the request of London Mayor Sadiq Khan, a member of the opposition Labor Party who voted against Brexit in 2016.
This new report estimates that Britain's exit from the European Union has cost its economy some £140 billion[2] (€162.87 billion) a year, representing 6% less economic output than if the UK had remained in the EU. The most affected sectors are hotels, construction and financial services.
The study estimates that in 2023, average Britons saw their purchasing power fall by almost £2,000, compared with £3,400 for the average Londoner.
The London mayor is clearly concerned: "It's now clear that Brexit isn't working," said Khan. "The hard Brexit we ended up with is dragging our economy down and driving up inflation and the cost of living".
As a result, he is calling on the British government to 'build a closer relationship with the European Union as a matter of urgency'. A new settlement would not only boost the economy and improve living standards, but also unlock growth and prosperity.
What is UK’s economic outlook by 2035 without stronger ties to the EU?
Looking ahead to 2035, Cambridge Econometrics predicts that the economic damage will only get worse. The overall cost of exiting the EU will reach £311 billion (€361.8 billion), while UK economic output (10.1% lower), investments (32% lower), exports (5% lower), imports (16% lower), employment (3 million fewer jobs) and productivity are all projected to be lower than before Brexit.
Effectively, the new trade barriers reduce the desire and ability of EU companies to trade with the UK, while import costs rise.
Final thoughts
Looking at the figures, Brexit failed to achieve the goals it set out to achieve.
Brexit prompts us to reflect. Its ultimate fate remains to be seen. However, it is worth noting that its proponents spread false narratives, promoted populist themes and upheld a vision for the country devoid of moral principles.
This year, in particular, there will be a number of elections around the world that will decide our fate. It is therefore essential that, as voters, we are fully aware of what is at stake before casting our vote.
Admittedly, the pandemic and the war in Ukraine have complicated the outcome of the Brexit. But uncertainty also needs to be factored into our thinking: "What if things don't go as planned?"
Let's make sure we don't regret our decisions after the fact, as a majority of Britons do today, deploring their exit from Europe.
[1] https://www.gov.uk/government/statistics/irregular-migration-to-the-uk-year-ending-december-2023/irregular-migration-to-the-uk-year-ending-december-2023
[2] In GVA : Gross Value Added. GVA = GDP + Subsidies - Taxes
