BREXIT – was it worth it?
As we entered the last quarter of 2021, nine months after the transitional arrangements with the EU ended, I wanted to finish my ‘trilogy’ by considering the impact that leaving the European Union is having on the UK and on Europe. A simple enough question now complicated by the ongoing global pandemic. Many virologists had been predicting such a event, but most governments had ignored them. Eighteen months later, we are all trying to live with the social and economic damage caused by several periods of restriction, closures and severe problems with shipping and the global supply chain.
But the UK faces two supply shocks.
One is a global supply shock as the world’s economies sluggishly wake up from the pandemic lockdowns, with the possibility of more co come. This manifested itself by backed up cargo ships from China in California’s seas, unable to offload their cargo, with similar problems in Europe; in thousands of cars left without microchips; in rising natural gas and oil prices.
On top of all that there are UK-specific supply shocks, as a result of fewer European workers, and the imposition of non tariff barriers on trade with the rest of Europe.
Both these shocks are pushing up general prices. The global shock may be dominant now, but in some sectors such as farming, and in the future, the UK-specific supply crunch may matter more. Are the shortages at petrol stations and on some shop shelves part of a transition to a new post-Brexit, post-Covid high-wage economy?
Some figures show wages up by extraordinary amounts, but this may be due to distortions in the statistics from lockdown and furlough. Up to a point it is good news for those with skills in high demand. But the wage rises are not the result of increases in productivity. They are the consequence of those two significant supply shocks. Costs are going up for the same amount of production. The trade-off between economic growth and inflation is getting worse. In simple terms, if this is right, the wage rises seen in certain occupations will be gobbled up by rising prices across the economy.
The impact of Brexit on the UK economy will be worse in the long run compared to the coronavirus pandemic, the chairman of the UK’s Office for Budget Responsibility has said. “Forecasts showed the pandemic would reduce GDP by 2%, but leaving the EU would reduce the UK’s potential GDP by a further 4% in the long term”. These comments come after the OBR also said the cost of living could rise at its fastest rate for 30 years, with suggestions inflation could hit more than 5%.
It is understandable that Boris Johnson should try to heap most of the blame onto the pandemic, but worryingly for some of his Conservative party colleagues, the Prime Minister is also suggesting that these problems have been caused by the mismanagement of his predecessors and by industry. But the UK has been in the hands of the Conservative governments since 2010 and industry has had to work within the parameters set by them. However, as the labour shortages worsened during October 2021, ever some government ministers admitted that the lack of EU workers is key to the problem and are suggesting that, as the British people had voted for tighter border controls in leaving the EU, (they the voters) are also to blame and must accept the situation! The Brexiteers have always admitted that there would be short term pain for (hopefully) the long term gains from leaving the EU. Is the UK starting to feel the pain?
Clearly in the weeks following the 2016 referendum, many EU workers felt unwelcome and no longer wanted in the UK, so they left. More left as the Brexit process groaned on, and also to be with their families in Europe during the pandemic. In general, the work being done by these ‘migrant’ workers was of low esteem (in the UK), waiters, truck drivers, meat processors, farm and care workers, and yes they were paid less money than UK nationals who were reluctant to do this work anyway. Therefore “Brexit” has had a significant effect on the UK’s labour market. In addition, many people have been reappraising their lifestyles for a post pandemic world. Working from home where possible, changing their work and even retiring early to spend more time with their families.
So lets get to the heart of the matter. Serving those who had financially supported ‘Brexit’ and the Conservatives, the Johnson Government was clearly elected to “Get Brexit Done”. Beyond that, although there was a wish list and a few catchy slogans, they had no real strategic plan. The pandemic then consumed so much governmental time that concluding a”trade deal” with the EU in the eleven months prior to the end of the transitional period, became something of a side-show. Naturally a deal was done at the last moment, but was it a good deal? No, not for the fishermen who had been promised Utopia, not for the thousands of British exporters and even the bankers and financial services, who were promised freedom from EU red tape and immediate access to all global markets! And certainly not For Northern Ireland.
Why? The emphasis on a tariff free deal with the EU was centred around the major international manufactures such as aerospace and automotive, who could easily cope with the new situation anyway. The vast majority of the UK’s thousands of exporters realised on 1stJanuary 2021, that they had entered a new world of bureaucracy, customs forms, proof of origin, veterinary certificates and more. And of course some exports, mainly processed meats and dairy were banned from the EU altogether. Nowhere were these problems more evident than in Northern Ireland which, although part of the UK, remains under the protocol agreed that it would continue to follow EU rules on product standards (part of the EU’s single market rules) to prevent checks along the land border. Checks would instead take place on goods entering Northern Ireland at its ports from England, Scotland or Wales.
The UK’s government insists that these are “just teething problems” but its worth noting that the government has not fully implemented its own import controls. This was partly to ease any post-Brexit food shortages and price rises, but the necessary infrastructure was simply not in place. No doubt there will be more teething problems when it is.
We can understand, both sides had their famous ‘red lines’. The EU had to insure that only goods substantially made or sourced within the UK (or EU) would be tariff free. Then the UK refused to adopt any form of common standards or equivalence with the EU because it would infer an element of EU jurisdiction and may hamper other trade negotiations, for example with America and the former colonies.
Can we sum-up the effects of Brexit?
Having accepted that leaving the EU is deepening the labour and supply crisis within the UK. and that prices are raising, for the general public on both sides of the Channel, but perhaps not the Irish Sea, little has changed. There are some frustrations; the cost and complexity of trading across these new borders, or simply sending a gift parcel is now staggering. Personal banking is in a state of flux with some UK banks closing accounts for non-residents, while others are maintaining arrangements (at a price) with individual European countries. Some British goods are no longer available in Europe and of course, due to the pandemic’s travel restrictions, new registration requirements, visa and travel rules have still to be fully understood and tested.
But Brexit is not over. Political posturing over fishing, the Northern Irish Protocol and border controls could jeopardise the entire trade deal. One has to wonder if messes Johnson and Frost signed up to the deal with the express intention of eventually ditching the parts that they disliked, while blaming the EU for inflexibility. If this kind of speculation is indeed false, then Johnson and the UK’s government has a whole lot more to answer for. They negotiated and signed off the “Trade and Cooperation Agreement“, why then are they now saying that, it’s unworkable, they don’t like it and and perhaps had not understood it anyway?
We have had the privilege of being “Citizens of Europe” during such times of peace and prosperity that Churchill envisaged in1946, although some say it was never his intention for Britain to be any more than an observer! But it was DeGaulle who knew Britain, its people and politics so well that he foresaw the difficulties posed in its integration with continental Europe.
Naturally there have been political scandals throughout the long history of the British Parliament, which was once the envy of the free world. It is sad to see how the current leadership continues to degraded its global credibility and standing while authoritarian leaders look on with a wry smile. Yes, there are many who have seen a strong Britain and indeed a strong Europe as a threat, but what kind of Britain or indeed what kind of world are we are leaving for our children and grandchildren who will have to pick up the pieces?
P.S: Since October I have dithered over posting this text, which has been reviewed and amended several times. Once again the winter wave of Covid Variants are upon us with new advice and restrictions understandably pushing the longer term problems of ‘Brexit’ to the ‘back burner’; although I am sure that work is quietly going on and we will all be returning to the subject ‘in the fullness of time’!