Between David Cameron’s return from the political afterlife, Rishi Sunak’s score draw on two of his five pledges, and the assault by Nadine Dorries on the estate of Ian Fleming, the news that our friends at the Institute for Economic Affairs (IEA) have released a new report was somewhat overshadowed. Since my colleagues and I already have those topics well-covered, this is one I shall now give its due.
The IEA has taken aim at pre-Brexit predictions from the Office for Budget Responsibility (OBR) that the UK economy would shrink by 4 per cent as a consequence of leaving the warm embrace of Brussels. Instead, the report argues Brexit has had no such impact. Such fearmongering has created “a false narrative” according to Catherine McBride, the report’s author. Brexit has the potential to enhance, not hinder, future UK trade.
Kemi Badenoch mentioned it approvingly at the Government’s International Trade Week. “We should stop taking ourselves down,” the Business Secretary told the assembled investors, “and instead talk ourselves up.” Firm patriotic stuff to warm the hearts of any ConHome reader looking covetously towards the Foreign Secretary. Global Britain’s sunlit uplands beckon.
But a few of the usual suspects found the report about as enjoyable as Badenoch did reviewing Michael Gove’s Tinder matches. David Henig – of the suitably grandiose European Centre for International Political Economy – called it “a humiliation” for Badenoch to associate herself with the report. Peter Foster of The Financial Times claimed she was “dismissing” serious research; economist Jonathan Portes accused the IEA of taking us hacks for fools. Perish the thought.
The paper’s critics take particular issue with its claim that “UK goods exports to EU countries increased by 13.5 per cent and to non-EU countries by 14.3 per cent between 2019 and 2022”. Similar figures suggest service exports increased by 14.8 per cent. Because such figures moved in a lockstep, any slowdown in trade growth has been based on global, not Brexit-specific factors. Or so the IEA’s argument runs.
But Portes – an Economics Professor at King’s College, mass migration enthusiast, and a good man to bet against – says McBride is culpable of failing to measure post-Brexit trade without adjusting for inflation whilst doing so for pre-Brexit trade, producer higher and lower figures respectively. He says the actual figures suggest a -7.2 per dent drop in exports and 1.4 per cent increase in imports.
Similarly, Henig argued that German trade with the EU has spiked since 2019, disproving any claim of a global slowdown. Foster pointed to “a substantial and growing body of academic work” showing a sharp fall in trading relations since Brexit. He argues SMEs have given up trading with the EU due to growing complications. Our “trade openness” has also shrunk compared to our G7 contemporaries.
This was a theme echoed by Andrew Bailey – my good chum – in Dublin. Brexit may have been “a decision for the people of the UK”, but it has “led to a reduction in the openness of the UK economy”. The Bank of England is hardly an institution currently overburdened with credibility. But surely even fervent Brexiteers must acknowledge that Leaving can’t have left UK trade unaffected?
In fairness, McBride does acknowledge there is increased friction. But although Brexit has resulted in new compliance costs for trading with the EU, the UK’s new digital customs platform aims to reduce these – something that will be helpful to those SMEs who are unfamiliar with such procedures. Moreover, the cost burdens of EU trade are now covered by traders themselves, not taxpayers.
Other commentators have also suggested that rumours of our declining trade have been greatly exaggerated. William Norton has pointed out that the OECD Trade Openness data Foster deploys suggests our score for 2022 was higher than that of 2019, and the highest of any year since the Second World War. Trade openness shot up after 2016 due to the pound’s devaluation. McBride has produced a 10-point rebuttle to Foster’s points, and has accused him of neglecting trade in services.
There is also a case to be made that even if trade has decreased in certain areas since 2019, or at least has recovered more slowly, these are losses that cannot be blamed on Brexit, and are concentrated in a few specific sectors. Our worst problems are in areas like car manufacturing, aerospace, or pharmaceuticals, which were hit badly by the pandemic or in long-term decline.
That raises an obvious point: Brexit is hardly the only major economic shock to have hit our trade in the last two years. Trade Openness plummeted in 2020 and 2021 due to the Covid lockdowns; despite exports of goods to the EU increasing by 33 per cent in the first half of last year, our trade deficit reached record levels due to surging energy costs following Russia’s invasion of Ukraine.
The argument rumbles on. Leavers and Remainers accuse each other of including some stats or not others, measuring some figures in one way and others in another, or of being either too Panglossian or too glum. Commentators can sit back and pick the statistics they like, earning their keep by telling their blinkered audiences that Brexit is either going swimmingly or terribly, depending on their fancies. Pay your money, make your choice.
This approach does neither side of the once-and-future Brexit argument much good. Waving the bloody shirt from 2016 produces a lot of heat and little light. Neither side of the debate converts anyone to their cause by reducing our relationship with the EU to trade alone. Nor does it produce a useful or complete picture of Britain’s overall economic position.
According to Lord Ashcroft’s referendum poll, only 6 per cent of those voters who backed Leave in 2016 did so because “the UK would benefit more from being outside the EU than from being part of it”. It may long been part of the Eurosceptic, ‘Global Britain, look-at-Switzerland-guys-surely-we-could-be-like-them-too playbook. But it was not central to Vote Leave’s appeal or victory.
Sovereignty, immigration, history, our position in the world, economic trade-offs, bendy bananas: these are the issues on which that distant referendum turned. The Government has disappointed (you had one job guys!). But in other areas, the decision to leave has been vindicated. We have proved wrong those who said an independent Britain would be too small or irrelevant to cut its own trade deals – CPTPP, anyone? – and benefited from the vaccine rollout, something that would not have happened without a Leaver government.
As I have said previously, Brexit is neither the source nor the solution to Britain’s economic ills. Our chronic inability to build on scale or on budget, a sclerotic and growing state, a dependency on mass immigration, unusually expensive energy, a culture of short-termism, monetary incontinence, an opaque tax system: ultimately, these matter more than just how quickly or not UK importers and exporters have recovered from 2019.
Both sides of the debate need to cure their trade myopia, and take a leaf from The Spectator’s book: head out, and into the world.