Dashed hopes that Brexit will lead to Britain’s economic growth driven by trade, investment, are in danger of another flagship policy of Prime Minister Boris Johnson: “Levelling up” the regions besides London.
Six years after the referendum to leave the European Union the classic low-productivity British model for growth driven by consumption, which is partly supported by rising house prices, still looks strong six years later.
Britain missed out on much of global recovery in goods exports after economies re-opened from COVID-19 locksdowns. This has left Britain at the bottom of Group of Seven industrialised nations over the past 12 months.
This week, the Resolution Foundation think tank stated that a less than stellar performance is a sign of a more closed economy after Brexit.
Johnson’s levelling up agenda, which aims at reducing regional inequalities, also misses this opportunity.
Based on a simple extrapolation, British goods exports would have grown at the same rate as the average of six other countries in the G7. They would have been worth approximately 38 billion pounds ($47billion) more in the year to April 2022.
This is a loss of revenue of several billions of pounds for British factories, and by extension, the regions outside of London. According to 2017, 95% of manufacturing output is outside London.
Only 10% of British economic output is made up of manufacturing.
It is, however, a key driver for growth and investment in many parts of England and Wales which voted heavily to leave EU in 2016, such the East Midlands region and North East regions.
If Britain fails to improve its trade performance, it could lead to more missed opportunities for leveling up.
Flaheen Khan, senior economist at the Make UK manufacturing trade group, stated that “the regions that most likely asked for Brexit” would be the most likely to have experienced the greatest negative impact from trade.
The Resolution Foundation stated Wednesday that Brexit is unlikely to lead to a major restructuring of Britain’s main sectors, but it could have consequences for levelling up.
The think tank stated that “our assessment finds that the North East of the UK, one of our poorest regions, will be one the hardest hit” and that Brexit will increase its existing productivity and income gaps.
Regional economic growth estimates hint at the magnitude of the opportunity lost.
London’s economy, which is dominated by services companies, was 2.6% bigger in the first quarter 2022 than it was in the late 2019 before COVID-19.
Comparatively, only Northern Ireland, the United Kingdom’s other regional economy, had fully recovered its prepandemic size.
GETTING ON WITH IT
Brexit supporters argue that it is a long-term endeavor that cannot be evaluated in a few years. Only then will the benefits of independent trade and a regulatory policy become fully evident.
“Regurgitations from Project Fear don’t seem to get anybody anywhere,” stated Jacob Rees-Mogg (Britain’s minister for Brexit Opportunities), in this week’s Resolution Foundation report.
The British government is aiming to increase exports of goods, services and commodities to 1 trillion pounds per annum in current prices by the decade’s end. This is up from 700 billion pounds pre-pandemic.
The G7’s highest inflation rate is likely to be a major driver in achieving that goal, but a better underlying trade performance would go far to improving economic activity in the United Kingdom.
The British Chambers of Commerce stated that businesses need more support to get there.
It outlined five practical measures that would increase trade with the EU, which accounts for more then 40% of British exports. These include less red tape for food exports as well as a sales tax deal to small businesses trading digitally.