Brexit was to weigh heavily on the British economy. The costs due to the loss of trade and investment were entirely expected and the figures to date leave no doubt as to their reality. Yet the seriousness of these longer-term problems was not set in stone. Brexit can be handled well or badly. New opportunities could be seized or wasted. Factors beyond the control of governments could work for or against the UK.
In all of these respects, a worst-case scenario appears to be unfolding.
I’m not one of the Brexit skeptics who find it hard to hide their joy at all of this. I was a Remainer, but reluctant, concerned about the flaws in the European Union’s constitutional order, opposed to the regulatory and mercantilist instincts of the blocs, and alarmed by its zeal for political and judicial integration. It was precisely because of these complaints that I thought Europe’s response to Brexit would be somewhere between unaccommodating and punitive. I thought the UK’s best bet was to stay, try to reform the union from within and deprive Europe of the means to make its life miserable.
Things are turning out much worse than I feared.
According to one study, UK exports fell by more than 20% (compared to a projection of what they would have been otherwise) in the first 15 months following the post-Brexit trade deal with the EU. Imports from Europe rebounded, but not exports. Many small and medium-sized businesses, it seems, have simply stopped selling to the EU.
Investment flattened after the 2016 referendum and then fell during the pandemic more than in Europe or the United States. It is slowly recovering but remains lower than it was six years ago. Trade and investment trends are almost certainly linked. Successful small businesses invest to grow: if they have been disproportionately burdened by new non-tariff barriers, they have less reason to grow.
To repeat, it is difficult to say how much of this setback was to occur, how much was due to the UK’s incompetent handling of the negotiations and how much was EU strategy. During the tortuous Brexit process, governments led by Theresa May and Boris Johnson set new standards for inconsistency and miscalculation. The still-unresolved Northern Ireland Protocol, a dangerous and dishonest fudge that was certain to cause trouble, was Johnson’s distinctive contribution to the mess.
But what is most disturbing is that the legacy of these efforts is becoming increasingly toxic. Far from recovering from an inevitably difficult transition, the economy seems to be sinking into a deeper and deeper abyss.
Johnson’s overarching goal was to get Brexit done. Now the government is also determined to make Brexit a success by rushing to devise questionable or ill-conceived policies as proof of its benefits.
The government is mulling Big Bang 2.0, a proposed new round of financial deregulation, as a source of Brexit dividends. Such an idea of relaxing the rules on ring-fencing banks’ retail business has little to do with Brexit, other than branding. But seeking competitiveness in financial services by relaxing regulation is risky, especially if done hastily or dishonestly. The political imperative to pretend to move from Brexit to global Britain adds to this risk.
New free trade deals beyond Europe were meant to be another Brexit dividend. The first such agreement was concluded with Australia last year. Completed incompetently and in haste, it is now ridiculed by officials, at least one ex-minister, and British businesses for giving away more than it earned. Concessions made in the deal have slowed progress towards others, as the UK’s putative partners expect equally advantageous terms.
It’s getting worse. The desire for liberal trade beyond Europe faces a growing breakdown in global commitment to this principle. President Joe Biden now champions outright protectionism as ardently as former President Donald Trump. The EU’s answer to the Inflation Reduction Act’s Buy American rules could be its own Buy European rules. (What is Britain’s response?) Rising protectionism is making the potential downsides of Brexit significantly worse, partly by increasing economies’ exposure to higher trade barriers and partly by making the government even more desperate to show that Brexit, despite everything, works.
Breaking this accelerated cycle of errors will not be easy. Rather than a bizarre aberration, the debacle of Liz Truss’ brief time as prime minister could be a sign of things to come. His reckless budget plan expressed the vanity of Global Britain; the financial markets saw this as confirmation of systemic incompetence. Prime Minister Rishi Sunak is arguably more cautious than she was, but he’s an avowed Brexiteer and the leader of a party who still wants blame for the mishap. He cannot limit the damage without appearing to deny the project. Unless he finds a way, the consequences for conservatives, let alone the country, could be disastrous.
More from Bloomberg Opinion:
UK property market getting desperate again: Merryn Somerset Webb
Hunts Fiscal MedicineWont Dispel the UKsPain: Marcus Ashworth
Rishi Sunak faces a most unhappy Christmas: Martin Ivens
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Clive Crook is a Bloomberg Opinion columnist and editorial board member covering the economy. Previously, he was associate editor of The Economist and chief Washington commentator for the Financial Times.
More stories like this are available at bloomberg.com/opinion
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