Inching our way back

by Sean Rickard

All my life – which is now exceeds three score years and ten – politicians of all shades have agreed that economic growth is critical to raising living standards.   Unfortunately, with only brief exceptions, the UK’s performance in this area has been poor, and has got a great deal worse since the disingenuous Leave referendum, though neither the Government nor the Official Opposition seem anxious to point this out.   Of course, the UK’s long running unsatisfactory rate of productivity growth – the undisputed driver of economic growth – cannot be blamed on Brexit but since 2016 output per hour worked in the UK has increased by a measly 1.7 per cent.   Skills training, business investment and government spending on the economy’s infrastructure have lagged behind other advanced economies for many years, but the act of leaving the EU – in particular the single market – has exacerbated our woes.   Most worrying, business investment is now no higher than at the time of the referendum.     

At the time of the referendum Tory Zealots argued that Brexit would be followed by increased investment in skills, technology, infrastructure, science and public services.   This was an exempla of ideology trumping wisdom.   On the contrary, the economic nationalism inherent in putting up trade and economic barriers with our near neighbour, the world’s largest trading bloc, and denying our scientists access to the €100bn Horizon programme has discouraged onshoring and inward business investment.   The Zealots further argued that free trade with the rest of the world – captured in the ‘Global Britain’ sound bite – would more than compensate.   This was never credible; described as absurd by the Financial Times economic correspondent.   Even worse, by 2016 the growing tensions between East and West were slowing globalisation, and the prospect of an American trade deal promised by Brexiters has vanished.

The Brexit contradictions are never more apparent than in the government’s levelling-up agenda.   The post Brexit decline in UK trade with the EU has squeezed manufactures in the Midlands and the North out of EU supply chains.   A further harm is the HMRC’s recent confirmation of the Balassa-Samuelson effect.   It pointed out that exporting businesses tended to be about 20 per cent more productive than businesses which do not trade.   When this knowledge is coupled with the British Chambers of Commerce recent survey showing that in the second quarter of 2023 half of all SME exporters saw no change in overseas sales and a quarter reported a decrease, the outlook is depressing.  

Despite the dire results of its survey the BCC only mentions Brexit once in its 20-page report reflecting the wider impairment of Brexit to good governance.   Industry leaders, most of the media and senior politicians are unwilling to acknowledge publicly the economic morass we have fallen into post-Brexit and until they do so there is little chance of significant improvement.   Mr Starmer is typical, cowered by the divisions and animosity generated by Brexit he can only meekly repeat the mantra that we need to improve trade relationships with the EU.   This position is lamentable.   Fiddling at the edges to restore alignments the government eschewed e.g., a VAT agreement, fall far short.   The probability of a Starmer led Labour government generating more than minimal growth – let alone the fastest rate in the G7 – is vanishingly small outside the single market.

All but the extreme Zealots are aware that Brexit is not working out as they hoped; hence, the alignment of Sunak with Starmer on the need for closer alignment with the EU.   What I hope proves to be the Zealots last hurrah – the Retained EU law bill –  designed to sweep away EU-era regulation has been effectively abandoned, but this will not be sufficient.   The EU, unsurprisingly, is not standing still; as it introduces new regulations so divergence will grow increasingly creating fresh barriers to trade.   Already in the pipeline are a host of new regulations including carbon border taxes and other environmental issues.   For example, from October EU companies will be required to report on the carbon emissions attached to certain imported goods from third countries with the result that the administrative costs will be borne by UK companies supplying components to EU businesses.  

A similar malaise confronts the science sector.   Having strutted out of the Horizon programme the UK is now seeking to rejoin only to discover the cost as a third country of being only an associate member.   Horizon is halfway through its 2021-2027 programme, but Mr Sunak is apparently baulking at the joining fee.   Meanwhile, British researchers are being dropped or not invited to join Horizon consortiums and others are moving abroad.   If the government’s behaviour towards the EU was based on rational judgement rather than Zealot appeasement, it would have long since jumped at the opportunity to rejoin the multibillion-euro programme from which the UK gained enormous advantage.   Alas, yet again our prospects are in hock to Tory fears that rejoining EU institutions will reinforce the emerging, widespread view that Brexit has proved an expensive error.   As this post financial crash era of Tory government staggers towards in nadir the country will increasingly look to the Labour party for more positive, more capable and more honest governance.   Inter alia this will, I am sure, herald a closer relationship with the EU including in quick order rejoining Horizon, to the relief of the scientific community, and Erasmus, of priceless benefit to students.   The withdrawal from Erasmus must rank as one of the nastiest Brexit actions.   Desperate to counter the strengthen European identity among the young who voted overwhelmingly to remain Johnson and Frost eschewed the educational advantages of diversity in favour of dismal isolation.   Such moves will be accompanied, we are told, by bold actions to open negotiations on a closer trading relationship; a process than can only steer a pragmatic government – despite current denials – crawling back to single market membership.   Post the election rejoining will be widely applauded as the continuing palpable shift in public awareness regarding the folly of Brexit overlaps with the difficulty of establishing economic growth.