“Brexit means Brexit,” said then British prime minister Theresa May.
However, Brexit meant more red tape, more bureaucracy, and more customs officers poking their noses into your business, and that’s about it, along with all the negative economic and political consequences that flow from those three small protrusions.
In economic terms, they create “drag” – the term economists use to describe elements that cause an economy to underperform to its potential.
It is not unlike the concept of aerodynamic drag, which fans of Formula One will bore on about for hours.
It is the small changes to the shape and angle of wings, fins and ride height that alter a race car’s performance.
But the analogy is not a bad one: if your car is less aerodynamically efficient than the other cars on the grid – if it suffers from more drag – then it will not go as fast as the others, no matter how hard you stamp on the loud pedal, no matter how eye-catching your red, white and blue paint job.
When drag puts you half a second off the pace, you are going to end a 60-lap race half a minute behind the winner.
When you replace the smooth shapes of the EU single market regime with the less smooth shapes of the ‘third country’ (i.e. countries not in the EU) trading regime, you get economic drag. And when that ‘aerodynamic’ modification happens to half of your trade, then the drag effect becomes significant.
Even with the benefits of an extraordinary free trade deal, it is not as good as being in the single market.
Brexit reduced UK GDP by 6% to 8%
Before the Brexit referendum, this was theoretical, and now there are 10 years of economic data to look at.
It is kind of like lap times for a national economy; it shows the cumulative effect over time of seemingly small numbers and it is not good.
The most in-depth analysis of British economic performance since Brexit has come in a working paper published by the National Bureau of Economic Research in the United States.
A group of economists drawn from Stanford University, the Bank of England, the German Bundesbank, King’s College London and the University of Nottingham crunched the numbers and refined them in presentations to European and US central banks and universities.
Their conclusion: Brexit has reduced UK GDP by 6% to 8%, investment by 12% to 18%, productivity by 3% to 4% and employment by 3% and 4%.
The drivers of this underperformance, this “drag”, are “elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process”.
It says predictions about the effects of Brexit were “accurate over a five-year horizon, but they underestimated the impact over a decade”.
The small numbers add up over time, and the cash size of the drag effect grows.
Britain’s Office of Budget Responsibility (OBR), the watchdog similar to Ireland’s Fiscal Council, said in March that Brexit will reduce long-run productivity in the UK by 4% compared with remaining in the EU – mostly due to non-tariff barriers.
It says both imports and exports will be around 15% lower over the long run than if Britain had stayed in the EU and new trade deals have added virtually nothing to the British economy.
Originally, the OBR assumed that net inward migration, the number of people moving to Britain, would settle at 129,000 a year after Brexit. They have revised that upwards to 340,000 a year.
Savings to the UK budget from not being in the EU have been far outweighed by the losses to revenue from being outside the single market.
The famous red bus, which said “Britain sends £350 million a week to the EU, let’s spend it on our NHS instead”, has turned out to be utterly misleading.
The Liberal Democrat Party claims, using the National Bureau of Economic Research (NBER) figures, that the UK government is losing £250 million a day in lost tax revenue due to Brexit.
Even at the lower end of the NBER estimates, the loss far outweighs the savings on EU membership fees.
House of Commons Library research cited by the Liberal Democrats (a pro-Rejoin the EU party) suggest the UK treasury is losing £60 to £90 billion a year in tax revenue caused by having a smaller economy due to the impact of Brexit.
Even at the low end of the estimate, this is a significant amount of money, enough to cover the entirety of Britain’s defence spending, and allow for the kind of increases to keep up with NATO rearmament needs that the British government is not able to find the money for.
The resignation last month of the Defence Secretary John Healy and his deputy Al Carnes put the issue firmly in the political spotlight.
It will be back there in early July at the NATO summit, and before that, when the British government publishes its long-delayed defence spending plan before that summit.
It is not just defence spending; less money is less money, and that impacts all departments of state, all sectors of the economy.
‘Brexit had a significant economic cost’
“There are big battles over public spending,” says Jill Rutter of the Institute for Government, a London-based think tank.
“We have the highest tax burden we’ve ever seen. We have increasing amounts that we’re having to spend on debt interest, which makes the public finances really in quite a sickly state.
“That’s all quite difficult, so we’ve seen the Chancellor having to come back for more a couple of times,” she said.
“Hopefully, she would have hoped before the Iran war, she wouldn’t have to come for more. Remember that if we go back to the Brexit referendum, the one of the very compelling arguments there was once the UK stopped contributing to the EU budget, there would be more money for UK public service, and that was certainly a message from the Leave campaign that really, really resonated.
“What didn’t really resonate as much was the warnings from the Remain side that the economic hit would massively outweigh the savings we were making on the budget contribution.
“Now, Brexit isn’t the sole cause of the problems of the UK public finances. We spent an awful lot during Covid.
“We then spent an awful lot to protect households from the effects of the energy price hike after the Russian full-scale invasion of Ukraine, but it certainly hasn’t made things any easier,” Ms Rutter said.
Jonathan Portes, a Professor of Economics at King’s College London, and a former chief economist at the Cabinet Office under Gordon Brown, agrees Brexit is not the only cause of Britain’s economic malaise.
“Well, the UK’s slow economic growth over the past 15 years is at the root of many of the problems we have at the moment, it’s at the root of problems about funding defence spending, about general political dissatisfaction, about problems in delivering public services.
“I think it would be wrong to say, though, that that’s all down to Brexit. There’s lots of other things going on, the [David] Cameron government’s austerity policies, the persistent failure of British businesses to invest enough, and of course, more recently, both Covid and the subsequent economic crisis, and right now, [Donald] Trump’s war in the Middle East, all of these have made a contribution, but clearly Brexit is one of the big factors that explains our current economic and political situation.”
But he is in no doubt that Brexit alone, separate from all the other factors that have also impacted on pretty much every economy in the world, like Covid, like the energy shocks, has caused significant damage to the UK economy.
“I think it is reasonable to conclude that any reasonable comparison leads you to the conclusion that Brexit has had a significant economic cost.
“You can get numbers as low as 2% of GDP or numbers as high as 8% of GDP, and in my view, a realistic amount is about 4 or 5% of GDP, that’s between 120 and 150 billion pounds a year”.
“And the government takes roughly a third of that in tax revenue. So that’s the hit – the drag on the economy and the drag on the public finances.
“Brexit has, as was predicted, done significant economic damage to the UK. It hasn’t been a catastrophe,” Prof Portes said.
“There was no crisis, but it has been a slow-burning drag on the economy” is how he sums up Brexit’s economic impact.
“So, estimates vary quite a lot, and there’s plenty of room for debate, but I think it’s reasonable to say that Brexit has cost the UK perhaps 4 or 5% of its GDP, and if we’re to put that into billions per year, so we can say that as a result of Brexit, the UK is maybe 100-150 billion pounds a year smaller as a result of Brexit.
“That, of course, also has implications for tax revenue; that would mean that the UK government is getting about 40 to 60 billion pounds less a year in tax revenue,” he added.
As Jill Rutter observes, the shortfall in tax revenue has political implications, including in the way Britain resets its relationship with the EU.
“The government now says it wants a closer relationship with Europe. Keir Starmer is talking about the UK, putting the UK at the heart of Europe, though the government still feels that it’s constrained by the red lines it set out in its manifesto, which basically limits your ability to deliver a significant economic uplift from a closer trading relation with the EU.
“If you don’t want to be part of the single market, don’t want to be in the customs union, don’t want to be a member of the EU, because you don’t want to accept freedom of movement, then you actually can’t do very much through a close relationship with the EU to boost the economy, boost some sectors.
“So, if we do the sanitary and phytosanitary deal, then that will undoubtedly be good for our agri-food industries.
“They will be able to export more easily again, good for those fishers who export, I suppose, those who benefit from the extra quota.
“So, there will be some localised benefits, but it is not a giant boost to the economy. The thing is, though, that in terms of immediate boost the economy, if the UK announced today that it wanted to reapply to rejoin the EU, it’s not going to do that, but even if it did, that would still be quite a long way off before that actually happened,” she said.
Professor Anand Menon, who leads the UK in a Changing Europe project at King’s College London – a sort of Brexit observatory – said: “It impacts everything, really, because most of the government structural fundamental problems are, as is quite common with governments, about money.
“The government doesn’t have the money to fund what it would like to do on defence.
“At the same time, it’s very politically difficult to cut things like the National Health Service or welfare spending, which take up such a large part of government spending, so you end up boxed in everything you do has a severe political downside in a way that simply would not be the case if I mean these decisions are always difficult regardless of the fiscal position, but they’re a lot more difficult than they would have been if the economy was three or 4%,” bigger, Prof Menon said.
It is not the car, it is the driver
In motor sports, the solution to a car that is not performing as well as it ought to is the laborious process of engineering improvements to the car’s setup, notably testing components in wind tunnels and their virtual equivalents, to make dozens, sometimes hundreds of small changes.
Good drivers help in this process, but sometimes the driver has to go.
In Brexit Britain, they seem to prefer changing drivers to doing the hard stuff in the engineering labs (strange as Britain is the heart of the Formula One industry, home to some of the best automotive engineers on the planet: they know this stuff).
On the morning of 23 June 2016, David Cameron walked out the door of 10 Downing Street to the lectern to deliver his resignation statement. Yesterday, Keir Starmer did exactly the same thing.
Watch: British Prime Minister Keir Starmer announces resignation
In between came Theresa May, Boris Johnson, Liz Truss and Rishi Sunak. Andy Burnham looks like he will be the seventh British Prime Minister in the ten years since Brexit.
Count back the seven prime ministers before Mr Cameron, and you can stretch all the way back to 1964, and Harold Wilson’s first government.
Around 305 years since Robert Walpole first held the job, there have been 58 prime ministers, six of them since 2016.
That’s roughly 10% of the office holders in 3% of the time the office has existed. That is a measure of the political instability that Brexit has set off.
British politicians and journalists have long sneered at the turnover of prime ministers in the Italian and Belgian systems. By that measure, Brexit may have made UK politics more “European”.
The fragmentation of parties in the UK – the rise of Reform UK, Restore Britain, the Green Party, and regional nationalists – is also typically European.
Trying to accommodate that reality in a two-party, first-past-the-post electoral system adds to the tensions in the system and increases dissatisfaction among voters who feel they do not have a voice.
Remember, Keir Starmer led Labour to a huge parliamentary majority by winning only a third of the vote.
Two-thirds of the voters in 2024 did not want a Labour government – they got one with one of the biggest majorities ever and have just sacked the leader who delivered that victory.
However, sacking the driver is not going to change the fundamentals of the drag coefficient on the car.
Prime ministers will have less money to deliver their promises until Team UK engineers find solutions to the drag problems caused by Brexit. There is no quick fix.
