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29 March 2022

Brexit is making us poorer – and Rishi Sunak agrees

The Chancellor conceded that Brexit has likely caused a prolonged collapse in UK trade with the world.

By Harry Lambert

So this is how it happens. Six years after the referendum campaign, at a parliamentary committee hearing on a somnambulant afternoon in late March, the economic downsides of Brexit were conceded at last. On 28 March, Rishi Sunak – recast last week as the Chancellor content to plunge 1.3 million people into poverty, after a two-year honeymoon as the nation’s beloved provider of pandemic support – confessed to a small room of barely attentive MPs that Brexit might indeed be behind the enduring collapse in the UK’s capacity to trade with the rest of the world.

The question came two hours into Sunak’s otherwise uneventful appearance before MPs. Mel Stride, the chair of the Treasury Committee – peering over his glasses and sporting a pair of sideburns reminiscent of the early Seventies, when Britain was last outside of the EU and impoverished – noted to Sunak that “there has been, as the OBR [Office for Budget Responsibility] predicted, a slump in the level of our trade.”

Trade across many countries was hit by the pandemic, but other major economies have bounced back, said Stride. Britain, however, has not. UK trade is down 12 per cent since 2019, more than twice as much as the next-lowest G7 economy. “Doesn’t that tell you,” asked Stride, “that the main distinction between ourselves and them is that we went through Brexit and they didn’t?”

“It might well be,” said Sunak, offering a refreshingly blunt reply before correcting himself and adding that it was “too early to be definitive about it” (he voted Leave in the 2016 referendum). What else might be responsible for Britain’s ongoing slump, asked Stride, as Sunak continued to obfuscate: “look, I haven’t got all the numbers with me… If you look at UK-EU and UK-rest of world imports and exports, there’s a range of different things moving on [sic], and they’re not actually all consistent with themselves, so we’re still trying to work through what all the impacts are.”

The OBR is charged with sifting through those impacts, and its current conclusions are clear: across the G7, trade is uniquely depressed in the UK (see graph below), and it is expected to suffer a 4 per cent long-term hit to GDP from Brexit – twice the level of economic scarring that the OBR expects to have been caused by Covid.

“It was always inevitable that there would be a change in our trade intensity,” Sunak continued, seeming both slightly unnerved and oddly unfazed as he tried to narrow his focus to the fall in British trade “with Europe”. “That is expected,” said Sunak, “and unsurprising when you change a trading relationship with the EU.” A change in that relationship “will obviously have an impact,” Sunak conceded, “and I’m sure that’s a big part of the reason why this [fall in trade] is happening.”

But the problem for Britain – and for the narrative long propounded by fervent Brexiteers – is that its trade has fallen with the world. None of the trade deals struck by the UK has come close to making up for the mass disruption to British trade with Europe incurred by Brexit. Sunak sought to trumpet those deals. Britain, he said, was not becoming a more closed economy – “in fact, the work that the Trade Secretary is doing is making us much more open to countries around the world for trade.”

Isn’t that only the aspiration rather than a reality, asked Stride. “The benefits of new trading relationships take time,” said Sunak, seeking to soothe. “They do not happen all overnight.”

Throughout his testimony, Sunak had leant on evidence offered by experts to justify his Spring Statement. But on Brexit, the words of the OBR were oddly absent, perhaps because they plainly contradict the Sunak’s baseless optimism: “exports and imports will be around 15 per cent lower in the long run than if the UK had remained in the EU,” the OBR wrote in 2021. “New trade deals with non-EU countries will not have a material impact” as “most deals largely replicate or ‘rollover’ deals that the UK already had as a member of the EU.” 

Britain’s recent trade deal with New Zealand – a country the size of Wales, only 11,500 miles away – will raise UK GDP in 2035 by “between 0.023 and 0.034 per cent”, according to the OBR. If those decimal points seem insignificant, there is always Britain’s trade deal with Japan, set to “increase the UK’s GDP by 0.07 per cent over the next 15 years” – an impact so small that the OBR describes it as equivalent “to not having a trade deal with Japan” at all.

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