Sadiq Khan gave a speech at Mansion House last night in which he claimed that the UK is suffering from a “cost of Brexit crisis”. The speech was accompanied by a report which claims that Brexit will have “cost” the UK economy £311bn by 2035.
This is a claim so egregious it deserves to be printed on the side of the bus and driven around the country by Boris Johnson. It relies on modelling that even pro-Remain economists I’ve spoken to say is questionable at best.
Some voters would hear that the UK has “lost” £140bn since leaving the EU, as the report claims, and think that the state itself has £140bn less to spend on hospitals. But this is economic activity, and the amount of GVA, or gross value added, that actually ends up in public services is variable. What it really means is that the UK’s economic output would have grown by an extra 6 per cent, had the UK remained in the EU. This implies that had the UK remained a member of the EU, we would have enjoyed a cumulative growth rate far ahead of the rest of the bloc, and indeed ahead of the US, which is the world’s largest economy and has – thanks to several trillion dollars in economic stimulus – been far ahead of the rest of the G7 in its post-pandemic recovery.
London’s growth since leaving the EU has been strong: a recent report from the Mayor’s own economists, GLA Economics, found the capital’s economic output is now 7.7 per cent above pre-pandemic levels. This doesn’t line up with Khan’s claim last night that London’s economy has “shrunk by more than £30bn” as a result of Brexit.
But it is the report’s forward projections of Brexit’s impact that are most fantastical. Most of the supposed impact of Brexit comes from a huge impact on employment: “nearly three million fewer jobs post-Brexit by 2035” than the imaginary Remain scenario.
Jonathan Portes, professor of economics at King’s College London and an outspoken critic of Brexit, told me that while the report’s assumption of a 2-3 per cent hit to productivity is “consistent with other models, and with the OBR [the Office for Budget Responsibility]”, its claim that there will be a 7 per cent reduction in the labour force is “implausible”. “Even the most pessimistic estimates didn’t suggest it would be quite that large,” he told me, and the report’s claims about the impact on migration are “not consistent with what we’ve actually seen in the data”.
Gerard Lyons, who was Boris Johnson’s chief economic adviser in City Hall and one of the few economists to support Brexit, was clear before the referendum that Brexit would have an impact – “You can’t be in something for 40 years, and not expect it to have an impact when you leave”, he told me – but that the report wrongly assumes that the damage is permanent: “The idea that this is a one-off event, and then you’re on a predefined path, is the wrong way to view this.”
Lyons says low business investment was a problem for Britain before we joined the EU in the 1970s, and our trade deficit has been a problem since the mid-1980s; after the referendum, these issues were exacerbated by the infighting and political crises that followed. Many of the businesses I’ve spoken to in the last eight years would agree.
Most businesses, and most people, would also agree that Brexit has had negative implications for the economy – although they have mostly not been felt in London and especially not in the City, which now employs more people than before the EU referendum. But the very last thing businesses want is for a politician to turn up with a bag of confected statistics, and to begin claiming that major political upheaval will help Britain escape the economic stagnation that is affecting not only our own economy, but all of western Europe. The polls may show widespread Bregret, but that doesn’t mean another era of constitutional drama would help.
Correction: this piece originally stated that Sadiq Khan claimed politicians had “taken a vow of silence” on Brexit, and that it was time for him to break “the Brexit omerta”. Khan did make these comments in a Mansion House speech, but this was in February 2023.
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