As another Tory PM teeters, the costs of Brexit keep mounting

A new report from the Economic and Social Research Institute (ESRI), an Irish think tank, says that trade from the UK to the EU is down 16% on the levels anticipated had Brexit not happened. Trade from the EU to the UK is even worse, falling by 20% compared to what you might have expected if Brexit had not happened.

The figures will come as no surprise to the myriad small businesses grappling with new rules and regulations as they try to send their products to what is still Britain’s largest trading partner, despite the many barriers the Tories’ hardline Brexit has erected. Many have given up: in September, reports showed that 33% of British exporters had stopped exporting to the EU with the main reason cited being red tape. British exports now face full EU customs and sanitary checks, while the UK has itself imposed few regulatory constraints on EU imports.

“An inevitable consequence of Brexit has been to saddle businesses with new red tape, duties, and longer customs checks. This has dampened the UK’s economic recovery from the pandemic and driven a widening wedge between British businesses and our partners in Europe,” said Peter Norris, Virgin Group chair and co-convenor of the UK Trade and Business Commission, reacting to the ESRI report.

“With our economy entering recession, recovering lost trade with Europe should be a top priority. The government can do this by removing the barriers to trade which Brexit created.”

The ESRI said it had found a substantial reduction in the number of products traded and it noted that measuring the impact can give varied results depending on the data source and comparison group used. To combat that, the institute used a combined set of UK and EU data sources.

“An important question in the estimation of how much Brexit affected EU-UK trade is ‘compared to what?’,” ESRI said. “Global exports of goods from the UK have been growing slowly. This may have been partially a result of Brexit spillover effects on supply chains. The impact of Brexit on EU-UK trade, therefore, does not appear as large if compared to UK trade with the rest of the world as it does when compared to the faster-growing performance of EU trade.”

Looking across EU member states, ESRI found that Brexit had led to a significant decline in trade with the UK in almost all cases although by varying magnitudes. For most countries across the EU, the size of the impact is broadly similar for both export and imports. Ireland was one of the headliners, with the value of British exports falling by 40% compared to what might be expected if Brexit didn’t happen. In Spain, that drop was 32%, Sweden 25% and Germany 24%.

“Ireland stands out as having had a particularly large reduction in imports from the UK relative to its other international trade patterns. Exports from Ireland to the UK, on the other hand, continue to perform in line with those of other markets with no notable impact to date of Brexit on the total levels traded,” ESRI said, adding that increased trade between Ireland and Northern Ireland might play a role in the outcome.

On Twitter, shadow trade minister Gareth Thomas described the ESRI report as a “worrying analysis on the impact the extra red tape, delay and bureaucracy caused by the poor trade deal @BorisJohnson & the @Conservatives negotiated with the EU. Urgent steps to address these problems is key to boosting exports and growth”.

The ESRI report is just the latest drop in the ocean of dire economic news lapping at the UK’s sewage-strewn shores: every indicator is trending in the wrong direction. In August, the economy unexpectedly shrank with gross domestic product falling 0.3% from July. Business investment and research investment are falling. And the latest inflation figures for September showed prices rising by a whopping 10.1%, with food and drink costs driving the increase.

In June, the Centre for European Reform estimated the price-tag for Johnson’s oven-ready Brexit was already running into the billions with UK gross domestic product (GDP) 5.2% – or a whopping £31bn – lower than it would have been if the UK had not left the EU. And in March, the Office for Budget Responsibility (OBR) said the UK had “missed out on much of the recovery in global trade,” after the pandemic, saying the UK seemed to have become a “less trade intensive economy”.

Of course, Russia’s war in Ukraine, rising global energy prices and the residual effects of the Covid pandemic, particularly on supply chains, all have a part to play as well, but it is hard to deny the overwhelming evidence that Brexit has made Britain’s suffering so much greater.

Of all the bitter Brexit ironies, one of the more poignant for British consumers is that the decision – Brexit – that led to the rise of the Tory right and the installation of Remainer-turned-Ultra Brexiteer Liz Truss as prime minister, who then tanked the economy with her mini-budget, also meant that it would be nigh on impossible to achieve the levels of growth Truss was banking our futures on. Because Brexit has stifled international trade.

The promised trade deals that an unshackled Global Britain was supposed to snap up after Brexit have failed to materialise. Truss nixed the idea of a swift deal with the United States some weeks ago, while former home secretary Suella Braverman did her best to scupper, for now, an expected accord with India by some characteristically caustic and distasteful remarks about Indians overstaying on their visas.

Brexit may yet be the death of the Tories – or at least the nastiest wing of the Nasty Party – but perhaps it need not be the death of the UK economy.

As Truss’ short-lived tenure dissolves into unedifying (even by the standards of the party that gave you Partygate) scenes of bullying, back-biting and brass-necked opportunism, voices are also being raised to demand a return to the European single market. London mayor Sadiq Khan has said that the quickest way for the government to achieve economic growth is to rejoin.

The public may not be there yet – in a recent poll for the Tony Blair Institute for Global Change, JL Partners found while over two-thirds of voters think that, over the medium term, the UK should have a closer relationship with the EU, only a third think the UK should seek membership of the EU single market at the minimum – it is perhaps the job of a competent opposition (Khan’s Labour party perhaps?) to make that case more strenuously.

Michel Barnier, the former chief Brexit negotiator for the EU, put it well on Twitter.

“No one should or can be happy about the political & economic turmoil in the UK. There are so many reasons today we must find stability and cooperate, across Europe. Not all of these difficulties are due to Brexit, I am simply convinced that Brexit makes everything more difficult.”