£1t+ Cost of Brexit: Not Project Fear, Project Already Here:
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Two years ago I chalked up the financial costs of Brexit.
There wasn’t any official costed impact assessment of the financial costs of Brexit.
There still isn’t.
“Most of the latest academic efforts have tried to quantify the trade impact of Boris Johnson’s Brexit deal, the Trade and Cooperation Agreement, which came into force at the start of 2021. This work has been frustrated by statistical agencies in both the UK and EU changing the collection of import and export data and by disagreements on how best to identify a Brexit effect.” [FT, 30 Nov 2022]
The National Audit Office has stated that Covid spending commitments up until July 2021 will cost the UK £370b.
We have nothing similar for Brexit.
This says a lot about the religious fervour of Brexiteers.
It also makes it impossible to take the current UK government seriously.
Whenever it talks about “saving a billion here” or taxing “a billion there” we are always tempted to say:
“You’ve already spent over £1t on this madly executed Brexit, why would we take you seriously when you pretend to care about £100b here, or £100b there?!”
I wrote about this phenomenon in the midst of all those Will-They Won’t-They No Deal sagas:
In fact, this promoted confusion about the costs of Brexit is analogous to the complaint in a recent journal article in relation to governance failings over the pandemic that:
“Discrepancy of the mortality rates between official institutions, inevitably, leads to subjective evaluation of the real impact of the pandemic in the UK.”
Below, I set out my comprehensive list of the costs under various categories.
Initially, this was done in early 2019 below – I preserve those costings.
I’m also adding costs in as they emerge, so in that sense this is a Living Document.
For example, since I first set out those costings in 2019, it emerged that by March 2020 London had lost £1t in funds under management.
The UK economy has lost its cut of the fees for managing that money.
Meanwhile, as that money left STG, we’re all paying more on everything due to the commensurate loss in the value of sterling when those funds were transferred into €.
England’s stock market’s value dipped below that of France’s in mid-November 2022. Remember: France has a manufacturing industry whereas England put all its eggs into the financialisation basket. Now France is ahead in finance.
Bloomberg chart marking the moment London lost its position as Europe’s largest stock market.
Paris overtook London for the first time, to be valued at $2.823 trillion, vs the UK’s $2.821 trillion.
In 2016, British stocks were collectively worth $1.5 trillion more than France.
We must also count in the precipitous loss in the trade of goods:
“…British goods exports to the EU … slumped by 40.7% in Jan compared to Dec, according to the UK State ONS. Imports fell by 28.8% – another record….”
[Reuters: https://lnkd.in/ddr9RFn]
In terms of the loss in services:
“… projecting how industries from IT and finance to business services would have grown if they had continued on their previous paths, …The gap was £113bn…Ireland’s cumulative services exports from 2016 to 2019 were £126bn higher than projections based on the trends up to 2016…”
[FT: https://lnkd.in/dTb5Mbw]
Counting in that unbudgetted for extra expenditure since March 2020 of £250b and the printing of £400b since Brexit, it’s, well, quite a price.
How long can the pandemic be scapegoated for this world historically terrible mismanagement of a previously decently governed State’s Treasury?!
Is there a limit to the amount of wool that can be pulled over Blighty’s good citizens’ eyes by the ne’er do wells currently steering the Ship of State into the Carybdes’ eager jaws?
The 2019 perspective on the financial cost of Brexit, however, is important to preserve – so I have conserved it below, even as I add in further costs as they emerge.
Brexit had not yet taken place at that stage – it could have been stopped, had the Brexit lemming bus not continued over the cliff:
From the perspective of history no-one can say that they didn’t know how much Brexit would cost by comparison to how it was sold to the electorate in 2019!
Then, it was sold as a profitable enterprise.
It would save £350m a week!
Just this week, UK legislators voted to pour raw sewage into rivers.
Because of Brexit there’s no longer any legal impediment to dumping raw sewage in our rivers and along our sea shores.
This is how some wag altered the famous Brexit bus that claimed the mythical £350m a week “saved” by Brexit would be spent on the National Health Service:
My Brexit cost calculations of two years ago (i.e. before the printing of an extra £400b (to cover the many botched “No Deal” failed leavings) and before the unbudgeted for additional expenditure of £300b since March 2020) were already astonishing.
Recently, I added in the financial cost of the continuing Mass Infection/Herd Immunity policy the UK government has been running since February 2020:
Elsewhere, I’ve calculated and continue to write about the constitutional, political and geopolitical costs of Brexit:
Here, I’m just dealing with the financial costs.
GDP
- S&P: 3% lower = £66b in two-and-a-half years up to Dec 2018 (April 2019). “Impact mainly in the form of higher import inflation that hit private consumption” which is due to the reduction in the value of Sterling since Brexit.
2. BoE:
“The analysis suggests that since. the vote in June 2016, we have lost 2% of GDP relative to a scenario where there had been no significant domestic economic events. That amounts to around 40 billion pounds per year, or 800 million per week of lost income for the country as a whole.”
(using “bootstrap” methodology: Gertjan Vlieghe, External Member of the BoE Monetary Policy Committee speech (14 February 2019))
3. Goldman Sachs: GDP is 2.4% lower than it would otherwise be, as at April 2019. This amounts to £600m a week reduction in added value to the economy already resulting from the Brexit vote (using “doppelgänger” methodology).
4.
“Richard Hughes, the chairman of the Office for Budget Responsibility…said Brexit would reduce the UK’s potential GDP by about 4% in the long term, while the pandemic would cut it “by a further 2%”. “In the long term, it is the case that Brexit has a bigger impact than the pandemic,” he said…”
[https://www.theguardian.com/politics/2021/oct/30/brexit-is-harming-the-uk-economy-say-44-of-voters]
5.
“Thomas Sampson, Associate Professor at the London School of Economics, said: “When measured in terms of their impact on the present value of UK GDP, the Brexit shock is forecast to be two to three times greater than the impact of Covid-19.
Moreover, the Office for Budget Responsibility (OBR) told the BBC last October that leaving the EU would “reduce our long run GDP by around 4 per cent.”
It is believed the effect of the pandemic will reduce GDP output by only a further 2 per cent.”
Currency
Institute for Fiscal Studies (IFS):
“Back in December 2015, £1 would buy you about €1.40. Today it will get you nearer €1.14. It has suffered a similar fate against most major currencies, losing about 15% of its value over that time. A big part of the fall occurred literally overnight, once the result of the EU referendum became apparent in the early hours of 24 June 2016.”
(20th Feb 2019)
2. S&P:
“Immediately after the referendum, the pound fell by about 18%. This was the single most pertinent indicator of the impact of the vote and the drag it created, via inflation, has been spreading through the economy.”
3. “The Resolution Foundation estimated that the depreciation raised import prices and overall inflation. It calculated that as a result real wages fell 2.9 per cent, costing households £870 every year on average.”
Prices
Institute of Fiscal Studies (IFS):
“Most analysis suggests that prices are now at least 2% higher than they would have been if the pound had not fallen in 2016. That leaves most of us worse off.”
(20th Feb 2019).
Trade: Import/Export
September 2024:
March 2024:
🔴 OBR also noted that growth in UK goods trade is well below other advanced economies and 10% down on 2019 levels at the end of last year, while its services trade growth has been the strongest in the Group of Seven nations. It said this was likely due to Brexit trade barriers being largely on goods, while the UK is less reliant on the EU for its services exports.
“A decline in trade intensity plausibly lowers productivity because trade, among other channels, fosters competition and allows countries to specialize in activities where they are relatively more efficient,” said the OBR in documents released alongside the budget.”
“Our assumptions about the impact of Brexit appear to be broadly on track and recently published studies are also broadly consistent with these estimates,” the OBR said. “We expect the total impact of Brexit to be realized several years after full implementatio of these barriers.””
Financial Times:
– – – – – – – – – – – – – – – – – – -
1. Institute for Fiscal Studies (IFS):
“…So far they have been disappointed. There has not been an export boom. Nor is there evidence of a reduced dependence on foreign imports. Rather, both exports and imports have continued to potter along much as they did before the referendum…”
2. Office for Budget Responsibility
“The OBR report… said that its evidence to date suggested its previous forecasts that Brexit would lead to a 15% fall in both UK imports from, and exports to, the EU appeared to have been broadly accurate.
[https://www.theguardian.com/politics/2021/oct/30/brexit-is-harming-the-uk-economy-say-44-of-voters]
3. The initial impact of Brexit on UK trade with the EU
[Source: OBR: https://obr.uk/download/economic-and-fiscal-outlook-october-2021/]
4.
The UK has seen a reduction in exports to our top European trading partners equivalent to £515 million a-week, new Government data reveals.
“The Department for International Trade released new statistics on 29 October, tracking the UK’s exports and imports with countries around the world during the year from July 2020 to July 2021.
“Total exports to some of the UK’s closest European trading partners fell by by £26.8 billion during this period, equivalent to £515 million a-week or £73.6 million a-day. Exports to Germany fell by £5.4 billion (10.2%), to the Netherlands by £1.4 billion (4%), France by £4.7 billion (13.4%), Switzerland by £9.8 billion (34.8%), Spain by £4.1 billion (23.6%), and Italy by £1.4 billion (8.7%).”
[https://bylinetimes.com/2021/11/02/515-million-a-week-hit-in-uk-exports-to-top-european-partners/]
5.
“Since Brexit actually happened, on 1 January, 2021, the UK Trade Policy Observatory reveals that the reduction in trade has lost UK businesses a further £44bn.
“That breaks down to £32.5bn lost in potential imports to the UK and £11bn in exports to the EU,” Jinks pointed out.”
6.
“Most of the latest academic efforts have tried to quantify the trade impact of Boris Johnson’s Brexit deal, the Trade and Cooperation Agreement, which came into force at the start of 2021. This work has been frustrated by statistical agencies in both the UK and EU changing the collection of import and export data and by disagreements on how best to identify a Brexit effect. But the results of studies now appearing suggest very large drops in trade between the UK and the EU, a decline in the variety of goods traded, a loss of trading relationships between companies and similar patterns in services. “There is strong evidence the TCA has reduced the UK’s trade with the EU around 15 per cent so far,” said Thomas Sampson, associate professor at the London School of Economics. But he noted that the UK’s trade with the rest of the world had also decreased by similar amounts, leading him to be “not 100 per cent convinced we’ve seen a [Brexit] effect on exports so far”.”
7.
“The most sophisticated statistical modelling has been taking place at Aston Business School, where professor of economics Jun Du has found that imports to the UK from the EU have largely recovered. However, she estimates that exports to the bloc are now 26 per cent lower than they would have been without the new barriers to trade.” [FT, 30 November 2022]
8.
Jobs and Investment
- BoE, Nottingham and Stanford University’s Decision Maker panel surveys 7,500 business executives to collect data on how they say Brexit has impacted their businesses.
“We estimate 6% reduction in investment in the first two years after the referendum, with employment also around 1.5% lower”.
[Harvard Business Review (HBR), March 13th, 2019]
2.
“[City banks] £1.3bn in relocation costs…plus £2.6bn #EY quarterly Brexit tracker… plan to move about 7,000 jobs and £1tn of assets because of Brexit.”
[26th June 2019]
3.
“British companies have lost over £250bn to Covid and an equal amount to Brexit by the end of 2021, but the Brexit tally is now rising faster,
The Centre for Economics and Business Research found that Covid-19 lockdowns had cost UK businesses £251bn by March of last year.”
4.
“Before Brexit had even happened, a 2020 report by Bloomberg Economics revealed that, by the end of that year, the economic cost of Brexit already exceeded £200bn in lost revenues to UK companies. It calculated the British economy was 3 per cent smaller than it otherwise would have been.”
Quantitative Easing
As at June 2016 when the Brexit vote happened the UK’s central bank had created £435b electronically. It had used this magic money to buy bonds that it had itself issued.
Now, that’s what I call a circular economy!
Most of that Q.E. had been created since the financial crash in 2008. But by August 2016 to forestall a Brexit-related crash the UK’s central bank created £60b in gilts and £10b in corporate bonds (see MPC minutes August 2016):
“…in response to a deterioration in economic conditions since the UK’s vote to leave the EU on June 23rd.”
[MPC of BoE minutes 5th August 2016]
See also MPC Minutes referenced in here:
Then, a month after Brexit formally happened, March 20th 2020: UK gocernment’s supposedly independent central bank creates £200b to buy UK government debt:
Another £100b was printed in June 2020, when the UK government made it clear it would not apply to the EU for an extra year to help with transition arrangements. This took the total of UK government issued bonds which its own central bank purchases with magically created electronic money to £745b:
And this is where things stand today as at October 2021:
Extra Borrowing Since Brexit Day
“Government borrowed £303 billion in 2020/21"
[https://commonslibrary.parliament.uk/government-borrowing-peacetime-record-confirmed/]
Additional Spending On Government Administration Due To Leaving EU
£4.2b extra as of Jan 2019 (Treasury)
Bank Assets transferred
1. Bloomberg:
“£750b in bank assets to Frankfurt since the referendum”.
2. EY: £1t either already or to be transferred because of Brexit and 7000 City jobs
[EY Brexit Tracker: June 26th 2019]
Manufacturing
Bombardier Aerospace Belfast up for sale.
Jaguar Land Rover moved production to Slovakia, cutting 4,500 highly skilled jobs.
Nissan scrapped plans to build X-Trail in Sunderland.
Honda said it would close its U.K. factory in Swindon in 2021.
BritishSteel.
Dyson moves to Singapore.
Loss of Galileo related contracts.
“…employment also around 1.5% lower”.
(Harvard Business Review (HBR), March 13th, 2019)
Brexiteers try to put all this down to the pandemic.
The governments own so-called (and presumably soon to be reformed/abolished) watchdog the Office for Budget Responsibility says:
Alas, its more likely they tanked the pandemic to try to cover up for a botched Brexit.
“Government borrowing was £246 billion higher in 2020/21, compared with 2019/20…while income was £38 billion lower…the hardest hit tax was VAT, where receipts were nearly £15 billion lower in 2020/21, compared with 2019/20…”
[https://commonslibrary.parliament.uk/government-borrowing-peacetime-record-confirmed/]
So, there was only £38b less received into government coffers in 2020/2021.
But the government borrowed £246b more…
It’s for the Brexiteers then to demonstrate their fetish hasn’t resulted in this terrible reversal of economic good fortune.
The government’s own Office for Budget Responsibility (OBR) argues:
“it will become increasingly difficult to distinguish the effects of the pandemic from other factors, like Brexit or the underlying path of potential output in light of the post-financial crisis ‘productivity puzzle’”
[https://obr.uk/download/economic-and-fiscal-outlook-october-2021/].
Nevertheless, as quoted above, the OBR also concludes the
“long term impacts of Brexit will be twice as costly as the long-term impacts of Brexit.”
Brexiteers who argue that on the one hand Brexit is yielding fantastic profits for the State, yet the pandemic (which they purposely tanked) is responsible for all the downsides are as intellectually dishonest now as they always were.
And their hopeless case is not helped by some of them being quotes as welcoming Covid explicitly because it confuses the picture regarding the financial costs and disruption of their badly executed Brexit.
Nor is their case helped by the fact that it was the European Research Group of Brexiteers who have ensured Johnson locked down too late and opened up two early. Several times. These Brexiteers have continuously campaigned against children’s vaccinations and simple cheap interventions like promoting mask wearing.
And therein lies another connection between Brexit, the shambolic pandemic performance of the UK and the eye watering extra sums spent on repairing the leaky ship of state.
Brexiteers can’t claim without evidence that this £1t stems from Covid, as if their own behaviour wasn’t responsible for tanking the UK’s Covid and Brexit response.
No.
Sad as it is.
Brexit has cost the UK £1t funds under management; £246 billion in extra borrowing; £20b in Central Bank’s purchase of corporate bonds to help those companies; £360b q.e.
That’s £1.6t.
Stephen Douglas has an MBA from the University of Oxford and an MA from Trinity Hall, Cambridge.
