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Good afternoon and happy fourth anniversary to all the good burghers of Brexitland.
You might think, four years after the UK formally quit the EU, there wouldn’t be much to write about, but this week it’s hard to know where to start: a trade spat with Canada, the introduction of new border checks on EU imports to Britain and — praise be — a deal with the Democratic Unionist party.
But first, here’s the official UK government version of how well it’s all going, via the business secretary Kemi Badenoch: trade is booming (and services trade is, relatively speaking), trade barriers are shrinking and freeports are blossoming — with the promise of more to come.
We will cement Global Britain’s status as an outward-looking, international trading powerhouse, redrawing the rules so businesses can thrive, markets are competitive and consumers are protected.
See below for a more sober, alternative assessment of where the UK economy finds itself four years after Brexit, via the UK in a Changing Europe’s Economy 2024 paper.
As its economists note (as the Resolution Foundation also did recently) living standards have fallen during this parliament — the first time that’s happened since records began. That’s not all Brexit, but it hasn’t helped.
As for this week, the news agenda confirmed that Brexit isn’t “done” and — for European businesses at least — it’s only just getting started, with the introduction of new paperwork on products of plant and animal origin. Border inspections will start in May.
As we laid out in some detail in a report that leveraged the FT’s network of European correspondents, the big “known unknown” here is a) how prepared EU exporters are for the new paperwork and b) how willing they’ll be to keep trading once they do understand it.
The UK government hopes to avoid any disasters by soft-pedalling the introduction of the new controls, but the difficulty is that much of what happens next lies beyond its control: that’s down to the commercial decisions of EU exporters.
We’ll see what happens, but expect some supply chain squeezes and slightly higher prices over time. The Chilled Food Association (CFA) outlined its detailed concerns in this letter to secretary of state for the environment, food and rural affairs Steve Barclay, as has the British Meat Processors Association (BMPA).
As both groups point out, this is a big shift for EU producers. There is a big difference between exporting a container of goods on “a slow boat to China”, as CFA boss Karin Goodburn puts it, and high-intensity, just-in-time trading across the English Channel.
The worry, based on feedback to BMPA and confirmed by our reporting, is that the EU network of vets is not set up for this kind of trade, where time is of the essence because the value of perishable products is linked to their shelf-life. As the BMPA puts it:
Put bluntly, if the vets aren’t able to sign off the documentation, consignments of meat may not even leave the factory, let alone get to a UK Border Control Post. Even if vets can sign off, many smaller EU suppliers will simply stop exporting to the UK due to the extra bureaucracy and the loss of the ability to send small consignments in grouped loads, just as small UK exporters did in 2021.
Given worries about UK reliance on the EU for pork products and wrinkles over certificates for products such as sugared liquid eggs that go into processed products such as ketchup, there will be some nerves in Whitehall. No one wants a bacon buttie shortage in an election year.
The new border is also being introduced, lest we forget, between Ireland and Great Britain (pictured here by the BBC’s John Campbell), which brings us to the really big story of the week: the deal to convince the DUP to return to power-sharing in Stormont.
We’ve unpacked the details here but the Command Paper is essentially the Windsor framework with a bunch of supplementary reassurances, not a radical reboot — as was clear when Downing Street said it hadn’t needed to renegotiate the deal with Brussels.
One of those reassurances, spelt out in two graphics in the paper, is that Irish traders will now face the full panoply of checks on their goods while Northern Irish traders sending goods to Great Britain will not, enjoying “unfettered access” across the Irish Sea.
Nothing new in that, of course, but it’s a reminder of how topsy-turvy the world has become when the British government is in some way celebrating the introduction of border bureaucracy as a “win” for Northern Ireland.
(During all this, Boris Johnson and Lord David Frost were playing the familiar tunes about the UK needing to cling to the deregulatory dream of the UK outflanking the low-growth, high-regulation European model. It’s amazing that there is still no serious reflection on why, if this approach had commercial merit, business had not taken advantage of it, or has not clamoured for it — in fact, quite the contrary.)
Canada talks breakdown
Also not mentioned by Badenoch in her anniversary pep talk was the breakdown of trade talks with Canada. This means that the UK’s access to Canadian markets via its EU “rollover” deal is now worse than during bloc membership. Cheese exporters and carmakers are the big losers.
There are two takeaways from this. First, that buccaneering Britain is going to find it hard when the seas of global trade are getting choppier by the day and their galleon is smaller than everyone else’s (see Thomas Sampson, below).
But second, that international trade often has domestic political ramifications: so Canada stands its ground over its hormone-treated beef, while the UK also stands its ground for its own farmers.
We’re talking relatively small beer here, in financial terms, and it was noteworthy that the National Farmers’ Union, which lambasted the Johnson-Truss era deals with Australia and New Zealand as a “sellout”, have enthusiastically lauded the UK government’s principled stand against Canada.
And all this not three weeks after the same government announced an average 10 per cent increase to post-Brexit farm subsidies that (pace Badenoch again) have been an utter administrative mess since we quit the EU’s Common Agricultural Policy. Did someone say it was an election year?
So where does all that leave us, four years on? Well, muddling on, I suppose.
The UK had to introduce a border with the EU at some point. It will add to costs and make the UK a less attractive supply chain partner, but that’s Brexit.
The DUP finally did the deal, but as Sir John Major and Sir Tony Blair warned all those years ago on the peace bridge in Derry/Londonderry, Brexit continues to weigh on that much deeper debate about the region’s constitutional future.
And Johnson and Frost continue to play familiar tunes, but increasingly no one takes much notice.
It’s all progress of a kind.
Brexit in numbers
This week’s chart comes via the UK in a Changing Europe’s aforementioned State of the Economy 2024 report, a document that has the chief advantage — at 70 pages long — of being brisk. (The Resolution Foundation’s 300-page Stagnation Nation report is a brilliant and comprehensive document, but it does take some serious reading!).
The UKICE overview zips through much of what ails the UK. Ministers can endlessly repeat “we’re growing faster than Germany” but as Stephen Hunsaker points out, UK wages and living standards for middle and lower-income households are “slipping well below their counterparts in France and Germany”.
The paper looks at a wider range of issues — migration, planning, tax policy, public services — but this being the Brexit newsletter, the chart comes from Hunsaker’s macroeconomic overview and it shows how UK trade openness (trade volumes divided by gross domestic product) has dipped since leaving the EU.
He also notes that Brexit hasn’t helped the UK’s business investment problem (which predated leaving the EU), estimating business investment to be 10 per cent below what it would otherwise have been, leading to “a little over 1 per cent of GDP” in lost output.
Thomas Sampson of the London School of Economics, then takes the mantle up in a chapter on trade that notes that UK growth in goods exports and imports has been “the weakest in the G7”, which (ministerial bravado aside) has “contributed to the ongoing stagnation of the UK economy”.
“It is time to concede that Theresa May’s vision has failed. Brexit has not turned Britain into a global trading superpower,” writes Sampson, adding that “from now on officials should be taking more trains to Brussels and fewer planes to Tokyo, Canberra and other far-flung locales”.
Such is gravity. His broader point is one that I share: more needs to be done to help SMEs export to the EU under the Trade and Cooperation Agreement, with boots-on-the-ground engagement to address issues such as carbon border taxes, professional mobility and other border processes.
As Sampson concludes, that is all less glamorous than “rhapsodising Global Britain”. He counsels that the grand visions of Brexit now need to be put aside in favour of some hard work. As he puts it: “Now is the time to focus on the nitty-gritty of rebuilding UK trade.”
Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.