Dreaded 'B' word
Brexit , Issue 1662

AT THE heart of Rachel Reeves's fiscal dilemma lies Britain's flatlining productivity, and it's now clearly time to admit the baleful influence on this of Brexit.

"The UK's productivity challenge has been compounded by the way in which the UK left the European Union," the chancellor finally conceded at an International Monetary Fund (IMF) meeting last month.

Last week, in her "scene-setting" pre-budget speech, it was the "rushed and ill-conceived Brexit" playing a large part in landing her where she was.

Gory picture
Soon after the IMF event, the World Trade Organization (WTO) set out the gory detail in its trade policy review of the UK, including a fall in exports of 17 percent since pre-Covid levels. Other G7 countries' have increased by more than this number.

The loss is particularly acute because, as the WTO puts it, "the UK is a highly trade-dependent economy", with international trade accounting for 62 percent of GDP. And companies that concentrate on export are 22 percent more productive than others, so are crucial to growth.

What's worse, the loss of exports has been greatest in manufacturing, which provided 45 percent of exports when the UK left the EU in 2020 but just 37 percent last year.

Low investment
This isn't the only Brexit reverse-dividend. Low productivity is exacerbated by poor levels of investment, in which the UK is already "well below other advanced economies". Here Brexit was another shot in the foot.

Investment, said the WTO, was "dampened by uncertainty over UK-EU relations and political instability following the EU membership referendum" – along with other ills including high energy prices and weak competition (the latter making Reeves's reining-in of the Competition and Markets Authority look short-termist at best).

Fractional gains
The best the UK has been able to range against these destructive forces is a few bilateral trade deals and more limited agreements such as digital economy arrangements with the likes of Ukraine and Singapore, plus the AI-focused "economic prosperity deal" with the US. Together these claw back a fraction of the 4 percent hit to GDP (worth more than £100bn a year and perhaps £40bn in tax revenues) that is widely accepted as the long-term consequence of Brexit.

This summer's "reset" deal with the EU might add about 0.3 percent to GDP in the long term, while the trade and investment deal with Gulf countries, unveiled by Reeves two weeks ago, will "add £1.6bn to UK GDP". That's, er, 0.07 percent of GDP.

Small wonder Starmer and Reeves have realised that, nearly a decade after the referendum and juggling budget margins dwarfed by the effects of leaving the EU, it's about time to mention the B-word.

More top stories in the latest issue:

NUCLEAR FUSION
The new nuclear "golden age" is already powering the revolving door between UK regulators approving projects and companies benefiting from them.

KEMI-CIRCLE
Kemi Badenoch initially called for Rachel Reeves to resign over her property issues – but she backed down after people pointed out her own history.

HOSPITAL PASS
The government has managed the spectacularly inept feat of turning the appointment of England's new football regulator into an own goal.

CARTER FUCKING ABOUT
Law firm Carter-Ruck is trying to stymie an investigation into allegations that it conducted a series of abusive lawsuits against a former Tory MP.

DRILL SEEKERS
Keir Starmer's stance at COP30 was undermined by the strong oil industry links of one of the UK's own partners at the climate summit.

HOUSING NEWS
The tension between promises of 1.5m new homes in this parliament and "the biggest boost to social and affordable housing in a generation" is rising.