In my first article, “Fix Brexit, fix Britain”, I set out the true scale of the impact of Brexit to date in terms of Gross Domestic Product and tax receipts since 2016. Using Goldman Sachs and Tony Blair Institute estimates, I showed how the negative impact of Brexit on GDP has been growing at an average rate 0.7% per year. That is equivalent to a GDP shortfall in 2023 alone of £114bn, with the Government missing out on £40bn in taxes. Cumulatively, since the Brexit vote in 2016, the total loss is a staggering total £434bn, that is worth some £150bn in taxes.
We now have a new government who need to wrestle with this problem. Their first substantial move has been the budget of 30 October, in which Chancellor Rachel Reeves announced new spending and raised taxes by £40bn. We need to be clear why she has done this and with what purpose and consequence.
Why? Because the demographic, health and societal demands on the country will drive the need for ever more taxes to fund public services. However, the sad truth is that we have been here before. I suggest we need to learn the lessons of history.
Why we were in the EU in the first place
As set out by historian Robert Saunders in his article “Brexit in Historical Perspective: The Age of Britain in Europe”, Britain sought membership of the EU primarily for three reasons, prosperity, power and sovereignty. In pursuit of these Britain needed to build its economic strength as a gateway to an integrated European market. This was in the context of a clear recognition that Britain’s relative prosperity from the 1950s to 1970s, compared to Europe, was rapidly declining: “From 1961 to 1974, GDP per capita in the EEC grew at a rate of 215% compared to just 88% in Britain.”
On 22 October 2024, as set out in a research briefing in the House of Commons Library, it was reported that Eurozone growth in Q2 2024 was 4.2% above its pre pandemic level of Q4 2019. By comparison, the UK growth was only 2.9%.
What could this mean? If we assume that the OBR forecasts of 30 October for GDP growth in the years ahead, that is 1.1%, 2.0% and 1.8% thereafter, are rates with Brexit, and that the cost of Brexit continues at 0.7% a year, as suggested above, then the future cost of Brexit, that is the costs still to be endured by the nation, is a further truly staggering figure. In short the cumulative loss of GDP due to Brexit, between 2016 and 2029, will amount to £1.53 trillion, resulting in lost tax revenue of £537 billion over that period.
The true costs of Brexit
Some of this may be judged fanciful, but the clear point is that a continuation of existing trends will mean that by 2029 the UK economy will be much poorer than it would have been: 9.1% by these calculations.
Of course, the numbers can be challenged, but no forecasters or supporters of Brexit can point to any evidence that suggests Brexit has resulted in an economic benefit to date or how it might occur in the future. All the forecasts and current evidence are negative. Even with more optimistic assumptions the cumulative losses to GDP and taxes are still enormous. Wherever you put the decimal point, we will all be feeling a lot poorer.
For the current Government, whatever the scenario, the pain from Brexit will go on. From the analysis above, 70% of the Brexit pain will come in the next five years. It is in its nature to be cumulative. The question is, when will the government face up to this? When will it acknowledge the problem? In truth, the economic impact of Brexit will become impossible to ignore.
Fixing Brexit to fix Britain
What if government was to ‘fix’ Brexit and reach for the huge economic prize? If Reeves had been able to use ‘without Brexit’ GDP forecasts, she would have been looking at a 2029 GDP projection of £2,732 billion, up from £ 2,274 billion in 2023, generating £600bn and £208 billion more in GDP and taxes, compared to OBR forecasts. This would surely be handy in the year before an election is likely to be called. Think of the investments that could be made and the tax cuts that could be proposed.
If Labour wants to fix the country and give itself a chance to win the next general election, it needs to fix Brexit to fix Britain. Without doing so, as the history of the 1950s to 1970s showed, Britain will continue to become relatively and noticeably poorer, with increasing taxes and a worsening macro-economic position blighting the country. The cost of that will fall across all parts of society, and voters will blame the incumbent Government. Labour knows what to do. In reality the opportunity is too great to pass up. It needs to fix Brexit to fix Britain.
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