You may have seen references on social media to an economic analysis of the impact of Brexit published by the NBER. They estimate that leaving the EU has already reduced Britain’s GDP by 8%. Remember, the Office for Budget Responsibility (OBR) has always maintained that Brexit would see our GDP reduced by 4% in fifteen years, taken as being around 2030. The NBR are now talking of an impact twice the size, and five years earlier. Our absolute GDP this year will be over £2.8 trillion. An 8% hit amounts to around £225 billion, and if we assume tax revenue at 35-40% of GDP, we are talking close to £90 billion in lost income for the Treasury. What would Rachel Reeves give for that now?
I am not suggesting everything would be all sweetness and light, whatever the amount of money available, it would never be enough to satisfy everybody, but certainly things wouldn't be quite as bad.
How seriously should we take the NBER figures?
Note that so far, I haven’t spelt out who or what the NBER is. The National Bureau of Economic Research is based in Cambridge, Massachusetts USA. However, only one of the authors of the analysis is American. He is Phillip Bloom of Stamford University. The others are from the Bundesbank in Germany, the Bank of England, University College London and Nottingham University.
Founded in 1920, it is not an official US government body and is privately funded, but it offers serious research into the effects of economic policies.
Their working paper No 34459 on The Economic Impact of Brexit is serious academic research, although it’s not been peer reviewed. The list of references is fully four pages long.
This is from the introduction:
"We estimate that by 2025, the Brexit process had reduced UK GDP by 6% to 8%, investment by 12% to 18%, employment by 3% to 4%, and productivity by 3% to 4%. These effects accumulated gradually over time."
These figures don't claim the UK hasn't seen an increase in GDP, investment and so on, they are comparing what has actually happened with the growth expected in the absence of Brexit. It's a relative loss of GDP.
What impresses me is the use of several different methods. The figures are "an average of five different approaches: a synthetic control estimator, a simple unweighted average, a GDP weighted average, a gravity weighted average and a trade weighted average. We show that the UK has performed materially worse than other countries since 2016 across all these different approaches."
A lot of the data is highly technical and maths-based and therefore way over my head but I see they also surveyed 2,000 UK firms every month to gauge the level of uncertainty and see what issues companies have faced due to Brexit. These are distilled from a total of 7,000 UK firms referred to as the Decision Making Panel (DMP), representing 10% of the UK’s private sector employment.
It's very hard to claim that the 81-page working paper is the result of a Remainer plot to discredit Brexit, although I'm sure that won't prevent the research from being rubbished in some quarters.
The authors say the effects have accumulated gradually over time. If I assume this has been linear (unlikely, I know) and increasing consistently by about £25 billion a year since 2016, Brexit has so far cost Britain well over £1 TRILLION. This is a staggering amount of money.
The result can be seen in GDP per capita, where we were in the middle of the pack pre-referendum but now languishing at the bottom:
They also considered something I hadn't thought of before. One problem with these comparisons is finding doppelgängers, countries with similar economies and growth rates before Brexit. The authors caveat their approach by pointing out that "Brexit may have had an impact on those comparator countries, not just the UK. This could particularly be the case for other countries in the EU, which face higher barriers to trading with the UK after Brexit."
And they add that it's "likely that the impact on other countries was negative on average (IMF, 2016b), which would help to understate the true impact of Brexit on UK output growth" (My emphasis).
Brexiteers often look at the poor growth of the EU, but the NBER paper suggests this could at least partly be as a result of Brexit, which saw both sides damaged.
The paper makes Labour’s timid position even harder to understand.
The NBER are hardly alone. You can find any amount of this sort of comprehensive, detail-rich analysis showing that Brexit has had a terrible impact. The reference list alone in the NBER report should be enough to kill any argument that Brexit has been good for Britain. Unfortunately, hardly any of it gets coverage in most of the right-wing media, and when it does, it’s usually dismissed as being by some diehard remainers.
Perhaps more telling is that you never see any similar definitive work from Brexiteers proving Brexit has been or will be successful in the future. All we get is the claim that Brexit hasn’t been ‘done properly.’ I suppose this is a grudging acceptance that these sorts of papers are right.
It’s not clear if the BoE involvement means the Treasury or No 11 wants to use the findings to explain why tax rises are inevitable. But it's all extremely damning stuff.
