The American investment bank Goldman Sachs has published the results of a study they undertook to see what impact Brexit has had on the UK economy. Unsurprisingly, they found it harmed trade, investment, and as a result, GDP. To establish the counterfactual - what would have occurred absent Brexit - they created a doppelgänger, a theoretical nation based on the economic performance after 2016 of a basket of actual countries with a similar economic profiles to the UK. This is what John Springford at the Centre for European Reform (CER) has been doing for some time.
I can’t find the actual report on Goldman Sach’s rather expensively flash website, the last one published was about capital markets on 2 February, so I am relying on what is being reported by those who have read a copy.
Apparently, what GS found is that the UK's GDP is now 5% smaller than it would have been had we never left the EU and they say this is due to a “slump in trade and investment since the Brexit referendum in June 2016.”
This is the same figure as Springford and the CER found which is what you would expect if they both used the same methodology. The total cost is considerably higher than the OBR suggests. If you recall the OBR has always maintained the hit to GDP would slowly rise to around 4% by 2030. Goldman Sachs says we have already exceeded that six years early.
Five percent of our GDP is roughly £125 billion, and with a tax rate of about 40%, it means the chancellor is around £60 billion short. In effect, he could have another £60 billion to spend on public services like health without any increase at all in tax rates. This is quite a sum to find down the back of a sofa.
David Smith, The Sunday Times' economics editor has written a piece about the GS report for The Times: As Brexit damage persists, a tale of two competing strategies
Smith says as we close on the eighth anniversary of the referendum it is clear there never was a plan inside the leave campaigns for what happened after a yes vote but even now it's not obvious what the strategy is. As he puts it: "None of the prominent Brexiteers would know a post-exit strategy if it bit them on the leg. Rolling over existing EU trade deals with other countries and negotiating some small ones ourselves was never going to be transformative or replace the loss of single market membership."
The two competing visions, he says, are these. Firstly, Jeremy Hunt's plan to make the UK a "technology superpower, replacing the inward investment that came to Britain to access the single market with investment coming because of this country’s technological advantages." Effectively doubling down on Brexit and succeeding by differentiating ourselves from the EU.
The other - espoused by Labour - is to seek closer ties and cooperation with the EU and minimise any divergence as a way of limiting the economic damage.
On the first point, Smith repeats Hunt's claim from his November autumn statement, that "Britain had the third largest technology sector in the world, double those of France and Germany." He also said the UK is well placed for the artificial intelligence revolution. I don't know where he got these ideas from but certainly in the manufacturing technology sector, this is fanciful to say the least.
To imagine that Britain is suddenly going to reverse decades of technological decline is just not realistic. In fact, making these grandiose and totally unrealistic claims instead of quietly rolling up our sleeves and starting the long, hard, and expensive road to create a modern high-tech economy is precisely the problem.
GS says they see "a number of areas for potential closer co-operation — including agriculture and, possibly, financial services — the direction will depend importantly on the next government’s plans and priorities.”
I can see an SPS agreement coming but as for financial services, I think this is a pipe dream. The EU is working hard to reduce its dependency on London and at the expense of The City. They must be very happy with the results so far. A lot of well-paid jobs have already gone and the airline TUI is the latest to announce it's abandoning the LSE for a listing in Frankfurt. Reuters reports it so: In latest snub to London, travel firm TUI flies to Frankfurt.
As I said, this is hardly surprising, most reputable economists agree that Brexit was always going to have a negative impact. However, some of the tiny band of Brexit economic commentators are starting to sing a slightly different song.
Julian Jessop, a fellow of the IEA and avid supporter of Brexit admits the GS research is "not completely daft." We are making some progress here. He agrees that (a) the doppelgänger approach is a reasonable one and (b) a hit to the economy was always expected.
I see Goldmans are the latest to publish a doppelganger model 'showing' that the UK economy is already [insert suspiciously large number]% smaller as a result of #Brexit... 🤔These models are not completely daft. You do need some sort of counterfactual and this is one answer.…— Julian Jessop (@julianHjessop) February 12, 2024
He says he is "Not denying that Brexit has had some adverse impacts on the UK economy, at least initially. But IMHO these naive extrapolations grossly overstate the size - and duration - of the hit."
The comments to his tweet are almost universally critical. Nobody believes him it seems.
Now all of these Brexiteers are slowly coming around to accepting there are 'adverse impacts' to Brexit which they all knew about but failed to say in 2016 is surely the first step toward a more general mea culpa. How long can they keep making excuses for their pet project?
I leave you with two comments. The first is from David Smith's Times piece:
"Combining the two strategies, on the other hand, might help. But we have to be realistic. Once an economy has lost its dynamism, as the UK has, it takes a lot to get it back."
And this from Ben Marlow, an Associate Editor at The Telegraph in a piece about Britain's farmers and how the recent protests in Kent spell trouble for the Tories:
"The best way for Sunak to address the fractures emerging in the Brexit coalition would be to deliver economic growth. Even as food inflation abates, consumers will have no appetite to pay higher prices to appease farmers while they feel poorer.
"Alas, GDP figures set to be released this week are expected to show a country that has slipped it into recession. It could be a decisive moment: without growth, a prime minister has few answers to anything."
Brexit. I rest my case.
