Written by 8:23 am Europe Economy

Labour Wants to Fix Brexit. Good Luck With That.

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The Conservatives may own Brexit, but the issue is as awkward for Labour. Earlier this month, London Mayor Sadiq Khan broke omerta on the subject and spat it out. “After two years of denial and avoidance, we must now confront the hard truth: Brexit isn’t working. It’s weakened our economy, fractured our union and diminished our reputation.” 

Khan called for a discussion about rejoining the single market and customs union. That, however, isn’t on Keir Starmer’s agenda, at least not for the next election. Instead, the party will focus on changes at the margins. In a major foreign policy speech last week, Shadow Foreign Secretary David Lammy said a Labour government would “aim to fix the Tories’ bad Brexit deal to increase trade with Europe.”  

Lammy’s proposals included “fixing” (that word again) the Northern Ireland Protocol, reducing friction on trade in agri-foods, medicine and veterinary goods, strengthening mutual recognition of professional standards and getting UK participation in the EU’s Horizon science funding scheme unblocked. 

There’s no reason that some mitigation of frictions in these areas shouldn’t be possible. Indeed, Prime Minister Rishi Sunak has already changed the tone of discussion and is making progress toward a deal on the Protocol. But the torturous trade negotiation process also showed that concessions come at a cost. There are no easy external trade deals either, as the government has found. 

The various Conservative positions on Brexit — which veer from denialism to deflection — are even more problematic. In a speech at Bloomberg’s European headquarters on Jan. 27, Chancellor of the Exchequer Jeremy Hunt spoke about the unheralded achievements and potential of the UK economy. But his language on Brexit betrayed the logical, or maybe tautological, problem for Conservatives: “We need to make Brexit a catalyst for the bold choices that will take advantage of the nimbleness and flexibilities that it makes possible.”

If Brexit offers so many great opportunities, why does the government have to find ways to make it a catalyst? What he seems to be saying is necessity must be the mother of invention, but that’s hardly a ringing defense of Brexit.

Three years is certainly long enough to draw some conclusions. While it’s tricky to separate Brexit effects from the pandemic and the war in Ukraine, there are some clear patterns. The Centre for Economic Reform’s John Springford developed an algorithm that compares data on UK performance with that of 22 other advanced economies; it is weighted to form a non-Brexiting (or doppelganger) UK for contrast. Updated results in December found that UK GDP is 5.5% lower than it would have been had Brexit not happened. Investment is 11% lower and goods trade 7% lower (services trade was mostly unaffected). That equates to roughly £40 billion ($50 billion) in lost tax revenue, which is making it harder for the government to cut taxes or meet other spending priorities. 

Counterfactuals aren’t an exact science and the model may well overestimate the costs of Brexit. (The Office for Budget Responsibility had put the cost of Brexit over 15 years at 4% of GDP.) But Britain has experienced a growth shortfall relative to its G7 peers of 4% since the second quarter of 2016, as Bloomberg Economics’ Chief European Economist Jamie Rush noted Friday. Other research published last week by the Centre for European Reform and UK in a Changing Europe estimates that the end of free movement of workers has resulted in a labor market shortfall of 330,000 people, mostly in the low-skilled segment of the economy.

When it finally happened three years ago on Jan. 31, Britain’s official departure from the EU came with a whimper rather than a bang. Little changed on the surface except the removal of the B-word from political discourse, regarded by many as a mercy.

That avoidance has become harder to sustain in light of the evidence that Brexit is adding to Britain’s economic woes. Polling agency YouGov reported late last year that 56% of the public regret voting for Brexit; 32% are still in favor. More recent polling shows the public have little confidence in either party on the issue. Three years on, determined to avoid a new debate about Brexit, both parties are struggling to articulate a coherent narrative of what comes next. 

More From Bloomberg Opinion:

• What Does Sunak Stand For? His Party Needs to Know: Martin Ivens

Zahawi’s Careless Tax Error Is Sunak’s Problem: Therese Raphael

• US and British Conservatives Are Frozen in Failure: Clive Crook

–With assistance from Elaine He.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Therese Raphael is a columnist for Bloomberg Opinion covering health care and British politics. Previously, she was editorial page editor of the Wall Street Journal Europe.

More stories like this are available on bloomberg.com/opinion

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