By Christmas Eve last year, Britons had had enough of Brexit. Trade negotiations were in their 11th hour, the details were mind-numbing and the whole situation had been discussed to death for four years. The pandemic has made the torturous divorce between the United Kingdom and the European Union seem frivolous. A deal done, Boris Johnson declared victory and praised his hard-nosed chief negotiator David Frost.
Now it seems to be Johnson himself that people are tired of. Brexit is no longer an election slot machine, as the shock defeat in North Shropshire, a seat the Tories held for around 200 years, proved. There has been a tsunami of criticism of the Prime Minister’s political judgment and integrity. And in a blow, Frost has now resigned.
In his resignation letter, Frost urged Johnson to seize “the opportunities that Brexit presents to us” to create a low-tax, lightly regulated economy. And yet Brexit has imposed economic costs and opened up new fault lines within the Conservative Party that now threaten the Prime Minister’s leadership.
Over the past year, Brexit has been hidden against the backdrop of fish disputes, the migrant crisis and the shortage of lorry drivers. He has come back to the fore with spiteful debates over trade rules with Northern Ireland, which had special status under the deal Boris Johnson made and now wants to change. Those negotiations, which threatened to blow up the entire trade deal, will continue into next year.
Air coming out of the tires
The economic impact of Brexit is difficult to disentangle from the effects of the pandemic. But where conclusions can be drawn, they match what unbiased observers predicted: The case wasn’t a car crash for the economy, but it’s easy to hear that hissing air coming out of the tires.
Brexit was sold on the promise that, freed from EU rules and regulations, Britain could strike lucrative free trade deals to lead its economy away from the heavy old world on its doorstep and into mega-growth of Asia-Pacific. Although former trade secretary Liz Truss (who became foreign secretary and now takes on Frost’s responsibilities) has signed some 70 trade deals to her credit, the vast majority have been rolled over from existing EU deals.
When new agreements have been made, they have provided only very modest additional benefits. The new UK-Australia deal hardly plants an ambitious flag for global Britain: it is phased over 15 years and will add 0.02% to the UK economy in the long term. The UK-Japan trade deal will bring in around 0.07% of GDP over the next 15 years, according to the government’s own estimates. The much-vaunted US-UK trade deal is nowhere in sight. (Indeed, the US offered Japan to resolve disputes over steel and aluminum tariffs imposed by Donald Trump, but the UK had to wait.)
Trade flows have also been affected by the pandemic and supply chain disruptions, but it is also clear that trade flows between the UK and the EU have been affected by Brexit. In October, imports to Britain from non-EU countries exceeded EU imports for the 10th consecutive month. Similarly, exports to EU countries decreased while exports to non-EU countries increased. Britain is essentially a service economy, but services exports to the EU have fallen twice as fast as those to the rest of the world.
In an attempt to isolate the effects of Brexit, John Springford, deputy director of the Center for European Reform, created a nifty algorithm that used pre-pandemic data on GDP, trade in goods, population, industrial production and d other factors to create a “doppelganger” UK that closely follows the real UK. His model reveals that trade in goods was between 11% and 16% lower in October due to the UK’s exit from the single market in January 2021 – a cost of 12.6 billion pounds ($16.7 billion ).
In an updated assessment in May, the Independent Office for Budget Responsibility estimated that implementing the new Brexit provisions would reduce GDP by 0.5% in the first quarter. More worryingly, the OBR said it would reduce long-term productivity by 4% compared to staying in the EU. Brexit will have twice as much impact on the UK economy as the pandemic, OBR Chairman Richard Hughes said in late October.
In a recent Institute of Directors survey, 37% of small and medium-sized businesses said they felt less confident about the future of their business after Brexit (35% of large businesses said the same). Major labor shortages in the hospital and social sectors have worsened due to both the pandemic (when many overseas healthcare workers have returned home) and the impact of Brexit on recruitment.
While Brexit supporters happily accept costs such as the price of regaining sovereignty, they are adding political pressure on the Prime Minister. The promise to “take back control” that united many Tories (and others) behind the Brexit plan. But there are disagreements over what to do with freedoms now. A more populist and less traditionally conservative wing of the party, including many new MPs from the UK’s north, is focusing on public spending programs to satisfy voters. Tax cuts are not a priority and they are not averse to occasional protectionist measures.
Conservative traditionalists, on the other hand, are alarmed by the huge increase in spending, the rising tax burden and the intrusiveness of pandemic restrictions. They are not against Johnson’s “levelling agenda” – his promise to generate growth and opportunity in the most deprived parts of the country – but they argue, in the mold of Margaret Thatcher, that growth will follow if the goes out the way.
“Look around you and you can see that all sorts of Brexit-related opportunities are being missed,” Spectator editor Fraser Nelson (whose post Boris Johnson once held) lamented in a recent column. So the recent parliamentary rebellion against pandemic restrictions and loss in North Shropshire is also about these broader issues: party leadership and the nature of the state in the post-Brexit world, as well as Johnson’s own jurisdiction to to manage.
David Frost was an absolutist whose sovereignty priority stance was welcomed by Brexiteers in the party, but did little to advance Britain’s post-Brexit position. Johnson now has an opportunity to try a more measured approach to defusing some of the tensions that have built up over the past year and rebuilding relations. But it will not be easy to carry his party.
No one who has followed Johnson’s career of cancels and raises would count it. But his dilemma is clear: he cannot please one side without irritating the other – at least not without very high real growth levels. Getting Brexit done was something Tories could unite around for a while. A year later, we see how divisive consequence management has become.
Thérèse Raphaël is a renowned political columnist