Trade between the UK and the EU has held up better than most observers expected, but after more than a year the UK government’s Brexit policy has made very disappointing progress.
The greatest success has been in the area of new trade agreements, but even these are threatened by bureaucratic obstruction. Meanwhile, regulatory reform has barely begun, with Whitehall doing its best to maintain alignment with the EU, and policy on Northern Ireland risks becoming a laughingstock. In many sectors of the economy, rather than growth-enhancing reforms, we are instead seeing “anti-reforms” that undermine growth.
Shortly after the signing of the Trade and Cooperation Agreement (TCA) between the UK and the EU, we proposed two possible futures: one in which, through bold policy action, the UK United is leaning on its newfound freedoms to decisively break away from EU control – and another where political inertia has seen the UK’s independence gradually crumble over time.
More than a year later, the latter seems much more likely than the former. In all areas, progress is hampered by weak political leadership and obstruction by bureaucracy and vested interests. Unless there is a drastic change in approach, the UK risks ending up with a “BRINO” (Brexit in name only) outcome which will lead to poor economic performance and could lead to Brexit being canceled by a future government. .
Here is our assessment of Brexit policy progress, by key policy area:
Commercial agreements :
This is the best performing domain to date. Virtually all trade deals inherited from the EU have been successfully renewed, the trade deal with Japan which the UK inherited from the EU has been slightly improved and new trade deals with Australia and New Zealand have been concluded. Potentially promising talks with India have begun. Additionally, the ATT with the EU has helped UK trade with the EU hold up better than most observers expected.
However, there are serious problems in this area. The opportunity for a deal with the United States was missed, with no chance of such a deal with the Biden administration. And even the new agreements that have been reached have been limited in their scope by protectionist lobbies. For the Australian deal, a long process is now underway in which the Trade and Agriculture Commission (which has a strong representation of protectionist agricultural interests) must report first, followed by the STEEP period, a new report from the International Trade Committee, then primary and secondary legislation. The deal is unlikely to be in place before the summer of 2023 and even then UK consumers will have to wait between 4 and 15 years before tariffs and quotas on key Australian products are completely removed.
In addition to this, the UK HMRC is failing miserably to move forward with replacing the UK’s outdated customs and border IT systems with a ‘smart border’ that would reduce trade costs. It seems increasingly unlikely that such a system will be in place by 2025. Evaluation: 5/10.
This is the most important area of Brexit policy, because it is where the greatest potential long-term economic gains lie. A cautious but drastic approach could conceivably add 2-3% to the UK’s long-term production level (see here and here and here).
Unfortunately, progress in this area has been incredibly slow. Rather than the bold moves we were hoping for, the government made a few headlines with insignificant proposals (like pint bottles of champagne) while ducking serious action. Various bodies have been set up to study possible regulatory changes, in a classic bureaucratic delaying tactic, but there is little evidence that their suggestions (as in the report of the working group on innovation, growth and regulatory reform) will be implemented. The appointment of Jacob Rees-Mogg as minister for Brexit opportunities looks like sheer smoke and mirrors – the same sort of “Potemkin structure” the Brexit department was under Prime Minister Theresa May.
Even in areas where EU regulations are known to be harmful or where there is a strong consensus for reform, nothing substantial has happened. the resale right rules remain a burden on the art world, the European Clinical Trials Directive (responsible for a slump in UK clinical trial activity) is still in place, the tech industry continues to grapple with the EU’s damaging GDPR framework (costing companies millions in conformity), the expensive EU Port Services Directive is still in place and financial services are still suffering from the costly burdens of the MiFID II regulatory elements. Indeed, the United Kingdom even risks fall behind the EU in the reform of the insurance sector.
In a number of cases, what happens is that commercial interests stand in the way of reform because it threatens to increase competition. In some cases, most strikingly with the REACH chemicals regulatory system, the same companies that opposed it when it was first proposed now want it to continue to have exceeded the costs of its implementation. implemented. The government should not indulge in this kind of self-serving about-face on the part of the business lobbies. Evaluation: 2/10.
The worst part of the UK’s exit deal with the EU is the Northern Ireland Protocol. Apart from the serious constitutional problems it presents – which alone should have prevented any UK government from agreeing to it – it is economically damaging to Northern Ireland and to the UK as a whole. It introduces trade friction between Northern Ireland and its dominant trading partner, Britain, and encourages inefficient trade diversion to EU markets and suppliers. Moreover, by keeping Northern Ireland in the EU regulatory system, it is holding back UK-wide regulatory reform – the divergence between UK and EU regulations threatens to further increase trade frictions between GB and NI. By keeping Northern Ireland in the EU’s VAT zone, the protocol also prevents the UK government from reducing VAT on rising energy bills.
The government’s approach to the protocol in recent months has been weak and now risks becoming a laughingstock. The government recognizes that it would have been justified months ago to take unilateral action under article 16 of the protocol to modify or suspend its provisions in order to compensate for the damage it causes. But instead of doing so, he instead engaged in a series of endless and fruitless negotiations with the EU over changes, using one excuse after another for inaction (the last nonsensical being the Russian- Ukrainian) while periodically claiming to use Article 16 is an option. No one takes the threat of Article 16 seriously anymore, let alone the EU, which therefore has no reason to give ground in the talks.
The one area where the government has acted successfully has been to indefinitely extend grace periods on drug checks and supermarket deliveries. However, paradoxically, this may have made removing the protocol more difficult. These grace period extensions significantly draw the Protocol’s teeth economically – without them, modeling work suggests Northern Ireland’s GDP would be 2-3% lower (£1,600 per household) long-term. These kinds of economic losses would very quickly render the protocol politically unsustainable, but the current partial implementation is much more likely to last, even given the obvious damage already seen in a number of industries. Evaluation: 1/10.
The fishing provisions of the ATT have been deeply disappointing for the UK fishing industry. While some modest gains have been recorded for the pelagic fishing fleet, other sectors fared relatively poorly from the deal and the overall gains are far less than the hundreds of millions of pounds of additional catches that should have been made.
The government has nevertheless been left with options to boost industry – and the UK marine environment – under the TCA. So far, it has done little in either area. There has been a restriction on electric pulse fishing, but other harmful practices by EU vessels – including jumbo trawl operations near the UK coast and even in marine protected areas – were allowed to continue. The government was also weak in resisting French attempts to blackmail it and the government of Jersey into granting more fishing licenses. The government is expected to make it clear now that it will further restrict access for EU boats to UK waters from 2026, as permitted by the TCA – but shows no sign of doing so. Evaluation: 2/10.
While the UK has made glacial progress on Brexit-related reforms, it has at the same time pursued a series of what could rightly be called ‘anti-reforms’ across a range of policy areas. – that is to say political changes which clearly aggravate the economic situation. The most important area is policies related to net zero plans that threaten to further aggravate problems with expensive and unreliable energy supplies and (via onerous regulations) to restrict the supply of new housing. In addition, the UK Treasury’s dead hand continues to make the UK tax system increasingly complicated and cumbersome and has pushed UK tax levels to their highest ever. in decades. The Treasury also continues to oppose changes to the VAT system, a particularly burdensome EU tax for small businesses.
It all adds up to a pretty grim outlook. The frustrated departure of Lord Frost from government late last year removed the only minister with a clear understanding of how Brexit was to work and proved, as we said, disastrous. Across all policy areas, a combination of pro-EU officials, obstructive business lobbies and sheer inertia means the UK is essentially following a policy of stealth alignment with the EU while damaging its economy with policies ill-conceived energy and fiscal policies. It’s a recipe for continued economic underperformance and leaves the door open for the UK to return to the EU in years to come.