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Five years since Brexit, and it’s still not over

The impact of Brexit on the UK economy will be far more disastrous in the long run compared to the pandemic.

It has been five years since the UK went to the polls to decide whether be a part of the European Union (EU) or not. On June 23, 2016, the UK voted to leave the EU with a slim majority of 51.9 percent to 48.1 percent. It’s been more than five years now since that fateful day and it’s still very difficult to decide how has Brexit helped the UK.

With Brexit, the UK became the first member and the only sovereign country to have left the union after being a member for nearly half a century. However, the transition has not been smooth. Over the years, the EU-UK relations have deteriorated as both parties clashed over issues from diplomatic representation to Covid-19 vaccine exports and above all, new arrangements for Northern Ireland. Negotiations were tense to such an extent that the UK issued a warning to the EU leaders that it will move away from the terms agreed during the Brexit deal in case there is no flexibility shown by them when it comes to North Ireland.

Even though Northern Ireland is a part of the UK, it continues to follow some EU rules under the divorce deal. This was agreed upon to keep an open land border with the Irish Republic, which is a member of the EU. Over the years, negotiations over the status of Northern Ireland have turned out to be the thorniest legacy of Brexit. In response, the EU proposed to ease border bureaucracy between Britain and Northern Ireland. However, it has ruled out a renegotiation of the treaty which is being called for the UK. Also, post-Brexit tensions continue to trouble Scotland, as separatist parties won a majority of seats in the 2021 elections. This led to calls being made for another independence referendum.

Brexit so far
Since Brexit, the UK has signed trade agreements with 69 nations across the world and one with the EU. However, a majority of them are rollover deals, meaning it’s the exact same deals the UK already had in place prior to its exit from the EU. The latest trade deal signed by the UK was with New Zealand, which was signed on October 20, 2021. According to British Prime Minister Boris Johnson, the deal will prove to be beneficial for exporters as it will reduce costs and at the same time open up New Zealand’s job market to UK professionals. Besides removing tariffs on goods such as clothing and machinery, the deal will also cut red tape for businesses.
Currently, New Zealand is a very small UK trading partner and trade accounts for less than 0.2 percent of GDP. The Johnson-led administration hopes it is a step towards joining a trade club with Canada and Japan.

However, according to government estimates, the New Zealand deal itself is unlikely to boost UK growth. There is also skepticism from different stakeholders such as the Labour and the National Farmers Union (NFU). They feel the trade deal with New Zealand could prove to be detrimental for farmers in the UK and lower food standards.

A UK-EU trade deal came into force on January 1st this year after months of negotiations. After the Brexit transition period came to an end on 31 January 2020, it was important for both parties to decide the rules to continue their trading relationship as the EU is the UK’s largest trading partner.

The deal helped prevent new tariffs or quotas from being introduced as it would have made trade between the EU and UK more expensive. But not everything is the same as it was prior to Brexit. However, since the UK no longer abides by EU rules, new rules are being drafted in terms of product standards and new checks are being introduced. Given the strict rules in place in the EU for animal products, the UK can no longer export its animal products to the EU. The deal neither completely eliminates the possibility of tariffs in the future. Both parties will need to find common grounds when it comes to workers’ rights and environmental protection. This is because a greater shift in rule either by the UK or the EU will force the other side to introduce tariffs.

Some rules that existed prior to January 2020 no longer exist. Such rules include those on freedom of movement, cross-border travel and personal rights. Now, EU citizens can no longer travel or move to the UK to work and settle, and vice versa. Now, the rules are similar to citizens of non-EU countries.

The UK also began implementing new immigration policies this year. The government has developed a new points-based system to attract skilled workers to the country. EU residents will be evaluated too based on this system. Since Brexit, the issue of labour shortage has popped up now and then. The road haulage industry especially has reported severe labour shortages on various occasions. This is due to multiple factors which also include Brexit and the Covid-19 pandemic.

Five years later, Brexit continues to divide
Even though it has been over five years, Brexit continues to divide Britain. A report published by the National Centre for Social Research and revealed that Britain still remains deeply divided over the issue. Professor Sir John Curtice, Senior Fellow at the National Centre for Social Research at The UK in a Changing Europe, said “While some voters would now vote to stay out of the EU, there is still relatively little evidence that they are coming to accept the decision to leave. Rather, Britain still looks like a country that is divided down the middle on the merits of that decision. Unless this picture changes, the debate about Brexit is likely to continue well after the transition period concludes at the end of next month.”

This debate over the relative merits of Brexit rages on. Some diplomats from both sides worry that the politics being played when it comes to Brexit could, unfortunately, seal the faith of UK-EU relations for the foreseeable future. The country is also split on whether Brexit has been a success. In 2016, Brexit was campaigned with two vital claims. Firstly, it would restore British sovereignty and save the country a lot of money. It was also claimed that Brexit would save the UK an extra $486 million a week, which can be diverted towards its national health service.

Five years on, the scars of Brexit still remain fresh. Even though people are finally accepting it, there are many who remain dissatisfied with how it ended. Truth be told, no version of Brexit would please all the parties involved. We all remember the Boris Johnson moment where he vowed to get Brexit done. We are about to enter 2022 in a month or so and Brexit is far from over. As it stands, negotiations are likely to go on for years or even decades. It is getting very difficult to predict what the end game will be. One of the issues that are expected to be dragged on for a long time is the Northern Ireland protocol, based on which Johnson won an election. Until the UK and the EU reach an agreement on its implementation, Brexit will not be put to bed. As far as the future relationship between the EU and the UK is concerned, it is a work in progress and hangs in the balance.

Brexit, pandemic and the economy
Both Brexit and the Covid-19 pandemic had a damaging impact on the British economy. Recently, the chairman of the Office for Budget Responsibility, Richard Hughes said that the impact of Brexit on the UK economy will be far more disastrous in the long run compared to the pandemic. He believes exiting the EU could shrink the UK gross domestic product (GDP) by nearly 4 percent in the long term. “In the long term, it is the case that Brexit has a bigger impact than the pandemic. We think that the effect of the pandemic will reduce that (GDP) output by a further 2 percent,” he told BBC.

According to the Office for National Statistics (ONS), gross domestic product (GDP) dropped by a quarterly 2.2 percent between January and March last year, the largest quarterly fall since 1979. The economy also contracted by 1.5 percent during the first quarter of 2021. This year, the economy is forecasted to grow by 6.5 percent in 2021, according to a report published by the ‘Office for Budget Responsibility.’

The report read, “Over the medium term, we have revised up real GDP as we now expect post-pandemic scarring of potential output to be 2 percent – rather than the 3 percent we assumed in March. Uncertainty around this judgment remains large, however, with limited evidence as yet regarding how smoothly furloughed workers will be reabsorbed into employment, whether those workers who became inactive or left the country during the pandemic will re-enter the labour force, and how fully shortfalls in capital investment, innovation, and the acquisition of skills will be made up.

“With inflation also higher and more persistent, we have revised up nominal GDP – the key driver of tax revenues – by 4.1 percent in 2025-26 relative to March, boosting our pre-measures revenue forecast by 4.5 percent in that year. While higher inflation also boosts public spending, overall, our pre-measures forecast for borrowing is lower by £38 billion a year on average relative to our March forecast.”

Both the pandemic and Brexit have also played their role in current supply chain issues across the UK. Recently, a broad coalition of business groups warned, that the UK supply chain crisis would continue at least 2023 and maybe beyond the threshold. The policy head of the UK’s Road Haulage Association also issued a warning that things are not visibly getting better for the UK’s supply chains in the run-up to Christmas.

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