The post-Brexit economic crisis never materialised – Labour is right to move on

Plenty of people – on the left as well as the right – believed George Osborne when he conjured up a dystopian vision of Britain after a vote for Brexit during the final weeks of the referendum campaign. The then chancellor said victory for leave would result in a “DIY recession”, the loss of 800,000 jobs, a weaker housing market and a stock market crash. Two years on from our date of departure from the EU, none of it has happened.

Unemployment is lower than it was in 2016 and, although this is very much a mixed blessing, house prices are higher. Share prices have risen and until Covid-19 arrived there was no recession. That hasn’t halted the flow of gloomy predictions: Nissan would quit the UK, tens of thousands of City jobs would be lost to Paris, Frankfurt and Amsterdam. More recently, Brexit supply chain problems would mean a turkey-less Christmas and empty high street shelves in December. None of that happened either, and the wait for economic meltdown goes on.

Far from quitting the UK, Nissan last year announced it was investing £1bn in electric vehicle production at its Sunderland plant. Children didn’t wake up to empty Christmas stockings. A study by the consultancy EY found almost nine out of 10 global financial services firms plan to establish or expand operations in the UK this year.

Confirmation bias is where people latch on to evidence that suits their argument while zoning out things that don’t. Opponents of Brexit, for example, filter out the success of the UK’s go-it-alone vaccine procurement strategy and the freedom the government now has to cut VAT on domestic energy bills.

Brexit supporters, by contrast, point out that UK exports to the EU in the second half of 2021 varied little from their level in the same period of 2020 when trade was still frictionless, but ignore the fact that other countries performed more strongly last year as lockdown restrictions were eased. Likewise, they downplay the loss of share trading to Amsterdam and the UK’s poor investment performance after the Brexit vote.

Stripped of the social media spats, the reality is that Brexit has not magically transformed Britain’s economic prospects, but nor has it been calamitous. From a big-picture perspective, Britain’s economy will exit Covid-19 looking pretty much the same as when the virus first arrived two years ago, even though the UK left the single market and the customs union in the meantime. Unemployment is little different, interest rates are a little lower, the housing market is hot. The big difference is that inflation is a lot higher, as it is in every developed country.

That’s not to say the transition from EU membership has been seamless or cost free. It has been a burden that small exporting businesses could have done without at any time, let alone when seeking to cope with the impact of a global pandemic.

But the response to Covid-19 has proved two things: businesses adapt to changed circumstances pretty quickly, and that process can be accelerated by supportive government policy. The models suggesting the damage from Brexit will be permanent rather than transitional are flawed for two reasons: they are based on a number of questionable – and often neoliberal – assumptions; and they envisage life goes on as before, with no change in behaviour either by the private sector or the state.

There is a parallel here with the aim of “greening” the economy. Clearly, there will be costs from decarbonising the economy, but supporters of the net zero target think these can be mitigated by activist government, and see the opportunity to break with a broken model.

There are those for whom this represents a false parallel because there can be no possible benefits from leaving the EU. For them it is only a matter of time before the doomsday scenario comes about, and therefore the only way ahead is for Britain to rejoin.

But this strategy would only work if one of the two main parties supported it, and neither of them do. The most significant Brexit development of the past two years has not been economic but political: the decision by Keir Starmer to accept that the left needed to come up with its own plan for a post-EU Britain.

Interviewed by my colleague Simon Hattenstone, Starmer could not have been clearer: “Look, we’ve left the EU. There’s no case for rejoining so we have to make it work. We are out, and we’re staying out.” Asked whether that ruled out a return to the single market or customs union under a Labour government he went on: “Yes, it does. We’ve got to make Brexit work from the outside and not reopen old wounds.”

Rachel Reeves, the shadow chancellor, said the same when she recently outlined her five-point plan for the economy. For Labour, Brexit is a done deal, and accepting that has meant it has been Reeves, who supported remain in 2016, rather than Rishi Sunak, who backed leave, who has been making the case to cut VAT on energy bills.

Labour’s new stance makes sense, and not just because it gives the party a chance of winning the next election. Until recently there were only two options: a wasted-opportunity Brexit where nothing much happens and the economy trundles along much as before; and a rightwing free-market Brexit. Now there’s a third: a Labour Brexit in which the state uses its new powers to build a greener, fairer, levelled-up Britain.

Comments are closed.