What are the benefits of Brexit?
When life gives you degrowth, try to minimise the degrowth.
Let’s get the Remoaning out of the way
In Stubborn Attachments, Tyler Cowen makes the argument that we should have a laser-guided focus on economic growth (within the bounds of human rights). I wholeheartedly agree: economic freedom and growth is strongly related to wealth, poverty reduction, health, peace, crime reduction, happiness and even cultural enrichment. It’s with that mindset that I approach Brexit. We have made ourselves poorer, compared to what we could have been, by a wide range of measures:
Born et al (2019) find that using synthetic control methods, there was an output loss of 1.7% and 2.5% just up until the end of 2018.
John Springford (2021) constructed a doppelgänger UK, and was able to determine that in May 2021, leaving the single market and customs union has reduced total UK goods trade by £10 billion, or 13.5 per cent. That figure rose in October 2021: UK imports and exports of goods were 15.7 per cent below the level that could have been expected had the UK not left the EU’s customs union and single market.
Breinlich et al (2019) found that Brexit led to consumer prices increasing 2.9%, costing the average household £870 per year - again, note this calculation is only up until Q2 2019.
Serwick and Tamberi (2018) use the same synthetic ontrol method and show that the number of foreign investment projects to the UK reduce by some 16-20 per cent. For services FDI, the gap is even larger: investment may be some 25 per cent lower than if the UK had voted to remain in the EU.
Bloom et al (2019) support that finding, showing that the mere anticipation of Brexit is estimated to have gradually reduced investment by about 11% over the three years following the June 2016 vote, and also that reduced UK productivity by between 2% and 5% over that same period.
The Office of Budget Responsibility estimates that Brexit will reduce GDP by 4% over the long term, and separately concludes that the evidence so far suggests that both import and export intensity have been reduced by Brexit and validates their assumption of a 15% drop.
Hasan et al (2021) also document how Brexit impacted international firms where they were exposed to Brexit - for example, Brexit led to the average Irish firm decreasing its investment rate by 2.53% and reducing its net hiring rate by 3.75%, relative to the mean in each of the first three years after the Brexit referendum. The Brexit induced drop varies with the U.S. and Italian firms having somewhere between a third or half of that impact.
We knew this would happen - 3 months prior to the referendum, a meta-analysis of impacts on growth predicted these very negative impacts. As Sam Bowman explains in this essay published in 2017, “Right now we are about as rich, per person, as France. With the right economic reforms we could be perhaps as rich as Germany. After Brexit, our long-term living standards are likely to trend towards Italy’s. Italy is a fine country, but it’s not what I want Britain to be – especially without the weather.” Virtually every serious analysis or study since has unfortunately confirmed Sam’s prediction. Cherry picking random stories about business investment (whilst ignoring others) doesn’t change that overall position.
Brexit has also had indirect impacts: the quality of our current government, which would seemingly have been avoided had it not been for Brexit, is extremely poor. We have had an egregiously bad response to coronavirus, leading to tens of thousands of avoidable deaths, a desire for increased economic intervention and meddling, and a failure to properly fund or operate the criminal justice system, leaving aside the brazen attacks on the rule of law, the attacks on our constitutional order, whilst normalising rule-breaking and norm violations.
I appreciate that for those who wish to sway a government who is proud of Brexit, drawing attention to the above may not be helpful. But it is important to acknowledge the impact for two reasons. First, almost all plausible government interventions will not reverse the impact of Brexit, and so at the very least the need for grasping low hanging fruit, or even more ambitious policies like planning reform is heightened. Acting like nothing has changed in the need for these policies since 2016, and 2019, is therefore indirectly understating the imperative for almost all pro-growth policies.
Second, given it is difficult for policies to reverse the impact of Brexit, a movement which seeks to undo some of the regulatory misalignment and barriers to trade is necessary given the Cowenist imperative to strive for growth. We don’t need to re-litigate 2016 to realise it is Cheems Mindset (which I recently discovered is pronounced ‘keems’) to put on the back burner one of the most certain and sure fire ways to increase economic growth.
Cut the cope
The government has very helpfully told us what policies we can now enact and execute with our new found freedom in a helpful document called “The Benefits of Brexit” - an interesting play on a cost-benefit analysis - all B, no C. It is an embarrassing document because:
It is littered with things we could have done inside the EU. The “nuclear” section contains the following, and every single one is something we could have done inside the EU:
“Renewing our investment in nuclear, to ensure the UK remains a world leader in the generation of nuclear energy” - France has more nuclear power than the UK, and our share of nuclear is not expected to go beyond its 2015 peak until 2040.
“Establishing the Radiological Safety Group to influence international nuclear standards.” - There is nothing in EU law that would prevent the creation of such a group, and UK’s influence on international standards was damaged by Brexit.
“The new UK’s domestic nuclear safeguards regime has been operating successfully for the past 12 months, enabling the UK to meet all of its international safeguards and non-proliferation obligations.” - Great, no different than before we left!
“The Nuclear Energy (Financing) Bill. We are legislating to enable use of the Regulated Asset Base model for new nuclear projects.” - RAB has been used for infrastructure projects in the UK, indeed it was used for the Thames Tideway Tunnel project, consented in 2014 and under construction since then.
“New powers to scrutinise and intervene in acquisitions. The National Security and Investment Act came into operation on 4th January 2022 and gives the Government powers to scrutinise and intervene in acquisitions that may pose national security risks, including in the nuclear sector.” - This is a truly terrible, terrible power - but its something that we could have done inside the EU.
“A new National Policy Statement for nuclear developments.” - the power to make National Policy Statements is contained in the Planning Act 2008; and indeed we designated a nuclear National Policy Statement in 2011.
I’m not cherry picking here - literally every single ‘benefit’ in this section is bogus. The rest of the document is no better, claiming benefits such as increasing contactless payments (spoiler: the contactless limit is either the same or higher in the EU); becoming dialogue partners of the Association of Southeast Asian Nations (ASEAN) (spoiler: the EU is also a dialogue partner; France, Italy and Germany are also Development Partners); another fun Brexit bonus is “deploy[ing] the UK’s Carrier Strike Group, led by HMS Queen Elizabeth to the Bay of Bengal” (spoiler: the UK’s Carrier Strike Group has existed in some form since 2006); it refers to our ban on diesel cars taking effect in the 2030s, ignoring that the Germans are banning such cars now; the government’s new international programme (the Turing Scheme) could have existed alongside Erasmus while the UK was a member of the EU. It goes on and on.
Leaving aside the policies which we could execute whilst being EU members, there are various things which are too vague to even assess. For example, a Brexit benefit is “commitment to work together with the United States to realise our vision for a more peaceful and prosperous future” (thanks, Tony Blair is crying). Our principles for better regulations are a real wheeze (“where markets achieve the best outcomes, we will let them move freely and dynamically. We will pursue non -regulatory options where we can. When strong rules are required to achieve the best outcomes, we will act decisively to put them in place and enforce them vigorously”) - again, this is not cherry picking, I urge you to read the ‘five principles’ on page 22 and tell me what we can realistically expect. Other Brexit benefits include “we will embrace new technologies” and “Working with a wide range of partners”. Heaven forfend - what about synergy, stakeholders and solidifying inclusivity!?
It includes as its benefits things which are objectively bad for growth (e.g., it claims as a success, the end of free movement of people - something which has significant economic gains with, in the context of European migrants, very little downside (other than distributional problems caused by a shortage of housing that we could and should anyway have addressed); the ability to stop mergers and acquisitions (see links above), and the ability to provide subsidies with little accountability).
It includes as benefits things that just don’t remotely matter for growth or realistically have any other kind of benefit (e.g., blue passports, Crown stamps on pint glasses - incidentally, both things we could have done inside the EU- and changing the rules to allow people to get married at sea.).
Weak, embarrassing, pathetic - there is no kinder description for this garbage. Every civil servant or minister involved should be grateful they aren’t readily identifiable as contributors to this report.
What should we do with our new found freedom?
Acknowledging the negative impacts of Brexit, or the government’s poor attempt to inflate its benefits, does not mean that there are no bad regulations from the EU. Indeed, I count myself in the anti-EU Remain camp in that I think the behemoth that is the EU does maintain a raft of policies that are bad, but overall it still made sense to Remain. With our new found freedom, here are the things we can and should do.
Airport Slots Regulations - coordinated airports in the UK (e.g. Heathrow, Gatwick, Luton etc) have regulations in place designed to ensure efficient use of their runways. Airlines are awarded slots which give them to operate a particular route at a particular time. Slots are extremely valuable (e.g., American Airlines paid $60 million for a pair of London Heathrow slots from SAS in 2015; Oman Air paid $75 million for London Heathrow slots from Air France in 2016). The issue with this regime is that airports are required to give precedence to ‘historic rights’. In effect, in non-Covid times, airlines are able to retain their slots if they have used them 80% of the time in the previous winter and summer season. This regulation distorts the market, plainly advantaging incumbents. As Bichler et al (2021) argue, without “a periodic reallocation of slots, airlines do not have the incentive to provide the services that consumers want, or to maximise the utilisation of scarce airport capacity”. Their solution is auctioning slots, without the protection of historic rights, arguing this would allow for much better allocation. True enough, Covid led to the EU Commission auctioning Lufthanas’s slots, but the normal rule (applicable under EU law) is likely to bounce back to normal. This is not without its issues: international flights operate along the same slot regime, and its unlikely the industry would support the move. Grant Shapps has unfortunately used his new found power to pusillanimously change the rules so that incumbent airlines have to use their slots 70% of the time, rather than 80% of the time.
Eurovignette Directive - road pricing is good: as Ben Southwood explains in this report, tolls are good and help reduce congestion and unlock economic growth. As a matter of EU law, which have elected to continue to apply, there are complex and particular principles that we need to abide by for tolls on UK roads for HGVs. For example, article 8 of the Directive requires variable charging by emission (though derogations are possible) and the Directive sets minimum and maximum amounts for tolls. In truth, this is unlikely to be a huge burden - as Ben explains in his report, 75% of France’s 10,800 kilometres of motorway are tolled. Nonetheless, the needlessly confusing requirements as well as the potential hurdles deserve to be removed.
Accession to Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP) and other free trade agreements - agreements which reduce barriers to trade are plainly good, and Brexit gives us the opportunity to sign many more of them. Again, this is unlikely to offset the costs of Brexit, but can minimise them: the projected gains to GDP from the agreements according to the government’s own assessments are underwhelming: an agreement with Australia is worth about 0.02% (or finger crossed, 0.08%) of GDP, New Zealand 0.01% and the USA 0.16%. The gains from TPP are also likely to be limited because our existing agreements are doing most of the work already.
Environmental Impact Assessments Directive - this directive requires the environmental assessment of developments where they are ‘EIA development’ (in effect, development which has likely significant environmental impacts). Permitted development rights in this country are effectively neutered where the the development is ‘EIA development’. In some cases we use thresholds to determine EIA development, e.g., for industrial estate development, the area of the development exceeding 0.5 hectare usually means that the development is EIA development. We should make greater use of these, potentially by allowing developers to elect to pay specified amounts of biodiversity offsets linked to particular thresholds of development, rather than producing environmental assessments.
Unilateral recognition of EU and non-EU standards - this proposal has been put forward by the IEA. In effect, we should unilaterally be saying that we accept good with CE marking. At present, we are in a transition period where CE marking is recognised until early 2023 but after that point, all goods will have to carry the new equivalent UKCA mark. Clearly, reducing tariff barriers to trade is a good thing and will reduce the cost of producers have to comply with two sets of standards. For reasons explained below, this may be a bit more of a go-er for EU standards, than non-EU standards.
Habitats Regulations - the Habitats Regulations safeguard protected sites like Special Protection Areas, Special Areas of Conservation and Ramsar sites. Here’s a summary of the process: if you have a development, you have to screen whether the project will affect a protected species or habitat. If it doesn’t, happy days; if it does, you then need to carry out an appropriate assessment to determine whether you have an impact on the integrity of the site/species. If it doesn’t, happy days; if it does, then you need to consider (i) alternative solutions (this must include all feasible alternatives); (ii) compensation measures; and (iii) confirmation there are ‘imperative reasons of overriding public interest’. It’s easy to overstate the individual elements of this - since the Court of Justice of the EU’s judgment in People Over Wind that you can’t consider mitigation measures at the first stage, there may have been an increase in projects going to the second stage, but that is likely a limited impact. The more serious impact arises from this regime as a whole. The Planning Inspectorate recommended refusal for the Wylfa Newydd Nuclear Power Station because it considered there were alternative solutions and therefore, the project was a no go. In that case, Hitachi ultimately pulled their application so we dont know how the government would have responded. However, the potentiality of this severe outcome derives from the absolute nature of ‘alternative solutions’. Again, could this not be streamlined into a broad consideration of environmental impacts (and biodiversity offsets/credits), and allowing the overall planning balance to do its job?
General Data Protection Regulations - the EU’s data protection regime which we have inherited is bad for growth. In particular, it increases the costs to business in implementing a higher degree of data privacy, whilst also causing uncertainties in how to demonstrate compliance with the regulations. Jia and Wagman (2020) show how severe the impact of GDPR is on growth:
… our findings suggest a 22.20% reduction in the average number of monthly EU foreign deals and a 41.89% reduction in their per-deal dollar amount after the rollout of GDPR. In comparison, the reductions are 12.1% and 28.08% in the number and per-deal amounts of purely domestic EU deals.7 Ventures that rely on data more and the youngest (0-6 year old) ventures incurred much of the negative effects, with reductions of 26.29% and 23.36%, respectively, in the number of deals after the rollout of GDPR
That isn’t the worst of it, as Seb Krier points out, “the week after the GDPR’s enforcement, major websites in the EU reduced their reliance on small vendors by 15%” and more generally, “privacy regulations have functioned as important nonpecuniary barriers to trade”.
Working Time Directive - This Directive imposes maximum working times, including a maximum working time not exceeding 48hrs per week, averaged over 26-week period and 11 consecutive hours of rest per 24h period. You can opt out of the former, but not the latter. Fitzgerald and Ceaser (2012) is an interesting paper into the impact of the Working Time Directive in the context of surgical training. They note findings confirming that “rota compliance with EWTD was universally highlighted as problematic and a decrease training opportunities was confirmed through the move to shift work, with a decrease in opportunities for interaction with trainers and loss of continuity in patient care” and also note“the specific reduction in surgical training opportunities has been widely documented”. This isn’t just an academic finding from one paper: the Section of Surgery of the European Union of Medical Specialists (UEMS) has published a position statement stating that the working time directive is “in direct and severe conflict with former EU legislation to train competent surgical specialists”. Reducing the burdens to freedom to contracting naturally appeals to me as a liberal and whilst some reviews find mixed impacts, at the very least we should be experimenting in some sectors.
EU Citizenship Directive - under EU law, measures could be taken against those who committed crimes in the UK. However, the Directive also stated that “previous criminal convictions shall not in themselves constitute grounds for taking such measures [i.e., barring entry or deportation]”. The government would need to show that the person “a genuine, present and sufficiently serious threat affecting one of the fundamental interests of society” before it could take such measures. This is unlikely to have been a bar to the most serious of criminals, but it nonetheless is a bar that we could seek to remove. The government has now standardised the test. In this context, we shouldn’t scream too loudly about this being a benefit: we have lost our access to Schengen Information System II database and being reliant on Interpol warnings means one in ten criminals are slipping in unnoticed - so even this tweak doesn’t prove the benefits of leaving either.
Tobacco Products Directive - all round good guy Dan Pryor notes that the Tobacco Products Directive (TBD) prohibits advertising for e-cigarettes significantly while domestic legislation bans almost all promotion of other lower-risk products like heated tobacco. Removing compliance with Part 7 of the TBD which contains the bulk of the restrictions could be important in convincing people to switch to e-smoking. Getting people to make that change could lead to saving 1 million life years. I’m not convinced the link between advertising and human behaviour is that strong, but now that we have the freedom there is little risk in allowing low-harm tobacco products preferential treatment insofar as promotion is concerned.
Medicines - for reasons I’ve discussed before, the quick uptake and independent authorisation of the Covid vaccines as a Brexit boon is a cope - it was something we could have done inside the EU, and which depends more government competence and politics than EU membership. That said, there may be some divergence we should contemplate in relation to medical devices. Sam Lowe (2021) notes that the UK could “unilaterally [allow] medical devices that are in use in other trusted jurisdictions such as the US, EU, Canada and Australia to be sold in the UK”. This would open up the ability to use U.S medical devices. Lowe explains that we could mimic Australia’s Therapeutic Goods Administration which allows a fast-track approval process for medical devices that have undergone overseas assessments or approvals, with obligations on manufacturers to monitor and take responsibility for any safety issues.
Genetically Modified Organisms (Contained Use) Regulations 2014 - Under EU law, crops made using Crispr-edited crops or transgenesis are currently classified as genetically modified organisms (GMOs) and face stringent controls. The UK has lost up to £1.7 billion in farm income since 1996 because of GMO controls. Last year, the government proposed that some gene-editing techniques (such as Crispr) should not be classified as GMOs. This would avoid onerous rules on having to prove gene-editing was safe. Readers will be flabbergasted at the lengths some researchers have had to go. Unfortunately, the government’s proposed measures do not go far enough - but we could.
That’s the best I can steelman - I’d recommended reading “Doing Things Differently?” and the Brexit Divergence Tracker - you’ll struggle to find things which are likely to make a significant, positive impact. Again, none of these comes remotely close to shifting the overall impact of Brexit into the positive, but we shouldn’t ignore these actual opportunities we have because of Brexit. Bear in mind that we may not be able to minimise the negative impact insofar as the policies above are not adopted - and on that note, we must really ask ourselves: is this Net Zero government, realistically, going to liberalise environmental rules and regulations? Is this government likely to radically reduce working time protections? What about road pricing - is that really political feasible? Is the unilateral recognition and acceptance as a rule-taker consistent with ‘taking back control’?
The other aspect to this is that insofar as the government favours regulatory misalignment in standards or medical devices, there is a risk of retaliatory measures under the Trade and Cooperation Agreement, or the comparison with benefits inside the EU makes it look paltry. In relation to the former, the recognition of international non-EU standards is likely to impact our ability to make use of what little we have left of frictionless trade with the EU. In relation to the latter, our equivalence arrangement with Switzerland which allowed the UK to reintroduce the trading of Swiss shares on London exchanges. That allowed us to regain the position as Europe’s largest hub for share trading - but Amsterdam is likely to take over again and this is nothing compared to “an estimated 7,400 jobs [moving] from London to European financial centres along with around €1 trillion in capital.”
In effect, an assessment of Brexit bonuses needs to ask: (1) could we do this inside the EU?; (2) if we could, is it good in and of itself?; (3) will it lead to retaliatory measures?; and (4) does it outweigh the benefits we would have have inside the EU? The government’s ‘Benefit of Brexit’ report fails to answer every single question. It’s actions so far are unlikely to be the measures above, but more damaging policies.
Indeed, this section has been called ‘what should we do with our freedom?’ but an equally worthwhile question is ‘what can and have we done with our freedom?’. The answer to the latter question just adds to the list of disbenefits. One of the key reasons I voted Remain was because the Lexiteers were onto something: the fundamental freedoms of the EU (freedom of goods, movement, works and people) stopped - by law or by perception - egregious socialism and low quality governments from intervening in the economy. Indeed, now that we are outside, the government appears to have as its shining Brexit achievements removing the VAT on tampons, unrealised fisheries gains, and ineffective Freeports. But I am even more terrified of what a Corbynist, or Mayite style government would choose to do in future.