Sunday, August 20, 2023
It was daft to leave the EU, but don't romanticise rejoining
Posted by David Smith at 09:00 AM

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

When, a week ago, I wrote about the UK’s growth problem, underlined by the fact that GDP (gross domestic product) per head is lower than at the end of 2021, I said that there was no obvious short-term fix. This met with a big response, on Twitter, X, or whatever it is called this weekend, in emails, comments and elsewhere.

This, overwhelmingly, was that the way to fix the growth problem was to rejoin the European Union or, failing that, the single market and customs union. I try to deal with what is practical and possible over the next few years but let me address this.

The many people saying this were chiming with public opinion. Polls which ask whether the decision to leave the EU was right to wrong, monitored by the polling expert Professor Sir John Curtice on the What UK Thinks website, show that by an average of 60 to 40 per cent, people think leaving was wrong.

Curtice’s latest poll of polls on how people would vote now, based on the last six surveys, and excluding don’t knows, shows 59 per cent support for rejoining the EU, against 41 per cent for staying out. People think leaving has been bad for the economy, exacerbated the cost-of-living crisis and made it harder to sell goods abroad.

The evidence is on their side. The post financial crisis recovery in business investment was snuffed out by the 2016 referendum and has only just risen above its spring 2016 level. Leaving the single market has hurt British exporters, as every survey shows. The latest figures, for the second quarter of this year, show that the volume of exports of goods and services was down by 11 per cent compared with the final quarter of 2019, the eve of formal Brexit.

Both exports and imports have suffered. The Office for Budget Responsibility (OBR), in assumptions last reviewed in April, expects that in the long run both exports and imports will be 15 per cent lower than if the UK had remained in the EU. So far, imports, which in the second quarter were marginally higher than in the final quarter of 2019, are holding up better. The OBR is sticking to its assumption that leaving the EU will reduce the UK’s long run productivity by 4 per cent.

On the cost-of-living crisis, detailed work by the London School of Economics’ Centre for Economic Performance, last updated in May, shows that of the 25-percentage point rise in UK food prices between December 2019 and March this year, eight percentage points – just under a third – was due to Brexit. Trade frictions, mainly non-tariff barriers, made food more expensive.

Bringing all these effects together in a so-called doppelganger model – comparing UK performance with what it would have been had we not left - John Springford, deputy director of the Centre for European Reform (CER), estimates that last year the UK economy was more than 5 per cent smaller than had there not been a vote to leave.

His research has been through a baptism of fire, having been challenged by other economists and has come through it well. For those who think the effect is smaller, or larger, the 95 per cent confidence range for the negative effect is 3 to 6.7 per cent.

The usual response to this is that the UK has done fine relative to other big EU economies since the referendum. But the EU, eurozone and France have significantly outgrown the UK since then, reversing the pre-2016 position. And the growth record relative to German and Italy, particularly on a per capita basis, has deteriorated.

It is not just about numbers. Brexit, apart from a continuing divisive impact, has had a disastrous impact on politics, trust in politicians and competence in government. Much political talent was lost because it was on the wrong side of the Brexit divide. Without Brexit, we would never have had a Boris Johnson government, a Liz Truss government or, for that matter, a Theresa May or Rishi Sunak government, though it may be unfair to tar them with the same brush.

In the case of Sunak, however, we still have government by slogan. After the experience of the past few years, businesses regard the Tory party with deep suspicion.

So why do not we do what my many responders suggest, and rejoin? The first barrier, of course, is political. The Tories, given the current membership, are not going to advocate rejoining for the foreseeable future. The party would have to undergo a revolution. Sir Keir Starmer, the Labour leader, having had his fingers burned on the issue when shadow Brexit secretary, does not want to touch it with the longest bargepole. Those polling figures I quoted above would have to get up to 80 per cent to force a change of view.

Labour would try to improve on the thin and unsatisfactory, border-in-the-Irish-Sea, trade deal negotiated by Johnson, but that is probably as much as can be expected. Sunak has also tried to improve on that deal with his Windsor framework but has had little thanks, particularly from Ulster’s unionists, for doing so.

Even if the politics shifted, there would have to be the psychodrama of another referendum. We discovered in 2016 that this is a very bad way of deciding a complex issue like EU membership. Many voted on the false prospectus that the UK could exit and remain in the single market and customs union, other than it would mean net migration dropping into the low tens of thousands.

Net migration last year, perhaps swelled by special factors, was more than 600,000, nearly double the 330,000 figure for 2015 which helped swing the Brexit vote. Economists do not mainly regard this as a bad thing. The UK now has a bureaucratic but liberal migration regime, though the small boats fiasco show anything but taking back control.

This time were there to be another referendum, people would also be voting on leap into the unknown. The terms of membership on re-entering would be very different to those the UK had. The prodigal son, if welcomed, would have to pay a penance, losing the opt-out from euro membership and, according to the CER’s Springford, probably being required too to be part of the Schengen zone.

Leaving and then rejoining would do nothing for a UK reputation already hurt by Brexit. To avoid the UK becoming an in-out country, what you might call a “hokey cokey” member, the EU would be seeking ways to lock in membership.

Some would say that all this is a price worth paying for undoing the damage of Brexit. But, by the time it could happen, if it could happen, the economy and business will have adjusted, even if to a lower growth rate. The EU is moving on, and so is British business. There are few if any business plans conditioned on re-entry.

Not only that but, while leaving was a huge policy error, we should not pretend that all our problems derive from it. Low investment was a problem long before 2016. An Office for National Statistics study, covering the period 1997-2017, put the UK bottom of the table of more than 30 OECD countries for public and private investment as a percentage of GDP. Low UK business investment, 10 per cent of GDP, against a 14 per cent average for competitor economies, is longstanding.

The productivity stagnation that lies behind the abject performance of living standards in recent years has been made worse by Brexit but began before 2016, starting around the time of the 2008=-9 financial crisis. And so on.

If, after the tortuous process of rejoining, or negotiating a new single market arrangement, we expected to wake up in a land of milk and honey, we might find that the milk is sour and the honey not that sweet. Our problems, which are considerable, are ours to solve. If we could time travel back to 2016, it would help, but that is impossible. We have to deal with the possible.