Today
Mon 1 March 2021

Chris Grey explains how Britain’s current ‘teething problems’ are only the beginning of the mounting costs of leaving the EU

A central lie of the campaign to leave the EU was that doing so would be cost-free and, even, that it would be financially beneficial. That was the meaning of the infamous ‘£350 million a week for the NHS’ slogan on the Vote Leave campaign’s red bus.

It got called out for conflating the UK’s gross and net contributions to the EU, but the bigger lie it contained was that budget contributions were the tally of the costs and benefits of EU membership.

Each and every warning was ridiculed as ‘Project Fear’, but the reality – as we are now seeing – is that leaving the EU entails huge costs. Those of new customs declarations alone amount to £7.5 billion per year. That would have been so even under the soft Brexit of staying in the Single Market, as some Brexiters said we would.

Following the 2016 Referendum, Brexiters insisted that the only ‘true’ Brexit involved leaving both the Single Market and the Customs Union. That this would have any costs was also lied about.

Brexiters frequently claimed that a ‘zero tariffs’ trade deal would be enough to replicate Single Market and Customs Union membership. David Davis said, not in passing but as the Brexit Secretary, standing at the despatch box of the House of Commons, that it would be possible to have a trade agreement “that will deliver the exact same benefits” as EU membership. That was a lie, because no agreement (other than membership) could ever have done so. It was also constantly said that a trade deal would yield “frictionless trade” That was a lie, for the same reason.

What then to make of the supposed “teething problems” of fish and meat rotting in ports, empty food shelves in some shops, increased prices for cars, duty payments being demanded by couriers delivering goods at doorsteps, many traders and couriers suspending or in some cases abandoning trade between the UK and the EU, and thousands of other issues small and large?


The Consequences of the Brexit Lies

Even as mere “teething problems”, they don’t just discredit the lies told but derive from them.

Businesses and individuals had been led to believe that none of these new trade barriers and costs would arise. And given that, until the 2019 General Election, there was still an outside chance that Brexit would be reversed, any Government campaign admitting what businesses would have to prepare for would inevitably have stoked the question: so why are we actually doing this? 

Thus, although the decision that Brexit meant leaving the Single Market and Customs Union had been made in 2017, astonishingly it wasn’t until the beginning of February 2020 that any Cabinet minister – Michael Gove – officially and publicly admitted that there would be border controls at the end of the transition period, trade deal or not. And it wasn’t until July 2020 that the Government launched the major ‘Check, Change, Go’ campaign to prepare for what was to come. 

Even then, Boris Johnson’s administration was rather coy in admitting that, far from providing exciting new opportunities, these changes meant horrendously complex new restrictions. 

It wasn’t until the panicky ‘Time is Running Out’ campaign of late 2020 that the message was really rammed home. By then, it was too late. That was partly because dealing with all of the problems of the Coronavirus pandemic soaked up businesses’ time and resources. But it was also because the lies had been told for too long and too successfully. Why prepare for what was just Project Fear? And once a zero-tariffs trade deal was struck, many believed that this must mean nothing would change because of all of the earlier suggestions that such a deal would replicate existing terms of trade.

Businesses and individuals had been led to believe that none of these new trade barriers and costs would arise. 

The second point about these “teething problems” is that, whilst it is true that many will settle down as firms adapt, that adaptation will simply conceal a permanent deterioration of terms of trade. That is not a prediction, it is a fact – because all the new terms of trade involve the creation of new barriers to trade. So, by definition, they will have deteriorated. This in turn will mean a long-term shift in the structural organisation of trade and business supply chains.

The exact consequences of that are a matter of prediction, but some of them are fairly easy to foresee. 

The overall volume of trade with the EU will decline. Those UK businesses that operate as UK redistribution hubs for Europe and which now attract tariffs because of rules of origin will decline or cease. Some trading firms, especially smaller ones, will cease to trade and perhaps cease to exist because the costs and complexities of the new processes are too much. This will have knock-on effects for their employees and suppliers. Other firms, especially the larger ones, will continue to trade but will pass the new costs on as higher prices to UK consumers of imports. Others will find ways of absorbing costs or, if not, their exports will become less competitive. All of these changes are likely to impact jobs, either because lower volumes of business are being done or because firms will look to find ways of recouping the new costs.

It is true that there will also be some ‘import substitution’ – replacement of goods previously imported with those domestically produced. That seems to lie behind the recently announced decision of Nissan to continue its operations in Sunderland by producing electric car batteries there, not in Japan, and so meeting the rules of origin for tariff-free trade with the EU. However, there are limits to import substitution. Some things, especially foodstuffs, simply can’t be produced domestically, or not in sufficient quantity. Others may be produced but not necessarily to the same quality or at as low a price. So consumer choice and prices will be impacted.

We are only at the beginning of the process whereby these structural changes take place. That is partly because firms will take time to adapt, but also because the new barriers to trade have not yet been fully implemented, including UK border checks on imports which will not begin until July. There are also some grace periods for some of the provisions relating to Northern Ireland, which, even so, has borne the brunt of the new reality. A little appreciated point is that, in the process of leaving the EU Single Market, the UK has also put an end to its own single market by creating the Irish Sea border.

None of this even begins to discuss the impact on services trade. Here, the immediate effects are less visible than images of unsold fish but, for a services-based economy, will be profound. This is because trade deals, even deep ones, do not provide the same level of liberalisation of services trade as exists in the Single Market. And the UK-EU deal isn’t even especially deep, having quite limited coverage of services.

We are where we are as a legacy of the lies told by Brexiters. Of course, they now say that all of this damage is a price worth paying for sovereignty – though they didn’t reveal that price when selling Brexit to the public. They also say that it will be more than compensated for by new trade deals with faraway countries or by some bonfire of regulatory red tape which will unleash a new era of innovation and prosperity for all.

The best response to this might be ‘fool me once, shame on you, fool me twice, shame on me’.

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