Britain’s post-Brexit transformation hinges on freer trade, flexible regulation, and calibrated immigration reforms over decades.
The economic gains for Brexit were envisaged to come from three directions and to accrue over the long term. First, there would be free trade with the rest of the world in place of high EU protection of agriculture and manufacturing. Second, there would be replacement of tightly prescriptive EU regulation in the tradition of Napoleonic law by pragmatic UK regulation in the tradition of the common law. Third, there would be control of immigration to ensure that those coming- from anywhere in the world- had the skills necessary to bring a net economic contribution to the UK, in place of an automatic right of entry to any EU citizen. These are long run gains, both in the sense that they take a long time to work once enacted, and that their enactment too may take a long time because of the political processes involved, of democratic policy trial and error.
Free trade
The main FTA signed so far by the UK is that with the large group of Asian countries via the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)- a trade agreement between 11 nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.- or TPP for short. In addition the UK signed parallel FTAs with Australia and New Zealand. These new partners currently account for about 6% of our trade in goods- largely food and manufactures. But the key point about them is that our importers will now have a barrier-free source of these goods for them to access if they need to, which via competition will reduce our import prices on them to world levels. This in turn impacts on our consumer choices and our production structure.
Eliminating the barriers to these import categories that we inherited from the EU- which are estimated to average about 20% tariff-equivalent – would according to our detailed model of UK trade and the economy increase UK GDP in the long run by around 6%- a big gain, much greater than official estimates. Further, the TPP is due to expand as new members join; those interested include South Korea, Thailand, several Latin American economies and both Taiwan and China. The United States could also return to being a member. As it expands the TPP will reinforce these competitive effects on the UK economy.
In addition to these FTAs, the UK has signed FTAs with India and the US, and further FTAs are in progress. It has also concluded a FTA-plus agreement with the EU, to ensure free trade with the bloc. So the free trade agenda is in full swing.
Progress in restoring UK-based regulation
There has also been progress on this front on the ground.
Existing regulations by now are all the responsibility of UK regulators, under the direct control of Parliament. This will ensure that UK regulation is done by new UK processes supervised by UK law and regulators in consultation with UK industrial interests. One of the major objectives of Brexit is to replace the EU’s intrusive precautionary principle with the pragmatic common law principles under which experimentation is permitted to enable vigorous innovation.
The gains from this change in regulation have been estimated at 6% of GDP the supply-side of my own model of the UK. How much of this potential gain is realised will depend on British public opinion and how it impacts on government policies. For example public opinion has not supported any changes in food standards, even though some farmers who supported Brexit hoped for easier use of modern genetic modification methods banned by the EU. In the recent discussions of Labour’s ‘reset’ on EU food standards there was little pressure to change EU food standards and farmers were keen to obtain the easier export access given by shared standards. In these circumstances it made sense simply to retain EU food standards.
So far however, particular improvements have occurred in regulation of drugs where the UK industry has benefited from greater freedom to develop new vaccines (as crucially with Covid) and other innovative drugs; also in regulation of AI where the UK is enabling easier development, compared with the EU’s highly limiting new regime. For the City, UK regulation enables considerable freedom compared with the previous highly intrusive EU regime.
Debate over the UK regime of regulation is likely to occur across the board as UK practice evolves. Over labour market regulation Labour is currently legislating for more restrictions on business practices and greater rights for unions; however these are strongly opposed by business, with Conservative backing, after the big deregulation under the Thatcher governments. It remains to be seen how this will evolve. Much will depend on the next election.
Immigration
Opponents of Brexit feared that it would lead to a sharp reduction in immigration, causing shortages of labour across an economy facing an ageing and eventually declining population. However, this was never the intention and net immigration has increased since Brexit, and opened up entry to the UK to countries all over the world. While the labour market has tightened, this has been caused by the loss of home labour supply due to Covid.
The gains from this liberalisation were estimated in my research at 0.4% of average household disposable income. These consisted in stopping the inflow of unskilled labour with effects on the welfare of poorer households.
Like regulation, immigration policy responds mainly to public opinion. This in turn is pulled in two directions. First towards general restriction due to fears over poor integration and immigrant crime. Second towards more labour supply to offset the losses in supply from the falling home population of working age due to lower birth rates. None of this has much to do with Brexit which simply put an end to the untrammeled right of EU citizens to settle in the UK at will- a right that caused much public resentment for well-known reasons.
Brexit is still a work in progress and it will take a decade or more before post-Brexit Britain has reached its final shape. But it will be marked by free trade, pragmatic regulation, and immigration suited to an ageing UK’s needs.
Professor Patrick Minford CBE is a British macroeconomist, he teaches applied economics at Cardiff University. He was an economic adviser to Margaret Thatcher; in 2016, Minford was a notable member of the Economists for Brexit group. He is the author of many books and articles on exchange rates, unemployment, housing and macroeconomics.
