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According to the Office of Budget Responsibility (OBR), the UK’s fiscal watchdog, Brexit will reduce productivity by 4 per cent in the long run, compared to a Britain that remained in the EU. My analysis found the reduction in GDP to be around 5 per cent by the second quarter of 2022. Prime Minister Keir Starmer acknowledges that Brexit has been costly, at least in the form that the Conservative party chose. He promises to “make Brexit work” and to “tear down” the trade barriers that Brexit imposed, to offset some of those costs, while insisting Britain will not rejoin the single market, customs union or the EU itself. But how much will his planned ‘reset’ of UK-EU relations deliver on these promises?
I have conducted a rough-and-ready set of estimates of the benefits of the ‘reset’. These are based on the stated aims of both the UK and the EU so far, using assumptions and historical economic relationships that are inevitably crude guides to the future, but which offer a reasonable guide to the magnitudes involved.
In their manifesto, Labour promised to negotiate:
For its part, the European Commission published a proposal for youth mobility between the EU and the UK in April 2024. It sought negotiations to allow:
The UK has already rejected some of these negotiating demands. The British government opposes such an expansive youth mobility scheme (although not a youth mobility scheme in general, saying before the election that it merely “has no plans” for one). The EU is reportedly drawing up an alternative proposal for a slimmed down version. Other negotiating demands might be put on the table, and the UK’s unspecified plans for closer co-operation on energy might raise output. But if we take the proposals from the two sides at face value, how much might they offset the cost of Brexit?
Chart 1 sets out the estimated effects of the reset on UK GDP in the long run. The trade impact from a veterinary agreement and allowing more artists’ tours would raise GDP by about 0.1 per cent in ten years. While an SPS agreement would raise exports and imports in agri-food substantially, that sector is a small part of the economy, so the effects on output are tiny. This is even more true for performing artists. The effect of easing barriers to migration might be somewhat larger, with youth mobility and easier recognition of qualifications raising GDP by between 0.1 and 0.5 per cent. And allowing EU students to pay UK fees to study at British universities might raise GDP by about 0.1 per cent, because more EU students would move and spend money in the UK. It is worth noting that the EU demands for young people may raise UK GDP more than Britain’s demands on trade and the easier movement of professions.
If we add those potential benefits up, we obtain an overall improvement to UK GDP between 0.3 and 0.7 per cent over ten years. That overall effect is not nothing, and both sides should pursue these gains.
