Germany-IW: A first assessment of the consequences of Brexit

British hopes for a high Brexit dividend as a result of leaving the EU have not been fulfilled – at least not so far, an analysis by the Institute for German Economics (IW) notes.

On the contrary, as expected disadvantages of the exit have emerged. The fact that Brexit will not bring savings to the British national budget that could be used elsewhere was clear very quickly.

The relevant promises were based, on the one hand, on false information and calculations.

On the other hand, the British government replaces payments from the
EU budget with national budget funds, as shown by the example of regional policy. In agricultural policy, the UK government also wishes to maintain the current level of financial support.

In general economic terms, Brexit hurt the UK. Serious independent bodies have concluded that the UK’s exit from the EU will reduce trade between the two parties and that the productive potential of the British economy has suffered.

In the field of the labor market, the interaction of Brexit and
pandemic led to congestion in individual departments. Number
of Polish nationals in the UK, for example, has fallen from over a million in 2017 to just under 700,000 in 2021.

UK imports from the EU in 2021 have fallen significantly compared to imports from other countries.

Initial trade deals with third countries – Australia and New Zealand – cannot offset the UK’s tougher trade terms with the EU. “It is far from clear that what the government sees as a Brexit dividend will offset the negative effects of increased trade barriers with the UK’s closest trading partner”. It has become clear that the arrangements of the protocol for Northern Ireland lead to problems for the United Kingdom.

Border controls have not only disrupted trade between the two parts of the UK.

While trade with Northern Ireland rose sharply, trade in goods between Northern Ireland and Great Britain suffered losses. The
border controls in the Irish Sea have also caused political tensions. All this was predictable and the politicians of Northern Ireland drew the conclusions.

The United Kingdom’s departure from the EU did not lead to the creation of a “Singapore” on the Thames, i.e. it did not signal the start of an onslaught of deregulation, which, according to Brexit supporters, should produce positive macroeconomic developments for the United Kingdom. The UK cannot avoid the restrictions of the Trade and Cooperation Agreement on a level playing field
level playing field if he doesn’t want to jeopardize the whole deal.

In terms of trade policy, the UK has introduced its own tariff, which continues to protect the UK agricultural sector, in particular from competition from third countries. Even in the new free trade agreements with Australia and the
New Zealand, the United Kingdom has not waived protectionist measures for domestic agriculture. The British thus follow EU trade policy. In the area of ​​tax policy, there is also no indication that the British rely on significant tax cuts to give British companies a competitive advantage and attract foreign direct investment.

Also in the area of ​​business regulation, there is still no clear trend towards total deregulation.

The UK has little incentive to leave the EU, as this would create new non-tariff barriers to trade.
The situation is somewhat different in the financial services sector.

The EU has taken individual equivalence decisions and extended them as well. Since the British must reckon that these will not be permanent, it can be assumed that the UK is likely to seek its own way here.

Given the centrality of the services sector to the UK economy, it will be interesting to see whether the UK will focus more on new trade agreements to open access to the services market.

Even politically, the United Kingdom, the country has so far managed to assert its autonomy only to a limited extent.
Reclaiming sovereignty and a prosperous deregulated Global Britain looks different.