This is the balance sheet one year after brexit

In short

• The first full year in which the effects of the Brexit were felt is over.
• Trade has collapsed and the political relationship between London and Brussels is strained.
• European exporters will have to reckon with new requirements at the border in the coming year.
• Elections in Northern Ireland, and the weakened position of Boris Johnson, could bring new noise next year.

The feared congestion at the border did not materialise. Trade did shrink and there were traffic jams at British petrol stations. That is the score of the first full year in which the practical consequences of the British departure from the European Union were actually felt.

The end of a transition period on 1 January heralded the start of an extremely strained relationship between London and Brussels. New trade barriers meant less trade. In addition, 2022 will bring new border formalities, which will mainly affect European exporters.

Brexit wins

Proponents of Brexit can point to achievements. The British introduced a new immigration system that restricts the free entry of European citizens. They no longer have to contribute new money to the EU budget and have their hands free to pursue their own agricultural policies.

There was a trade agreement with Australia and talks are ongoing with New Zealand and the free trade zone CPTPP around the Pacific. And, of course, the Brexit provided the British with the political room for manoeuvre to speed up the approval and distribution of corona vaccines.

Opponents of Brexit may question all these ‘Brexit wins’. The country could also have implemented the vaccination programme as an EU member. And with the end of the European free movement of people, personnel shortages arose in construction, health care, agriculture, hospitality and transport.

The trade deal with Australia will not contribute even 0.1% to the British economy in the long run. And British farmers fear the arrival of meat from Down Under, produced with less regard for animal welfare. The Americans are still holding off a dream trade deal. In fact, President Joe Biden is using his predecessor Donald Trump’s steel tariffs as leverage against the British Brexit policy in Northern Ireland.

‘I don’t think anyone who was sceptical about Brexit sees any reason to change their mind,’ says Brexit expert Jill Rutter of the think tank UK in a Changing Europe. ‘Conversely, Brexit proponents will see the economic damage as an acceptable price for regaining their sovereignty.’

Trade

It is difficult to determine the exact extent of the economic damage because the effects of Brexit and the pandemic are intertwined. Budget watchdog the OBR puts the permanent long-term damage to the British economy at 4% of gross domestic product for now. That is double the damage caused by the pandemic.

Trade suffers the most. According to the Centre for European Reform, goods trade in October was 15.7% below the level the country would have reached as an EU member state, a difference of €15bn. That figure comes from a ‘doppelgänger UK’ model, based on a basket of countries that behaved in the same pattern as the real UK economy prior to the 2016 referendum.

One of the aims of Brexit was to boost trade with the rest of the world, but for now, UK exports have lost ground on the global stage. Closer to home, many European companies stopped serving the British market, resulting in a 30% drop in goods exports in the second half of the year. British exports to Europe held up.

New customs requirements

In the past year, the EU implemented full border controls, but the UK did not yet. This will change next year: From 1 January, full customs declarations will be required at the UK border. From 1 July 2022, health declarations for products of animal and plant origin will also be gradually added.

In the service sector, traditionally a strength of the British, the impact is unclear, partly because of the pandemic. For London City, the impact does not seem to be too bad: about 7400 jobs have been relocated to the EU. Also, the big international banks moved a total of €1050bn to the EU, or about 10% of the balance sheet of the British banking sector. 

Stretched leg

Hopes that the trade deal struck between the EU and the UK on Christmas Eve last year would provide a basis for a new political relationship have proved vain. Animosity characterised the relationship between Brussels and London. The British felt that the EU, with France at the forefront, was out to punish the UK for Brexit. Meanwhile, at home, Prime Minister Boris Johnson was happy to sometimes stoke the fire with Brussels. The setting up of the British Brexit minister David Frost contributed to this. He was convinced that the EU would only make concessions if the British were to go all the way.

Tensions flared up especially around Northern Ireland, the British region that still follows the rules of the European internal market after the Brexit. For months, London and Brussels have been trying to find solutions for the practical problems around the Irish border. Minister Frost has recently been replaced by Liz Truss, who says she wants a ‘quick solution’.

Still, it does not look like Northern Ireland will be off the agenda in 2022. In regional elections this spring, the pro-Irish party Sinn Féin looks set to become the largest for the first time. This will cause great tension in the already aggrieved pro-British community, which feels like second-class citizens after Brexit.

Political infighting within Johnson’s Conservative Party also offers no hope for a friendlier relationship with Brussels. Johnson has been weakened after a series of scandals, and the right-wing of his party is disillusioned by the recurring corona restrictions and the fact that Brexit has not yet led to lower taxes and deregulation.

The new Brexit chief Liz Truss is a favourite of this group of hardliners to succeed Johnson in due course. She can use her position in the Northern Ireland negotiations for internal party politics,’ says political scientist Alan Wager of King’s College London. That means picking fights with the EU. ‘The Prime Minister’s weak position therefore only makes an antagonistic relationship with the EU more likely.’

What do the Brits think about Brexit?

Opinion pollster YouGov keeps meticulous records of what the British people think about the impact of Brexit. In the most recent poll, from mid-December, 39% of respondents said that leaving the EU was the right choice. A significantly larger group of 49% believed that Brexit was a mistake. Those figures are hardly different from a year ago when the ratio was 40% to 48%. But last March, when the UK’s vaccination programme was on the upswing, both groups were on equal footing: 44%. Then the percentages began to shift again as the economic effects of Brexit became clear, with empty shelves in some supermarkets and a shortage of petrol drivers to fill up petrol stations. YouGov also asks for opinions on the UK government’s Brexit policy. In the latest poll, 28% of respondents said they thought the government was handling Brexit (very) well. 62% chose for bad or very bad. A year ago, the ratio was 40% versus 50%.