Brexit's 'easy solution' has cost UK GDP per head up to 8%, study finds

Mainstream politicians are rarely direct. It is part of the reason why their populist counterparts thrive: they say it like it is. No nonsense. Let’s get things done. But last week Alan Milburn had a frank rebuttal: “Everybody goes for the bloody easy solution, don’t they? You can’t just go for the easy solution, OK? There are no easy solutions, guys. None. They’re all hard.”

Speaking at the launch of his review into Britain’s youth worklessness crisis, the former Labour cabinet minister was arguing that one tax U-turn could not fix a problem decades in the making.

But his comment could easily have applied elsewhere across the political landscape. It also comes with impeccable timing, just before the 10th anniversary of the ultimate populist silver-bullet solution: Brexit.

Ten years ago, Britain faced a binary question obscuring a deeply complicated issue. Far from being the easy solution to the country’s ills the leave campaign promised, Brexit opened a Pandora’s box and imposed permanent negative costs on the economy.

According to the Stanford economist Nick Bloom and others in a paper for the US National Bureau of Economic Research, UK GDP per head is as much as 8% lower than it would have been under a remain scenario.

The reasons Brexit has been such a disaster speak to Milburn’s argument: there are no easy solutions. Leaving the EU was no panacea. It was complicated and messy, and involved years of hard work resulting in an outcome with which no one is happy.

Bloom’s analysis highlights the damage from the years of political uncertainty unleashed by the vote. Without a clear plan for what Brexit – never properly defined, and often subjective – should be in practice, business investment froze, trade faltered and the economy stalled.

As a consequence, investment is close to 18% lower than it would have been under remain, employment as much as 4% lower, and productivity up to 4% lower.

The leavers who say Brexit was botched may have a point. But their arguments are also redolent of the “real communism has never been tried” response to the dystopia of Soviet Russia.

To achieve the benefits forecast by leave-supporting economists, Britain would have needed to build a Singapore-on-Thames economic model, for which there was no public majority support.

Brexit’s true believers tend to be libertarian Atlanticists. Inspired by a low-tax, small-state US model, they wanted closer transatlantic ties and to trade with the fast-growing Asian economies. Unshackled from the rotting corpse of the EU, the message was that Global Britain would prosper.

To get Brexit done, however, this group courted a much larger slice of the British electorate who wanted to give the Westminster establishment and the pen-pushers in Brussels a kicking, were fed-up of austerity, and were worried about immigration.

This coalition was never stable. Unlike the libertarians, most Brexit voters were anti-globalists who, when push came to shove, were more comfortable with big government than first meets the eye.

Building Singapore-on-Thames would have entailed tax cuts incompatible with Britain’s already cash-starved public services. Most Brexit voters wanted £350m extra a week for the NHS, not a further denuded state.

A bonfire of red tape was also a non-starter: ditching inherited EU health rules to allow for hormone-treated beef and chlorinated chicken imports from the US, at the expense of British farmers, revolted most voters.

For manufacturers, duplicating production lines to follow separate rules to sell to 70 million Britons, versus 450 million EU inhabitants, is a nightmare.

Geopolitics has also changed. The idea of closer relations with the US is now anathema under Donald Trump, and tensions with China and war in the Middle East have exposed severe weaknesses in global trade.

In this world, forging closer economic ties with near and politically aligned neighbours makes increasing sense. That has spurred supporters of the campaign for Britain to rejoin the EU.

However, this idea is more complicated than it sounds. As Danny Blanchflower, a former Bank of England policymaker – who is no ally of Brexit – told me: “People can’t say: ‘I want to rejoin.’ On what terms? It’s far too simplistic.

“Presumably you would have to have thousands of negotiators talking to all the people in the EU, on regulation about widgets, fish, qualifications and other things. You’d have to do all that. It’d be a major thing.”

Blanchflower says closer ties with the EU would be “a bloody good start” to fixing the economy. But there are no quick fixes.

Part of the problem is the spectre of Nigel Farage. Already, under Labour’s UK-EU reset, the prospect of a Reform UK government could undermine the benefits. Without certainty over the durability of any deal, business investment is likely to be withheld – stifling the benefits.

In addition to its EU relations, Britain has other major economic problems to overcome, challenges that some economists worry politicians will struggle to tackle head-on because of short-term political priorities.

Milburn’s report highlights one of the most serious: the rise in youth unemployment and inactivity to more than 1 million. Fixing this will require a whole “system reset”, he says, involving hard policy changes covering schools, health, welfare and the jobs market.

Politicians should follow the Milburn mantra and be straight with voters. Change is hard. As Blanchflower told me: “The moral of the tale on Brexit is simplicity, and a lack of experts, gets us into a big mess. And that is where we are.”