Brexit will keep wages down and make UK poorer in decade ahead, study finds

·3-min read
Brexit will keep wages down and make UK poorer in decade ahead, study finds

Brexit will damage Britain’s competitiveness, hit productivity and dampen workers’ wages for the rest of the decade, according to a damning new study.

The Resolution Foundation think tank’s report, in collaboration with the London School of Economics, said quitting the EU would make Britain “poorer” during the 2020s.

The study said the immediate impact of Brexit was already clear, with a “depreciation-driven inflation spike” increasing the cost of living for households and cutting investment.

The research estimated that labour productivity will be reduced by 1.3 per cent by the end of the decade through changes in trading rules, contributing to weaker wage growth.

The economists said real pay was set to be £470 lower per worker each year, on average, than it would have been if Britain had opted to stay inside the EU.

Output of the UK fishing industry is expected to decline by 30 per cent and some workers will face “painful adjustments” in the decade ahead, said the Resolution Foundation.

The report also added that the northeast of England – part of the red wall Boris Johnson’s Conservatives were able to turn blue at the last election – is expected to be hit hardest by Brexit, since its firms are particularly reliant on exports to the EU.

The UK may not have seen a large relative slump in its exports to the EU that some predicted many predicted but imports from the EU have fallen more swiftly than those from the rest of the world, the study suggested.

The report said Britain had experienced a decline of 8 per cent in “trade openness” – trade as a share of economic output – since 2019, losing market share across three of its largest non-EU goods import markets in 2021, the US, Canada and Japan.

The full effect of the Trade and Cooperation Agreement (TCA) struck with the EU will take years to be felt, say the authors, but it is clear the nation is moving towards a more closed economy.

Sophie Hale, principal economist at the Resolution Foundation, said Brexit represented “the biggest change to Britain’s economic relationship with the rest of the world in half a century”.

She said: “This has led many to predict that it would cause a particularly big fall in exports to the EU, and fundamentally reshape Britain’s economy towards more manufacturing.”

“The first of these has not come to pass, and the second looks unlikely to do so,” the economist added.

“Instead, Brexit has had a more diffuse impact by reducing the UK’s competitiveness and openness to trade with a wider range of countries. This will ultimately reduce productivity, and workers’ real wages too.”

It follows a recent study by the Centre for European Reform (CEF) which found Brexit was “largely to blame” for billions being lost in trade and tax revenues in recent years.

The think tank said that by the end of last year, Britain’s economy was 5.2 per cent – or £31bn – smaller than it would have been without Brexit and the Covid pandemic.

“We can’t blame Brexit for all of the 5.2 per cent GDP shortfall … but it’s apparent that Brexit is largely to blame,” said John Springford, author of the CEF study.

It comes as Mr Johnson’s government was accused of hypocrisy for planning to cut controls on City bosses’ pay while calling for wage restraint in the public sector.

No 10 chief of staff Steve Barclay is said to have written to chancellor Rishi Sunak with a plan for “deregulatory measures to reduce the overall burden on business” and attract companies following Brexit.

Confirming the plan, Downing Street said the government was exploring how non-executive directors were paid, not how much – including removing “unnecessary restrictions on paying non-executive directors shares”.

But Labour accused the government of using “two sets of rules” on wages – one for people on high incomes in the City, and another for workers elsewhere.

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