Brexit's economic impact: early evidence and future prospects

good evening everyone and welcome to  this event organized jointly by the   center for european reform uh the center for  economic performance at the lse and the uk   interchanging europe my name is anand menon from  king's college london i'm director of the uk   changing europe and i'm delighted on the panel  this evening to have stephanie flanders who's   senior executive editor for economics at  bloomberg and head of bloomberg economics   anna jerzewska who's founder of trade and borders  thomas sampson who's associate professor at the   center for economic performance at the lse and  last but not least john springford who's deputy   director of the center for european reform can  i just say before we start it's fantastic to   be able to organize an event with such good with  such good friends and colleagues i'm really glad   we were able to do this i'm really thankful to all  of you who are attending for putting off your trip   into the glorious sunshine outside if like i you  do have gloria sunshine outside so without further   ado what i'm going to do is turn to thomas  to kick us off just ask i mean in a sense   the question is what is the impact of brexit being  that's where we're going to start from thomas okay well what we recently got was the first trade  data after the brexit deal had been implemented   so the trade data for january 2021 which gave  us the first sense of how trade was responding   to the new deal um and there were quite some  quite kind of startling figures in that data   there was a sharp drop in uk exports to the eu  by nearly 40 percent compared to the previous   january um and if we compare that to exports to  non-eu countries they only fell by around eight   percent so what that's telling us is that  you know though clearly covid and lockdown   are going on at the same time this big drop  in eu exports most of it can't be explained   by the lockdown um the question then is is it  um is this reflecting of a permanent change in   uk trade with the eu or is it something  temporary related to kind of teething   problems with the new border arrangements  the effects of stockpiling in the run up to   the deal and you know some issues with data  collection um at this stage we don't really   have an answer to that we will learn more as time  goes by and we get more data but clearly something   big happened to uk trade in in january and the  only plausible explanation is is brexit happened   and what we need to know now is you know  what's that going to mean uh going forward john do you want to just step in while thomas  gets his oh thomas are you back uh i can i can   certainly step in and uh thomas do you have you  got anything else to add or are you uh are you   happy no you uh good good go ahead i am i am okay  wow yeah sure so um i mean thomas thomas has laid   out really well there what the immediate impact  was um in january uh thinking about exports to   the eu falling significantly and so forth and some  of the work that we've been doing at the the cer   is to try and think about how big a drop in trade  uh that is um thinking about total goods trade so   uh since january um we have been putting together  a kind of modeled uk that did not leave the   customs union in single markets that month um  and the way that we put the model together is to   select an algorithm um uh which which uses  economic data to try and find countries whose   trade performance and uh other economic economic  characteristics are really similar to the uk   um and then putting together that kind of  doppelganger uk and comparing what happens to   uk trade the real uk's trade compared to the the  doppelganger and the doppelganger is made up of   the united states germany canada and new zealand  they're the countries whose economic performance   has been most similar in in recent years to the uk  when you put them together and what we found was   that um if we're looking at all of the trade which  the eu does goods trade and then it it fell about   22 percent compared to those other countries  whose growth whose trade all grew a little bit   um and obviously that's not such a a stark finding  as exports down 40 to the eu but over time this   model will allow us to tell okay how much has uk  trade fallen compared to a uk that didn't leave   the the single market in customs union in january  we've done these kinds of exercises before um   in the run-up to the end of the transition between  the referendum and the transition we we looked at   the impact on overall gdp over you know the  size of the economy um using a similar method   and we found that the uk economy by the end of the  transition period was about three percent smaller   uh than it would have been if it had remained  within the eu and overall it's trade during that   period so remember this is before the uk left the  single market in january and while it's still a   member of the single market its goods trade had  also fallen by by 10 so we're we're looking at   something which is probably a pretty sizable shock  as thomas says we don't know how things are going   to go over there over the next few months they'll  probably improve because stockpiling um won't be   such an issue we'll be coming out of lockdown so  therefore we'll get more get more trade going on   between the uk and the eu um but watch this space  we'll continue to update our model um and you'll   be able to tell uh how much uk trade is down as a  result of leaving the single market thank you john   stephanie just one second before i come to you can  i just encourage people to put their questions in   the q a box and you can vote for those questions  that you want me to post to the panel which makes   my life a lot easier so if you'd like to do that  that would be great stephanie yeah i mean i think   it's really handy uh it was useful to have the  cr analysis just at the same time as the data was   coming out and ministers were trying to claim that  it was all due to kovid and that everything was   was not nearly as bad as it looked i think it was  nice to be able to strip away um some of those uh   explanations i mean i do think clearly the numbers  the official dates of january were pretty stunning   um and but although maybe the the impacts are  particularly by on individual sectors are perhaps   larger than we thought in this sort of media  short term um they're certainly unexpected given   the nature of the trade deal uh and indeed would  have been predictable if we'd seen it you know   hours more than a few hours before it actually  went into force um but i think i mean just to   sort of catch the chase i mean it's interesting  when you look at i think i saw even today there   was the the federation of small businesses found  that one in four um small business exporters   had completely stopped or just under one and four  had completely stopped trading with the eu but   only four percent had said we're going to do that  permanently you know others were waiting to see   um whether they could manage the red tape  and all of those things um so i think for me   the the two things that i have you know i haven't  really thought and i don't think we you know the   economists at bloomberg economics have re-thought  um their estimates of the of the medium-term   impact of brexit in light of anything that's  happened certainly given this very narrow uh   trade deal but a couple of question marks i think  is it has but some of this impact that we expect   to be a slow burn over several years may  have happened much quicker than we thought   and i'm not sure that we've really thought about  you know what is there is is in fact our supply   capacity going to be even smaller than we thought  in the next few years because actually we've had   for the sake of argument five years worth of  adjustment actually could happen in a shorter time   period than we thought i mean obviously there's  long-term productivity effects of being less open   but some of this more the sort of red tape stuff  i think inherent in some of the models was that   even those effects would take a while to  come through and actually now we see it   maybe this deal has actually brought some of  those things it forced them to happen much faster   and so that sort of left me thinking  okay should we reassess some of our   understanding in that light that the nature of the  impact has not changed but this the timing of it   may have changed i think the other thing which we  haven't we don't talk about haven't talked about   yet um is you know from my perch in bloomberg  thinking about the impact of the sit on the   city um you would have thought given the complete  exclusion from the city for the city from the deal   and little prospect it seems certainly little  short-term prospect of even equivalence   let alone anything else that we might have  had larger impacts on the city and in fact   although it's a lot i think the numbers are  sort of in the region of seven or seven or   eight thousand jobs have gone we should remember  you know the estimates around even just getting   only getting equivalents were like 75 um when  we were worried about the long-term impact so   i don't think it's too soon to say i think the  city has been will be fundamentally affected and   i think europe's europe's financial center will be  fundamentally effective because there's not going   to be a replacement for london you know a lot of  things are going to go to new york potentially   um but it is strike it's it's striking  that it hasn't been sort of a cataclysm   um and i think we don't yet quite know how that's  going to play out i mean the things that were not   very lucrative like share trading is obviously  the eu shares have just gone very it's all gone   to holland and various other places um but some  of the more lucrative stuff uh derivative swap   some of those things are still very much there you  would like that to change um but right now i'd say   um there's a it's interesting given how bad  the deal was for the city that we haven't   seen slightly more um but those are those are  the two things i would say that are sort of   in the air um things that i would question  but otherwise it is very much as you might   have thought from the nature of that trade deal  and what's astonishing to me is just the lack of   you know there's a lot of desire to sort of  explain away these numbers but none of it is you   know even the most solid brexiteer would have said  that these things these were inevitable short-term   costs what i think is sort of extraordinary is  the that we haven't seen ministers much more   on the front foot about here are the positive you  know this is our industrial strategy well actually   they've dumped the industrial strategy you know  this is um this is how we're going to change   the nature the competitiveness of the uk i mean  we've had less of that um than in the last few   years which just seemed to be very odd when you  look at see how these numbers are coming through   thank you i might later on actually ask  you what you think positive economic   outcomes out of this might be what can what  could the government do were to try and address   this but for the moment anna you're one of  those wonderful and all too rare people who   actually understands trade and you know the  details of it so can you just explain to us   what is happening what accounts for these figures  that we we've heard from thomas and john um   yes i will certainly try um i think the first  three months first of all i think the first thing   to mention is that the the first three months  have not been representative stockpiling uh   absolutely was the case as stephanie mentioned  uh other than that companies have postponed or   attempted to postpone the more difficult complex  transactions the the supply chains that require   moving goods back and forth uh from the eu and  then into the uk and then back to the eu as much   as possible so i think the first three months i've  really not representative of how this is going to   look towards towards the end of the first half of  the year for example um but still within the first   couple of months we've seen we've seen a kind of  a couple of uh trends emerging the first one is   you know there's been quite a lot around calling  these teething problems and saying that this will   all go away and there are i guess arguments for  for and against there's an element of confusion   around what's required what the new paperwork  is uh what the new requirements are what the   board arrangements are that's that's just because  all this has been done in the very last minute   pretty much there's still quite a lot of confusion  around it how to do certain things in practice so   that part of it will get better over time but the  question remains how much of of the confusion how   much of the of the drop results from this um from  this kind of lack of awareness or kind of getting   getting to grips with the new requirements and how  much is because of the actual new trade barriers   so when all is said and done is it going to be  for a business that this that requires a health   certificate is the question do i know how to  obtain this health certificate or is the question   you know with the additional 100 pounds that  this uh health certificate costs per consignment   is my business still profitable does it still  make sense for me to do certain things in the   in certain way and i think this is where we are  and obviously some industries are a bit ahead   uh especially the industries where where uh  they're more regulated such as uh agriculture   and fisheries and so on where there are more  requirements but also where stock mining is   not possible for for obvious reasons but other  industries are only getting to that point now   so the question is you know assessing where we are  with our supply chains is my business model still   possible are my clients happy to absorb absorbed  tariffs if i need to send goods back and forth   can i use some of these simplifications that the  government introduced or um or is trying to to   advertise for different uh issues for different  problems resulting from this new trade agreement   and as a result of that you know can i  continue in the same way or do i need to   change something and and i think this is  more or less where we are with everything   plus the other side of this is that there's still  so much confusion as to as to what needs to happen   i i had a client uh call me up in in february  to say you know you told me there's going to be   this new border and yet i just imported something  from germany and no questions were asked i got no   paperwork and you know why are you talking about  with this new border there are no uh there are no   barriers so so i think these two processes are  are going to continue kind of simultaneously on   one hand companies just trying to understand  what is required and on the other one   assessing whether what they're doing and you know  the way that they have been operating for a while   is it still profitable is it still  possible does it still make sense and   are the their customers willing to uh continue  in the same fashion thank you anytime it's worth   emphasizing the point that only half the board is  there as yet uh so this is going to keep changing   as the british government implements its side of  the border but thomas you've touched on this and   this is for any of you really i suppose how how  easy or possible is it to unpick the brexit impact   from the covert impact you've talked a bit about  how you've done it for trade but in terms of   larger macroeconomic impacts is that something  we're going to be able to do in the near term   or we're going to have to wait a long time to get  the data we need to be able to separate them out like i start and then maybe others can can add on   i think one of the interesting things about kovit  as compared to brexit is that the the sectors   which are hit hardest are very different for the  two shocks the covid is principally a shock to   non-tradable services things like you know it's  the hairdressers it's restaurants um which are   you know some of them may be involved in  international trade indirectly but they're   not what's driving the uk's uh trade flows whereas  you know brexit matters for for tradable services   as definitely talked about with you know financial  and business services in particular but it's also   you know probably the the good sector that we've  seen hardest hit so far is the agriculture and   and food sector which hasn't been hit so much by  covert um so where i'm going with this is that   i think there's a lot we can learn about  disentangling covid versus brexit by looking   at the relative sectoral effects and which sectors  are being hit hardest and also by using the timing   we kind of know what happened in the first  lockdown uh when we had covet hitting and not   uh brexit so for example one thing we saw  in the first block down is that trade with   the eu and with non-eu countries fell by  a similar amount due to covid um and that   you know that's one reason why when we see kind of  differential trait changes in the eu versus not eu   trade i feel reasonably confident in attributing  that difference to uh brexit um so i think   you know the fact that you've got these two big  shocks going on at one means that you potentially   can be misled by just looking at the aggregate  numbers but once you're prepared to go a little   bit deeper and disaggregate there's lots of  scope for separating the two shops partly now   and then inevitably we will learn a lot more  over time as better data becomes available   sure and yeah just just a a couple of points  to add to that i mean the first one is that   in the first lockdown loads of countries closed  down their manufacturing plants um because they   were just like we don't know uh where this  virus is transmitted precautionary principle   let's close down you know absolutely everything  and just try and try and stop the spread of   the virus in subsequent lockdowns in the autumn  for example in france and the netherlands which   which locked down earlier than we did in harder  than we did because their waves started earlier   and governments didn't do that because they had  realized that manufacturing plants generally   aren't a real locus of transmission and so we  don't see in the autumn in the in the winter we   don't see the same drop-off in goods trades that  we saw in the first lockdown and so that's why   i think it's important at least in this early  period as thomas has said you focus on the   focus on goods trade for this early period um  and then when you know we're back online the   eu's back online we've all been vaccinated then  we can start to think about um services and and   and broader macroeconomic variables like gdp just  two other brief points one is about migration   and your colleague jonathan porter's with michael  o'connor um discovered that there was a really big   drop off in the number of respondents to the labor  force survey who were from the eu over the course   of 2020 and you know his estimate puts it about  a million people who have left uh subsequent uh   studies one by the resolution foundation has has  found that number to probably be a bit high and   maybe it's about 500 000 and that's down to the  pandemic right and uh that means that our labor   force is going to be smaller and that inevitably  means that our economy is going to be smaller too   but whether they come back or not that's down  to brexit as much as anything else and so   in the future if we don't see the same rates  of net migration happening particularly from   the eu and then we can say that's down to brexit  that's a big reason why our economy is smaller   you know you may be pro or anti having those more  people against free movement but we can at least   say that this is an economic cost in inverted  commerce which we can assign to brexit and and   then the final point is just about um it's just  about investments and that like services um and to   a certain extent migration is dependent upon the  recovery from the pandemic um we should see a fair   amount of investment come back before we left the  single market then investment had been flatlining   for for four years um since the referendum but  i expect that it will pick up a bit not least   because there's going to be what economists call  import substitution going on which means that   things which previously have been imported from  the eu will now be once the government puts the uh   the uk border up on our side and that those some  of those processes some of those goods will be   done domestically um and that means that  there's going to be investment going on   um and we'll also have a big pickup in investment  because we've all been locked down for 12 months   and so there's pent up demand for new computers  and new machinery and all of that stuff so i   would expect there to be a big recovery investment  over the next uh the next few months the question   is does it peace route and does it does it end  up at a level which is lower than the capital   stock we would have had in the economy if we had  remained within the single market in customs union   and stephanie if it's not unfair to put you a  sort of specific subset of that last point what   what what's your expectation in terms of  foreign direct investment going forward uh   we used to be very good at attracting that do  you think i mean it's interesting i think uh   i think we've continued to be quite good at  attracting it even in even in recent months   and i suspect all of the things that used to be  attractive uh in just english-speaking um general   reputation for good rule of law and all those kind  of things very easy i mean certainly very easy um   low barriers to setting up businesses and all of  those things which actually do make a difference   i think you'd expect us still to do reasonably  well but i think there's it's hard to make the   argument that it's going to be a lot that it's  going to go up um and i think going back to some   of the points about the red tape you know even if  you get over the red tape and even if you get used   to it if you're choosing between here and slovakia  or somewhere you know why would if you don't have   to do all that in order to trade with you why  why would you use the uk as a base so i think   there could be there could be foreign investment  that's associated with import substitution you   know the same people if it's in your interest  you know there's lots of businesses in fact in   the same survey that i mentioned earlier a lot of  businesses talking about setting up um satellite   operations or at least an office in the eu which  obviously seems ironic but you know a small some   either a small or a large number of jobs uh going  to europe in order to provide exporters here with   a base there that they can use one would expect  once once the restrictions kicking in the other   way you'd expect that there'd be a fair number of  eu companies for whom it would make sense to have   a uk base um so you'd have that sort of initial  phase of of fdi um but the classic i mean clearly   the classic through the 80s and 90s justification  for um and certainly the kind of single market   justification for uk fdi um would go away but you  can argue that i mean a lot of supply chains are   changing globally and potentially there would have  been slightly less of that anyway i mean it's that   is another very hard counter factual can i just  congratulate the audience because no one has tried   to ask the questions through the chat function yet  so that's fantastic and turning to you anna just   given where we are so we're outside the single  market in the customs union is there more that the   government could do to make life easier for those  trying to export are there is it are there tricks   that are being missed here that could sort of  make this process easier than it turned out to be   uh absolutely uh where to begin uh i think  you know one one thing to mention is that the   first three months of this year for me have been  absolutely hijacked by rules of origin and working   on the rules of origin and and that in itself i  think is quite indicative the fact that this whole   tariff-free deal depends on the ability to meet  rules of origin is something that seems to have   escaped uh from the from the kind of um the  messaging government's uh uh messaging to   in in the last couple of months in the run-up to  to the first of january the fact that it's taking   companies by surprise in itself demonstrates  that much more could have been done in terms of communicating these changes communicating these  requirements uh to the private sector and and   i think what's interesting now uh that with  the with the government deciding to postpone   an extent in time introduction of barriers on on  this side so on inbound uh portrayed in bantry to   the uk is that on one hand it gives companies  more time to adjust it gives the government   more time to adjust it because government more  time to introduce i.t systems processes forms   and so on and so forth for companies that is also  beneficial from from that perspective that they do   have a little bit more time however what's still  not really fully communicated is just because you   don't submit customs declarations for example  because we don't have these controls on our site   yet doesn't mean that you're not responsible  for that that doesn't mean that you don't have   legal liability for everything that's coming  into the uk and a lot of companies do not know   that so as a result whenever the the obligation  is introduced the first set in in june and then   in december there's going to be a lot of companies  not being able to meet these requirements because   they haven't been taking note of everything  that they're bringing in or they haven't been   aware that they need to um that they need to  do that so i think that that's definitely one   side of it and another one is that because these  requirements have now been extended throughout   2021 it's going to be a continuous period of  change a continuous period of adjustment and and   the uk government will have to kind of gradually  continued to inform businesses of the new changes   that are upcoming and that has not been something  that that's been done very well until now it's   just the clarity of this message making this  message uh business centric uh understandable   user friendly and and uh actionable for  businesses so extending that into a period   of year is is just going to make things  slightly more difficult for the government   while you've got the floor or while you've  got a yellow line around your box on zoom   uh when do you expect the government to start  implementing checks on imports it's a question   from theresa yavarao i mean do you think they'll  do it when they've said which i think is the   start of next year is the latest deadlines now i  think to be perhaps yes i think you know checks   at the border is not necessarily what i'm uh as i  just mentioned concerned about my biggest concern   is import declaration custom import declarations  customs declarations and that is due the first   slot the first kind of declarations  for for the first six months are due in   uh june july so i think this is going  to be the first kind of test to see   are companies at all aware of of new  requirements or is just everyone you know are   is everyone bringing their team without without  any um um kind of paperwork or without uh writing   this in in their records as they're supposed  to brilliant i warn you all that in a minute   i am going to pose the question that max alter  has put here and is the winner at the moment on   sunlit uplands and we'll extend that a bit to not  just sunlight uplands in terms of positives of   brexit but anything the government could or should  be doing given what's going on but before that   i know john you've done some work on this in the  past but anyone else who cares to chip in can do   so is do we know anything yet about differential  regional impacts of this is it too soon to say   um well we know thanks to some work done  by an economist called timo fetzer um at   the university of warwick that um between the  referendum and leaving a single market there had   been a differential impact already with um those  regions which have more larger manufacturing bases   um they had seen on average a larger reduction  compared to if they had remained within the eu   in terms of their overall economic output um and  that's kind of what we predicted really um i and   some other economists had done some work on this  and it it's pretty much is fairly straightforward   in the sense that um a lot of these places  that have a lot of manufacturing activity   tend to trade more with the eu than somewhere  like london for example which is a has a   more global outlook doesn't have such a big  manufacturing uh sector uh the city of london   trades more with the rest of the world than it  does with the eu so you know that that kind of uh   that kind of process is something that you would  expect to happen that um poorer regions that don't   have such well-developed services sectors which  are highly integrated into eu supply chains their   manufacturing base that they're more likely to  get hit and this is also true obviously of uh   regions of the uk where agriculture and fishing  where they they're not huge employers anywhere   but you know they're going to take a bit more  of a hit hit too um i should just say that   there had been some work done which suggested that  the effect would be the opposite and that the city   of london might get hit harder um and other places  like the thames valley you know which is sort of   services centers might struggle more but that  doesn't look like that's going to be the case   despite the nature of the deal despite the  nature of the deal yeah i mean one way to   think about this is the financial crisis  and if you know everybody said london's over   you know huge global financial crisis it's a  it's a international banking sector center um   you know we're going to have a real struggle in  london for several years um and then in 2011 2012   london's economy was growing again quite  reasonably rapidly um and the reason for that is   it's a really big urban area with lots of skilled  people who do all sorts of things um and uh office   space gets taken over if you know if the bank  doesn't want to use it anymore then it will get   taken over by some other uh institution perhaps  financial technology or something like that um   because it's effectible then um it can cope with  shocks pretty well whereas and those regions where   i don't know you know a manufacturing partner is  a really big important employer and it loses that   um then it's harder to for it to generate the  investment needed to replace those jobs easily   does anyone else want to come in on this uh thomas  i think that's a great kind of summary of what   we've seen so far i guess i would like to have  maybe kind of a note of caution on what the future   impacts might be for regions like london that are  more dependent on services um and you know i think   i think there's there's two reasons to think that  we don't quite know what's going to happen there   yet one is that we have no data yet on how trade  in services and in particular business services   are being affected by the deal as stephanie  was saying we haven't seen big impacts on   financial services yet but clearly it is the  eu's intention to try over time to chip away   at the city's position and to gradually change  kind of regulations in a way that forces business   to move to eu markets now i how successful they  will be i don't know but that that's the plan   um and then the the second point i wanted to make  was that part of what makes london's economy very   resilient and part of the reason there are  a lot of high-skilled flexible workers in   london has been migration from the eu in the  past and you know we don't quite know yet how   how big the effect on migration is going to be  once all the new restrictions are in place but   you can at least imagine a scenario in which it  becomes much more difficult to attract top talent   to london and that leads to kind of a gradual flow  of of particularly high skilled businesses um away   from from london now that would kind of be the  negative scenario for london i don't necessarily   know that's going to take take place but there are  there are reasons to be concerned that you know   some of the factors which have driven london's  success in the past are being eroded by this deal   uh stephanie yeah i mean i i think that's i  think that's fair and i certainly wouldn't say um   i don't think there's a scenario in which you  know overall london comes out better or at least   in the sort of short term um there it'd be very  difficult to offset uh even if you think that   the city is still quite strong and still going to  produce a lot of tax revenues and all those things   um and you could potentially as john points  out that it's actually more i mean most of   most of the activities of the uk financial  sector actually involve uk citizens   um of the exports uh he's right that it's there's  there's more going to outside the eu and so you   could you could imagine a case a scenario in which  the you win some new business they're trying to   attract different kinds of fintech firms now and  that offset some of what you've lost in europe as   i said i said at the start i think it's europe  is that europe as a continent is the loser from   this not necessarily just london because europe  as a continent has lost potentially as losing   um it's certainly going to have a diminished  global financial center and there isn't going to   be a replacement um any any time anytime soon but  going back to your sort of broader point about uh   what kind of structural adjustment you might  see what kind of benefits you might see i mean   there has always been this kind of disconnect with  between the sort of manufacturing renaissance view   of brexit which seemed to be quite you know  was part of the leveling up rhetoric uh was   part of the sort of anti-city undertone of the  brexit campaign with the reality which is if   you're going to have if you're going to maximize  sovereignty it is going to be manufacturing that's   going to potentially going to be hurt the most  so i think if we move on to the sort of uplands   discussion i think you know that if you you have  to have some kind of view on how you're going to   increase the competitors competitiveness of  manufacturing to offset the the disadvantages   of this deal and i think you also have to be  thinking strategically about which industries   actually need some form of sexual deal or at least  some form of kind of swiss style arrangements   and you know where does it really matter like in  pharma um or the chemicals industry you know we've   all read about what a complete nightmare there is  now for having to list the and the the the do the   rules of origin of all of your the components  of your individual chemicals and all of these   things let alone the wine exporting industry all  of those examples but you have to decide on some   industries that you really care about that could  potentially give you some of that leveling up or   give you some of that manufacturing revival and  how are you going to help them you know battery   production is the other classic one for the car  industry i mean you're not you're not going to get   anywhere unless you decide now how you're going  to have battery product serious battery production   in the uk so i think you know the upland is maybe  there and the i guess the on the the one thing   that might be good for leveling up at least on a  sort of very broad or at least from an egalitarian   standpoint is if we that we could potentially  have more upward pressure on wages as a result   of the the demographic shift and the reduction in  population at least in some sectors um and that is   also something that i would be thinking about  if i was the government you know if you maybe   have a smaller pie but you've got the partic there  there could be now forces which would help divide   it a little bit in a fairer way and you could  say that that was your dev your dividend um for   certain sectors in certain parts of the community  even if you're not overall you're not better off   i i am going to come back to uplands and what the  government should be doing max i'm not ignoring   you but there's a more specific regional question  here which you can all duck if you want uh but it   is paul nugent's question which i i don't propose  to go into the stuff on on public opinion in   northern ireland but are there specific impacts  economically we can expect in northern ireland   because of the protocol well northern ireland  end up doing rather i mean some people have said   northern ireland if this is played right  ends up with the best of both worlds   uh some of the stuff we've heard since the  protocol has started being implemented implies   something very different but do any of you have  thoughts anna you're nodding in a very reassuring   way which makes me think you might have thoughts  uh thoughts concerns uh observations i don't know   uh yes uh in terms of of original impact  i think northern ireland is particularly   interesting if nothing else just because this  is the first part of the uk where on inbound   uh imports all the all the all the barriers have  been uh have been applied uh well almost all the   buyers have been having applied for a trade uh  coming from gb uh it's i think it's definitely   too soon to tell but the the fact that we have  uh this internal border and all formalities   necessary uh with that go with a full customs  and regulatory border between gb and northern   ireland is is slowly starting to uh to to to  impact supply chains and this is more of a   anecdotal evidence than anything else it's  basically what i'm seeing with my clients is that   you know it's the same that we're seeing  everywhere else it's the question of   how to avoid these formalities where you  know can we supply from the republic do   we need to bring goods this way and i think as  companies are asking themselves these questions   uh there might be some shifts we we were i think  uh about a year and a half ago when the when the   protocol was published there was this notion of  um this might be the best of both worlds but i   think it's very very clear right now that just  from the practical perspective it's not because   the confusion that we're seeing everywhere else  around the borders is double or triple that of   what's you know the the the inner island basically  we have a double triple that amount of confusion   new systems new processes issues around uh  procedures for determining whether products   are at risk tss so trader service that's  that's new all the all the kind of border   processes all of it is new and it's all  being tested in this real life environment   uh causing uh uh quite a lot of confusion  and and difficulties so i think definitely   uh it's going to be incredibly interesting  to see uh how this plays out in the longer   term but i i'm absolutely sure that the  best of both worlds notion is is long gone   at this point excellent thank you do please keep  a writing your questions but be voting for them   particularly ones that are specifically economic  because i'm sort of avoiding a little bit the ones   that aren't economic but we've now reached max's  question i think which isn't just about what are   the economic benefits of uh brexit but also about  what if anything couldn't should the government   be doing given the impacts we've seen already  to help the british economy through this period john uh okay sure i mean the the first thing to  say is that if you stick up trade barriers with   your nearest trade partner on average  and overall you are going to be poorer   than you would have been so what we're talking  about is offsetting is things that can offset that   or that there may be sectors that do better the  sectors of the economy that might just do better   are the ones that i pointed out when i was talking  about import substitution you know those um   industries that can expand  their production because uh   imports from the eu have got more costly  and so you know we may see we may see   an expansion of investment in those areas and  that may be some areas like agriculture you know   but obviously other farmers are taking a huge  hit because they've lost the eu market so it's   always quite difficult to be able to know exactly  which sectors are going to do well probably at a   broad level all of them are going to do worse but  there might be individual sort of sub sectors and   individual businesses that do quite well to import  substitution in terms of things that we could do i   mean the the thing we haven't really mentioned so  far is the vaccine issue um and uh so you know i   i've always been a bit skeptical about oh well we  can get rid of the dead hand of eu bureaucracy and   invest in the companies of the future but  one thing that things like emergency response   pandemic response you could see that there  are some potential benefits in the sense that   we can get rid of the precautionary  principle and say we are going to tie   get involved with industry and we're gonna um be  the handmaiden of deals between industry and our   you know our universities we're gonna um really  work hard on those issues and we're gonna we're   gonna try and get new vaccines new pharmaceuticals  to market quicker through to a more rapid and less   bureaucratic process of authorizing them and i  think that is that is potentially possible and   you can see that in a few other areas as well like  um genetically modified crops for example where   the eu has um some pretty strict restrictions on  the use of gmos uk has long wanted those eased and   you can imagine that after brexit that's going to  happen and we may end up with a more flourishing   genetically modified crop sector um than  the eu and then the final point is just um   it's just about migration i think  it's possible that we end up with   um while a a migration system which is not  actually overall as open to the world in general   um without free movement because free movement  meant that people could just come and go as they   pleased um i don't think it's going to be as bad  as i originally thought when this process took off   the provisions under the immigration act aren't  as restrictive as they might have been under   for example theresa may who is a you know more  skeptical about immigration as a prime minister   um the salary threshold is lower um which is  a good thing which means that it's easier for   people to get in if they're going to come into  a job which doesn't necessarily pay that much   and there are sectors of the economy that have  been have been let off so for example the salary   threshold for education or for the nhs is quite  a lot lower which means that we can bring in a   lot more a lot more people um so so i think that  there are you know there are some bright spots but   overall uh we're looking at uh the economy being  clearly worse off as a result of practicing almost   i'm going to come to you in a minute because i  think both anna and stephanie have hinted at what   they think the government should do but can i just  press you on one thing very quickly john which is   is there really going to be another area where  speed trumps scale and price quite as emphatically   as has been the case with the vaccine  i mean i sort of take your point but   i mean this is a case where speed really was of  the essence and nothing else really mattered are   you seriously saying that in other sectors  we might approximate that well i think it's   you know it's not necessarily only about speed  i take your point absolutely and uh you know we   only have pandemics like this hopefully you know  once every hundred years um but but it's it's it's   certainly the case that um you know if you really  want to go down the route of we are actually   going to take a lot more risks in terms of how  innovative we want our pharmaceutical sector to be   then you can say right we're going to make  authorization easier we're going to have   for example human challenge trials and so you know  we're going to take a few more risks in the trials   process um we are um going to make sure that our  um our trials are much more rapid um that's a   complaint which i think is fair about the eu's uh  trials system is that it tends to be quite slow   um so you there are things that you can do  certainly the big the big question is whether   it offsets the cost of not being part of a a huge  market and it may do in some very high technology   high knowledge areas like pharmaceuticals but  probably not in something like cars or chemicals   okay by way of a quick plug i should say it's  well worth listening to the ceo's latest podcast   which john did with jonathan porters that  i thought was really fascinating actually   on a lot of these issues but sorry thomas i'm  going to give you your chance at sunday uplands   i guess i mean you know in terms of trade  policy the area that has been touted as a   possible sunlit upland is the possibility of  new trade deals with countries outside the eu   i'm fairly skeptical that over any reasonable  time frame there are likely to be much benefits   from that route the you know the biggest prize  would be a deal with the us i think the biden   administration has already made clear that  negotiating new trade agreements is not a um   there you know for various technical  reasons it's going to be a lot   become a lot more difficult for the us to sign up  to new trade deals at all so i you know i don't   think we're going to see much progress on a uk  us deal in the next uh few years unfortunately   um and i would suggest that the priority for  trade policy now shouldn't be jetting around   the world trying to find new partners to do shiny  new trade deals with but trying to find ways to   improve the existing deal with the eu which  is still our by far our most important trade   partner um and you know to point to a couple of  potential mitigations that i think would be very   valuable one would be to find a solution to uh sps  rules that improves the flow of uh food products   with the eu there seems to be some openness on the  eu side potentially to doing a deal if the uk is   willing to make some uh commitments in terms  of health and and animal safety standards um   given the the lack of progress on the us deal  refusing to make those commitments in the hope of   striking deal with the u.s seems to me the wrong  trade-off at the moment um the other area where   there's obvious scope for improvements is in terms  of short-term uh labor mobility and trying to do   kind of a side deal that would make it easier for  uk workers to do work on short-term assignments   in the eu and again that seems like an area  where there was some potential during the   negotiations for a deal to be struck and the  uk um didn't take that opportunity but i think   it's it's something we are going to have to  uh reevaluate i think both these things are   things that even if they don't happen under the  current government almost certainly will be re-re under whatever the next government  is because there are opportunities to   to smooth the throat the flow of trade  with the eu that we're not currently taking   really i mean we've got 10 minutes left and  i want to address the simon hicks question   and the john pete question but before that  i've got a very quick question for you   anna from rose could i just do literally just to  add on to what thomas said about that used it all   to say because our economist did the numbers on  this a few years ago to re in order to just to   make up the loss from leaving the european single  market you actually need four or five free trade   deals with the us and there's only one america  so that's the sort of that's how hard it is   to make up the gap you know the us is the only  game in town and you need four of them in fact   yeah i think thomas a few years ago with swati  dhingra did some work on this and came up with   a number for a free trade deal with the us that  scrapped all tariffs that was about 0.4 percent   of gdp very cool yeah it's kind of it it's an  order of magnitude lower than the estimated   costs of leaving the eu so it's it's maybe the  best case scenario it doesn't make up for it and   you're basically if you add up everything else you  get to about the same as another us but you still   you're still pretty short you must be a little bit  impressed i remember the number thomas but anyway   uh uh rose reader asked the question if are we in  breach of either the tca or our wto obligations by   not implementing sps checks on imported goods and  by not having put up our side of the border are we   in breach of obligations okay so uh there's a  period here and and i guess practice uh on on are   we in fact in in bridge i think there's something  to be said and i've said it several times for uh   in terms of uh introducing short-term transitional  measures uh i think this is where we are right   now calling this and i'm this is not a legal  perspective so i think you need to get a lawyer   to answer that properly but uh either there's you  know these these are short-term measures uh given   exceptional circumstances and i think we can  basically get away with it i think that's what   my answer is going to be just very quickly on this  uh uh on the uplands and and the difference from   just when i work with companies the absolute best  case scenario the absolute absolutely best news   i get to give whether i reclassify someone's  uh goods to the point where there are no tires   or where i managed to get them on compliance with  rules of fortune the absolutely best case scenario   is that there are no tariffs so you only need  to pay for import and export declaration which   are around 30 35 40 pounds per declaration per  consignment so if you calculate that by the number   of the annual number of consignment each company  um sends exports and imports how many fdas you   know is it possible to sign that will make up for  that that number the administrative cost in itself   is impossible to to to make up or address  by by any number of ftas with any number of   partners brilliant thank you uh simon hicks  is asking whether competition between the uk   and the eu would be would make both of them  more innovative and we'll come and look back   on this thinking actually we did we did both  sides a bit of a favor there by by having that   competition and out of that competition came  greater efficiency do we find that compelling sorry simon if i sort of and i suppose you know it's fair enough that i  answered that so i kind of suggested that that   might be the case in my previous answer yeah um  yes and no and it depends i mean thinking about   the vaccines issue and what would have been the  ultimate what would have been the best outcome   there would have been for um the uk to have  been within the decision-making of the european   medicines authority and for the uk to have said  that we've got we've got all of this data about   astrazeneca we're pretty convinced it's fine um we  also have we also think that we shouldn't deploy   the sort of the safety first uh principle too much  because there's good reason to think that actually   if we do first doses and then we do another three  months before we do second doses that actually   uh you know that's going to be fine and that will  really solve some of the supply issues that the eu   is going to be facing and so on and so forth so  and that's in that scenario having the uk within   the tents being involved in decision making  and moving it toward a bit more towards a uk   way of thinking i think would have been  beneficial for the eu as a whole and for the uk   obviously because then we wouldn't have  ended up in this kind of vaccine nationalism   tit-for-tat potentially quite dangerous situation  where we might see um trade barriers being imposed   on vaccines which would be a disaster um i think  i think there are there is possibility and less   kind of emergency life or death situations where  competition could potentially be helpful yeah i   mean you know if if you get you know genetically  modified organisms take that example again and you   know if the uk can demonstrate that actually this  is perfectly safe it increases yields it means   we have to use fewer pesticides which means that  um fields don't end up being these awful deserts   it means that we don't have such huge declines in  bird populations you know if we can show that um   then there might be big benefits from the eu  from then realizing that actually that works   alternatively if you know we end up with some  ecological problems as a result of the widespread   use of genetically modified crops and that's fine  so there are there are obviously some areas where   competition could potentially work it's just  that i'm not convinced that they would in any   way outweigh the benefits of having being part of  a very large market and your companies can take   advantage of a huge consumer base and and final  point sorry because i've been going on too long   but final point is that um if you look at new  startups in the tech sector a lot of them go   to the us to start off with because there's a big  single market which is pretty borderless when it   comes to the internet and there's a huge amount  of venture capital and so having a big market   can be really beneficial for innovation because  it means that you've got more potential money to   to get your product off the ground and you've  got a bigger number of consumers to sell it to   does anyone mind if i move on to the final  question just sorry just on the competitive   thing i mean there is something rather odd i mean  the traditional argument for free trade is to   increase competition and get innovation through  competition so it can't be that reducing trade   is also good for competition i just don't buy that  okay just i want to move on to one more question   rory mcmahon my my humble apologies i know your  question has been the most popular one but i   wanted to stick to ones that were broadly economic  in nature even though yours is fascinating so   with with all due respect i'm going to ignore  it for the moment uh i want to pose john pete's   question uh i'm posing in a slightly broader  form and i suppose to all of you i would say   does any of this really matter in the least  because as far as we can tell even now there seems   to be no political sort of blowback for this and  once we're out of lockdown quicker than everyone   else because of our vaccine roll out then actually  the government's in the sunlit uplands anyway   i do think um it was a it was a question  that i asked the economist because it   seemed when it seemed to be that we  were going to gain about six months   of recovery um i wondered whether that was the  case even if we could have done all of this   within the eu the fact that we've done it without  the eu um could we say that that was an advantage   i think you know the recovery was still  was doing remember quite a lot of the major   european economies have been better at sustaining  economic activity even with much reduced mobility   um than we have and that is why we came with the  end of last year we were looking so much worse   so uh i would say that there we're not  the the sheer numbers on vaccination   will overstate the potential economic advantage we  might get because they have just done a better job   at combining economic activity with the pandemic  and we came into it with uh depending on which   country you look at in a deeper hole we came into  this we're going to come into this recovery com   with a deeper hole and with all of these  short-term and medium-term effects of brexit   so i think it will be quite hard to argue we  may have we may have made up some of the brexit   disadvantage with our vaccine premium or bonus  um but i think it would be quite certainly in   a year or in a year 18 months time it would be  quite hard to argue that we were better off but   but in a sense and i'll pass this on to any of you  other three i mean i know you know the numbers uh   but i suppose the question still remains does it  matter i mean this is as much about public mood   as it is about anything else uh whatever the the  underlying macroeconomic data might suggest and   in a sense politically does this mean  the government can do this and be fine   rather than economically because i think we've  all established that economically there's going   to be a serious cost of that thomas um okay so  i mean first off i'm not sure that i accept the   premise that things only matter if they show up  in opinion polls but maybe that's the economist   in me speaking but you know even if we take that  as uh as the right way of thinking about things   um here's two other reasons why you know  these economic effects of brexit might end up   mattering one is you know one thing we  know about changes or you know economic   effects for trade is that they tend to create  some very concentrated losers there will be a   few firms a few type of workers a few sectors  that lose badly because of brexit maybe it's   shellfish exporters maybe it's particular meat  producers maybe it's the fashion industry and when   you know particular sectors experience very bad  losses that can trigger over time a really strong   political backlash and i think that's what we saw  in the u.s um as a result of increased trade with   china the u.s probably benefited overall from  increased trade with china but there's been   a big political backlash because certain parts  particularly of the kind of industrial midwest uh   suffered and there were big losses there so  that's one reason to think it might matter   the other would be kind of an analogy with  austerity austerity did not initially prompt a big   political backlash and it was popular for a  time but you know over time it had costs it left   particular parts of the country really suffering  and probably certainly you know if you believe   some of the the work that's been done on that  that was part of what contributed to to brexit   so just you know there can be kind of longer run  effects that we don't necessarily see at the time   but where you know economic pain kind of expresses  itself in other political events down the line one thing can i just butt in first and say i've  screwed up yet again i've just been informed that   we've got till 6 15 so we'll be able to escape  rory's question after all we'll do that next but   john on this one for now and then anna yeah and i  think thomas's thomas's points are all well made   and the way that i've been thinking about this  is uh voters really don't like unemployment and   recessions um but they're willing to put up  with uh you know eroding standards of living   um so if you think about 2010 immediately after  the global financial crisis then uh gordon brown   got kicked out and we got a new government and  then between 2010 and 2015 then we had falling   real wages in the country partly as a result  of the austerity program that thomas mentioned   um and then david cameron won an overall majority  and did better um and uh while we did better   economically after 2016 um with the recovery in  europe and global acceleration of growth we didn't   do that well investment was pretty stagnant and  then boris johnson won a huge majority in 2019 so   in some ways i think we've all become too  um we economists have become too complacent   about the impact of economics on politics and and  particularly with the rise of uh identity politics   questions about social conservatives and  versus liberalism that um economics is not as   important as driver of politics as it was but i  think ultimately i'm i'm with thomas in the sense   that um we know that stagnant economies tend to  be more polarized more unhappy and their politics   tends to be more fractious and difficult um and so  while i don't expect there to be a you know a big   hit and in fact we're going to see a big increase  in growth this year because of the recovery from   the pandemic and even if we have slow growth  thereafter i'm not sure that it's necessarily   going to um change the political fortunes of  uh labor or conservatives much but in time   it could make our politics more difficult  anna did you want to come on this uh yes uh   i think in general the last five years  four years have significantly changed my   perception of what should matter and what  impact matters but i think with this one   every single company is very much aware right  now whether it's easier for them to trade   than it was in december and these additional  formalities this additional requirements   will end up being a cost to the bottom line  and that is something that these companies   will see in their numbers year after year in the  foreseeable future so my question would be you   know what will be the the kind of the benefit  that offsets that what would be the positive   um the positive development and something that  that shifts that uh that perception and i think   you know that's one of the reasons why there's  so much hype around things that are uh in in   tangible way not you know not not very likely  to bring significant benefits such as freeports   you know are the 10 free ports that we're going  to get uh are they going to change the these   uh these numbers not not very likely are  there additional fdas with cptpp uh us   australia and new zealand are they going to help  and i don't think that's necessarily the case but   i think the hype around it and and the kind of  overstating of these potential benefits uh is   aimed at these companies to to kind of tell them  that there's something being done that that that   things are going to get easier in the future but  again it depends what's what happens in a couple   of years but these numbers are going to be very  very clear additional costs are going to be very   very clear excellent thank you very much all right  rory you win i'm gonna ask this question now uh   is there a realistic prospect of  the uk rejoining the eu before 2030 who wants to say yes i think i'm going to say no  i suspect everyone's going to say no but i guess   we could then get into a debate about we could go  back to our discussions around bryno and brexit   in name only when one could i could certainly  predict that we have a much softer form of brexit   like before 2030 um for all the reasons that  we've talked about and it's even more likely   if it doesn't look like that if it doesn't look  like it's reversing brexit but just takes us a bit   further to towards the access to the single market  in at least some of the key sectors that i think   that's much more likely and actually anything  that's labeled as joint rejoining the eu i think   will be a non-starter for quite a while can you  see this is possible under a johnson government i think um again you know he's he's never  lost uh lost points from uh redescribing   the same facts and saying they're different  and i think one could imagine him doing that   in this case but it's probably it's it's  possibly i think it would be more likely   and then we can have debates about how unlikely  this is but i suspect it would be more likely   under a labour government though that in turn  seems to be quite unlikely given the electoral map   and under a labour government which had had to  make quite a lot of compromises to the scottish   nationalists one could imagine certainly  that could be part of their conversation   okay who wants to go next uh i can i mean i i  i think it's very unlikely um rejoining for all   of the reasons this definitely is laid out and in  terms of in terms of having a closer relationship   i'm i'm torn and uh really want to sit on the  fence and i you know i agree with the implications   of your question anand that johnson is a convinced  sovereigntist you know he really believes that   um we you know we shouldn't we shouldn't take  any eu rules as much as we can and he set his   face against it and so it's hard to see johnson  saying right you know let's go for it but having   said that i mean it's so it's such early  days about the economic consequences of this   um we we don't know how this is going to  work politically for the conservatives   particularly because a lot of the so-called  red wall seats that really matter for them   um in terms of their new coalition are going to  be some of the places which are going to be harder   hit economically um so you could potentially see  labour doing a bit better um as a result of that   and then you know eventually saying right let's  let's go for it go for a closer relationship and   the other question that i think you need to insert  into this calculation though is what the eu wants   um and it's been pretty clear throughout that it  did what it really wants is for there either to   be a free trade agreement relationship um or for  there to be much closer a much closer relationship   and they want to avoid the kind of relationship  that swiss the swiss have with the eu where they   have lots and lots of little bilateral treaties  which had to be renegotiated the whole time   um so the difficulty that that  poses for uh rhino advocates is that   if if you are going to do it it it seems as thing  stands in terms of the eu's preferences that it's   going to be a big political leap you can't just  do it bit by bit by bit now maybe that will change   and a big reason for that was because the  eu thought um you know if it gave everything   a kind of bespoke deal that it would lead  others to to question their own place within   the supermarket and all of that and that you  know if other countries remain in the eu and   it's all fine that in a few years time they  might be more willing or more open to that   kind of thing but i think that's a question  that we don't know the answer to yet anna i'm not sure if i necessarily  have that much to add   i would agree with john that yeah closer  relationship in terms of um services um   sps requirements hopefully but at the end of  the day very likely to stay and if the the   overall relationship is going to continue  uh to you know take form of an fta meaning border charges customs charges and and all  the additional costs remain the same that   there is a limit to what you can do within that  framework and if we're locked into that framework   uh you know you you can move forward but  there will be there'll always be a kind of   a border even if you look at  switzerland that these costs   remain whatever you do i mean the other  parts are obviously significant for other   parts of the economy but but will  not change the the bottom line cost thomas i mean i i can agree with everyone else that  by 2030 the answer is uh no at the same time   i don't think the current deal is a stable end  point that will persist over time i mean i think   there are two obvious dimensions along which we  are likely to see changes at some point one is   the northern ireland protocol is so clunky and  drives such a you know there is no other country   that has this kind of internal border in part of  what is supposed to be a unified country and i i   can't see that uh persisting i don't know what  that means will happen but it doesn't seem like   it's an end state that anyone is going to be  happy with in the long run and then the other   point is that you know whenever labor likely in a  coalition does get back into power there is going   to be significant pressure on whoever the labor  leader is to move closer to the eu and you know i   would expect that there would be some movements in  that direction it's always struck me as slightly   as a very strange outcome of the kind of torturous  brexit process we've been through that we've ended   up at a point where leaving the customs union  is supposed to be an expression of sovereignty   i don't think at the start of this process no  one was saying the point of brexit is that we   need to be able to make our own our own trade  deals outside of of the customs union i kind   of think that's something that wants the current  political fires die down will be something that   there will be kind of a more narrowly economic  calculation on and the economic calculation is   going to say you should be part you know closer to  the eu on that perspective so i think we will see   changes eventually but it probably not in the  immediate future excellent anyone got any last   words to add we're going to finish about two  minutes earlier i think which is no bad thing   because you can catch the last of the sun i  must say i'm intrigued because my sense is that   whilst the labour party is relatively happy saying  that the conservatives have done brexit badly   they're far less comfortable actually suggesting  any alternative and i struggle to find that   changing they're actually you're being kind to  them they're not very comfortable saying even   the first part of that sentence they're not  saying anything about it at all they're not   comfortable saying anything at all i don't think  yeah for obvious and sort of painful reasons   but listen on that note can i just thank the  four of you i mean this is the irritating   thing about as well firstly we can't go for  a drink obviously but secondly zoom will cut   us all off at the same time so i can't thank  you in private so let me thank you in public   i think it's been absolutely fascinating  john and thomas i hope you think your work   has got a good airing this evening you can go  to the respective websites and find the actual   uh written work there that outlines the results  we've been talking about tonight anna thank you   so much for joining us and to you too stephanie  and follow the central economic performance for   the center for european reform and obviously  follow the uk and are changing europe if you   can and have a lovely evening and we'll  see you soon thank you all thanks helen

Channel: Centre for Economic Performance

Views: 193,200

Rating: 4.3544531 out of 5

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Id: 44Yk4w3mCp8

Length: 73min 27sec (4407 seconds)

Published: Tue Mar 30 2021

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[u/syoxsk]

Good watch.