Things aren’t going well for the new Labour government. The figures for the first quarter of their tenure of the economy say it is pretty much flatlining – growth of one tenth of one percent. Not good news for a crew whose only mantra seems to be growth, growth, growth.
Some have pointed out this might in part be a consequence of Labour’s talking up economic gloom and doom. One big factor in the economy is the willingness and capacity of people to part with their money in shops and elsewhere. The things can only get worse message will induce caution in even the most enthusiastic of consumers as people hold on for rainy days ahead.
The UK economy is integrated into a global capitalist system. So, it will be affected by world events the same as other developed countries. But individual countries can take decisions which either mitigate or worsen the effects of worldwide economic turbulence. That’s why there are variations in economic performance and relative national wealth between countries.
So why is it that the UK economy is currently growing at a quarter of the European average? What possible decision might have been taken here to make things worse? The answer is Brexit.
Brexit is bad for us. Not really an argument or discussion anymore but an uncontested fact. Just how bad is a matter of disagreement. Opinion is divided. The well-respected National Institute of Economic and Social Research (NIESR) reckons the UK economy would be 2.5% bigger now if we had remained in the EU.
In fairness, that’s probably at the lower end of the estimates. According to Goldman Sachs, Britain’s decision to leave the European Union has hampered the economy to the tune of 5% versus other comparable countries. Loads of other experts have pitched in too. None of them have suggested that the economy has got better.
So, a hit of somewhere between 2.5 and 5 percent of GDP. In real money that’s between £55 and £110 billion. Call it five black holes.
The damage done by Brexit results from three key factors: reduced trade; weaker private investment; and lower immigration from the EU. All of these are damaging the Scottish economy too. Last week’s Constitution, Europe, External Affairs and Culture Committee of the Scottish Parliament heard just how much.
Boris Johnson’s Trade and Cooperation Agreement came into force in May 2021 and allows free trade without quotas or tariffs. But it doesn’t do anything about non-tariff barriers; checks and paperwork which make a once frictionless process costly and cumbersome.
The EU requires all imports to meet their quality and safety standards. Not unreasonably. Since Brexit the only way to make sure they do is to physically check what is passing across the border. That takes time and money. And it is this that is pushing up prices and slowing down exports.
Salmon Scotland, for instance, reported that while over 53,000 tonnes of Scottish salmon was exported to the EU in 2019, this had reduced to around 44,000 tonnes four years later. They estimate this represented a loss in export value for Scottish producers in the region of £80-£100 million.
The Governor of the Bank of England pointed the finger at Brexit last week. The Chancellor agrees. And yet she refuses to countenance not only rejoining in years to come, but ever participating in the Single market or Customs Union. God only knows what particular demons she is still trying to exorcise from the Labour playbook, but Labour’s stance on Brexit defies common sense, the wishes of unions and business, and even popular opinion.
It is really hard to know what Labour are scared of. I get that it would be difficult to get back into the EU but the process of building the goodwill that will enable it to happen in the next decade ought to begin now. One way to do that would be to commit to alignment with single market standards so that a deal might be struck as the TCA is reviewed to dispense with paperwork and cut costs. But even this seems too Europhilic for the new Labour Government.
The Scottish Government is committed to align with the European Union where appropriate and has commissioned experts to report on how it can. In two reports over the last year Dr Lisa Whitten from Queens University Belfast says there has not been significant divergence between Scots Law and EU Law. The problem is this that only refers to devolved matters, which of course, exclude trade. So full implementation of the alignment policy in Scotland could only ever partially mitigate, any regulatory divergence between the UK and the EU.
Which is of course an argument for control over these matters passing to the Scottish parliament through the process of political independence. With Labour so firmly set against any formal participation in European trading arrangements, this option offers Scotland’s exporters the best hope for the future. And with Trump about to implement a fortress America policy with protectionist barriers erected against us, Scotland looking eastwards to the European mainland makes more sense and is more urgent than ever.