Brexit Britain: The poor man of Western Europe?

Policy brief
23 September 2016

The following articles have appeared in the press in response to Simon Tilford's publication:
Make no mistake, Britain is not a world-beating economy Financial Times, 29 September 2016
CER report: The EU never held Britain's economy back Business Insider, 27 September 2016
Britain, don't blame the EU for your economic problems, CER says  Bloomberg, 26 September 2016
Britain's Brexit economy is "mediocre" compared to other EU countries  New Europe, 26 September 2016

  • The UK has economic strengths, such as a flexible labour market, which ensures that unemployment is low even in many of its economically struggling regions. But contrary to much of the received wisdom, Britain has not been one of Europe’s economic stars over the last 15 years. And Brexit is set to exacerbate the economy’s underlying weaknesses.
  • In terms of economic growth per head, Britain’s performance has been in line with France, a country now synonymous in the UK with economic failure. The British are no richer relative to the EU-15 average than they were 15 years ago, and the average Briton has to work more hours than the EU-15 average to achieve that income.
  • Sustainable increases in living standards require economies to combine land, labour, capital and technology in ever-more efficient ways; Britain has made a poor job of this. The UK’s productivity performance has been woeful, falling to just 90 per cent of the EU-15 average. This helps explain why Britons’ wages have risen by much less than their French and German counterparts over the last 15 years.
  • Moreover, the UK is highly dependent on London and its environs. Apart from London, just one British region – the south-east of England – has a GDP per capita in excess of the EU-15 average, meaning that just 27 per cent of the UK population live in regions wealthier than that EU average.
  • Far from catching-up with the richer parts of the EU – as one might expect as they adopt technologies and working practices developed elsewhere – the UK’s poor regions have fallen further behind.
  • Britain’s problems lie mainly on the supply-side and in the structure of public spending. Three key issues stand out: poor skills among a sizeable chunk of the workforce; weak infrastructure and a lack of affordable housing; and the centralisation of political and commercial power in London.
  • Unfortunately, Brexit risks aggravating most, if not all, of these problems. And Britain’s already startling regional imbalances are likely to worsen further, leaving much of the country’s population living in areas considerably poorer than the EU-15 average.
  • The Conservatives will provide some fiscal stimulus to counter the weakening of growth caused by Brexit, but will not make the long-term investments in infrastructure and skills needed by the UK. They have few MPs in the poorer regions that would benefit most from such spending, while the resulting higher borrowing and/or taxation would be unpopular with their core vote in England’s wealthy South.

Simon Tilford is deputy director of the Centre for European Reform.

Comments

Remarkable study. It is a pity that politics are not anymore based on facts. This goes for the US, the UK and France as well where the slogan "let the voice of the people be heard" is a subsstitue for reality denial, outright lies and demagogy
Some key precedents in the UK's past recent history show a number of these statements to be just opinions. The UK is leader in many industries and the UK is expanding its international trade and exports as official OBR figures show. The EU is declining since the 80's (30%) now with the UK exiting this will move lower to 15% of global international trade. The EU has not recovered its position unlike the united states. You make no reference to the regulations, and directives strangling the EU and you make no reference to the BUST economies, Portugal, Greece and Italy is edging this way. Spain was heavily bailed out (indirectly) but has bad assets shifted off its balance sheets. Wait for that that to return. There are so many dynamics to this debate but one thing is a clear, an open, progressive, and out reaching economy is something businesses like. Also the UK being the mother language of English and also home of the best business legal rules and structures and center of timezone will always give it an enviable advantage in trade internationally. The UK on the tech sector is leading Europe by a significant margin, as fintech and tech starts ups show. Contrary to the EU trying to entice such companies to the EU over Brexit. It will not happen. A full investigation was done, interviewing people and as one entrepreneur put it, sorry but London and UK is much more progressive on thinking, and there is a dynamic environment here. Expect this to continue.

The Eurozone has some big worries, banks which are technically bust, a currency which cannot survive in its current form and constant bailouts and potential bail-ins to come. The threat of referendums and more to come does not paint a good picture. The immigration element has been damaging in the way its been handled, but moreso barely 1-2% of the million migrants who are in Germany have jobs. Such situations are storing trouble coupled with more terrorism to come with Schengen allowing the free flow of potential ISIS across borders. The last comment was declared by Europol.

So its not just a question of reform the EU needs, its been at it for a long time. Its in real trouble and the UK should have no fear. The UK has historically been an outreaching country and it's creativity will also allow it to thrive and adapt. History shows this. Not only do the top industrialists in the USA and UK think so, they are now on record stating clearly the UK will now only survive it will thrive. They should know they are global industrialists.
It's true that the UK has consistently prospered in certain ways and not in others. I'd argue that the best analogy to today's economy as a whole is English football and particularly, the differences between the premier league and the national side. The premier league is a global success story. It takes place in England, but is dominated by foreign money, managers and players. Like a lot of economic activity (mainly in London and the SE) it relies to a good degree on the UK environment: clubs that can be easily bought and sold; and a well-developed legal system that allows investments to be securely exploited; and the happy confluence of Sky TV and now BT to pay a lot of the bills. The national side presents a startling contrast: a world cup in 1966 followed by persistent decline; and no European senior title ever. So the UK really has two economies: one that can be world-class, but is mostly facilitative and relies on international talent and money for the actual realisation of economic opportunities; the other rather second-rate and going backwards in relative terms compared to its competitors. Does this matter? Is the world-class part of the economy enough to sustain the country as a whole? Does it matter that a large chunk of the indigenous economy and the people who rely on it are languishing? I suspect the vote that has taken us out of the EU indicates that it does matter: very much. The challenge now is that leaving the EU seems unlikely to help the languishing part of the economy and seems likely, at best, to slow rather than accelerate the other part and at worst, to divert the foreign money, the entrepreneurs and the despised "experts" away from the UK. Just like England winning the world cup, the UK "winning" in its post-EU world takes a degree of self-belief bordering on the delusional. Doable in principle, but an awful lot of things are going to have to change radically to make it happen, against a background of increased social and economic division. The history of the last century doesn't exactly inspire one with the confidence that it will happen. Simon's report is a timely and welcome reminder of the scale of the challenge. At least with some honesty and objectivity (as opposed to the fantastical nonsense we've been subjected to thus far), there might be some prospect of success.
@Karlos, as so many Britt's, once someone points to the weakness of the UK, you go into full scale defense and finger pointing mode. I think this article was not saying that the Italian or Spanish economy was better, but that there are serious problems in the UK that Brexit is going to aggravate.

And yes Europe is sliding as a part of world trade, but that is because other areas are catching up. As they should!

Just as the UK made a political decision to leave the EU, I think the EU needs to make a political decision to get the best out of any deal with the UK. Just like they worked on with Canada, US and other countries. The governments of EU should start immediately to help banks get setup in their capitals, to focus on trade and drive forward. Now UK will be just another trading partner, good one hopefully, but just one of many.
Karlos is correct " there are so many dynamics to the debate"can be or are conducive to overstatement-figures, statistics-and manipulation-comments and perusals. It will take us -not politicians- to the wrong door.We have to accept -both sides-UK WILL NEVER VANISH OR GO DOWN THE ROAD. UK is a Country-not an individual or a business entity. Correct we are moving to un-chartered waters. It is a challenge.
WE HAVE TO HAVE A GOOD READING OF FACTS to move people , the Country appropriately.
Correct "immigration" topics have been mishandled.Politicians know/ knew the "right" door.
Incidentally, EU is based on VALUES. It is not based on short term "capital" gains and on...to end up to a divisive Society-as we are experiencing in Europe.
Are UK being a SOVEREIGN COUNTRY by moving away of UNIVERSAL VALUES - in gaining some items of those values?
if YES- we have to mind on -how those items will be used and be beneficial to ALL.
Simon Tilford Papers is instructive . We have to put PEOPLE/COUNTRY FIRST...and deliver a -successful -BREXIT.
Honestly it is time to call for a "CHANGE". Hopefully it will happen for ALL...
The debate -surely has dynamics...
An excellent article and interesting set of responses. I don't think anything in the comments changes the fact that if Brexit adversely affects single market access (as it likely will) the UK will be worse off and that the UK will need to find new sources of economic growth to compensate. My main criticism of the article would be its dismissal of the readiness of the conservatives to invest in areas that traditionally don't vote conservative. I think that they will do what is necessary to win the next election
We can't have this both ways. The disparities in British regional performance have come under the auspices of EU government and despite vast spending by the EU on projects in places like South Wales which appear to have had very little overall effect and certainly offered very poor "bang for buck." I take many of your points, but it's surely pessimistic to suggest that we must make a worse fist of addressing this alone.