Much ado about politics
Much has changed in the past ten years, but the issues which
drove the Brexit vote in the first place have, if anything, intensified.
Economically, the UK is struggling. The productivity collapse in the wake of
the GFC has not been addressed and as a result growth remains weak. Consequently,
voters increasingly feel they have to run harder just to stand still. It should
not be a surprise that they are seeking alternatives to a political system they
feel is not working for them. Just as austerity fuelled resentment that was
successfully channelled by populist movements in 2016, current economic
frustrations are again creating fertile ground for anti-establishment politics.
Those same actors who once promised that Brexit would deliver an economic
transformation are now drawing on dissatisfaction with weak growth and stagnant
living standards to sustain their electoral appeal.
The campaign and its aftermath eroded trust in politicians
which shows no sign of being restored: between 2016 and 2019 the Conservatives
argued amongst themselves about how to deliver Brexit; the Labour Party
dithered on the sidelines and the Lib Dems adopted an unrealistic position that
a second referendum was necessary to validate any deal (they were not
necessarily wrong about that but it was politically naïve). None of those who
advocated a policy which was clearly not in the national interest has ever been
called to account. Boris Johnson even used the Brexit referendum as a stepping
stone to achieving his ambition to become Prime Minister, although he
proved as disastrous in that role as I expected. Of all those who campaigned
long and loud for Brexit, only Nigel Farage remains in frontline politics,
leading his third political party since 2016 as the latest incarnation of UKIP rides
high in the polls.
Such is the power of populism that a sixth Prime Minister in the last 10 years has now left office, one through electoral defeat and the others under sustained political pressure (ironically the previous six Prime Ministers spanned 40 years). Keir Starmer is being punished as much as anything for lacking Farage's ability to connect with voters and communicate simple political messages. Admittedly, his government has been far too timid in tackling some of the problems faced by the UK and it failed in one of the key things I expected of it in 2024: “Making voters lives better is the one thing that will raise the chances of a second term in office – a second term that will undoubtedly be required to properly fix many of the things in the economy that require improvement.” But one thing we learned from the Brexit referendum is the power of style over substance. Voters want simple answers to complex problems very quickly and Starmer was honest enough not to promise that, even if he acted too slowly. Frankly, it is hard to believe that changing the Prime Minister is going to resolve problems that are rooted less in leadership than in the mismatch between complex economic realities and voters’ demands for simple, rapid solutions – particularly when politicians have little control over the underlying economic and institutional constraints that continue to shape outcomes.
A quick look at the economics
All of the empirical evidence points to output losses
compared to what might have happened had the UK remained in the EU. A widely
reported paper by Nick Bloom et al[1]
(here) found that UK GDP was
reduced by 6% to 8%. My own calculations, in joint work with my colleague Ben
Caswell, based on synthetic control analysis came to a similar conclusion (here,
see chart below) [2].
Clearly, there are big variations in the magnitude of the output loss – the
OBR, for example, reckons with a 4% hit to GDP – but no evidence has been
presented to suggest that the UK is better off.
But just because UK exports to the EU are broadly flat does
not mean that they have performed strongly. The relevant question is not
whether exports to the EU are higher or lower than they were in 2019, but how
they have performed relative to a plausible counterfactual. To put some flesh
on these bones, total EU imports increased by 12.1% between 2019 and 2025,
while world trade volumes increased by 14% over the same period compared with a
rise in UK exports of 5.8%. Whichever way we look at it, UK export volumes
appear to have underperformed. Indeed, Ben’s analysis suggests that the impact
of non-tariff barriers is greater than that of tariff barriers themselves, due
to factors such as rules-of-origin requirements and customs checks. On his
calculations, these factors “reduced UK exports to the EU by around 5.7 per
cent and imports from the EU by around 9.1 per cent relative to their
pre-Brexit baseline”.
An additional channel is the impact on corporate decision
making. Business uncertainty rose sharply after the referendum and only began
to dissipate after the UK left the EU, by which time we were in the middle of
the Covid pandemic. Businesses had no idea about the trading arrangements they
were likely to face with the EU, and were forced
to make contingency plans for eventualities that never materialised. All in
all, our research suggests that “UK business investment is between 12-13 per
cent lower than it otherwise would have been” in the absence of Brexit.
While the UK may be poorer than it might otherwise have
been, it has not been the complete disaster that many feared. The labour market
has held up reasonably well with unemployment remaining relatively low and the
City of London still Europe’s preeminent financial centre. In fact, for most
people life has continued as normal – for the most part people would not
immediately notice any difference to pre-Brexit Britain. But Brexit has not
resolved many of the issues that its proponents promised.
What next?
As it currently stands, Brexit has not delivered on the
promises that were made in 2016. Doubling down in the hope of doing Brexit “properly”
is not the way forward. Closer ties to the EU are the solution, but
negotiations with the EU will not prove easy. The closer the UK wants to move
towards the EU, the more concessions the EU will demand, as Switzerland has
found out in recent years.
Moreover, the EU has changed since the UK was last a member.
It is a larger entity with a changed geography that has seen the geopolitical
centre of gravity moving further east. Since 2016 the EU has become more openly
a geopolitical actor following the Russian invasion of Ukraine, and is not just
a regulatory and trade bloc. Post-Covid, fiscal integration has increased with
the creation of NextGenerationEU, a large-scale common borrowing and recovery
fund, which marks a shift toward shared fiscal capacity at the EU level. Even
if re-entry were an option – which currently appears highly unlikely, not least
because of the continuing strength of Eurosceptic sentiment in UK politics – it
would involve significant reconvergence costs and transitional frictions rather
than a simple reversal of Brexit. With businesses having adjusted to the post-Brexit
environment, albeit reluctantly, they would be equally loath to incur a new set
of additional costs.
Brexit is not solely responsible for the UK's economic difficulties, but closer ties to the EU might mitigate some of the more annoying bureaucratic issues. The country's underlying problems – weak productivity growth, low investment, skills shortages and a political culture increasingly drawn to simple solutions for complex challenges – pre-date the referendum and will persist regardless of its constitutional relationship with Europe. There are some things that the UK government can do which do not involve seeking closer integration with the EU – notably reform of the planning and welfare systems. But after a decade of debate, one conclusion seems difficult to avoid: Brexit has imposed economic costs while failing to address many of the concerns that drove the vote in the first place. The task now is not to refight the battles of 2016, but to find a pragmatic way forward that recognises both the realities of Brexit and the benefits of closer cooperation with our largest trading partner.
[1] Nicholas
Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, and Gregory Thwaites ‘The
Economic Impact of Brexit,’ NBER Working Paper 34459 (2025), https://doi.org/10.3386/w34459
[2]
Caswell, B and P Dixon (2026) ‘Brexit and the UK Economy Ten Years On:
Stocktake and Future Options’, NIESR Policy Briefing
[3]
Since the UK does not provide separate price deflators for EU and non-EU
services trade, I simply deflated the nominal regional values by the aggregate
services export price deflator.
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