Boris Johnson’s government is being “arrogant in the extreme” for refusing to order an economic impact assessment of its EU trade deal following a sharp fall in goods exports to the bloc since January 1, the opposition Labour party has claimed.
Rachel Reeves, the shadow Cabinet Office minister, said the Conservatives had been “disturbingly relaxed” about the travails of a significant number of British exporters hit by border bureaucracy created by the post-Brexit EU-UK Trade and Cooperation Agreement (TCA).
The rare intervention on Brexit from Labour, whose leadership has largely shied away from the hugely divisive political issue since January, came after Richard Hughes, chair of the Office for Budget Responsibility, the independent fiscal watchdog, set out the economic costs of Britain’s exit from the EU in a letter to Reeves.
Hughes said the agency’s March 2021 forecast confirmed earlier assessments that the TCA would cause a short-term hit to gross domestic product of 0.5 per cent at the start of this year, and a 4 per cent reduction in productivity in the longer term.
The hit to productivity was attributed to the “increase in non-tariff barriers on UK-EU trade” as a result of the TCA, which Hughes said would act as “an additional impediment to the exploitation of comparative advantage” for British business.
John Springford of the Centre for European Reform, a think-tank, said that non-tariff barriers caused by the TCA that made trade with Europe relatively harder, would affect both goods and services.
“For example, the UK shellfish industry finds it much harder to export to the EU, as we’ve seen. Its costs go up, its market shrinks and some of its workers and capital shift over time out of fishing and into less productive, lower-paid economic activity,” he explained.
“On services, an example might be the new post-Brexit immigration rules which make au pairs untenable, will mean some workers who used au pairs to enable them to work, will no longer be freed for more productive roles in the economy.”
Hughes added that the OBR assumed that exports and imports “will be around 15 per cent lower in the long run” than if the UK had remained in the EU, but warned that isolating the direct impacts of the TCA from the Covid-19 pandemic would be “very difficult” in practice.
In terms of jobs, Hughes said that the OBR assumed that the TCA would not cause a rise in unemployment over the medium term, but would be felt through lower wages — “weaker average earnings” — as a result of the fall in longer term productivity.
The OBR said its assessments were based on academic research and the government’s 2018 assessment from the Theresa May era, which assess the impact of future trading arrangements against the counterfactual of remaining in the EU.
Hughes was responding to a letter Reeves wrote to the OBR last month after the government’s March 5 Budget failed to include any impact assessment of the TCA.
At the time she said it was “notable” that chancellor Rishi Sunak had failed to set out any practical measures to mitigate the effects of new red tape, which saw UK goods exports to the EU falling by more than 40 per cent in January.
“It is arrogant in the extreme for the Conservatives to refuse to do an economic assessment of one of the most important trade deals the UK will ever negotiate,” Reeves told the Financial Times.
“This letter from the OBR points out a number of the issues which have to be addressed, not least the prospect of falling wages and reduced exports which they say rollover deals will not compensate for.
“The Conservatives seem disturbingly relaxed at watching a significant number of British businesses struggle with red tape or lost orders and having turned their back on having an industrial strategy, Ministers are clueless about the future.”
The government said the agreement “protects high quality jobs and investment right across the UK and ensures that businesses continue to trade effectively and sell to their customers in the EU”.
“We want to ensure that businesses get the support they need to trade effectively with Europe and to seize new opportunities,” it added. “That’s why, in addition to the £20m SME Brexit Support Fund, we are operating export helplines, running webinars with experts and offering businesses support via our network of 300 international trade advisers.”