Two years after Britain left the EU single market and customs union in January 2021, it is now widely accepted by the British ruling class that Brexit was a major mistake. ‘Economists have reached a consensus: Brexit has significantly worsened the country’s economic performance. They agree that the vote to leave the bloc has made households poorer, that negotiating uncertainties have taken their toll on business investment and that new barriers to trade have damaged economic links between the UK and EU.’ (Financial Times, 30 November 2022). RIA AIBHILIN reports.
In 2006, FRFI wrote that ‘The British ruling class knows that sooner or later it will have to make a choice between Europe and the United States. Whatever choice is forced on the ruling class, it is certain that any independent role of the City of London will be severely curtailed’.1 Since then, we have documented the growing crisis of global capitalism, underpinned by stagnation in productivity growth, and how it has divided the British ruling class over how it can sustain itself as a global imperialist power.
This dispute within the ruling class over how to protect its wealth in the context of capitalist crisis eventually forced the Brexit vote. The Revolutionary Communist Group called for a boycott of the Brexit vote. Whatever the outcome, either staying aligned with the EU imperialist bloc or becoming an offshore centre for usury capital under the umbrella of US imperialism, for working class and poor people in Britain the result was going to be continued running down of public services and increasing poverty.2
In the initial period following the Brexit referendum in June 2016, in which 52% of voters opted to leave the EU bloc against 48% who voted to remain in it, sterling depreciated more than 10% as investor behaviour shifted in the face of uncertainty. The value of the pound against the dollar has not recovered since the referendum. This currency devaluation raised import prices, business costs and inflation, but did not boost wages or exports.
The Resolution Foundation calculated in June 2022 that real wages fell 2.9% as a result – costing households an average £870 a year. The increased price of imports has contributed, alongside new trade barriers restricting access to generic medicine imports, to severe medicine shortages in the NHS.
The City of London
Brexit has continued to create serious obstacles to sustaining the City of London as the leading global financial centre. The financial activity that takes place in the City of London is crucial for the British economy. Financial services contributed £174bn, or 8.3%, to Britain’s total gross value added in 2021. With related parasitic services that support the industry, such as consultancy, insurance and information services, the total rises to £261bn or 12.5% of total gross value added. 53% of financial service output in Britain is in London, the majority concentrated in the one square mile of the City of London. Exports of British financial services were worth £61bn in 2021, and imports worth £17bn, leaving a surplus from financial services trade of £44bn.
As a member of the EU, British financial firms had an ‘automatic right to offer services across the EU’. Post-Brexit, British institutions must apply for ‘passporting’ rights within each individual EU country. Between 2020 and 2021, the value of British exports of financial services to the EU fell by 10% in cash terms – the equivalent of several billion pounds. Exports to non-EU countries grew by only 4% between 2019 and 2021.
Although the City remains the leader in global net finance capital exports, the US’ trade surplus of financial services grew by 30% against Britain’s 8% in 2021. Further, shifts in certain metrics demonstrates how the overall competitiveness of the City of London has been undermined since Brexit. The depreciation of the pound in 2016 was made worse by the Liz Truss and Kwasi Kwarteng disastrous budget in September 2022. This, alongside a rise in the luxury goods market, which has benefitted from the relative strength of the dollar, means Paris has overtaken London as the biggest European stock market. In 2016 Britain had around $1.5 trillion more in equities than France, but post-Brexit the gap steadily closed. Michael Saunders, former Bank of England policymaker, told Bloomberg TV that ‘the UK economy as a whole has been permanently damaged by Brexit’.
Trade barriers
Brexit introduced barriers to trade between Britain and the EU that didn’t exist before: masses of documents and paperwork must be completed for imports and exports; there are higher costs due to tariffs; and delays to delivery of goods as shipments sit in customs houses. According to the British Chambers of Commerce, the EU-UK Trade and Cooperation Agreement signed post-Brexit contains more than 1,000 restrictions on cross-border trade in services. These disproportionately affect smaller businesses for whom the barriers result in a higher cost relative to the value of trade and who lack the time and resources of larger business with the ability to employ dedicated staff and teams to work around the restrictions. ‘Brexit has clobbered smaller businesses’ claims The Economist (30 April 2022).
And it has accelerated the decline of Britain’s industrial base: manufacturing recorded a 2.3% fall in output in September 2022; excluding the pandemic period it was the worst performance over three months since the 1980s (Financial Times, 11 November 2022). It is much easier for European suppliers to get their materials from Europe, so they can avoid the complications associated with importing from post-Brexit Britain.
While trade flows between Britain and the EU have mostly recovered to pre-Brexit levels, the Economic and Social Research Institute in its October 2022 report found trade from Britain to the EU is down 16% relative to anticipated levels had Brexit not occurred. Trade from the EU to Britain was down by 20% on anticipated levels. This amounts to billions of pounds worth of lost trade for Britain.
Food imports have been particularly impacted. The cost of the disturbances to food chains falls disproportionately on lower-income households, who spend a greater proportion of their income on food. Research from the London School of Economics found that leaving the EU increased the price of food products by 3% a year across 2020 and 2021, adding a total of almost £6bn to food bills, or £210 a year for the average household. At the same time, tens of millions of pounds worth of food was thrown away by British farms in just the first six months of 2022 due to labour shortages.
Labour shortages
British industries, particularly hospitality, farming, construction and manufacturing, are suffering acute labour shortages. These industries are dependent on European labour. In 2017 more than one in ten workers in the manufacturing industry was from the EU. From 2011 to 2016 there was a 61% increase in the number of EU nationals working in Britain’s hospitality and tourism sector.
The ONS estimates just 43,000 EU citizens received British visas in 2021, compared to the 230,000 to 430,000 EU nationals arriving in Britain per year from 2015 to 2020. Britain’s record high of 204,000 net migration in 2022 was largely accounted for by students, closely followed by Afghan, Ukrainian and Hong Kong refugees and migrants. An assessment from the UK in a Changing Europe and the Centre for European Reform thinktanks estimates net 460,000 EU workers left Britain between 2016 and 2022, while 130,000 non-EU workers came to Britain, leaving a shortfall of 330,000.
Businesses argue that Britain’s post-Brexit ‘skilled worker’ visa regime doesn’t help businesses hire migrants to fill roles in the areas where vacancy rates have been highest: in the low-paid, precarious work positions such as baggage handlers, those within the hospitality sector, or the seasonal workers relied on to pick fruit on zero-hour contracts for minimum wage. Charles Goodhart, economist and former Bank of England official, put it crudely when he argued at the Confederation of British Industry (CBI) Conference in November 2022 that ‘We have got plenty of skilled people. What we need are the people to do the jobs that the [British] population does not want to do.’
The CBI, the business federation, has long been calling on the government to soften the effects of Brexit. It argues that the labour shortages are resulting in stagnating industry as they stop employers making the investments in skills and technology necessary to raise productivity. Recruitment agency Pertemps Network Group’s August 2022 survey found three quarters of businesses are facing labour shortages and almost half said they have been unable to meet output demands as a result. 46% of survey respondents requested government support for investments in technology to help boost productivity, while 44% called on the government to grant temporary visas to ease shortages.
Britain is caught. On the one hand, it is dependent on migrants to exploit as a cheap source of labour. On the other hand, its two leading political parties have long been competing with each other on who can promise more racist border controls in an attempt to win the votes of reactionary voters in key ‘red wall’ Brexit-backing constituencies. The ruling class now widely views the Labour Party as the safer pair of hands for handling its affairs. But even Starmer refused to appease business worries and agree to increasing immigration.
British imperialism and the north of Ireland
The British-occupied Six Counties in the north of Ireland remains the centre of dispute between Britain and the EU post-Brexit. Pushed by the European Research Group (ERG) and its ideological commitment to an anti-EU position, putting it at odds with the interests of British capitalism and the dominant sections of the ruling class, the Tory Party has refused to implement the Brexit deal agreed by Britain and the EU. Meanwhile, the Loyalists in the Six Counties have pressured the Democratic Unionist Party (DUP) to walk out of Stormont and stop it from functioning until the Northern Ireland Protocol, agreed under the Brexit deal, is thrown out. There has been no devolved government in the north of Ireland since February 2022.
The Protocol creates an economic border between Britain and the Six Counties by keeping the Six Counties in the EU single market while Britain has left it. The historical relative privileges afforded to Loyalists by British imperialism are in sharp decline. Loyalists are acting out against their deteriorating position and their fears of Irish unification by opposing the Protocol.
Since Rishi Sunak became Prime Minister in October 2022, we have heard about the improved ‘mood music’ in negotiations between Britain and the EU. On 8 January there was a breakthrough in talks, with Britain agreeing to improve data sharing with the EU. However, the ERG still has influence in government, enjoys support from the Tory Party base and poses a threat to negotiations with the EU. There are seven members of the ERG in Sunak’s Cabinet, in posts including Foreign Secretary, Home Secretary and Secretary of State for Northern Ireland.
By 17 January hopes that ‘tunnel talks’ – in which final negotiations would take place in secret – were about to begin, were dashed with the news that a meeting between the EU and Britain had found ‘gaps’ that remain between the two sides. The Biden administration in the US has put pressure on Sunak to find a resolution to the dispute in time for Biden to visit Ireland in April as part of celebrations around the 25th anniversary of the Good Friday Agreement. This is a tall order.
Sunak is aware that provoking the EU by unilaterally throwing out the Brexit agreement would result in a trade war with devastating consequences for the British economy and the potential to threaten ruling class political stability. But Sunak is also aware that there is no way to appease the Loyalists without pushing the EU too far.
1. David Yaffe, ‘Britain: parasitic and decaying capitalism’, FRFI 194, December 2006/January 2007.
2. David Yaffe, ‘EU referendum – the position of communists’, FRFI 251, June/July 2016.
FIGHT RACISM! FIGHT IMPERIALISM! 292 February/March 2023
