EU withdrawal prompting higher import costs and costing British workers about £500 each year, says Resolution Foundation.
Britain’s cost of living crisis is being aggravated by Brexit disrupting the country’s growth potential and costing workers hundreds of pounds a year in lost pay, new research states.
The Resolution Foundation thinktank and academics from the London School of Economics said the average worker in Britain was currently on course to incur over £470 in lost pay every year by 2030 after rising living costs are considered, compared with a remain vote in 2016.
In a report six years on since the referendum, the researchers said Brexit was destroying the competitiveness of UK exports on the global stage just as companies are made to cope with the fallout from Russia’s war in Ukraine and the coronavirus pandemic driving inflation to historic levels. It stated:
“A less open Great Britain is expected to be poorer and less productive.”
Official figures on Wednesday displayed a further surge in the inflation rate from 9% in April to 9.1% in May, as rising petrol prices and the climbing cost of a weekly shop pushes up the pressure on struggling families. The Bank of England (BoE) has cautioned the inflation rate could hit 11% by October.
As the government tried to deal with rail unions on June 21 amid the biggest train strikes since the 1980s, ministers were forced to back inflation-busting hikes intended for the state pension while ordering pay restraints for employees in the public sector.
The former Conservative chancellor Ken Clarke said Britain was overwhelmed by the worst economic crisis since at least 1979, telling the BBC that a recession was likely inevitable. He added:
“We are, I think, almost certainly going to go into recession in the next couple of years. The Bank of England has had to start tackling inflation, which has been allowed to get completely out of hand.”
Boris Johnson has warned employees against demanding bigger pay increases to avoid a 1970s-style “wage-price spiral” pushing inflation higher, in sharp comparison to October 2021 when the prime minister implied Brexit could assist in building a high-wage, high-productivity economy of the future.
Nonetheless, the report from the Resolution Foundation and LSE said Brexit would weaken productivity gains over the coming years up to 2030, while arguing that soaring import costs were increasing pain for household finances.
The research predicted labor productivity – a fundamental measure of economic output per hour of work – would be diminished by 1.3% by 2030 due to a decrease in openness of the British economy after Brexit, equal to a 25% decline in efficiency gains achieved over the last ten years.
Ministers have said bigger pay hikes for United Kingdom workers would only be sustainable if supported by productivity gains. Nevertheless, with the predicted decline in the efficiency of the British economy after Brexit, the academics said inflation-adjusted pay was now set for a 1.8% drop by 2030. It said this was the same as the loss of £472 a worker, a year.
The report’s authors included the LSE academic Swati Dhingra, a forthright Brexit critic appointed by the chancellor, Rishi Sunak, to join the Bank of England’s interest-rate setting monetary policy committee (MPC) in August.
The report seemed to compromise the government’s argument that Brexit and its plans improve the economy to enhance prosperity outside London and the south-east, with researchers discovering the north-east of England would be worst affected by leaving the EU.
With a larger industrial sector and greater exposure to the EU market, it said the region would witness a 2.7% drop in manufacturing output by 2030 in contrast to a scenario in which the UK voted to remain in the EU in 2016.
Although the report determined that exports to the EU had not been as badly affected by Brexit under the terms of Johnson’s trade deal with Brussels since the beginning of 2021, it warned overall the UK would become less competitive and less open.
Exports to the EU are estimated to be 38% fewer than they would have been inside the EU by 2030, with a fresh 16% fall due to renounced further integration with the EU over that period.
Torsten Bell, the chief executive of the Resolution Foundation, said Brexit would make bouncing back from the Covid pandemic and getting wages to increase sustainably after the cost of living crisis more challenging. He stated:
“Ten percent inflation is painful, whether you drive a train, commute by train, or have nothing to do with trains. It would always have been hard to cope with, but it is far more so for families coming on the back of 15 years of stagnant wages.”
“The sustainable route out of this is stronger, productivity-led, wage growth. Covid-19 and Brexit don’t make that any easier to achieve, but the UK has considerable economic strengths and we urgently need a renewed economic strategy that builds on them.”
A spokesperson for the government said exports had climbed in the three months to April and had surpassed pre-pandemic levels.
“Since we left the European Union, we have begun seizing new opportunities to improve UK regulation for businesses and consumers through plans to enhance competition and harness new technology.”
“We will introduce the Brexit freedoms bill which will enable the government to amend, repeal and replace retained EU law, helping us to create a new pro-growth framework that gives businesses the confidence to invest and create jobs.”