Economic Impact of the UK-EU Trade Deal

This meeting considered the likely short and long term economic impacts of the change in UK-EU trade relationship from membership of a customs union and single market, to the Trade and Cooperation Agreement. Witnesses were asked to comment on the immediate impacts and longer term prospects for UK-EU trade, including integration within cross-European supply chains, and whether the effects on trade with the EU will be compensated for by greater trade with the rest of the world.

The Rt Hon Hilary Benn MP chaired this session.

Witnesses

• Julian Jessop,  IEA Economics Fellow 

• Thomas Sampson,  Associate Professor at the Department of Economics at LSE as well as an Associate in the Centre for Economic Performance (CEP)

• Vicky Pryce, Economist, Business Consultant and former Joint Head of the United Kingdom’s Government Economic Service

Julian Jessop, IEA Economics Fellow 

Julian Jessop is an independent economist with thirty years of experience working across both the private and public sector. Julian is currently an Economics Fellow at the free-market think-tank, the Institute of Economic Affairs. During his career, he has worked for a range of companies including HSBC and Standard Chartered. He was also an Economic Adviser to HM Treasury. 

Thomas Sampson, Associate Professor at the Department of Economics at LSE as well as an Associate in the Centre for Economic Performance (CEP)

Thomas Sampson graduated with a PhD in Economics from Harvard University in 2011 before going onto become an Associate Professor at the Department of Economics at LSE. Thomas specialises in international trade; economic growth and development; and brexit. During his academic career he has contributed towards research detailing the after effects of the United Kingdom voting to leave the European Union. A recent example of his work is a paper that examines the effect of Brexit on living standards in the UK.

Vicky Pryce, Economist & Business Consultant and former Joint Head of the United Kingdom’s Government Economic Service

Vicky Pryce is the former Joint Head of the United Kingdom’s Government Economic Service and has experience in the banking and oil sector. During her position, she has held senior positions for a range of organisations such as being Partner and Chief Economist at KPMG and working as Director General for Economics at the Department for Business, Innovation and Skills (BIS). She has held a number of additional positions across various boards including; being on the Council of the Royal Economic Society; on the board of trustees at the RSA; an Academician of the Academy of Social Sciences; and also on the Council of the University of Kent.

INTRODUCTION

This session considered the likely short and long-term economic impacts of the change in the UK-EU trade relationship, from membership of a customs union and single market, to the Trade and Cooperation Agreement. Witnesses were asked to comment on the immediate impacts and longer term prospects for UK-EU trade, including integration within cross-European supply chains, and whether the effects on trade with the EU will be compensated for by greater trade with the rest of the world.

Economists generally agree that more openness to trade leads to greater prosperity, if not necessarily the exact mechanisms for this. Raising trade barriers conversely leads to less trade. Such trade barriers come in many forms, the main ones being tariffs, differing regulations, border checks, and prohibitions in offering different types of service from another country. Such barriers are tackled by different types of international agreements. In general, it would be expected that greater economic benefits would come from deeper relationships.

In 2019, around half of the UK’s trade was accounted for by the EU, plus those countries in close relationships with the EU. Full figures are not yet available for 2020. A number of economic impact assessments of replacing EU membership with different trading relationships have been produced. The overwhelming majority forecast an economic loss, though the specific figures vary considerably. Such models are usually made by considering a point in time such as years in the future, when adjustments to the economy have happened, not all in one year.

SESSION WITNESSES

VICKY PRYCE, Economist & Consultant Former Joint Head of the UK Government Economic Service

THOMAS SAMPSON, Associate Professor, Department of Economics at LSE

JULIAN JESSOP, IEA Economics Fellow Independent Economist

ISSUES AND RECOMMENDATIONS

Economists outlined the negative impacts on UK trade as a result of new barriers with the EU, especially a disproportionate impact on SMEs. They expressed differing views on likely future performance; but agreed on the importance of tracking the impact on trade between Northern Ireland and Great Britain.

THE COMMISSION RECOMMENDS IN THE FIRST INSTANCE:

• The Government publishes comprehensive data on all trading impacts of the TCA, including regional impact data from trade within the UK, with a particular focus on the impact of Great Britain-Northern Ireland trade

• The Government should find mechanisms to help smaller companies to absorb the cost of non-tariff barriers with the EU and all costs outside of Europe.

OTHER SUGGESTIONS FROM THE COMMISSION ARE THAT THE GOVERNMENT WORKS ON:

• A labour mobility agreement, that is bilateral with Member States or negotiated with the EU • Improving diplomatic relations with the EU

• EU to recognise equivalence in financial services.

KEY QUOTES

“The implementation of the border in the Irish Sea - the customs checks which are carried out there - if nothing else, will produce a lot of data on what is going on across the Irish Sea. For understanding the impact of the Northern Ireland protocol, it would be helpful if that data was published.” - THOMAS SAMPSON, Associate Professor, Department of Economics at LSE

“The witnesses we heard from today agree the UK economy has taken a short-term hit from the end of the EU transition period, with small businesses bearing the brunt of new barriers to trade. However, there is a lot of uncertainty over the longer-term implications of our new trading arrangements for the different sectors and regions of the UK, with some likely to face particular difficulties.” - HILARY BENN, Co-Convenor of the UK Trade and Business Commission

“Our cross-party Commission will now be looking in detail at the range of issues raised today and at the challenges and opportunities facing specific industries, from food and drink to financial services. We will be looking to the future and not the past, with a focus on practical ways to improve trade policy and help businesses bounce back from the pandemic and EU exit.” HILARY BENN, Co-Convenor of the UK Trade and Business Commission

“it is smaller firms that go out of business”, leading to greater concentration of larger firms which is “negative for the economy”. - VICKY PRYCE, Economist & Consultant Former Joint Head of the UK Government Economic Service

“the longterm loss of productivity in the UK will be something like 4%, which is higher than the Covid loss expected to be 3%". - VICKY PRYCE, Economist & Consultant Former Joint Head of the UK Government Economic Service