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Brexit: An Evaluation of Economic Effect

With Brexit, where will the UK actually stand? 

The European Union is a politico-economic union of twenty-eight-member states that are found primarily in Europe. The EU works through a system of supranational institutions and intergovernmental negotiated decisions by the member states. The EU has developed a single market through a standardised system of laws that apply in all member states. Within the Schengen Area, passport controls have been abolished. EU policies aim to ensure the free movement of people, goods, services, and capital, enact legislation in justice and home affairs, and support common policies on trade, agriculture, fisheries, and regional development.

With a joint population of over 500 million inhabitants, or 7.3% of the world population, the EU in 2012 generated a nominal GDP of 16.584 trillion US dollars, constituting approximately 23% of global nominal GDP and 20% when measured in terms of purchasing power parity. If it were a country, the EU would come first in nominal GDP and second in GDP (PPP) in the world. Additionally, 26 out of 28 EU countries have a very high Human Development Index, according to the UNDP. 

Firms will also be encouraged to reduce prices while increasing quality and innovation to still be competitive.

The EU presents many benefits that the UK would incur by still being in the union. There will be a greater choice for consumers, they will have access to wide range of goods which would be available without having to pay tariffs. Firms will also be encouraged to reduce prices while increasing quality and innovation to still be competitive. This increase in consumer sovereignty boosts UK living standards. This is amplified by the larger market for business; the population of EU is 500 million, ten times more than the UK, which allows business the chance to target greater number of consumers, and potentially, become more efficient through economies of scale, which allow the larger UK businesses to access even better deals and cuts via international resources.

Another crucial benefit is trade creation. This is where the removal of trade barriers causes a country to switch from buying goods from a high-cost producer (often in the UK market), to a low-cost producer inside the customs union. The main example of this can be seen with the removal of any internal tariffs within the EU whilst creating the Common External Tariff (CET) which further promotes internal trading and sets up better relations within the EU. Additionally, mass relocation can occur. UK firms can move to any country within the EU that offers cheaper land rents or lower wages; hence costs of production will fall, making UK firms more price competitive.

An increase in highly skilled workers; hence quality of output will rise, increasing the firm’s non-price competitiveness UK and other EU workers can move to any EU country which offers better job prospects which may help reduce UK unemployment and will enable UK firms to fill job vacancies more easily with appropriately low paid or highly skilled workers from abroad.

On the contrary, there are multiple drawbacks to the EU, which can be abandoned by leaving the EU. Competition for UK firms is created if EU firms are from countries where costs are significantly lower, for example cheap wages, therefore it may be very hard for UK firms to compete successfully. Also, as UK consumers have more choice and firms face greater competition from abroad, this may boost import expenditure, hence increasing business bankruptcies and redundancies in the UK which would undermine the full employment and balance of payments economic aims. Another drawback is the common agricultural policy, where the UK contributes money for the EU’s CAP.

The impact upon British farms is a reminder of the setbacks which the EU present. 

This is a system whereby agricultural prices are guaranteed, and this means that farmers can expect a guaranteed income for their output. This benefits countries where the agricultural industry is inefficient. However, in countries like the UK, farmers lose out as UK farmers are generally far more efficient than other EU members, but cannot offer their products for a lower price because of the CAP. Being a part of the EU also cost the UK an immense amount of money. The UK pays more into the EU budget than it gets back. In 2016 the UK government paid £13.1 billion to the EU budget, and EU spending on the UK was forecast to be £4.5 billion. So, the UK's 'net contribution' was estimated at about £8.6 billion. 

In hindsight, leaving the EU was an unwise decision. This is not because the UK cannot survive solely outside of the EU, but mainly due to the pros we experience being within the EU. It is true that trade can be kept with cautious negotiating and in the long term, relations will eventually grow back. However, this means that at least for the next decade, the UK will need to focus on building new relations with countries across the globe and forging new deals. Additionally, key trade benefits, such as 0% internal EU trade tariffs, are lost completely with very little hope of returning outside the union.

Only the future will tell us if Brexit, really was a great idea. 

Although each of the negatives are true, their value is simply based on the idea that the UK is better than the EU average, therefore the UK cuts losses whilst other countries profit. This completely misses the original intention of the EU. Yes, the UK was a net contributor, but it is simply selfish to think that that was money wasted. It went to countries that needed them and allowed the states, in the form of a union, to grow. As dubious as it seemed, the EU was an insurance policy for the UK and without it, it’s not certain we will stumble, but there’s no guarantee we’ll have as much help getting back up.