The Cost of Brexit

For 40 years, Sarah Pettitt’s farm in eastern England produced bumper crops of vegetables—thanks largely to a steady stream of workers from Eastern Europe who kept the farm running. But when Brexit—the United Kingdom’s departure from the European Union—took effect in 2021, new migration rules kicked in, and Pettitt had a hard time finding the labor she’d long depended on.

Pettitt was forced to cut her farm’s production by 20 percent.

“If you can’t get people to come and harvest it, you’re not going to take your pound notes out of your back pocket and chuck them in the fire,” she says, referring to the British equivalent of dollar bills.

More than two years after Brexit took full effect, the economic repercussions for the U.K. are becoming clearer. A recent report by the Office for Budget Responsibility found that Brexit had a “significant adverse effect” on British trade. In December, when the British Chambers of Commerce surveyed British businesses about Brexit, more than half said they were finding it hard to adapt to the new trade rules. The International Monetary Fund predicts the U.K. will be the world’s only major economy to shrink in 2023.

For 40 years, Sarah Pettitt’s farm in eastern England produced large crops of vegetables. A steady stream of workers from Eastern Europe kept the farm running. But Brexit—the United Kingdom’s departure from the European Union—changed things. When it took effect in 2021, new migration rules kicked in. Suddenly, Pettitt had a hard time finding the labor she’d long depended on.

Pettitt was forced to cut her farm’s production by 20 percent.

“If you can’t get people to come and harvest it, you’re not going to take your pound notes out of your back pocket and chuck them in the fire,” she says, referring to the British currency.

More than two years after Brexit took full effect, its economic impact on the U.K. is becoming clearer. A recent report by the Office for Budget Responsibility found that Brexit had a “significant adverse effect” on British trade. In December, the British Chambers of Commerce surveyed British businesses about Brexit. At the time, more than half of them said they were finding it hard to adapt to the new trade rules. The International Monetary Fund predicts the U.K. will be the world’s only major economy to shrink in 2023.

“The evidence is now overwhelming that Brexit has big economic costs,” says Dennis Novy, an economist at the London School of Economics. “Brexit is like a car tire puncture. It’s slowly deflating, and you might not notice for a while. But we’ve reached a point where the tire is getting flatter and flatter.”

Novy says his research indicates that British trade is 10 to 15 percent lower than it would have been had Brexit not happened. That roughly translates to as much as $150 billion not flowing into the British economy. Ultimately that means less tax revenue for the government to spend on health services, education, and transportation.

“The evidence is now overwhelming that Brexit has big economic costs,” says Dennis Novy, an economist at the London School of Economics. “Brexit is like a car tire puncture. It’s slowly deflating, and you might not notice for a while. But we’ve reached a point where the tire is getting flatter and flatter.”

Novy says his research shows that British trade is 10 to 15 percent lower than it would have been had Brexit not happened. That roughly translates to as much as $150 billion not flowing into the British economy. And that means there’s less tax revenue for the government to spend on health services, education, and transportation.

In a 2016 referendum, British voters opted to leave the European Union—a federation of 27 European nations that share free trade and open borders—by a 52 percent to 48 percent margin. The separation agreement took several years to work out, with Brexit taking full effect in 2021.* Supporters argued that leaving the E.U. would enable Britain to restore control over its borders, immigration policies, and trade relationships.

“In the three years since leaving the E.U., we’ve made huge strides in harnessing the freedoms unlocked by Brexit,” says Prime Minister Rishi Sunak. “Whether leading Europe’s fastest vaccine rollout, striking trade deals with over 70 countries, or taking back control of our borders, we’ve forged a path as an independent nation with confidence.”

The European Union consists of 27 European nations that share free trade and open borders. In a 2016 referendum, British voters opted to leave the E.U. by a 52 percent to 48 percent margin. The separation agreement took several years to work out. As a result, Brexit didn’t take full effect until 2021.* Supporters argued that leaving the E.U. would help Britain restore control over its borders, immigration policies, and
trade relationships.

“In the three years since leaving the E.U., we’ve made huge strides in harnessing the freedoms unlocked by Brexit,” says Prime Minister Rishi Sunak. “Whether leading Europe’s fastest vaccine rollout, striking trade deals with over 70 countries, or taking back control of our borders, we’ve forged a path as an independent nation with confidence.”

But critics say Britain’s economy is struggling. There are new trade barriers, customs forms, and regulations in place that weren’t there before. All of this means more headaches for British businesses trying to sell products to Europe or import goods from Europe.

“The way things have panned out in the last two years have been really bad for small business,” Michelle Ovens of Small Business Britain told CNN recently.

Brexit has also caused “a massive drop in immigrant workers,” according to an agricultural recruiting group. The U.K. has a shortfall of about 330,000 workers—in transportation, retail, and hospitality, as well as farms, according to the Centre for European Reform.

But critics say Britain’s economy is struggling. There are new trade barriers, customs forms, and rules in place that weren’t there before. This has created more hurdles for British businesses trying to sell products to Europe or import goods from Europe.

“The way things have panned out in the last two years have been really bad for small business,” Michelle Ovens of Small Business Britain told CNN recently.

Brexit has also caused “a massive drop in immigrant workers,” according to an agricultural recruiting group. The U.K. has a shortfall of about 330,000 workers, according to the Centre for European Reform. That’s affected the transportation, retail, and hospitality industries, as well as farms.

That shortage of workers has hit U.K. farms particularly hard. Last year, about $27 million worth of fruit and vegetables went unharvested, according to a survey by the National Farmers’ Union. Forty percent of farmers said they had suffered crop losses, and more than half said they had cut production.

Of course, Brexit isn’t the only challenge Britain’s economy has recently faced. The Covid-19 pandemic forced lockdowns that sharply curtailed economic activity. And the war in Ukraine has caused spikes in energy prices and fed inflation.

“It’s been hard to disentangle those overlapping economic shocks,” says Donatienne Ruy of the Center for Strategic and International Studies, a Washington, D.C., think tank, “but longer term, Brexit is the biggest one.”

That shortage of workers has hit U.K. farms particularly hard. Last year, about $27 million worth of fruit and vegetables went unharvested, according to a survey by the National Farmers’ Union. Forty percent of farmers said they had suffered crop losses. More than half of them said they had cut production.

Of course, Brexit isn’t the only challenge Britain’s economy has recently faced. The Covid-19 pandemic forced lockdowns that limited economic activity. And the war in Ukraine has caused spikes in energy prices and fueled inflation.

“It’s been hard to disentangle those overlapping economic shocks,” says Donatienne Ruy of the Center for Strategic and International Studies, a Washington, D.C., think tank, “but longer term, Brexit is the biggest one.”

Economists say that when you compare the U.K.’s economic recovery since the depths of the Covid crisis with those of other major economies, the U.K. is an outlier, and Brexit is the reason. The U.K. is the only member of the G7—a group of advanced economies that includes Canada, France, Germany, Italy, Japan, and the U.S.—whose economy is smaller than it was before the pandemic.

A November poll found that one in five people who voted for Brexit now regret that choice. Overall, 56 percent of the British public says it was a mistake to leave the E.U. But no lawmakers are talking about a new vote.

Despite all the bad news on Brexit, Novy, the economist, sees a silver lining.

“Unwittingly, Brexit has shored up support for the European Union more than anything else before,” he says. “In a lot of countries, you’ve had Euro-skeptic critics. But those voices have almost disappeared, and now support for the E.U. in the remaining 27 countries is very high. And the reason is Brexit.”

Economists say that when you compare the U.K.’s economic recovery from the Covid crisis with those of other major economies, the U.K. is an outlier. Brexit is the reason for the slow economic rebound, they note. The U.K. also has lagged behind other members of the G7—a group of advanced economies that includes the U.S., Canada, France, Germany, Italy, and Japan. It is the only member whose economy is smaller than it was before the pandemic.

A November poll found that one in five people who voted for Brexit now regret that choice. Overall, 56 percent of the British public says it was a mistake to leave the E.U. But no lawmakers are talking about a new vote.

Despite all the bad news on Brexit, Novy, the economist, sees a silver lining.

“Unwittingly, Brexit has shored up support for the European Union more than anything else before,” he says. “In a lot of countries, you’ve had Euro-skeptic critics. But those voices have almost disappeared, and now support for the E.U. in the remaining 27 countries is very high. And the reason is Brexit.”