Brexit: Ten Years Later

25:12Now last time you were on Gary you were talking about how the Middle East conflict was affecting your costs and I guess how you had to pass on some of those costs to customers. Are they understanding of those pressures or is it still very hard to pass them on? no customers customers are understanding whether that be in the uk and europe or or globally but at the end of the day people are looking at some doing for us in in seafood as we increase our sales price we see a decrease in sales so it's that it's that balance isn't it because we work it's a small margin product for us anyway we're a small margin business so we we don't have much wriggle room all we generally try and do is find efficiencies and work even harder.

25:55So, yeah, oil price, obviously, energy costs are just crazy for us in the UK, any business, any household, really. Now, when there is that kind of uncertainty, can you actually plan around it? Or do you just have to kind of take the differing costs as they come? Or you're essentially waiting to see what price lands in front of you? Yeah, and generally we're buying our energy two years in advance. So luckily, at the moment, We're not, you know, it's still significant, our energy costs, but not listening to some businesses I speak to. And all the time, we're always looking at how we can become more efficient.

26:31But again, you can become more efficient and then you can actually, your production numbers can decrease. But especially on the catching sector for us, because it's a wild-caught product, all UK vessels, their major main overhead after crew wages is diesel costs. and then anybody on shore now, especially in construction and so on, some of our machinery, we used to be able to operate on red diesel. Now it's all white diesel. So all of our refrigeration equipment on the road vehicles is all white diesel now. So yeah, energy costs just affecting everybody in the UK. Now, another part of the story is that countries whose tourism industries have been hit due to their proximity to strikes in the Middle East have been experiencing something of a rebound as chances rise of a long-term peace deal at the US-Israel war with Iran.

27:20Jane, does that make sense to you? People are kind of also hedging their bets in terms of where they're going on holidays. Yes, yes, it does. I mean, I think everyone was pretty worried before, but of course now it looks as though there is a peace. Then the bookings are picking up sharply and the share prices of all of the travel companies and airlines have certainly been bouncing quite sharply over the last month. You've had 2E up about 10%, Jet2 up 17%, EasyJet up 45%. There's a big response to this already. And speaking of EasyJet, there could be a big deal coming this week for EasyJet or not.

28:04Absolutely. I mean, it looks as though there might be a takeover offer, which would be a pretty big deal, I think. The UK's got used to that independent company. so whether or not the brand changes I guess that will continue but it will be a big change of ownership there Ever invest in something that seemed incredible at first but didn't live up to the hype? Like those$5 roses at a gas station or a second-hand piece of technology that breaks in the first 10 minutes? Marketers know that feeling We optimise for the numbers that look great impressions, reach and reacts But when they don't show revenue, well, that's a not-so-great conversation with the CFO.

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29:34Dale traded up to Geico Commercial Auto Insurance for all his business vehicles. We're here where he needs us most. Yep, they sure are. We make it easy for him to save on all his insurance needs, all in one place, with coverage that fits his business and bottom line. Oh, I shouldn't have looked down. It's all right. We're so far up here. Look at me. Take a deep breath. No, I'm good. So good. Get a commercial auto insurance quote today at geico.com and see how much you could save. It feels good to Geico. Wake Up To Money from BBC Radio 5 Live. Good morning. If you're tuning in, welcome to Wake Up To Money.

30:09Thank you so much for tuning in to us this morning. We have been talking about political reaction. Could be a change in Westminster. But we're going to be moving on to Brexit soon. We do have a few texts in on that though. Just go through a few of them. Morning, the balance sheet in the UK shows our GDP is unfortunately only equal to government borrowing. Is it irrelevant who our new PM might be? Our country is broken and the cracks have widened considerably since Brexit. Well, we're going to be talking about that was for Kev in Newcastle. Good morning. Would you please ask your guests on this morning's programme, speaking about the economy, what do they understand government debt to be?

30:47Should government debt always be reduced or can it sometimes be increased for good economic reasons? Many thanks, Neil. Jane Sydenham, I'm going to ask you that question. I can't answer it. Well, it would be good, I mean, if we do reduce debt and normally what happens is if we're growing strongly, then the government raises more taxes just because companies are growing, not because they're increasing the rate of tax. And that money can be used to reduce the debt. So pay off the debt like we pay off our mortgages. So absolutely government debt can come down. Unfortunately, it's only been going one way, particularly since Covid, but it can definitely come down.

31:26There you go. Jane Stenham, always good for economic lessons. Thank you so much. But we're going to look back at the last decade since the Brexit referendum of 2016. It was very much a moment of where were you when this happened? And we're going to be reflecting on the politics of the time, reviewing how our society and the economy essentially has changed since then. So we do want to hear your thoughts. Get in touch with us. Text 85058 or WhatsApp 08085 909693. Get in touch or if you're on social media, use the hashtag WakeUpToMoney. Gary, where were you 2016? at this time 10 years ago? With my head in my hands.

32:07It's interesting. I think a lot of fishermen would have been pro-Brexit. Yes and no. So my background is purely shellfish. So Bridlington was quite a significant whitefish part in its day, Grimsby, Hull, places like that. And then it turned over to shellfish in the 90s and I think around 2020, I think 86 % of shellfish caught in the UK was exported, with a majority of that going into the EU. So from a shellfish perspective, we had absolutely nothing to, as an industry, we had absolutely nothing to gain from Brexit. It was more, but fishing being an emotive subject, on the whitefish perspective where there's a quote and negotiations with the EU, that was a different matter.

32:52That was my problem really during all of that campaign period, is that I think fishing only equated for 0.2 % of GDP. But emotively, the amount of people had told me they voted to help me, to benefit me, and it didn't benefit us as a business or an industry, not one bit. Interesting. Jane, were you working that day? I was. I was, yes. We'll get into the economics of it all later, but I remember it quite vividly, kind of really just watching it and saying, oh, okay. So do I. thinking, oh, this really is a big change, you know, after 43 years in the EU. You know, we were always going to have to do things very differently after all that time.

33:36So, yeah. Right. OK, well, let's go back in time, get into our time machine, because tomorrow will be 10 years since the UK held a referendum on its membership of the European Union. Many of us will remember the official announcement of the result on BBC News. We are absolutely clear now that there is no way that the Remain side can win. It looks as though the gap's going to be something like 52 to 48, so a four-point lead for leaving the EU. And that's the result of this referendum, which has been preceded by weeks and months of argument and dispute and all the rest of it. The British people have spoken, and the answer is we're out.

34:17And the UK would not officially leave the EU until three and a half years later, on the 31st of January 2020. but the impact of the decision was immediate. I do not think it would be right for me to try to be the captain that steers our country to its next destination. Now having called the referendum himself and then campaigning to remain, David Cameron was the first to go if fell to Theresa May to negotiate a deal to leave the EU. She hoped that her deal would give rise to a bright future. Future generations look back at this time. They will judge us not only by the decision that we made, but by what we made of that decision.

34:58They will see that we shaped them a brighter future. They will know that we built them a better Britain. But it was not to be. She too was forced to resign the decades since the referendum has been one full of debate and negotiations continuing right up to the present day with as many as five prime ministers coming and going in the intervening period. I will shortly leave the job that it has been the honour of my life to hold. I want you to know how sad I am to be giving up the best job in the world. But them's the brakes. Given the situation, I cannot deliver the mandate on which I was elected by the Conservative Party.

35:42But I leave this job honoured to have been your Prime Minister. There you go. Now joining us to discuss what the last decade has meant for businesses in the UK is John Do, Professor of Economics at Aston Business School and an expert on trade and international business. Good morning. Good morning. Hi, good to be here. Oh, it's great to have you. And we've also got Raoul Rapparel, who served at Theresa May's Special Advisor on Europe during the first round of Brexit negotiations. He's now UK Chief Economist at Boston Consulting Group. Good morning to you. Good morning. Now, Jundu, I'm going to start with you.

36:18The vote happened in 2016, but the new trading arrangements didn't really bite until 2021. So when did the economic effects start showing up, do you think? You might be surprised. The economic effect, in fact, happened even before 2016. Economists studied this quite rigorously. By now we have an excellent body of research showing how exactly things have evolved. And actually the expectations of this Brexit has happened before 2016. And the specific effect happened during that four and a half years uncertainty. So we already saw trade has been diverting and especially the firms exporting new stuff.

37:00So the new kind of product line they've never done before and those already moving towards the EU right before the TCA came in. Now, what does it look like now? Because you look closely at trade data. What's actually changed in the UK-EU trade since 2016? Oh, it's been a journey. And it's for the economists who have been following this, and as we do, we did estimation of nine months after January 2021, 18 months, two years and three years. and we're about to publish the five years review until almost the end of 2025. It's not rosy, I have to say. A lot of economists have done similar work, and we have been following closely the trade in terms of exports and imports between the EU and UK.

37:46You might know that one of the studies estimated before the TCA to say that we're going to have 8 % drop of trade, but that figure by now has been doubled at least. So estimated up to October 2025, relative to the counterfactual, you know, what would happen if Brexit didn't happen? We see the UK exports to the EU have dropped around 17%, you know, give and take, and that can vary, but, you know, around that number. And UK imports from the EU have dropped almost by a quarter. Wow. John has some stark numbers there, Raoul. But you were advising Theresa May during those negotiations. When you hear those numbers and those clips that we maybe brought you back, does it feel like yesterday or just another political lifetime ago?

38:35I think a bit of both, to be honest. It feels like a long time ago in many ways. And so much has happened since then in terms of the UK and geopolitics, etc. But yes, it still feels very vivid and like yesterday in many ways. At the start, did people in government understand how complicated it would be and 10 years later, we'd be where we are now? I think people understood it would be complicated. I'm not sure people thought it would quite take as long as it did to negotiate. I think the part that probably ended up taking a lot longer was for us as the UK to agree internally what we thought our best approach would be, the difficulty in getting things through parliament and then obviously layering the negotiation uncertainty and difficulty on top of that.

39:21So I think we knew at the start, at the outset, in kind of 2016 post-referendum, early 2017, that it would be complicated and it would take some time. But I think the time altogether, when you look across, you know, negotiations, implementation, et cetera, has taken probably six, seven years. That was probably longer than people expected. Yeah, for sure. Remind us what the sticking points were, because I'm sure a lot of people kind of forget. And also, they weren't always necessarily the ones that people expected after the referendum. What were the ones that surprised you the most? well I think after the referendum and in a end of 2016 early 2017 when we started scoping out the negotiations and and obviously we couldn't talk to the EU until after the election until we've after officially triggered article 50 so there was a lot of kind of sort of back channeling and trying to figure out what the issues would be I think at the time the real concern was you know around the financial settlement and our withdrawal from the EU budget and how much that would cost and whether the EU would ask more than we were willing to pay and and that was seen as being a big flashpoint in negotiations and i think at that time you know it wasn't obvious that the issue around northern ireland and the the eventual backstop and the protocol would become you know probably the biggest sticking point and it wasn't until we got into you know early well say late 2017 um and we really got into the negotiations and we came towards the point of the joint report and sufficient progress if people remember that whole thing um which which then became clear that actually Northern Ireland, how we managed the border, how we agreed that during the withdrawal agreement negotiations was going to be the most difficult point and the sticking point.

41:00So it was, you know, people can look back and say it was always going to be a big issue. But I think there was a sense at the time in at least 2017, early on, that that was soluble, that, you know, UK and the Republic of Ireland would find a way that would work for both. But actually, in the end, that became the biggest sticking point. And that shifted quite a lot during negotiations. And obviously this was all added to at the time by the fact we went from from having you know a majority to not having majority because of the 2017 election it seems like there was almost a sequencing problem that you had to overcome because there was the withdrawal first and then there was the future trade relationship negotiations later yeah and i think that was another uncertainty you know i think in 2016 there was a hope that actually this would all be done you know in parallel and that we'd be talking about it all at once and and maybe that might have made the whole thing of it easier if you can see what the end destination is while you're trying to negotiate the path there um but obviously that wasn't to be and the eu was very strict and clear on the sequencing of negotiations so they wanted to agree the withdrawal agreement uh first and and get all the kind of divorce proceedings as they became known um sort of sorted and and then we could discuss the future relationship and i think while that was always seen as a possibility and and something to probably avoid from the UK perspective.

42:17You know, it did get locked in, you know, quite quickly after Article 50 was triggered and around that time. And I remember coming back off the election in 2017, you know, we had just not won the election. And then within a week, we had to go to Brussels to do our first round of negotiations. And it was still all up in the air in our perspective about how this would look. But the EU had a very clear view and was able, partly because of, I think, the uncertainty around the government and the lack of kind of strength of the government to push back against the negotiation sequencing to land that and lock that in.

42:51And that obviously really shaped what happened over the preceding years. Now, John, I'm going to bring you back in here because you have all the trade data at your fingertips. We do have a text in saying, any debate on leaving the EU needs to also include how much money has been saved and the benefit with respect to the COVID vaccine. And isn't the EU economy doing worse than the UK economy? I mean, it is an interesting point to make. Critics would say a lot of things did happen at the time, particularly around 2020, COVID, inflation, energy prices, war in Ukraine, et cetera, et cetera. We could go on.

43:22So how do we know that, you know, the trade hit is just Brexit rather than everything else? Well, I think such arguments are valid. I think a valid concern that, you know, the future policy making and negotiations have to take into account. And it's indeed EU is weaker now than five years ago. But overall, I think the statistics and economic estimates are very clear. The loss is simply such a substantial number relative to, you know, whatever the figure, you know, we might pay. I think the recent study of Blumen and authors published this year has calculated overall estimate of the GDP loss is about 8%.

44:04So, you know, if you calculate that, that's an incredible number. So, you know, all this amount of money we pay, paying into the EU, in the end, we're translating to opportunities, investment, the certainty. And not to say that, you know, the size of the market, which is, you know, largest consumer market and the sophisticated one next to us. So overall, the economic message is very clear. But we also know the Brexit was never just an economic issue. It's primarily a political issue. So I would say that, you know, indeed, we have to tread carefully. We probably need to consider various considerations and the conditions, if ever we're going to talk about going back in what terms.

44:47But overall, being part of the single market is absolutely beneficial. Now, Jane, markets reacted very sharply at the time. Sterling fell, I mean, it dropped off a cliff after the vote, didn't it? But at the same time, 10 years on, the city hasn't collapsed. In some ways, financial services have been more resilient than a lot of people predicted. So is that a fair point to make? Well, yes. Jane, sorry. Go ahead. No, no, I think it is. I think one of the things that we know is that business always innovates its way. It finds its way around problems. So and I think, you know, the city and various businesses have done that as far as they possibly could.

45:29So I think it's been better than the worst case scenarios for that reason. But obviously, you know, it could have been much better if we'd had continued to have that free access. Now, as various changes as a result of Brexit have been implemented, we've talked to a lot of businesses in Wake Up To Money having to deal with the impact. But it's interesting. There's an overall picture as well. And it's good being able to look at it in a 10 year process. And actually on Friday, a group of economists published a new analysis of Bank of England data suggesting that by the end of 2025, Brexit had reduced UK GDP by 6 to 8%.

46:05And the study suggested the impact accumulated steady over time. And we saw investment reduced by 12%, employment by 3%, productivity by 4%. June, you've done some of your own research on this. How does that compare? We have focused on trade, trading goods and FDI. I think for the trade figures, it's larger. And just now I mentioned to you about the export and imports effect that we have estimated about 17 and 23 percent. But then, you know, we usually don't talk about the varieties. Consumers love cheaper price, but also large varieties. And we have lost a lot of varieties. So think about in the past, we have cheese of any kind, whatever you want to add.

46:52But now, for example, we would have less. And for the same reason, EU consumers would have less of the British cheese either. So we have lost product variety almost by half as an estimate we have found. So in that sense, the welfare loss is very clear. But in addition to that, we have estimated outward FDI has been gone out since the Brexit referendum in a very considerable way. And 12 percent you just mentioned, that's also one of our estimate. And we found the TCE introduction did not reverse that. So until today, we still see the investment going out of the UK and that trend hasn't reverted.

47:34Raoul, from inside government, how much was that economic cost of uncertainty understood at the time? yeah I think it was understood I mean I think when you look back at the forecast that we made you know the government published in 2018 a long-term economic analysis and the forecasts were similar at headline level in terms of the effects that we've been talking about here and that economists have made since I think what is different is that trade was seen as the primary sort of channel for the economic impact back then I think as you've mentioned uncertainty and the hit on business investment and particularly domestic business investment was much more significant than I think people were forecasting back in sort of 2017, 2018.

48:14And I think just that paralysis also affecting everything else. So, you know, the lack of ability to do anything beyond Brexit and the negotiations, the implementation, you know, there was very little other policy going on. Government and I think business were spending a lot of their time preparing and thinking of different scenarios. and I think that created obviously a wider economic paralysis in the country and you know when you look at the trade data we've heard a lot of the figures about trade with the EU there but it's also worth noting that you know the UK's trade the US in goods has performed just as badly if not I think actually worse than our trade with the EU over this period so you know that wider paralysis and and the challenges have sort of gone wider than just trade with the EU so I think that uncertainty was was I think understood but I think it ended up probably being larger in terms of its long-term impact and the kind of wider impact on the UK as an economy and on our politics as well in terms of trying to find a path forward.

49:10Gary, when we talk about uncertainty, what did that look like for you and has your business changed in the last 10 years? Well, the uncertainty at the time was just, I do remember after the referendum, just as a business, we were at a crossroads so we either decided to to pivot find a way of operating find a way of around all the procedures and carry on trading or we we ceased trading with the eu so we made that decision to continue heavily involved in a lot of the trade bodies and steering groups workshops the negotiators were incredible i think they need they need to take a lot of their credit so yeah I think I think we've got a way of working now obviously there's some costs there's some time involved in that but yeah to undo 47 years of a working relationship was never going to be straightforward and never going to be easy but yeah the demand in the EU is as strong as ever for UK products the biggest barrier I think to entry into the EU is just purely the cost of the product now, the cost of operating business in the UK.

50:18There you go, Raoul. You got a little compliment there from Gary. Let's go to today and the current situation because we've got the Labour government seeking to try to reset relations with the EU, particularly within the context of a trade environment dominated in the last year by President Trump's tariff policies. And then earlier this year, Chancellor Rachel Reeves told the BBC's economic editor, Faisal Islam, that the government would look to align with the EU if it was in the UK's interest. We are not burying our head in the sand. We are not immune to the damage that Brexit has caused. And we are trying to rebuild relations.

50:53And yes, where alignment is in our national interest, we should align with European rules, where that is good for business and where it is good for jobs in Britain. But a report by the House of Commons Business and Trade Committee of MPs today warns a gap between rhetoric and reality when it comes to the government's reset of relations. Raoul, where do you think we go from here? Well, I think that ultimately, if the key aim is to address some of the economic impacts we've been talking about, then fundamentally, there needs to be a grappling with, you know, the red lines that have been set out and been discussed over many years in terms of the single market and customs union.

51:29I think the reset, yes, there are things that can help on the margin, but fundamentally, they don't address the things that have caused the kind of economic impacts and diversion in trade. So that's the first thing that, you know, there needs to be a grappling with that if that's the direction the country wants to go in. I guess we also need to be realistic and think about what is negotiable. You know, there's been a tendency over the past kind of decade to discuss internally what is acceptable and desirable for the UK. And that's necessary. But often that then ends up not being, you know, kind of negotiable or acceptable to the EU.

52:00And I think the EU has been pretty clear that, you know, if you want to be in kind of a closer relationship, whether that's a single market or the customs union, that there are tradeoffs and prices attached to that in terms of budget contribution, free movement of people etc and then i think we also have to recognize that you can't go backwards you know as we've talked about businesses have made investments they have made changes there are ongoing frictions but i think we should also think about what does the future look like rather than assuming that things will go back to the way they were because i think as we talked about you know fdi out of the uk into the eu has gone up and that at a macro level reflects what we see at the granular level which is that businesses have made investments into the eu to avoid some of the trade frictions.

52:42Now, just because we might change the relationship doesn't mean businesses will go back to how it was before. Obviously, businesses like Gary's have ongoing friction and it will help them. But I think we just have to think of all of these things in the round if we actually want to have a serious debate around what comes next. And I'm not sure we're quite there yet. And we're still at risk of thinking too much internally rather than what is negotiable and practical for business looking forward. Jun, Raoul makes a really good point there. We can't go back. Economically, what would a meaningful reset actually look like?

53:18Well, I think we need to recognise the progress we have made. I think since last year, the first time summit between the UK and EU, I think the progress has been made and the government has been trying to push the SPS agreement, linking the electricity markets and sorting out the energy trading schemes, as well as negotiating the use of mobility. So these are the conditions that hopefully will be cleared this year. I think what we really need to be thinking about is what's next. I think the governments probably have been treating this as a kind of responsive and passive kind of actions to deal with problems, rather than agenda setting and thinking about industry strategy.

53:59I think at the moment we are presented with a kind of interesting opportunity because the EU is incredibly weak considering it's going to rise in the trade war with China. The trade deficit is increasing. We're going to have to leave it there, sadly. Thank you so much for joining us, Raoul Perl, as well. Thank you for joining us. I'm Gary Hodgson and Jane Sydenham, Senior Investment Director at Ratbones. And that is it from Wake Up To Money. Wake Up To Money from BBC 5 Live That's it from Wake Up To Money You can download the podcast every Monday to Friday So please make sure you subscribe We'd also love it if you left us a review When you do, get in touch Keep the conversation going any time as well On social media, use the hashtag Wake Up To Money He's widely recognised as one of the greatest footballers in history He's won the prestigious Ballon d 'Or award five times.

54:58He's the all-time leading goal scorer in professional football. And according to the Bloomberg Billionaires Index, he's the first active footballer in history to achieve billionaire status. Guess who we're talking about yet? That's right. Good Bad Billionaire is exploring the life and fortune of football icon Cristiano Ronaldo. That's Good Bad Billionaire from the BBC World Service. Listen now wherever you get your BBC podcasts.

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56:25That's linkedin.com slash broadcast. Terms and conditions apply. He's widely recognised as one of the greatest footballers in history. He's won the prestigious Ballon d 'Or Award five times. He's the all-time leading goal scorer in professional football. And according to the Bloomberg Billionaires Index, he's the first active footballer in history to achieve billionaire status. Guess who we're talking about yet? That's right, Good Bad Billionaire is exploring the life and fortune of football icon Cristiano Ronaldo. That's Good Bad Billionaire from the BBC World Service. Listen now wherever you get your BBC podcasts.