August is traditionally the start of the media silly season in the UK, but this year it got going earlier than usual in the UK with the Government providing much of the shenanigans. In the past month, British politics has been dominated by reports of aspiring Cabinet ministers locking horns over the Tory leadership after “too much warm prosecco,” and by the very public squabble among ministers over how quickly and suddenly Brexit would be implemented – both of which has done little to inspire confidence that the Government has a coherent plan for exiting the EU.
However, amidst the summer politicking and parties, a new report by Centre for Cities should make for sobering reading for Government ministers, particularly those pushing for a hard Brexit. The report (published in partnership with the Centre for Economic Performance at LSE) charts for the first time the likely impact of both a hard or soft Brexit on UK cities in the decade after new trade arrangements with the EU are put in place—and in both scenarios, the news isn’t good.
The research shows that all British cities are set to see a fall in economic output as a result of leaving the EU, because of the predicted increase in trade costs that both a ‘hard’ and ‘soft’ Brexit will bring. It also reveals that the economic impact will be almost twice as big in the event of a ‘hard’ Brexit, which the research predicts will bring an average 2.3% reduction in economic output across all UK cities (compared to a 1.2 per cent decrease if we have a soft Brexit).
Moreover, the report sheds light on the much discussed, but often misunderstood, question of how different parts of the country will be affected by leaving the the EU. Since the referendum last year, it’s become commonplace to suggest that voters in Britain’s so-called ‘left behind’ places—the predominantly pro-Leave areas in the North, Midlands and Wales which drove the vote for Brexit—will bear the brunt of that decision.
"Wealthy cities in the South East are set to be hit hardest"However, the new research shows that it’s actually mainly wealthy cities in the South East which are set to be hit hardest. That’s because cities like London, Cambridge and Reading are home to large numbers of jobs and firms in knowledge-intensive sectors such as business and financial services, which will be most affected by the increase in tariff and non-tariff barriers that Brexit could bring.
Yet the conventional wisdom on Brexit is not entirely wrong. While these more affluent cities will be hit most directly, they are also well-placed to adapt to the shock ahead, thanks to their abundance of high-skilled workers, innovative firms and strong business networks—all of which are crucial in enabling a city to reinvent or adapt its industrial structure to changing economic circumstances.
In contrast, many places in the North, Midlands and Wales will face less of a shock after we leave the EU, but are also more vulnerable to the coming changes, as they have lower numbers of high-skilled firms and workers. As such, Brexit is likely to bring a repeat of the aftermath of the 2008 recession—when London and other places in the South East were initially most exposed, but also recovered more quickly and strongly than other parts of the country.
Two things are clear. Firstly, for the Government to minimise the economic shocks ahead as much possible, it must strive to ensure that our post-Brexit trading arrangements are as close to our current relationship with Europe as possible—which means pushing for the softest Brexit possible.
Secondly, the Government must quickly get to grips with diverse challenges facing different parts of the country as we leave the EU. In particular, it should use the forthcoming industrial strategy to give cities across the country the investment, powers and responsibilities they need to make their economies as successful and competitive as possible. Not only will that be crucial in helping places adapt to Brexit, it will also be critical in meeting other big challenges such as globalisation and automation which are likely to dominate the coming years.
But above all, the Cabinet must draw a line under the internal rows and manoeuvring of the past few weeks. People and places up and down the country can ill afford for silly season squabbles to distract the Government from the scale and complexity of the task ahead as it charts the UK’s path out of the EU.