By Faris Al Hadidi
Jordan Daily - Ten years after Britain voted to leave the European Union, Brexit is unexpectedly returning to the center of British economic debate. But this time, the conversation is different.
In 2016, Brexit was largely a debate about the future: sovereignty, immigration, regulation, trade and the economic opportunities or risks of leaving the European Union. A decade past, Britain now has something it did not have in the past.
A major new poll published this week provides a striking illustration. The survey of more than 11,000 people found that 49 per cent supported Britain rejoining the European Union, compared with only 28.5 per cent who opposed it. More than half regarded the original decision to leave as wrong, while a majority described Brexit as a failure. Other surveys have shown an even clearer majority supporting re-entry.
This does not mean Britain is about to reverse Brexit. Nor does it necessarily mean that British voters are ready to accept the conditions that a new EU membership would require.
But it tells us something important: ten years after the referendum, Brexit is no longer a settled economic question.
I think we are asking the wrong question when we continue to debate whether Brexit was a success or failure.
The more useful question is what Brexit has actually changed in the British economy and what Britain should do next.
Leaving the European Union did not stop Britain from trading with Europe. Geography made that impossible. The EU remains one of Britain's most important economic partners, just as Britain remains an important market for European businesses. What changed was the friction surrounding that trade.
The EU-UK Trade and Cooperation Agreement avoided tariffs and quotas on many goods, but leaving the Single Market and Customs Union introduced customs procedures, regulatory requirements, rules of origin and other non-tariff barriers that did not previously exist.
For a multinational companies, many of these costs can be absorbed. For a smaller exporter, an additional certification requirement, customs declaration or border delay can determine whether exporting remains commercially worthwhile.
This helps explain one of the most important characteristics of Brexit's economic impact. Instead, the costs appear to have accumulated gradually through weaker trade intensity, investment and productivity.
The UK's Office for Budget Responsibility continues to work on the assumption that the post-Brexit trading relationship will eventually leave UK productivity around 4 per cent lower than it would otherwise have been and reduce trade intensity by around 15 per cent in the long run, while The Bank of England has reached a broadly similar, although not identical, conclusion, estimating a significant negative effect on potential productivity, and These estimates need to be interpreted carefully.
They do not mean that Britain's economy suddenly became 4 per cent smaller because of Brexit. They compare today's economy with an alternative path in which Britain had remained within the European Union, that alternative economy cannot actually be observed and Britain has hardly experienced a normal economic decade.
Since the referendum, the country has passed through a pandemic, an energy crisis, the inflation shock following Russia-Ukraine war, rapidly rising interest rates and repeated geopolitical disruptions. The global economy itself has also changed profoundly, moving towards protectionism, industrial policy and strategic competition, so separating Brexit from these forces is therefore difficult.
But one thing deserves attention: productivity. Britain's productivity problem existed long before Brexit. Brexit did not create it. But additional trade barriers, weaker investment incentives and reduced economic integration can make an existing productivity problem more difficult to solve.
And productivity, more than almost anything else, determines long-term living standards.
An economy can expand by adding workers or increasing its population. Sustainable increases in wages and prosperity, however, ultimately depend on producing more economic value from each hour worked. This is why the Brexit debate should now move beyond arguments about customs queues and border controls.
The real economic question is whether Britain's post-Brexit model can generate enough investment, innovation and productivity to compensate for some of the economic integration it surrendered.
Britain can negotiate its own trade agreements. It has joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and can develop independent regulatory policies in financial services, technology, artificial intelligence and other emerging industries. These freedoms have economic value.
But regulatory freedom is not automatically an economic advantage. Its value depends on how it is used.
A different regulation can be valuable if it encourages innovation, reduces unnecessary costs or attracts investment. Regulatory divergence simply for the sake of being different can instead create additional costs for British businesses that still need access to European markets.
Ten years after the referendum, perhaps the most important lesson is that economic sovereignty and economic integration both have value, but neither comes without a cost. Brexit gave Britain greater freedom over trade, regulation and economic policy, but it also introduced new frictions with its largest neighboring market.
The challenge for Britain now is not to repeat the arguments of 2016, but to decide how that independence can be used to generate stronger investment, higher productivity and better access to global markets, while at the same time rebuilding a more efficient economic relationship with Europe.
The latest shift in public opinion therefore matters, not because it means Britain is about to rejoin the European Union, but because it suggests that the economics of Brexit are entering a new phase. The next decade may be less about leaving Europe and more about finding the right economic distance from it.
Ten years ago, Britain asked whether it should leave the European Union. Today, the more important question is different: what kind of economy does Britain want to build outside it, and how close to Europe does it need to be to make that economy succeed?
I think the answer is difficult, and the debate will continue.
Faris Al Hadidi is an economist and banker.
