But with our exit date approaching fast, we can’t afford to lose sight of what’s at stake. The TUC report How are we doing? The impact of Brexit at industry level, published today, explores how the economy has performed since the referendum and looks at the risks faced by individual industries.
The headline findings are troubling. The UK economy was in a weak position ahead of last year’s vote, having failed to recover fully from the financial crisis of 2008. And by most measures things have only got worse over the last 12 months: growth has slowed, pay packets have shrunk, investment has dried up and consumer debt has risen to alarming levels.
Turning to the future, the risk of disruption to trade with the EU is focused in four sectors: business administration, professional, scientific and technical work, manufacturing, and finance. Around two in three of the jobs and two thirds of economic activity at risk are concentrated in these sectors, with 1.75 million jobs in these industries dependent on exports to EU member states.
The TUC respects the decision taken in the referendum, but the process of leaving will be long and complicated. Our priority now is to ensure that working people do not lose out. As today’s report shows, a considerable numbers of jobs are at risk.
So, what’s happening to the UK economy?
- GDP growth since 2010 has been just three quarters of the long-term average and the data from the last two quarters suggests we are experiencing a further slowdown, with annualised growth of just 1%.
- Following the decision to leave the EU, the value of the pound fell sharply, and has continued to fall. The devaluation helped push CPI inflation from 0.3% to 2.7% in a year, while nominal wage growth has slowed, resulting in a decline in disposable income and record low levels of saving.
- The weaker pound has also delivered a boost to exports of goods, as expected, by making UK goods cheaper abroad. But this was more than offset by an increase in imports, meaning the UK’s trade balance has actually deteriorated.
- More alarming in the context of Brexit is the fact that the UK has become more dependent on exports to EU states over the last year. The latest quarter of data shows exports of goods to the EU rose by 6.3%, while exports to the rest of the world increased by just 3.7%. Given the argument that increased trade with the rest of the world will offset any losses from leaving the EU single market, it is a concern that the country’s trade deficit with non-EU countries rose 25% between the second quarters of 2016 and 2017.
What’s happening where people work?
- Looking at the performance of different industries since last May, there have been considerably more losers than winners. GDP growth has slowed in three fifths of industrial sectors.
- This lacklustre performance has gone hand in hand with weaker wage growth. Workers in two out of three sectors saw reduced increases in their pay packets 2017. After taking into account inflation, the only areas of the economy to see significant pay increases are agriculture and the arts. This is in spite of relatively healthy productivity gains in half of the industries surveyed.
- These are also the only two sectors to have seen a pick up in the pace of employment growth. Elsewhere employment growth has slowed or stalled, most likely as a result of the weakened economy.
What are the risks ahead?
- The risks posed by Brexit are varied, but looking simply at the reliance of different sectors of the economy on EU workers and EU exports, five areas stand out: manufacturing, agriculture, finance, hospitality and transport.
- Some of these areas make relatively modest contributions to UK employment and economic production. When looking at the potential loss of jobs and economic activity as a result of reduced trade with the EU, four sectors stand out: business administration, professional and technical services, manufacturing, and finance.
- Approximately 1.75 million jobs in these sectors currently directly depend on exports to EU member states. This accounts for approximately more than two out of three of those at risk. These industries also account for around two-thirds of exports to EU countries, with more than £100bn of annual trade at risk from a Brexit deal that limits their access to EU markets.
What should government do?
Many of our economic problems pre-date the decision to leave the EU. But the additional risks posed by Brexit to our future prosperity make need for government to act to protect jobs and growth even more urgent.
Government should take action to:
- Get serious about infrastructure investment. The OECD recommend that countries spend 3.5 per cent of GDP on infrastructure. Even if the full National Productivity and Infrastructure Spend is invested, the UK will be spending just 2.8 per cent.
- Set out an industrial strategy that recognises how important worker voice is to raising productivity gains and growth.
- Tackle the exploitation of migrant workers which undercuts existing wage levels and conditions, for example by closing loopholes in the rules for temporary agency workers as recommended by the Taylor review as well as working with others to strengthen EU rules on posted workers.
- Direct more of the tax contribution migrant workers make to the communities that need extra resources for schools, hospitals and housing through a much-expanded migration impacts fund, as part of a general boost for spending on quality public services.
- Make it clear that the great repeal bill will include a cast iron guarantee that no workers’ rights that come from the EU will be diluted.
- Ensure unions have a seat at the table when the future of work is negotiated, to make sure working people’s rights are protected.
- Seek a transitional period after leaving the EU in March 2019 to protect jobs, investments and livelihoods. During this period the UK should remain a member of the single market and customs union, as this is the best way to guarantee access to European markets, to ensure that workers are covered by EU workplace rights, and to prevent job-destroying disruption and uncertainty.
What happens after 2019?
Most importantly though, the government should keep all options on the table when it comes to the shape of our future trading relationship with the EU. The best way currently on offer to protect jobs, rights and livelihoods is to stay in the single market and customs union beyond the transitional period.
While there may be alternatives, they must meet our tests of maintaining workers’ rights and job preserving tariff-free, barrier free trade with the rest of Europe.