How are we doing?

Summary

Just over a year after the EU referendum, and a year and a half from the deadline for leaving the union, it’s time to take stock of the impact that the decision to leave the EU has had on the UK economy so far. This report examines how the UK economy has fared over the last year, explores the effect on industries, assesses the risks these industries will face at the point when we actually leave, and sets out the action we believe government should take to mitigate these risks.

The headline is that changes resulting from the referendum have further damaged an economy weakened by the financial crisis of 2008 and eight years of austerity politics. The picture is one of stalling growth, falling real wages, low investment, and a growing dependence on consumer debt.

Looking in more detail at what’s happening in individual industries: growth in wages, output and employment has slowed in most areas of the economy since the referendum, and real wages are rising in just three out of 18 industries.

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. Approximately around three in five of the jobs and economic activity at risk are concentrated in these sectors, with 1.5 million jobs in these industries dependent on exports to EU member states.

The national economic picture

• 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.
• Following the decision to leave the EU, the value of the pound fell sharply, and has continued to fall. This has contributed to a further fall in real wages but has not helped reduce the UK’s trade deficit. The devaluation helped push CPI inflation from 0.3% in the second quarter of 2016 to 2.7% a year later 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. And services exports have fallen
• 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 that 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 of the economy 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.

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 of the economy 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 1.5 million jobs in these sectors currently directly depend on exports to EU member states. This accounts for approximately three out of five of those at risk. These sectors 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 the need for government to step in now to protect jobs and growth all the greater.

Government should take action now and in the autumn budget 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 spent, 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.

The TUC respects the decision taken in the referendum that the UK should leave the EU. Our priority now is to ensure that working people do not pay a price in terms of their jobs and livelihoods for the decision. As this report has set out, considerable numbers of jobs are at risk.

We believe that within the negotiations:

• Unions should have a seat at the table when the future of work is negotiated, in order to ensure that working people’s rights are protected.
• Jobs, investments and livelihoods must be protected through tariff free, barrier free trade with Europe. That means government should seek a transitional period after leaving the EU in March 2019. During this period, the status quo should prevail. 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.
• We 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.