London Mayor Sadiq Khan has been commenting on a report he had commissioned from the Cambridge Econometrics consultancy. It reveals there will be three million fewer jobs, a third less investment and significantly lower imports and exports.
London bad, elsewhere worse
The effects on London will be particularly grave, the report says, suggesting the capital’s economy has already lost £30 billion. But though much of its focus is on London, the outlook outside the capital is also bleak. The already costly productivity gap between London and the rest of the country will widen further, as the drag of having left the EU will affect other regions more.
“Productivity growth is expected to be stronger in London than the UK as a whole,” according to the report. “London’s economy is expected to be more resilient and experience relatively less damage from Brexit than the rest of the UK.”
In a speech at a Mansion House dinner yesterday evening, Khan acknowledged the challenges faced by London and the country. These include a potential recession, soaring inflation, and strained public services. He pointed out that Brexit has already reduced GDP, investment, and trade.
He highlighted a 5.5% reduction in GDP, an 11% drop in investment, and a 7% decrease in goods and services trade due to Brexit, and stressed that the hard and extreme form Brexit adopted by the UK government is hindering growth, investment, and trade. The estimated cost to the Treasury in lost tax revenues is £40 billion, impacting potential investment in the health service.
In compiling the report, Cambridge Econometrics used what economist Tony Yates calls the ‘doppelganger approach’. He explained this involves creating a picture of a UK that remained in the EU “synthesising it from other economies that did not undergo Brexit, but will have experienced the same other shocks.”
Yates questioned the extent of the loss of GDP, but recognised that we have had a series of particularly dire governments which likely put the UK at an even greater disadvantage than it already was. He concluded that from an economist’s perspective, “There are no real benefits [to Brexit], so the policy prescription is obvious, whether the costs are large or extremely large. Undo it.” He acknowledged, though, that for politicians, doing so comes with political risk.
Khan calls for honest discussion
However, in the year London’s mayor faces a tough election to win a third term, he has apparently decided that risk is worth taking. In last night’s speech, Khan declared: “It’s now obvious that Brexit isn’t working.”
He went on to say, “The hard-line version of Brexit we’ve ended up with is dragging our economy down and pushing up the cost of living. Rather than politicians dodging this issue, it’s incumbent on all of us to have an honest discussion about the best way forward.”
He argued that attempting to will Brexit into success or ignoring its impact is not a viable strategy for prosperity. Instead, he outlined a blueprint for a stronger relationship with Europe to boost the national economy, alleviate the cost-of-living crisis, and increase investment in public services.
In a break from Labour’s parliamentary party leadership, Khan proposed a shift to a more workable version that doesn’t just align with our European neighbours, but advocated for a pragmatic debate on the benefits of being part of the Customs Union and the Single Market.
He urged political leaders to rebuild the relationship with Europe in 2024. Securing a better Brexit would lead to increased trade, higher investment, and stronger growth, benefiting exports and living standards.
Khan’s move in commissioning the report, its timely publication now, and his powerful speech last night, are bound to put pressure on the official line of the Labour Party, which is to avoid comment on Brexit other than to declare that we must “make Brexit work”.