Rejoining the EU is no panacea

This week 10 years ago the British public voted to leave the EU. Since then the UK economy has continued to stagnate. Greater trade barriers with the country’s largest trading partner, successive shocks (some global, others self-inflicted) and the persistent failure to deliver meaningful pro-growth reforms have all played a part.

Against the downbeat backdrop, the campaign to rejoin the EU has gathered momentum: 55 per cent of Britons now support reversing the June 2016 referendum vote. However, rejoining is not the economic antidote many appear to think it would be. If anything, it would risk entrenching the nation’s drift.

For starters, regret isn’t a mandate for reversal. A decade on, there is still little consensus on how an optimal UK-EU relationship should look, even within the Leave and Remain camps.

Defining “rejoin” would be tortuous. Research by John Springford and Anton Spisak at the Centre for European Reform finds that returning to just the customs union would only undo a fraction of the economic damage caused by exiting. But returning to the single market would involve difficult political trade-offs, such as accepting free movement, paying money to the bloc and rule-taking.

Even if some form of EU return were endorsed via a referendum or election platform, executing it would require a bureaucratic and negotiating heft that Brexit showed Britain does not have. The bloc will probably be inflexible in any such talks. And with anti-EU sentiment still strong, any settlement may not endure.

In sum, the rejoin movement promises to revive fraught debates, divert parliamentary attention and foment another lengthy period of uncertainty for business and investors.

Then there are the broader questions of timing and value. The bloc’s economic growth has been turgid. Brussels has frequently shown itself to be too slow to respond to shocks and enact reforms, whereas Britain can be more nimble on regulation and trade deals. For instance, while hefty rules weigh down on the EU tech sector, UK start-ups are currently swooping up close to half of Europe’s venture capital funding.

Pursuing a return to the EU, therefore, involves significant opportunity costs, not least the diversion of political attention from domestic economic reforms that could do more to raise living standards and growth. After all, many Leave voters felt “left behind” by free trade and movement. Brexit did little to address this, but nor would years spent trying to reverse it.

What policies could UK politicians prioritise instead? They could bolster regional growth, for instance by decentralising more powers from Westminster and giving local areas greater ability to raise and retain revenues. This has contributed to Manchester’s revival.

They could make it easier and cheaper to build infrastructure, in part by shifting towards a zonal planning system that preapproves areas for development. Think-tank Britain Remade finds that eliminating the added cost of building UK transport infrastructure relative to European peers, for example by cutting regulation, would give the country £41.5bn more to spend over five years. (That’s enough to fit out several key cities with a tram network and address major road and rail bottlenecks.)

UK industrial electricity prices — which are among the highest in the rich world — could be reduced by speeding up the approval of nuclear and renewable energy projects and grid connections. For businesses this would directly help make up for the cost competitiveness Britain lost with the EU because of higher trade barriers.

The country could also aim to get a greater share of the population into work through welfare reforms, prioritising treatment over benefits for illnesses and introducing broader training support.

These are just a small sample of growth policies UK parliaments could focus on over the next decade. Still, based on approximations, including from the Office for Budget Responsibility, Office for National Statistics, OECD and PwC, even modest projections of these measures would more than offset the estimated hit to the UK’s long-run economic growth rate induced by Brexit.

This does not mean the UK should give up on improving economic ties with the EU altogether. However, efforts to reopen the broader Brexit question would become another distraction that absorbs political bandwidth and prolongs uncertainty, compounding the past lost decade of progress on the domestic growth agenda.

For now, the priority is not to revisit the decision of 2016, but to tackle the longstanding weaknesses that sapped the British economy long before it.