Has Brexit damaged UK industry?

Has Brexit damaged UK industry?

Ten years on from the referendum, the debate is still dominated by politics. But what does the evidence actually show?

In this episode, Rob Gilbert examines the Brexit balance sheet for British industry. He looks at the impact on trade, productivity and investment, and explores what the new trading relationship has meant for automotive, agriculture and food, chemicals, pharmaceuticals, defence and financial services.

The evidence points to a real economic cost, particularly for goods-producing sectors and smaller exporters. But Brexit did not begin Britain’s industrial decline, and many of the constraints blamed on Brussels were in fact the result of domestic political choices.

The episode also considers the opportunities created by regulatory autonomy, new trade agreements and greater freedom to support strategic industries — and why those freedoms have yet to produce a meaningful industrial dividend.

The central question is no longer whether Brexit was right or wrong. It is how Britain now works with its European allies, uses its independence where it creates genuine value, and rebuilds the industrial capability on which prosperity, security and national power depend.

Transcript

Hello, and welcome back to How We Build Britain. Has Brexit damaged UK industry? That is the question we are exploring today, and the answer is more nuanced than you might think. But first, a quick word for anyone new. I'm Rob Gilbert. I've spent nearly 20 years working in energy, industry, and investment across the public and private sectors.

I started my career in textile manufacturing, and one of my first jobs was to help offshore the last remnant of that great British industry. I've spent the years since asking the same question: Why don't we value industry more in this country? Today, I'm a partner at Baringa, currently on secondment into government to lead the design and delivery of Great British Energy's one billion pound supply chain investment program.

This podcast is my own production. I'm not speaking here for government, for Great British Energy or for Baringa. That independence lets me explore the things I think this country needs to talk about. The premise is simple. Generations of de-industrialization have damaged our economy, our society, and increasingly, our security.

We need to change course. This podcast and its guests explore how. If you find this podcast useful, please subscribe wherever you get your podcasts.

Over the past week, the ten-year anniversary of the Brexit referendum has produced another wave of commentary. It remains controversial and politically charged because almost no one, it seems, is satisfied with the outcome, though for very different reasons.

The arguments range from Brexit having inflicted material damage on Britain's industry to having freed emerging sectors from slow European regulation, but not yet delivered the full potential of that unshackling. So what is the true picture, and what does it mean for what Britain does next? Much of the commentary has taken one political side or the other.

This podcast is not political. What I want to do instead is to assess the impact on industry through the data we now have, akin to reading the Brexit balance sheet. So first, some context. It is ten years since the Brexit vote, but our trading relationship with Europe only changed at the beginning of twenty twenty-one.

So this is really a five-year assessment of how the new arrangement is operating. The headline number comes from the Office for Budget Responsibility. Its central estimate is that Brexit will lower the UK's long run productivity by around four percent, driven mainly by a fifteen percent fall in the amount we trade.

That's important because it implies a smaller economy overall. The OBR first set that number out in twenty twenty and reaffirmed it as recently as twenty twenty-four. The effect was always expected to build slowly over about fifteen years, although the evidence so far remains broadly consistent with the central assumption.

Four percent is not the top of the range. It sits actually closer to the middle. Goldman Sachs marking the ten-year anniversary puts the impact at around six percent, while one of the highest recent estimates, a twenty twenty-five paper published by the National Bureau of Economic Research, puts the effect on GDP at between six and eight percent.

But if you strip out the outliers, there is broad consensus that there has been a real cost to the UK economy. The argument is mostly about how big that impact is It is, however, a mistake to reduce this to a single national number because the costs have not fallen evenly.

They've fallen harder on goods and services and hardest on the industries most integrated into European supply chains. That includes automotive, agriculture and food, chemicals, and pharmaceuticals. Our defense industry has been affected too, but through a different mechanism. Less through the day-to-day border friction and more through Britain's access to European procurement, financing, and collaborative programs.

Security was left out of the original Brexit deal in twenty twenty, which placed British defense firms outside Europe's fast-growing collective spending. There has been movement since. In May twenty twenty-five, Britain and the EU signed their first ever security and defense partnership, and Britain sought to buy into SAFE, the EU's new hundred and fifty billion euro defense fund.

But those talks stalled over Britain's contribution, and for now, Britain remains outside. There is a central assumption, which is actually wrong, that Brexit has damaged defense exports, but they have held steady and lately have grown. In twenty twenty-four, Europe overtook the Middle East as the largest market for British defense equipment, so the cost is not lost sales.

It is the risk of being left out of the programs and pooled funding through which Europe will build its next generation of capability. In other industries, though, the overall goods trade effect is significant. Research from the London School of Economics estimated that the new trading relationship reduced total UK goods exports by around twenty-seven billion pounds in twenty twenty-two.

The effect on smaller businesses was especially acute. Around fourteen percent of firms that had previously exported goods to the European Union seemingly stopped after the new rules came in, with little evidence that those sales were replaced elsewhere. To understand why, it helps to see how friction enters an industrial system.

In automotive, it's through rules of origin, border administration, and the disruption of just-in-time supply chains. In chemicals and pharmaceuticals, it's through duplicated regulation, extra authorizations, and repeated testing. In agriculture and food, it's through export certificates, sanitary controls, and border inspections.

In essence, there is more admin and therefore more time and more friction. If we take automotive as a case study, a modern car has tens of thousands of components, many of which cross borders several times before a finished vehicle leaves a factory. The model runs on integrated supply chains and what's called just-in-time delivery, which is ensuring parts and components end up at factory as they're needed for production.

It works when goods move freely, but it's far more vulnerable when every crossing add cost and delay. Rules of origin add a second constraint. Under the UK-EU trade agreement, a car is only tariff-free if enough of its value originates in Britain or in the EU. Components from China or Japan may not count towards that, and that matters most in the switch to electric vehicles, where the most valuable parts, things like the battery, tend to come from outside Britain and Europe The result is not that building cars here becomes impossible, but it becomes incrementally harder and more expensive.

And in a globally competitive industry on narrow margins, incremental costs matter a lot. The same logic runs to every other industry, just in different forms. So the chemical sector had to re-register all of its substances under a new regime called UK REACH. Agriculture gained export health certificates, where vets have to sign for every consignment that crosses into the EU.

And the heaviest burden has fallen on the smaller producers, largely because those firms don't have customs teams or compliance departments to absorb the work. So there has been a cost, but what of the opportunity? What has got better or could get better? The biggest change in leaving Europe is the regulatory autonomy.

Britain can now write more of its own economic rules, in principle, a genuine opportunity. There have been areas of divergence. England has a new regime for gene-edited crops under the Precision Breeding Act. The UK reformed its insurance capital rules under something called Solvency UK. There are ambitions for lighter regulation in fintech and emerging technologies.

Britain has also joined the Trans-Pacific Trade bloc, CPTPP, and signed new deals with Australia, New Zealand, and most recently with India. In all, it now has agreements with around seventy countries, though most simply carried over deals we already had inside the EU. But the scale shouldn't be exaggerated.

The government's own assessment is that CPTPP adds less than a tenth of one percent to GDP over fifteen years. Australia is similar. Add an exit cost of roughly four percent, these numbers are small. So there's no automatic prize from divergence itself. The value comes only where different rules create a real competitive advantage.

And the further Britain diverges from European standards, the greater the cost for firms still selling into Europe. Financial services have been a useful example. Before Brexit, some predicted tens of thousands of jobs would leave the city. The reality was around seven thousand roles moved to Europe against forecasts of up to seventy-five thousand, alongside a larger transfer of assets than actually happened.

London did lose its automatic right to serve EU clients under what was called passporting, but it stayed one of the world's largest financial centers. The feared collapse didn't arrive, but nor did the promised renaissance. The city has proved resilient, but Brexit didn't transform its prospects. Whether lighter fintech rules can change that is a question for the next five years Another opportunity, and one that matters more to industry, is the freedom to support strategic companies and supply chains.

As someone who deploys capital into British industrial capability, I'm often asked whether the main constraint before Brexit was the European Union state aid regime. Brexit removed it. The UK now runs its own subsidy control system, faster and more permissive in some ways, and certainly making a difference. But it's fair to say that state aid rules were not the only reason Britain failed to pursue an active industrial policy. 90 % of EU subsidies were permitted under pre-approved categories and over almost two decades the Commission formally blocked only a very small number of British cases. As has been pointed out to me though by a friend who worked in that space during that time, it is the case that the threat of a block meant many schemes never got as far as formal application, which skews the data and also does a disservice to the amount of work that particularly the civil service did in attempting to get support for UK industry. I do however think it's fair to say that Britain's reluctance to back industry wasn't solely imposed by Brussels. It was a domestic choice too. 

For much of the past forty years, as we've talked about extensively on this podcast, governments of all parties accepted that the state should avoid backing industries, shaping markets or taking long term public investment risk.

What has changed recently is not the law, it is the political intent. Britain has built public investment institutions, set out an industrial strategy, and is putting public capital directly into strategic companies and sectors. But the approach is still in its infancy. So while regulatory autonomy and subsidy freedom belong on the opportunity side of the Brexit balance sheet, much of their value is still potential not realized.

These are assets Britain now has to put to work. Whether we do is again better judged in five years' time. So where does that leave us? It's hard to argue that Brexit has not damaged British industry based on the data. There is a clear and consistent decline in trade and no resurgence of exports elsewhere.

But that brings me to the qualification at the heart of this podcast. Not every decline blamed on Brexit was caused by Brexit. It has made things worse, but what it has made worse is the structural decline of UK industrial capability. Part of the fall in chemicals reflects the long contraction of North Sea petrochemicals.

Part of the decline in things like clothing reflects goods that once passed through Britain being rooted elsewhere. And in the instance of textiles, we barely sadly make those here anymore anyway. Part of the decline in car making is Chinese competition displacing British, German and Japanese production with low cost imports.

And as a country running a near record trade deficit, it is little surprise our exports beyond Europe have been weak too So the Brexit effect is real, but it's more concentrated and more entangled with other changes than the headline figures suggest. But we are in a world that is changing fast, a very different environment to twenty sixteen, and what is not clear is what Britain wants to do with the position it now holds.

In some areas, the answer will be greater alignment. The government and the EU have begun a reset on an agri-food deal to remove border checks, linked carbon markets, firmer energy cooperation, and deals like that show the trade-off. To remove friction, Britain will follow European rules in those areas, surrendering a little autonomy to recover easier trade.

Where divergence brings cost, but no real advantage, that is sensible. There are also the strategic choices ahead, . If we look at defense, war has returned to the continent, energy is now inseparable from security, the United States is less predictable, and China is using state power to dominate critical technologies in the energy transition and its supply chains.

In that world, geography matters. Our closest allies and deepest security interests are in Europe and in defense, energy, critical minerals, and advanced manufacturing, scale is indispensable. So Britain should work more closely with European allies, aligning rules where divergence merely adds cost and building shared capability.

Sovereignty is not just the freedom to act alone, it's the ability to shape events and make choices, and sometimes that means acting with others. But cooperation shouldn't mean surrendering the freedom that Britain now holds. There are genuinely areas where independence creates a strategic advantage.

Moving faster in emerging technologies, designing institutions around our own strengths, deploying public capital without waiting for other countries to agree. That is a balance to strike more deliberately for the good of the industries we have and those that we could build next. Brexit did not begin Britain's de-industrialization.

Manufacturing had been declining for decades before the referendum. And nor did leaving suddenly give Britain permission to rebuild its industries, because much of that permission was already there. What Brexit did was remove one of the explanations Britain repeatedly used for choosing not to act. The real opportunity is not deregulation for its own sake or more trade agreements.

It's to use our quasi-autonomy creatively to build a country that is more productive, more resilient, and more capable of shaping its own future. A Britain that works with European allies because this moment creates threats and opportunities better met together. To use its independence where it has genuine economic value, and that treats industrial capacity not as a relic of the past, but as a foundation of prosperity, security, and power.

So has Brexit damaged British industry? Yes, the evidence suggests that it has. But it did not begin Britain's industrial decline, and it does not determine what happens next. That will be decided over the next five to ten years through the choices that we make now and how bold we are willing to be. This is how we build Britain.

Thank you