On 31 December the post-Brexit transition period ends and, with or without a free trade deal with the European Union, the UK will start life outside the EU’s single market and customs union.
That will, pretty much all economists tell us, have a substantial economic impact on our lives.
But what exactly will those impacts be – and how will ordinary people experience them?
Below we describe how the two varieties of Brexit are likely to impact peoples’ wages, benefits and taxes.
There are various ways of modelling the economic impact of the UK leaving the EU.
One is to analyse the likely overall economic impact on the UK economy of higher trade barriers with the EU, the bloc with which we currently do around half of our trade.
Virtually every macroeconomic trade model shows that leaving the EU with a free trade deal would hold back the UK economy’s growth relative to staying in the bloc.
The Office for Budget Responsibility, the Treasury’s own independent forecaster, this week estimated it would impede UK GDP growth over the next 15 or so years by around 4 per cent relative to where it otherwise would have been.
This picture would be roughly the same if we successfully concluded ambitious trade deals with the likes of countries such as the US, Australia and New Zealand.
The Government’s own economic modelling team estimates all these deals combined would add a maximum of 0.2 per cent of GDP in the long run.
This 4 per cent of GDP loss accounts for £80bn in today’s money, or around £3,000 for each of the UK’s 28 million households. This could be experienced in the form of lower wages, lower benefits and higher taxes than otherwise would have accrued to households.
£3,000
A rough indication of the size of the economic pain that would be borne by the average household from leaving the EU with a Brexit deal
It’s impossible to say exactly how much individual households would suffer financially, because this will depend on which sectors of the economy members of a household work in and the decisions of future politicians about redistribution through benefits and taxes.
But this £3,000 figure gives a rough indication of the size of the economic pain that would be borne by the average household
Another way to model Brexit is to examine different sectors such as agriculture, finance, fishing, manufacturing and so on.
These exercises show that some sectors, specifically those that do a great deal more in trade with the Continent than others, would face more damage.
Modelling suggests clothing, chemicals, pharmaceuticals, motor manufacturing, agriculture and financial services would be hit the most.
This implies that workers in those industries would likely face a more severe economic hit. But firms in sectors that don’t trade much with Europe, such as construction, might well be relatively unaffected.
However, it’s important to stress that such sectors could also be negatively impacted by future restrictions on EU migration, which would have implications for the wages of those who currently work in them.
Leaving the EU without a trade deal on 31 December would, according to the UK’s independent Office for Budget Responsibility (OBR), hold back UK GDP growth by around 2 per cent in 2021, or £40bn.
That translates into a loss of £1,500 per UK household. And over 15 years the OBR estimates, based on the modelling done by a host of independent researchers, that the damage would hit 6 per cent of GDP, or around £120bn, or around £4,000 per household.
Again, it’s impossible to say precisely which households would suffer because this would depend on which sectors people work in and the decisions of future politicians about benefits and taxes.
Yet this is a rough indication of the size of the economic pain that would be borne – in some way – by the average UK household.
The impact of a no-deal Brexit on particular sectors would be even more unequally felt than leaving the EU with a free trade deal. Many exporting firms would face EU tariffs, which would make those exports less competitive and likely reduce demand for them, blowing a hole in the incomes of people working in these sectors.
The impact on the automotive sector would be especially severe because all cars exported to the EU ( the destination of half of UK-manufactured cars), would be hit by a 10 per cent tariff.
The OBR thinks unemployment would rise by around 300,000 next year, relative to otherwise, if we left the EU without a free trade deal. It’s likely that these lost jobs would be concentrated in those sectors which are heavily reliant on EU trade.
Researchers at the Institute for Fiscal Studies calculate that lower-skilled workers more likely to be hit economically by a no-deal Brexit.
“These tend to be older men with skills specific to their occupation who, history suggests, may struggle to find equally well-paid work if their current employment were to disappear,” they note.
