Britain, don't blame the EU for your economic problems, CER says

Opinion piece (Bloomberg)
Simon Tilford
26 September 2016

The UK's difficulties in unlocking its economic potential lie at home and it’s wrong to blame the European Union, according to a new report by the Centre for European Reform.

Simon Tilford, deputy director at the CER, argues the roots of the problem stem from “awful” productivity and supply-side issues including poor skill levels among a large portion of the workforce, inadequate spending on infrastructure and housing, and the centralization of political and commercial power in London.

According to the think tank, which describes itself as “pro-European, but not uncritical,” UK households are no richer relative to the EU-15 average - those countries that were members at the start of the century - than they were 15 years ago. It also said that Brexit may exaggerate many of Britain’s problems. 

Adjusted for price differences, exchange-rate moves and purchasing power parity, the UK's economic record has been mediocre, Tilford said, trailing behind Germany -- the best performer. In terms of GDP growth per capita between 2000 and 2014, growth lagged Germany, France and Spain.

Regional Wealth

When it comes to productivity, output per hour is about the same as in Italy and Spain, but far below France and Germany, according to the CER. It said that the UK’s weak relative performance at a time that the euro area was hit by the debt crisis suggests that it’s been held back by policy failures and homegrown supply-side problems.

Only two British regions - London and south-east England - are wealthier than the EU-15 average, and “most of the poorer British regions have lost ground,” it said.

“Unfortunately, Brexit risks aggravating most, if not all, of these problems,” Tilford said. “Britain’s already startling regional imbalances are likely to worsen further, leaving much of the country’s population living in areas considerably poorer than the EU-15 average.”

He said that losing access to the single market will reduce the UK’s appeal to foreign investors, and so far there is no reason to believe it will be able to strike new deals that make up for the reduction in EU trade. Tilford notes that while the government will end up providing some stimulus to counter any Brexit effect, it won’t be enough to satisfy the long-term investments in infrastructure and skills needed.