Brexit’s impact on the UK’s economy is no longer speculative - it’s tangible, measurable, and increasingly impossible to ignore. Goods exports to the EU have plummeted, services have struggled against rising barriers, and the government’s fiscal position has taken a battering. This has left Labour, now in government, grappling with a fiscal black hole that necessitates hard decisions about public spending and taxation.
Goods exports to the EU, historically the UK’s largest trading partner, have faced severe disruptions since Brexit. Customs checks, tariffs, and regulatory barriers have turned what was once a seamless trading relationship into an obstacle course. Many businesses have reduced their exports or even relocated operations to avoid the headaches. While there was hope that new trade deals would open up fresh opportunities, these have so far been modest in scope and unable to offset the losses from the EU market. That's not opinion - it's counting.
Services, traditionally a UK strength, have shown resilience but not immunity. They are less affected by Brexit tariffs but have faced new regulatory hurdles, particularly in financial services. The loss of “passporting” rights for UK financial firms has been a significant blow, with some business shifting to European financial hubs like Paris and Frankfurt. Other professional services, from law to architecture, have also faced increased barriers, limiting their ability to work seamlessly across borders.
The economic consequences are clear. The Office for Budget Responsibility estimates that Brexit has permanently reduced the UK’s productivity by 4%. By 2023, this translated into a GDP shortfall of £140 billion compared to where we might have been within the EU. This contraction directly impacts government revenues, with an estimated £40 billion in annual tax revenue lost. For a country already grappling with rising demands on public services, that’s a devastating figure. It's also a figure that contributes to the £20 billion Black Hole they're trying to fill.
Labour has inherited a public purse in dire straits. Years of Brexit-induced economic strain, combined with external shocks like COVID-19 and the energy crisis, have left the government facing the Black Hole. The fallout from Brexit has compounded existing issues, forcing Labour into difficult decisions on spending cuts and tax rises to balance the books. While some of these pressures - such as global inflation or an ageing population - would exist regardless, Brexit has undeniably worsened the situation by shrinking the economy and cutting off a significant source of growth.
It’s important to remember that staying in the EU wouldn’t have eliminated all challenges. The UK would still be contending with the long-term effects of the pandemic, supply chain disruptions, and geopolitical turmoil. But a larger economy, higher tax revenues, and better trade conditions would have provided more breathing room for policymakers. Instead, we’re now dealing with the consequences of a self-imposed handicap.
The promise of Brexit was about taking back control, but the reality has been a significant loss of economic and fiscal flexibility. Businesses have spent years adapting to new rules instead of investing in growth. The political energy consumed by Brexit has delayed much-needed domestic reforms in productivity, infrastructure, and skills. And the cost is now being borne by ordinary citizens through tougher budgets, higher taxes, and constrained public services.
Labour faces an unenviable task. The Black Hole they’ve inherited is a direct result of Brexit’s economic impact, compounded by years of political and economic mismanagement. Their hard decisions aren’t just about navigating the global challenges that all countries face- they’re about trying to rebuild from a self-inflicted wound. The tragedy is that so much of this could have been avoided. Instead of leveraging our strengths as a leading trading nation within Europe, we’re left counting the cost of turning away from it. And the numbers, unfortunately, don’t lie.
Labour must tread carefully before opening discussions about rejoining the EU, no matter how compelling the economic arguments might be. The political landscape remains deeply polarised, with Brexit still a contentious issue for many voters. Any rush to reverse course risks alienating swathes of the electorate who view Brexit as a matter of sovereignty and identity, not just economics.
Additionally, the EU itself is unlikely to welcome rejoining discussions while the UK’s political climate remains unstable or divisive. Rebuilding trust and credibility on the world stage is crucial, as is proving that the UK can manage its own affairs effectively before renegotiating its place in the European fold.
Labour’s priority must be to stabilise the economy, repair relationships with the EU through closer trade ties, and rebuild domestic consensus. Only then could the conversation about rejoining be approached with the seriousness and unity it demands.