Understanding and mitigating the risks of Brexit at a local level

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By Professor Raquel Ortega-Argilés, Chair, Regional Economic Development
Department of Strategy and International Business, University of Birmingham

Politically, the referendum has been a shock to our system. However, Brexit may help us to look afresh at problems in the UK

Our current research from the ESRC Brexit Priory Grant, ‘The Economic Impact of Brexit in the UK, its regions, its cities and its sectors’, set out the groundwork for debate at the Labour and Conservative Party Conferences.

Our project has used the interregional extensions of the World Input-Output Database (2013 release) to calculate the economic exposure to Brexit of all UK and EU regions.  The research demonstrates that economically weaker regions, especially those in the Midlands and the North of England (many of which voted Leave in the EU Referendum), are typically more exposed to Brexit than the wealthier and largely Remain-voting regions.

Our results[1], which were first reported in November 2017, show that, except for the Republic of Ireland, the UK is far more exposed than any other country to trade-related risks. In our sectoral results[2], which were first reported in December 2017, we have also been able to calculate the Brexit exposure levels for 54 UK sectors, taking into account all of the complex and largely hidden supply chain effects. The extent to which sectors in the UK economy are exposed to the trade implications of Brexit varies considerably, but many service industries entwined with local value chains find themselves highly exposed.

At the recent Labour and Conservative Party Conference fringe events, panel discussions raised some important points on the risks and challenges of Brexit at a local level:

  • Brexit will make the UK’s interregional inequalities worse.
  • The sectors which are heavily exposed to Brexit include not only manufacturing and primary industries but many service industries. The idea that there is a split between services and goods offers a false sense in today’s world and this an important factor in relation to Brexit negotiations.
  • The jobs most at risk tend to be relatively more productive jobs which raises further concerns to UK long-term productivity.
  • Migrant labour has provided the UK labour market with higher flexibility. It has allowed sectors and places access to a wider pool of skilled labour. Brexit is accelerating the trends that already existed in relation to the lack of access to talent or brain drain.
  • Rural areas, characterised by skill-shortages, have benefitted greatly from the largest percentage of migrant workers. These areas have the highest employment rates but are also characterised by an ageing population. These are the areas that are now among the more vulnerable to Brexit.
  • Brexit will have a big impact on UK poverty. In particular, it will affect mainly low- skilled and low-wage workers.
  • The UK’s level of international, national and local investment is reduced because of uncertainty. Investments are also affected by the potential fluctuation of the currency.
  • The challenges of Brexit are potentially forcing us to confront the UK’s regional issues. Most of the problems that face English regions pre-date Brexit and are largely unrelated to EU membership. However, had we voted to remain, it is likely that we would have built Crossrail 55 before considering a cross-Pennine railway. Brexit has been the “Overton Window”; fresh doors and a unique moment for progression.
  • The local and regional levels have been overlooked in policy debates and this is why the research by the University of Birmingham is so relevant.
  • As a whole, the UK’s sub-national governance system appears to be largely unprepared for the post-Brexit challenges, with many observed Brexit-response initiatives and activities being largely ad hoc and uncoordinated between localities, reflecting the widespread policy paralysis in the UK institutional system. .Brexit may help us to think of public policy in innovative ways. However, central government has as yet not organised any Brexit-response activity to tackle these problems at the sub-national level.
  • A common denominator in the panel was that ‘No Deal’ is an unacceptable outcome.

Politically, the referendum has been a shock to our system. However, Brexit may help us to look afresh at problems in the UK, in particular the ones related to regional and social inequality and low productivity. It may also call for a higher level of devolution, which will allow places to overcome their local challenges in a post-Brexit UK.

[1] Chen, W., Los, B., McCann, P., Ortega-Argilés, R., Thissen, M., van Oort, F., 2018, “The Continental Divide? Economic Exposure to Brexit in Regions and Countries on Both Sides of the Channel”, Papers in Regional Science, 97.1, 25-54

[1] Los, B., Chen, W., McCann, P., Ortega-Argilés, R., “An Assessment of Brexit Risks for 54 Industries: Most Services Industries are also Exposed”, 2017, City-REDI Policy Briefing Series, December, See: https://blog.bham.ac.uk/cityredi/wp-content/uploads/sites/15/2018/01/City-REDI-Briefing-Template_Sectoral-Analysis.pdf

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