By Raquel Ortega-Argilés, Department of Strategy and International Business at the University of Birmingham, and Philip McCann, Chair in Urban and Regional Economics at Sheffield Management University
A UK in a Changing Europe research team led by the University of Birmingham[1], and also involving the University of Sheffield, University of Groningen, Erasmus University and Dutch Environmental Assessment Agency, has this week published new research which extends our understanding of the likely consequences of Brexit for UK and EU regions.
The new research examines the competitiveness implications of Brexit for 61 industries and 256 European regions, including 37 in the UK. The analysis finds that Brexit will have serious adverse consequences for the competitiveness of UK industries in many regions.
The competitiveness of UK industries such as automotive, and manufacturing sectors such as rubber, plastics, metals, are very vulnerable to Brexit, whereas sectors such as retail, insurance face only relatively limited competitiveness effects.
However, the different industrial composition of UK regions also means that there are major differences in terms of the effects of Brexit on the competitiveness of regions. In particular, using these different techniques and datasets, the new analysis confirms the results of the earlier research findings of the team.
The team had previously demonstrated that the UK’s economically weaker regions were far more exposed to Brexit than the UK’s more prosperous regions, and as such were more vulnerable to the restructuring required to respond to Brexit than the UK’s more prosperous regions.
Broadly the same patterns now emerge again when considering competitiveness. The UK’s economically weaker regions in general face more adverse competitiveness impacts than the UK’s more prosperous regions.
As such, these findings imply that Brexit will directly work against any ‘Levelling Up’ agenda, because the trade and competitiveness implications of Brexit will almost certainly widen UK inter-regional inequalities.
However, this new research finds that this is also the case at the intra-regional level, because the weaker areas within broad regions generally face more severe competitiveness impacts than the more prosperous core areas within those same regions.
As such, by widening both inter-regional and intra-regional inequalities, Brexit is likely to make the ‘Levelling Up’ agenda even more difficult.
For regions in the rest of the EU the situation is very different to the UK regions. Firstly, in general the adverse effects of Brexit on the cost faced by industries and regions is typically very small.
Indeed, for the EU as a whole their cost increases are typically only one quarter of those faced by UK industries and regions. This also translates into much smaller losses of competitiveness.
EU regions typically face losses of competitiveness which are only one fifth of those faced by UK industries and regions. This is particularly the case of regions in southern and central Europe, where in some cases the reduced competition from UK actually increases their competitiveness.
It is regions in the north and west of Europe that face the most serious effects on competitiveness, although they are typically one third to one half of those faced by UK regions.
The other key issue which the research uncovers for the first time is that these patterns are unaffected by the nature of the UK-EU deal currently being negotiated.
The research finds that the exact nature of any UK-EU trade deal makes almost no difference to this situation, in that the UK’s weaker regions are also largely unresponsive to any deal.
Their industrial structures and the local and global interactions between sectors mean that whatever is negotiated makes no real difference to their overall levels of Brexit vulnerability, whereas the UK’s more prosperous regions have more to gain (i.e. less to lose) from a ‘good’ deal.
In other words, all of the deal-related political energy appears to make little or no difference to the fact that Brexit will work directly against the ‘Levelling Up’ agenda.
In contrast, for the rest of Europe, the competitiveness opportunities associated with a ‘good deal’ are relatively greater for the weaker regions of the EU in the south and east of Europe, thereby potentially narrowing the gap between the weaker and stronger parts of the EU.
The analysis suggests that for the UK as whole, the economic effects of Brexit are largely unrelated to, or even directly opposed to, much of the political energy associated with domestic and international issues.
For the UK Brexit is likely to work against any ‘Levelling Up’ agenda both inter-regionally and intra-regionally, while a negotiated deal will have little or no positive effects on many of the weaker regions of the UK.
Given that the pro-Leave vote shares were typically higher in regions which are most dependent on EU markets, this poses enormous political challenges for the UK Government.
At the same time, across the EU, the competitiveness effects of Brexit are much smaller than for the UK, and any negotiated deal, if anything, is likely to help regional rebalancing within the EU.
[1] The UK in a Changing Europe and ESRC Brexit Priority Grant: The Impact of Brexit on the UK, Its Regions, Its Cities and Its Sectors, Grant Reference ES/R00126X/1, Project Leader Professor Raquel Ortega-Argilés University of Birmingham City-REDI Institute.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.