Effects of Brexit on UK's Standards of Living

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This study examines the positive and negative effects of Brexit on UK's standards of living. It discusses the economic implications, trade barriers, and impact on consumers, workers, and firms. The study also highlights the changes in real income and trade volumes, and the potential consequences for the UK economy.

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USING ECONOMIC POLICY
ANALYSIS

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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Positive effects of the Brexit........................................................................................................4
Negative effects of BREXIT on UK’s standards of living..........................................................5
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11
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INTRODUCTION
The study gives an insight in the Brexit which gained referendum in 2016 by population of UK
and was in a transition phase with EU. Being a member of 47 years, it was a difficult decision to
be taken. It has both its positive and negative effects which have been discussed in the file. There
are negative effects on the economy discussed while also positive effects being discussed on
UK’s sovereignty in taking decisions. UK had been a member of UK since 1973 considering
economic and policy followed in Europe.
Britain has been a member of the European Union for 47 years and is the first country to leave.
On June 23, 2016, UK residents decided to leave the EU, signalling a shift in the country's
relationship with the organisation. Residents concluded that the gains of free trade were
insufficient to compensate for the downsides of free movement immigrants.. 17.4 million people
voted to leave the EU, compared to 16.1 million who opted to stay. The United Kingdom
officially left the European Union on January 31, 2020, with a transition period lasting until
December 2020 (Ramiah, Pham and Moosa, 2017).
Brexit has already had an impact on London, the UK's financial capital, which grew by only 1.4
percent in 2018 and is close to zero in 2019. As a result of Brexit, company investment fell by
11% between 2016 and 2019. (Crowley, Exton and Han, 2018).
MNCs are less likely to consider London as an English-speaking gateway to the EU economy.
Goldman Sachs, JP Morgan, and Morgan Stanley each relocated 10% of their clientele to their
Irish units, while Barclay's has shifted 5000 clients to its Irish business (Simionescu, Bilan,
Smrčka and Vincúrová, 2017).
Northern Ireland remains a part of the United Kingdom, but the Republic of Ireland, with which
it shares a border, remains a member of the European Union. A customs border between the two
Irish nations is not addressed in the deal.
Scotland had voted against the United Kingdom's withdrawal from the European Union. It had
been advocating for both Scotland and the United Kingdom to remain in the EU. It was also
pressuring the British government to grant a second vote. Scotland will now have to hold a
referendum on independence if it wants to seek for EU membership. It will be a difficult period
for Scotland and the United Kingdom. This was an insight in regions of UK.
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Positive effects of the Brexit
a) Long term economic growth rate going better: Eurozone has had a record which has been
unimpressive. It has been needing structural reforms and Euro Parliament has not taken
heed to the message. Other countries have moved away from Great Recession but Europe
has not (Breinlich and et.al., 2017). It is because the policies have not been changed. For
long term economic growth it will prove well for UK.
b) Less of corruption: EU has faced corruption problems as southern and Eastern Europe
faces corruption problems. Brexit will ensure UK funds are not misplaced.
c) Low real estate prices: Economic downturn will lead to less number of consumers and
thus reduction will come in demand for housing and thus lower prices for real estate.
d) Exports: Economic downturn on Brexit will cause the currency to be devalued. It shall
make imports expensive, but increase the exports to be much more competitive (Ramiah,
Pham and Moosa, 2017).
e) Less of immigration: As there will be need of visas now, people from other EU nations
won’t come and it will save pressure being put on UK economy.
f) Membership fee: People in favour of Brexit said that it shall result in cost savings in an
immediate manner, because UK would not have to contribute to the EU budget. Britain
gave GBP 13.1 bn and received 4.5 bn back which made the contribution in net of UK to
be GBP 8.5 billion (Topliceanu and Sorcaru, 2019).
g) UK shall have power in hands for regulating the environment and cutting on taxes. UK
has one of the lowest tax rates regarding company tax in Europe, government can expand
the ‘patent box’ which does tax reduction on profit from patents to increase measures of
research and development. Speaking of aviation, UK will have ability for cutting on
passenger duty on return schedule of domestic flights which in present was prevented by
ruling of European Commission.
h) Brexit can increase the market of IPOs by removal of Euro 8 million ceiling on amount
organisations get from individual investors without having to issue prospectus, UK
government can see for raising threshold for having liquidity in market.
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i) UK can sign trade agreements remaining out from EU custom union. The prominent deal
is coming from Japan. When Britain benefited from an agreement with Japan through EU
membership before, it is said that the agreement which is new is advanced in aspects of
data and financial services. Fintech firms like TransferWise shall not be restricted by data
rules, which meant that they can do expansion of operations in Japan without having the
need for server building in the nation.
j) UK can have control on fishing water after Brexit and fishing companies shall be able for
expansion of their catch. It totals for around 0.12% of UK economy and gives
employment to 24000 people, industry remains symbolic after Europe membership of
single market (Topliceanu and Sorcaru, 2019).
k) Trade agreement with US after Brexit can reduce tariffs on the products like whisky,
ceramics and cars for creation of more opportunities for export of services which makes
around Britain’s economy of 80%. It can lead to great variety and food at cheap rates for
opening in domestic market for US agricultural products.
l) UK can choose for dropping on WTO tariffs on the products which are taxed currently
for protection of interests of EU countries.
m) Extra costs which take place on trading with EU shall encourage UK manufacturers for
sourcing inputs in local fashion. UK shall be able to set state-aid rules, which mean it can
increase the amount of financial support it gives for promoting industries specifically,
increase in government intervention in economy can assist in bringing economy of poorer
regions of Britain (Felbermayr and et.al., 2017).
n) The industry which shall be seeing a boost shall be bureaucracy. Now companies will
have to follow red tape rules while moving goods between UK and EU.
Positive effect on UK Economy
Economists for Free Trade Project are of opinion that Brexit can increase output economically by
7% in a time span of 15 years (Minford, 2019). They have assumed that Brexit with unilateral
agreements of free trade shall erase the trade barriers between the UK and non-European nations
when not increasing trade barriers with EU countries simultaneously. Also, there is an opinion
that WTO law can be used to make UK be treatable same as member countries of EU.
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Negative effects of BREXIT on UK’s standards of living
The effect of Brexit on UK can’t be ignored in terms of how it has affected the living standards
and trade of the country and the direct impact of this can be seen on consumers, workers and
firms. There is a change noticed in the real income of the country due to the implementation of
this economic policy due to the impact of trade volumes resulting from the imposition of trade
barriers. As a pessimistic view, it has been noticed that UK fails in negotiating better terms with
EU under new trade agreement and resulted in an agreement that the post Brexit trade between
UK and EU will be governed as per the rules of World Trade Organisation. This will lead to
increase in the trade costs for UK while dealing with EU nation. And according to WTO, MFN
tariffs (Most Favored nations) tariffs will be applicable on the trade that will take place between
UK and EU as WTO has hardly or can be said that it has made no efforts towards reducing non –
tariff barriers as compared to what has been progressed by EU.
The impact of such trade cost increment charged on the trade between UK and EU post
Brexit will result in the following three conditions:
There will be higher tariffs imposed on the goods imported (Dhingra and Sampson,
2017).
Non – tariffs barriers on trade will also get increased resulting from application of border
controls and different regulations.
UK will not be able to participate in future benefits provided by EU in terms of reducing
non – tariffs barriers.
All of this conditions has necessarily been resulted in costly affairs for UK while carrying out
trading with EU nations and accordingly the imported goods will become costlier than before
which would results in reduction in the purchasing power of the citizens of UK and therefore will
definitely affect their living standards negatively.
The UK's young workforce has suffered as a result of Brexit. Germany is predicted to have a
labour shortage of 3 million skilled workers until 2030. Following Brexit, UK employees have
been harmed by a lack of job prospects. Employers are having a hard time finding qualified
employees. The main reason for this is that the number of EU-born workers leaving the UK fell
by 95% in 2017 (Felbermayr and et.al., 2017). It has mostly harmed employment in the low- and
medium-skilled sectors.
The impact of Brexit on trading arrangement between UK and EU has been resulted in the
negative impact over economic growth of UK as the rate of economic growth has greatly
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affected post Brexit which results in poorer household income of the citizens than average and
accordingly leads to lowered living standard in UK. As the tax expenses has risen much rapidly
post Brexit, there is less availability of funds for public services and thus lesser services to public
means less social welfare and accordingly lowered standard of living. People with less facilities
and disposable income will not be able to raise their expenditures.
The UK's commerce and access to the EU's single market would be damaged if it were no longer
a member of the customs union. It now has a trade agreement that allows for zero taxes and zero
quotas on goods that meet certain origin requirements. Free mobility between the EU and the UK
came to an end with Brexit. Europeans who have settled in the United Kingdom must have the
necessary papers from the British government allowing them permission to remain in the
country.
Passports should be ready to exhibit at the border for travellers between the EU and the UK.
Business travellers with special needs or who do business in the EU on a regular basis may need
to establish a local subsidiary. Telecommunications, electronic services, and broadcasting may
all be taxed.
The present consequence of Brexit on the United Kingdom is that the economy has slowed and
businesses are relocating their headquarters to the European Union (Broadbent, 2017). This is
having an effect on employment in the country, and there are ramifications that can be seen in
Ireland, London, and Scotland.
Technological advancement is one source of transforming living standards as more
production can be ensured with the new inventions and advanced technology but there no logic
in producing more if there are no buyers for the produce (Breinlich, and et.al., 2017). The same
applied to the UK economy where its output depends on the demand for its goods and services
that has been produced. Being an open trading nation, the demand for UK’s goods and services is
not restricted to consumers, government and businesses in UK rather it is extended to other
nations including those of EU. So, the well-being of residents of UK is dependent upon the
income they receive from wages and on the price they need to pay for buying goods and services.
For the goods imported and exported, EU as an entity demands for better terms and represents
higher bargaining power while buying and selling the output of other nations and UK after
exiting from EU has been deprived of such unified bargaining power as it is not able to negotiate
powerfully as EU can do.
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Another negative impact realized during UK’s exit from EU was the dropping of the pound
which reflects uncertainty for the future of UK among investors. The British pound declined as a
result of the referendum, which aided exporters by lowering prices, but increased import prices.
The currency was unable to reclaim its pre-Brexit highs. When the plans of Brexit transition
were released and get rejected many times, it has further reduces the strength of pound in the
foreign exchange market. When the currency value decreases it leads to more and more exports
for the nation but at the same time it discourages investors to invest in UK market. As the
volatility of pound has lowered the confidence of the investors, it further leads to decrease in the
investment in fixed income assets along with this there was a major fall noticed in the foreign
direct investment. Both of these factors that is, depreciation of pound and fall in foreign direct
investment have a negative impact of the standards of living of UK. A depreciating currency
affects the imports in terms of increasing cost of imports which leads to rise in the cost push
inflation and accordingly the standards of living gets affected very much. The reason of poor
standards of living is that the residents of UK are now unable to buy goods and services
compared to what they are able to do so before Brexit (Breinlich and et.al., 2017). Also, in the
same when there is less FDI in the nation and investors are not confident enough to make more
investment in the nation then there would be a problem of poor economic growth as, if there is
less FDI then there would be less employment generation in the economy and less employment
leads to lower income of the citizens and accordingly standards of living gets lowered.
Another industry that is, car industry which has a major role in affecting standards of living of
citizens and get affected very much due to the implementation of Brexit. As car plants in UK
imports car components from European nations and again exports majority of finished products
in Europe as well. But post Brexit automobile sector become much unprofitable with the
imposition of tariffs on the import of vehicles and accordingly there was a slump of this industry
which was around 46% in 2017 and this gets increased to 80% within three years.
Another severely harmed industry was financial services. Banks from the United Kingdom, for
example, may be denied access to the European market due to regulatory regulations
implemented by the EU. At the start of 2019, it was reported that banks and financial institutions
have transferred around $1 trillion in assets from the United Kingdom to the European Union.
Banks would be in jeopardy if the United Kingdom left the EU.
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In this way, there are many negative effects of Brexit realized by UK which seems to have
affected the standards of living of UK.
Negative effect on UK economy
Many studies have suggested that Brexit will be having more of an adverse impact on UK
economy. UK economy is said by some researchers, that it would be growing more slowly after
Brexit with predictions which range to reduction of 18% in output in 2030 of UK after Brexit.
Predictions are based on eminent trade barriers which shall arise between UK and EU
(Topliceanu and Sorcaru, 2019).
CONCLUSION
It can be said that there have been favourable and unfavourable changes taken place. It can be
stated that the UK's exit from the EU has both positive and negative aspects. Some argue that
breaking links with the EU will harm the trade industry, while others argue that the UK will be
able to negotiate trade agreements with countries like the US more freely. It is certain that the
UK will suffer economic consequences, however the transition phase with the EU will mitigate
this. It will take time for the UK economy to adjust to new changes and accept them. Seeing
positive effects, the United Kingdom will gain sovereignty as a result of Brexit, and will be
allowed to create its own market laws and trade deals (Broadbent, 2017). This market portrays a
scenario in which the UK gives up its access to the single market and customs union. Citizens of
other EU countries, for example, are free to move to the UK under EU law. This has put pressure
on the United Kingdom in terms of immigration, as well as making it difficult to meet the
housing and service needs of so many people. The United Kingdom will regain entire
sovereignty over its borders as a result of Brexit. Brexit will assist Britain in resolving this
dilemma, as continued EU membership will limit Britain's international power, potentially ruling
out an independent seat at the World Trade Organization. Saving money on EU membership
costs might be used to pay other immediate requirements, such as NHS spending. Trade will
assist other large economies, such as Japan, India, and the United States. The EU's red tape
restrictions will be reduced, which will benefit small enterprises. The economy could benefit
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from improved global trade agreements and more selective immigration. The average UK
consumer spends hundreds of pounds in VAT and agriculture subsidies each year.
The options for the next government regarding Brexit are:
a) No future deal: Ports will be closed, and flights will be cancelled as a result. In no time,
imported medicine and food will be in short supply.
b) Brexit re-vote: Many people believe that voters were unaware of the economic implications of
Brexit. According to the European Court of Justice, the UK might unilaterally reconsider its
Brexit application to remain in the EU (Minford, 2019 ).
c) The proposed agreement is approved: The issue at hand was the border between the United
Kingdom, Northern Ireland, and the European Union-member Republic of Ireland.
Brexit may have an influence on the supply chain. Companies will need to keep more inventory
on hand to avoid delays caused by customs delays and extra restrictions on importing
components. Honda's plant in the United Kingdom has closed, and Nissan has decided to
produce future car models in Japan rather than the UK. Despite the fact that these companies did
not mention Brexit as a contributing factor.
Thus, it will have a sum total effect both positively and negatively.
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REFERENCES
Books and journals
Breinlich, H., and et.al., 2017. The Brexit vote, inflation and UK living standards. CEP Brexit
Analysis, 11, pp.2-15.
Breinlich, H., and et.al., 2017. The consequences of the Brexit vote for UK inflation and living
standards: first evidence. CEP Technical Report.
Broadbent, B., 2017. Brexit and the pound. speech given at Imperial College, Bank of England.
de Almeida, A., Sastre, T., Van Limbergen, D. and Hoeberichts, M., 2019. A tentative
exploration of the effects of Brexit on foreign direct investment vis-à-vis the United
Kingdom. Banco de Espana Occasional Paper, (1913).
Dhingra, S. and Sampson, T., 2017. Brexit has already started to make UK citizens poorer. LSE
Brexit.
Felbermayr, G., Fuest, C., Gröschl, J.K. and Stöhlker, D., 2017. Economic effects of Brexit on the
European economy (No. 04). EconPol Policy Report.
Kenourgios, D., Dadinakis, E. and Tsakalos, I., 2020. Brexit referendum and European stock
markets: a sector analysis. Managerial Finance.
Minford, P., 2019. The effects of Brexit on the UK economy (No. E2019/1). Cardiff Economics
Working Papers.
Ramiah, V., Pham, H.N. and Moosa, I., 2017. The sectoral effects of Brexit on the British
economy: early evidence from the reaction of the stock market. Applied
economics, 49(26), pp.2508-2514.
Simionescu, M., Bilan, Y., Smrčka, L. and Vincúrová, Z., 2017. The effects of European
economic integration and the impact of Brexit on the UK immigrants from the CEE
countries. E+ M Ekonomie a Management.
Topliceanu, Ș.C. and Sorcaru, S.L., 2019. The effects of Brexit on the European Unions
economic power and implications on the British economy. Acta Universitatis Danubius.
Œconomica, 15(6).
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