Brexit and Its Effect on the Cost of Living in the UK

Coming up to seven years since Britain voted to leave the European Union, Brexit is still being accused of driving up household costs. Since the referendum, sterling steadily lost value, but although this has now stabilised somewhat and even recovered a lot of its value, the result has still made imported products more costly.

Vote Leave supporters promised that reclaiming sovereignty would reduce living costs, yet is that really the case? A report by Resolution Foundation think tank and academics from London School of Economics attempts to isolate its effects.

Taxes

The cost of living has skyrocketed rapidly in the UK due to rising energy bills, food inflation and National Insurance taxes - all factors which impact peoples ability to afford basic products and services such as food, heating, mobile phone contracts, broadband subscriptions or subscription services such as Netflix - making life harder than ever and forcing some individuals to sacrifice things like clothing purchases or cinema visits as essential essentials.

Britain's economy is not growing at an optimal rate, compounding this problem and leaving its population struggling to find funds for such necessities as crumbling hospitals and underfunded public services. To address this situation, government has attempted to boost spending but this is only achievable through raising taxes or borrowing more - something which would increase debt levels to record levels further still.

To keep the deficit under control, the government needs to find ways to cut costs and raise revenue. One strategy could be lowering living costs for UK citizens; however, this would lead to an eroded standard of living for those not wealthy and would only put additional stress on families and businesses; additionally it will make maintaining spending levels much harder for governments if tax cuts occur.

Illegal Immigration

As the value of sterling continues to plummet and food, energy, and raw materials costs skyrocket worldwide, UK household budgets are under severe strain. Not all this pressure can be blamed on Brexit alone: factors such as labour shortages and increased taxes also play a part. Global recovery from coronavirus pandemic recovery has further driven up prices.

However, government failure to address an increasing unauthorized immigrant population is another significant contributor to rising living costs. Recent estimates place between 800,000 and 1.2 million non-EU/EFTA citizens living illegally in the UK without permission; this number echoes previous research and recent migration trends and includes those who entered illegally as well as asylum seekers waiting for decisions on their cases; since no longer part of Dublin Regulation which determines which member state reviews claims for asylum claims.

The UK Nationality and Border Act of 2022 sought to deter asylum-seekers from using dangerous routes into Britain by classifying any arrival from countries which had not signed onto European Union agreements on refugees as inadmissible. But without evidence to back this claim up, such an approach may only serve to cause more confusion than anything else, while classifying those already established here as inadmissible could even be challenged legally in court proceedings; moreover, few routes exist for undocumented migrants living here long-term to regularise their legal status in Britain.

Border Control

As UK inflation reaches record heights, house prices continue to increase and energy bills increase, the government's claims that they support hardworking Britons are looking increasingly hollow. They could begin by fulfilling their pledges, reinstating control of borders and decreasing immigration levels.

Nearly seven years on from Brexit's result, research by LSE economists and UK in a Changing Europe shows that Britain is already missing out on international trading opportunities due to loosing unfettered access to Europe's market of 450 million consumers. Furthermore, Brexit has increased food prices as new barriers were placed between trade agreements.

Firms must pay for additional import checks, customs processing fees and storage charges -- which they pass onto consumers. Furthermore, firms have had to build infrastructure at the border in the form of new customs posts and physical inspections of goods.

According to an April survey of issues, inflation/prices were among the main concerns for much of the British public - indeed one third identified it as their primary worry! So it should come as no surprise that calls are now coming for action from government.

Car Production

The British car industry is an integral component of Britain's economy, employing thousands across its factories nationwide as well as supporting jobs in other sectors from steel, plastics and logistics to finance. Furthermore, British-made vehicles can be found all around the globe.

But due to the Brexit deal, the future of UK car production is unclear. Manufacturers have been spending millions on Brexit contingency plans instead of developing new technology that will help them survive the shift to electric and autonomous driving.

 As a result, car manufacturing is experiencing its worst downturn since the 1970s. The industry has been shedding jobs and investment since the start of the year as global demand for cars slowed and factory closures accelerated.

Conclusion

Britain voted in a 2016 referendum to exit the EU, an action heralded as an opportunity to regain national sovereignty, curb immigration and onerous regulations, and drive dynamic growth. Unfortunately, exiting has also created higher barriers to trade and capital flows affecting output and employment across Europe as a whole.

An important contributor to these costs is the depreciation of sterling post-referendum, which resulted in consumer prices rising 2.9% by June 2022 - this estimate does not include price changes uncorrelated with import share variations across product groups and provides only an approximation of total pass-through of depreciation effects.

Research has also indicated that Brexit has increased food prices because of new red tape when importing from Europe, disproportionately impacting poorer households. Furthermore, EU producers stand to lose out by the Brexit, so many have taken proactive steps behind-the-scenes in an attempt to convince their governments to reach a compromise agreement in various sectors.

However, Brexit voters often state that this was a long term decision and would always involve short term problems. In addition, no one could have forseen back in 2016 the more recent severe problems caused by Covid and the war in Ukraine on the entire worlds economy.