The economic case for Brexit still stands – it’s now time to pursue Wohlstand für Alle

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As we reflect on the decade since the EU referendum, one question is seemingly on everyone’s lips – was it worth it?

I answer this with an unequivocal yes. Brexit has definitely been worth it. 

When I speak to people, the motivation behind this question often seems to be driven by a feeling that politicians haven’t made the most of Brexit – a view I agree with – so it is worth exploring why politicians haven’t fully embraced the newfound freedoms from leaving the European Union.  

One reason is Covid. Being plunged into a pandemic the moment Britain officially left the EU in January 2020 undoubtedly stalled momentum. But another reason is the choice overload which seemed to discombobulate politicians after the leave vote. 

It’s well established in psychology that having fewer options leads to more decisions being made. There’s a famous study called the ‘Jam experiment’, where researchers Sheena Iyengar and Mark Lepper tried out their theory that we might be less likely to make decisions if we were given more options.

They used a tasting booth at a supermarket, displaying either six or twenty-four jams to select from. While more people approached the booth with the larger selection, 27 per cent more of those who approached the tasting stand with fewer options bought jam. The greater propensity to purchase more than made up for the fewer people approaching the booth. Sometimes, more choice does lead to poorer decision-making. 

Writing Ten Years On – my personal account of the EU referendum and its aftermath – has been a useful exercise in separating the procedural failures of Westminster from the underlying merits of the case for leaving. Too often the two get conflated, as though the nine failed votes in Parliament on our future relationship with the EU were evidence against the principle itself, rather than evidence of a political class unable to make a decision. 

This has allowed a narrative to take hold that Brexit has failed, that our economy is now smaller and that we have not really taken back control, to coin a phrase. 

All of these arguments are found wanting. Take the assertion that our economy has been severely hit by Brexit. The most-cited study on this question comes from the National Bureau of Economic Research which argues that our economy is eight per cent smaller than it would have been had we not left the EU. The researchers set up a so-called Doppelganger economy to chart how the UK would have performed without Brexit. Effectively, this approach means that you create a composite economy from a series of similar ones and use this to forecast how the UK would have performed had it remained in the EU.

There’s just one problem; rather than using France and Germany – economies which closely mirror the UK – 71% of the Doppelganger is comprised from the USA and Estonia. I would love Britain to have the low energy prices, entrepreneurial culture and lower simpler taxes of these economies, but we don’t and this was not going to change had we remained in the EU. Put pithily by Lord Moynihan of Chelsea in a recent letter to the OBR, “our current economic model is far nearer to Edstonia than to Estonia”. When you compare our economic performance to that of France and Germany, we have performed similarly, with higher growth than them both, and middle of that pack in GDP per capita growth.

In addition, many of these studies do not take account of any positive impacts of the UK leaving the EU’s regulatory orbit. They do not account, for instance, for the growth in the AI and tech sectors in the UK. Without the EU’s AI Act, our tech sector has vastly out performed our European peers. There is rarely, if ever, an attempt to quantify that.

The Brexit project is not, however, about damage limitation but rather enabling the UK to take a more prosperous path. The economic case was that having left the EU we could pursue policies that would promote our prosperity. 

We have made some use of these benefits. Our tech sector is better positioned from a regulatory perspective. In medicines, our Common Recognition Procedure has enabled us to take advantage of approvals in Canada and Australia. We have joined the CPTPP, signed a trade deal with India, and have a better trade deal with the United States than the EU has. 

The economic case for Brexit still stands, but there is clearly more to do. 

We have done the element which enables us to flourish – attaining policy freedom – but we have yet to fully exercise the policy freedom for our advantage. 

Now is the time to use that policy freedom to honour another anniversary this year. Not the ten year anniversary of the EU referendum, but the 250^th anniversary of Adam Smith’s Wealth of Nations – the seminal work demonstrating that free market policies are the route to prosperity.

We have fought for the right to set our own regulatory standards, our own trade policy, and have the ability to directly hold our elected representatives to account and yet successive governments have behaved as though simply possessing those powers were the achievement, rather than using them. It’s rather like buying a gym membership and counting the purchase itself as the workout.

There are many growth-improving changes which we now have the freedom to make, from moving away from the Habitats Directive to build more homes or softening our net zero ambitions so we are not out on a limb. 

The Conservatives have firmly acknowledged the need to pursue pro-growth policies, and it was encouraging to hear Nigel Farage tell reporters late last year that “we have not taken the advantage of the opportunities to deregulate and become more competitive.”

Parties on the left of the political spectrum are sadly taking a different approach, all moving towards a position of rejoining the EU. 

The next election will therefore offer a choice between making the most of Brexit, or heading back into the EU, with the growth destroying policies this would entail. 

It’s time to return to a great European for our inspiration. Ludwig Erhard was the architect of West Germany’s economic prosperity and he had his own three-word slogan – Wohlstand für Alle (which means prosperity for all). The last ten years have been about Britain leaving the EU; the next ten provide an opportunity to make the most of our independence to bring about prosperity. 

Matthew Elliott was the CEO of the Vote Leave campaign, and is the author of Ten Years On: The Untold Story of Brexit, is published today by Biteback.

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