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Chapter 1: How much did Brexit cost the UK?
That battle bus claiming more money for the NHS, that was completely wrong. Look, if you told the British electorate, hey, you know what, you can vote for Brexit, you know, it's going to cost you £2,000 a year, but you want less immigrants and you want, yeah, I don't know, cheaper housing because there's less people around, you can have it. The problem is that was never what was promised.
There was promised more spending on the NHS, which has basically turned out to be an absolute lie.
I mean, my rough and ready calculation is on a three trillion pound economy, we're looking at 240 billion of income that has disappeared. Is that right?
This is an enormous loss of money.
Hello and welcome to The Rest Is Money with me, Robert Paston. I think Steph McGovern's off solving crime again or whatever she does in her spare time. But I'm thrilled that I'm joined by the distinguished Stanford economics professor, Nick Bloom.
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Chapter 2: What is the 8% GDP loss associated with leaving the EU?
Nick, very good to see you. And I think most of what we'll talk about today is the report that you did on the costs of Brexit, which... pleased some people and infuriated others. Um, and I was quite struck.
I don't know if you regarded this as a badge of honor or, um, something, uh, that you'd rather not have happened, but I noticed that the chancellor has taken to referring to your, uh, assessment that leaving the EU has led to an 8% reduction in, uh, GDP, uh, an 8% loss in national income.
It's been quite striking in the sort of political sphere that she's started, in a sense, essentially giving you this great accolade of official approval at a time when they're very, very keen to persuade the British people that we need to move economically and actually diplomatically closer to the to the EU. So it's an important number, that 8%.
I think it's roughly double the estimate that the Office for Budget Responsibility, the only sort of official work the Office for Budget Responsibility has done on this, I think said the loss was about 4%.
Chapter 3: What methods did the guest use to assess Brexit's economic impact?
I'm really fascinated just to start with, because you use two different methods, and actually your assessment is the loss is somewhere between 6% and 8%. But talk me through... how you set about approaching this assessment and how you came up with that number.
Yeah, so basically there's a top-down and a bottom-up approach. So the top-down is to compare the UK to the EU 27, so 27 countries in the EU, plus six others, so US, Canada, Japan, Iceland, Norway, and I can't remember, but there's 33 countries in total.
And what we do is we show quite clearly that if you compare the UK to those 33 other countries, it tracks very closely on GDP for 10 years running up to the Brexit vote. So you do the average of the other 33. You do the UK and those two lines line almost on top of each other. Then the Brexit vote happens in 2016, and the UK line starts to slow down. And you can see this gap opening up.
Chapter 4: How does Brexit impact the UK's economic growth compared to the EU?
And that gap opens up year by year. So 10 years later, by 2026, the UK is about 8% below the average of all the other 33 countries. And that gap, interestingly enough, it doesn't all open in 2016. So the vote doesn't actually do much at the time. It's this kind of death by a thousand cuts. So that's one of the big reasons we differ from the OBR is their numbers are a bit out of date now.
And so some of the damage of Brexit accrued in 21, 22, 23. And so by 2026, it's about 8% on the macro data.
Just also talk me through the other approach that you took, because you didn't just do the top down. Tell us about the bottom up.
Chapter 5: What are the potential benefits of rejoining the EU?
Yes, exactly.
So the bottom up was actually much more work. So the bottom up with something called the decision maker panel we actually created in 2016. We've been surveying about 5000 British firms on a very regular basis. for the last 10 years, and we know how exposed they are to the European Union.
So, you know, their sales, their, you know, to the EU, their imports from the EU, their regulatory coverage, how many EU migrants they have, are they EU owned, etc. And so what you can do is you can compare EU exposed firms to non-EU exposed firms and look at the impact on growth. And again, a kind of similar story before the referendum.
If you're a firm that's exposed to the EU, say you have a lot of trade with them and you employ some migrants, your growth rate is pretty similar to a more domestic firm. And then after the referendum happens, this gap starts to open up.
Chapter 6: How could a more orderly Brexit have changed the outcome?
And by 2025, which is the most recent data we have because accounts take about a year to come in, you see the gap is about 6%. So the bottom up number tells you that there's about a 6% loss From Brexit for the UK now, 10 years later, basically, and the top down gives you 8%, and that's our 6% to 8% range.
And so just so that people understand the sums of money we are talking about, sums of money that could have contributed to higher wages, could have contributed to... a lot more money for the NHS through the taxation system for schools. I mean, my rough and ready calculation is on a £3 trillion economy, we're looking at £240 billion of income. that has disappeared.
Is that right? Totally right. I mean, this is an enormous loss of money.
Chapter 7: What challenges does the UK face in negotiating with the EU?
So just to give you a sense, you know, I can hear I'm British. I live in the US now, but my dad and both my sisters work in the NHS. Their expenditure on the NHS is about 8% of GDP. So it's like we could have doubled the money on the NHS if we'd not left the European Union. And so I remember that battle bus claiming more money for the NHS. That was completely wrong.
As it happens, the NHS is facing a funding crisis and Brexit is a big factor. More money for defence. To give you another way to look at it, it's about £2,000. a year per person in Britain.
Chapter 8: What does the future hold for the UK's relationship with the EU?
That is, we've lost because of leaving the European Union.
I think we're now going to go to a quick break. And after the break, I want to ask you, if we had had a more orderly Brexit, would it have been less damaging? And then secondly, the other question I'm going to ask you is, basically, having lost this 8%, how much of it could we get back? if we rejoined, would there be a catch up if we rejoined the EU?
So let's come to those in just a couple of minutes after a quick break.
This episode is brought to you by Octopus Energy. Now, you know, we love talking to entrepreneurs on this show. So with us is the founder of Octopus Energy, Greg Jackson. Right, I'm going to start with this. If you could change one thing to help Britain's economy grow, what would it be?
I'd love to see pension funds putting more money into British businesses. Over the last 25 years, they've fallen from 40% of their investments going to British businesses to 4%. That's bad for business here. It's bad for our stock market, but it's also bad for pensioners. In fact, a Canadian pensioner will get almost double the pension from the same amount invested as a British pensioner.
We need to sort that.
Nice one, Greg. Well, thanks to Octopus Energy for powering this episode of The Rest Is Money.
There are actually some pretty common sense explanations for why there would have been this effect. And I want to talk to you about those in a minute. But I think it is important to acknowledge that economists, particularly those economists who supported Brexit, some of them have said some quite unkind things about you, but there has been some criticism.
And I suppose there's one bit of criticism that seems to me to... From the point of view of, how can I put it, sort of common sense, to use that phrase again, I think it's important to examine, which is, there was a bloke called Julian Jessop who said this. He said, basically, if we had grown 8% faster than we actually did,
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