Since the start of 2021, there has been an endless series of new stories claiming serious negative economic effects from Brexit – and this shows no signs of ending. This week has featured three stories in particular which have been extremely misleading and which we dissect below.
Electric car exports
The most prominent of our stories relates to the car industry. One industry source this week claimed that without changes to UK-EU trading rules, ‘800,000’ jobs in the UK car industry were at risk. This story relates to problems with the local content rules that exist in the UK-EU trade and cooperation agreement (TCA) that specify that a certain share of the value of cars traded between the UK and EU must consist of UK or EU content, with this share set to rise over time. An issue has arisen with this because a large share of the value of electric vehicles, chiefly batteries, consists of non-UK or EU content.
There is a genuine issue here, but the story run in the press was very misleading for a number of reasons:
- The number of jobs quoted as at risk was ridiculous. The only way you can get such a high figure is to count not only the 180,000 people employed directly in car manufacturing but also all the employment in the supply chain including retailers and dealers (see here). It is obviously absurd to claim all these jobs are in danger due to issues relating to exports to one destination of one type of vehicle. Petrol cars (still 2/3 of output) are unaffected by this local content issue, as are exports to non-EU destinations (60% of the value of UK car exports) and sales to the domestic market. Moreover, the maximum tariff the EU would levy on UK car exports, if the local content issue is not dealt with, is 10%. This would certainly be a problem for some manufacturers but not all.
- The problem isn’t just a UK one. This is also an issue for European manufacturers wishing to sell to the UK under the TCA. German manufacturers are calling for the local content rules in the TCA to be watered down or delayed to preserve their market share in the UK – a market that takes around a fifth of German car exports. The symmetrical nature of this problem makes a deal to solve it more likely.
- The problem isn’t just about a lack of battery making capacity in the UK. It has been claimed that this problem relates to a lack of battery making capacity in the UK, with much fulminating about the failure of Britishvolt. But the problem is again Europe-wide. Under the TCA batteries from the EU would count towards the local content needs in UK exports to the EU but there is a lack of battery-making capacity in the EU as well. The local content rules in the TCA were supposed to incentivise the industry to onshore battery production from Asia but have signally failed to do so.
- The problem isn’t just about battery making. Even if batteries are made in Europe, the TCA rules mean that they may not be counted as local content. This is because the TCA rules specify that from 2024, 60% of batteries’ value must be locally derived and the battery cannot contain non-originating active cathode material. As explained here, this means it’s not enough to build a ‘gigafactory’ for batteries – you need to produce the cells and chemicals the battery uses too. The capacity to do this in Europe does not exist as yet.
Overall then, what we have here is a story about a failed attempt to force rapid onshoring of battery manufacturing in Europe which is now a potential headache for manufacturers across the continent. Some kind of deal to push the problem down the road is likely, but even in the absence of one, claims that it will eliminate hundreds of thousands of UK jobs are nonsense.
Exports ‘at an all-time low’
Sky TV this week hosted Shadow Environment spokesman Jim McMahon who claimed that ‘Our exports have dropped to an all time low, the lowest since records began’. This statement went unchallenged but is entirely false. Comprehensive records for UK trade go back a long way, to the 17th century. In 1697, England and Wales exported around £3.5 million worth of goods over the whole year. In 2022, exports of goods were £414 billion or around 120,000 times as much.
Let’s be generous to McMahon and assume he meant records since 1997, when the current series for UK trade begin. Is he right? No. UK goods exports in 1997 in value terms were £164 billion, while in 2022 they were more than double that amount.
Or perhaps he was being sophisticated and referring to export volume (i.e. adjusted for inflation)? Well he would still be totally wrong. Exports in 2019 prices in 1997 were £234 billion, in 2022 £347 billion – a rise of 43%. Or perhaps he just meant exports to the EU? Still wrong. Exports to the EU in volume terms were £132 billion in 1997, and in 2022 £158 billion. In value terms they were £98 billion in 1997 and £194 billion in 2022.
Just conceivably, given his brief, McMahon only meant food exports to the EU. So are they at the lowest levels since records began? No. In 1997, the value of food exports (SITC code 0) to the EU was £4.5 billion, in 2022 it was £10.4 billion. In 2019 prices, food exports to the EU were £6.7 billion in 1997, and £9.1 billion in 2022 – some 36% higher.
From the above it is clear that McMahon’s comments were wildly inaccurate. It is ridiculous that politicians can get away with such blatantly nonsensical claims with no pushback from the press – but unfortunately this has been very common with stories of this kind.
Barclays, the City and Brexit
Our final fake news story for this week featured the headline ‘Barclays to hire 200 staff in Paris as City struggles after Brexit’ and also made the extraordinary claim that Paris was ‘increasingly…Europe’s main trading hub’.
There is a lot wrong with this:
- Barclays employs over 80,000 people worldwide. Of these, over half are in the UK and just 279 in Paris. Even with another 200 people, the Paris workforce would be only around 500, less than half that employed in the Czech Republic and just 0.6% of Barclay’s global workforce.
- Paris is not remotely competitive with London as a trading hub. In the latest Global Financial Centres Index ranking, London comes second and Paris 14th – down four places from the previous survey. French financial services exports are about a quarter of the UK’s. The UK accounts for about 40-50% of global FX and interest rate and derivative trading while Paris’ shares are in low single figures.
- Even claims that Paris is now the largest centre for share trading in Europe are wrong. This is based on comparing the dollar value of the Paris and London stock exchanges, but this is misleading for several reasons (i) a large chunk of shares listed in Paris are privately held – so that the value of ‘free float’ shares on the LSE is higher than on the Paris exchange (ii) it is far too narrow a measure of share trading in the two hubs: the total value of all listed stocks traded in London is around double that in Paris. Including off-exchange trading as well, which is important for London, the gap is probably wider still (iii) levels of daily trading and initial public offerings in London are substantially higher than in Paris.
- The City has not been struggling since Brexit. It has maintained its high shares in global financial market trading; financial services and insurance exports are up 19% since 2019 and 13% since 2020; and City jobs are up around 45,000 since 2019. The ‘struggling’ City narrative is a fiction of journalists with no basis in reality.
As we noted some months ago, these kinds of nonsense stories have been flowing freely since the collapse of the Truss government. Anti-Brexit observers and journalists now seem to feel they have no need to resort to reasoned argument or present any serious evidence for their increasingly wild claims as there will be no pushback from government and minimal, if any, scrutiny of such claims in the media. This flight from reasoned argument has even engulfed supposedly serious economists and senior policymakers. Expect much more of the same.