Economic analysis confirms that specific regions and nations are set to struggle most after Brexit.
We are now approaching a crucial point in the Brexit saga. Worryingly, the chances of the UK crashing out of the EU without a deal have risen from a remote possibility to a very real one.
Unsurprisingly, political commentators have focused mainly on the politics of Brexit. But while these arguments have generated much heat, little light has been shed on the impact on financially vulnerable households in the nations and regions of the UK with the least resilient economies.
It shouldn’t need saying — but it shouldn’t be forgotten in the debate about grand themes such as national sovereignty and identity that Brexit will affect real people’s lives and communities.
With the exception of a few outlier analyses, the consensus is that the UK economy will take a hit – the harder the Brexit, the bigger the hit.
And there have been some attempts to evaluate the potential impact on the different parts of the UK under various scenarios, from a soft Brexit to a hard Brexit (where the UK trades on WTO rules).
Under each scenario – soft or hard Brexit – the economies of Scotland, Wales, North West, Northern Ireland, West Midlands, and North East would be hit harder than the UK economy overall.
To assess this, the Financial Inclusion Centre analysed a range of public economic and financial data. It looked at the economic resilience of each nation and region, using measures such as economic output, productivity, business growth, and fiscal balances.
To assess household resilience, the Centre looked at indicators including average household earnings, the reliance on social security to top up household incomes, levels of over-indebtedness, the proportion without savings to fall back on, and the proportion in financial difficulty.
Where possible, the Centre looked at data pre- and post-financial crisis (2007-08) to judge whether the situation has deteriorated.
Overall, the North-East, North-West, Wales, Northern Ireland, Yorkshire and Humberside, and the West Midlands appear more vulnerable. In five of these six, people voted Leave – with Northern Ireland the exception.
These regional economies perform poorly relative to the “powerhouse” economies of London and the South-East, with key metrics deteriorating since the financial crisis.
The gaps in average earnings and output between the best and worst performing economies have widened, with more fiscal support now distributed from better-off regions to lower-income households in the weakest economic regions.
We also see many over-indebted households in the weakest economic regions, many with no savings to fall back on.
Average real earnings in the most industrial sectors at the start of 2019 were still below the levels of January 2008. There are worrying signs that more financially vulnerable households are again having to borrow to pay for essential goods and services.
In the worst-case scenario, some could suffer a triple whammy: a really big loss of potential economic output; the loss of EU funding, and; a combined, severe economic shock — unless fiscal transfers from stronger parts of the UK economy can be maintained.
It is also self-evident that Brexit would undermine initiatives to rebuild and rebalance the UK economy, including the necessary green transformation.
No one can say with certainty how things will turn out post Brexit. Economic forecasts are rarely precisely accurate. But most sensible analysts believe Brexit’s impact on the most vulnerable regional economies and households will be severe — even under a softer Brexit.
It would be reckless and irresponsible to ignore this.
Mick McAteer is director of the Financial Inclusion Centre. He writes this in a personal capacity, following on from a Remain and Reform podcast.
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