Breaking the Myths of Brexit – An Expert Assessment

Since the British people decided to leave the EU in June 2016, the Brexit issue has not only preoccupied politics; it has also had a major economic impact. How will Brexit affect living standards in the UK and the country’s trade with the European Union (EU)?

Professor Alan McKinnon from Kühne Logistics University has assessed the potential damage: “Much discussion of the impact of Brexit has been marked by myths and muddle, some of which contributed to the Brexit vote in the first place. Particularly in the event of a ‘no-deal’ scenario, Brexit would hit the British economy hard.” What myths are clouding the Brexit discussion? Prof. McKinnon explains the background and contexts:

Myth 1: Brexit will improve Britain’s long-term economic prospects.

According to reliable projections, Brexit will produce lower living standards in the UK, compared to staying in the EU. If implemented Prime Minister Boris Johnson’s “deal” would see per capita income in the UK fall by 2.5 to 3.5 percent. If the loss of productivity is also taken into account, incomes could fall by as much as 7% percent. And in a “no-deal” exit, the negative effect would be even worse.

Myth 2: It will be easy to separate the UK economy from that of the EU as a whole.

The UK has been part of the world’s largest trading bloc for 46 years. Many British businesses depend heavily on imports from the EU and are closely linked to EU-based suppliers. The EU accounts for 54 percent of all goods imported into the UK, and 49 percent of the UK’s exports go to other EU countries.  Many of these goods are intermediate products, such as car components, which can shuttle between the UK and the European mainland several times during the production process. This demonstrates the strong ties between UK and EU supply chains.

Myth 3: The EU will grant the UK easy access to the Single Market after Brexit.

Those advocating Brexit argued that Britain would be able to continue trading freely with the Single Market while controlling immigration from other EU member states.  EU insistence that the ‘four freedoms’ of the Single Market (free movement of people, goods, services and capital) be respected will prevent this.  Also, by leaving the EU, the UK will no longer be a party to the 40 free trade agreements that the EU has in place with other countries and trading blocs. The UK government hopes to negotiate a free trade agreement with the EU by the end of 2020. But that will be virtually impossible. To date, most EU negotiations on free trade agreements have taken an average of 4 to 5 years, with some taking 8 years or more.  

Myth 4: A hard border in Ireland can be avoided using technology and trusted trader schemes.

In  Prime Minister Johnson’s proposal, there aren’t to be any physical controls or customs checks on goods crossing between Northern Ireland and the Irish Republic, the UK’s only land border with the EU. It was previously argued by Brexiters that customs checks could be done electronically and invisibly. But the EU has rejected IT-based alternatives, and there are no successful examples of them being used elsewhere in the world. Moreover, it would take several years for any alternative systems to become fully operational. A hard border would have disrupted trade between Northern Ireland and the Irish Republic, especially in agricultural products, risked the emergence of a “shadow economy” and possibly reignited the ‘Troubles’.  Johnson’s deal gets around this problem by essentially creating a border down the Irish Sea, something that his predecessor claimed that no British prime minister could ever possibly do.

Why is the logistics of Brexit so important?

The UK government has decided that Brexit means leaving the EU’s Single Market and its Customs Union. Both international agreements are essential to the smooth flow of goods between countries. Through the network of supply chains, the UK economy is closely linked to that of other EU members. As Alan McKinnon explains: “If the UK were to leave the EU without an agreement, it would become subject to World Trade Organisation rules overnight. Customs controls and tariffs could significantly delay the movement of goods and make it very difficult for businesses to transport goods between the UK and the EU on a just-in-time basis.” Twice during 2019 businesses involved in EU-UK trade have had to incur the high cost of preparing for a UK departure on a no-deal basis.  This has involved stockpiling, rescheduling production, re-sourcing supplies and repositioning inventory. McKinnon calls this the ‘forgotten cost’ of Brexit because it tends not to be factored into macro-economic modelling but still imposes a significant financial burden on businesses, much of it logistics-related.

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