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Opinion As Britain’s productivity falls, Brexit’s promise remains unfulfilled

Amid Britain's cost-of-living crisis, a house for sale in London on Nov. 3. (Kin Cheung/AP)

Four and a half years ago, when I was in London to cover Brexit, I was surprised to find how many free-market, free-trade wonks were in favor of it. Yes, leaving the European Union meant sacrificing access to the world’s largest trading bloc, they argued, but it also meant getting Britain out from under the thumb of a ponderous bureaucracy that was insulated from public accountability by layers of byzantine governance. In theory, this would leave the country free to do broader, better trade deals and build world-class economic institutions.

This was, to be clear, not the only theory of Brexit, or even the most common. Many people who voted Leave just wanted to get control of the country’s borders, particularly its immigration policy; they didn’t care (or thought they didn’t) about what that might cost in terms of economic growth. But “Singapore-on-Thames” was a theory of how Brexit might turn out, and it was plausible, if not necessarily likely.

Four and a half years on, I’m afraid it looks even less probable.

In the interim, Britain negotiated its exit agreement with the E.U., suffered through a pandemic, and is now enduring the backwash of Europe’s energy crisis on top of soaring post-pandemic inflation. This has considerably complicated the urgent task facing the government: improving British productivity to make it competitive with peer nations.

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Productivity has long been a problem for Britain. In 2015, when the Brexit referendum was barely a gleam in Prime Minister David Cameron’s eye, Britain was already producing significantly less GDP per hour worked than Northern Europe or the United States. Because trade tends to enhance productivity, by letting workers specialize in the things they do best, Brexit has pushed the trend in the wrong direction. As a result of Brexit, productivity has declined by more than 1 percent, a figure that Britain’s Office for Budget Responsibility estimates will ultimately grow to around 4 percent. In 2015, Britain’s output per hour was 15 percent lower than America’s; by 2021, the gap had widened to 20 percent.

In September, under new Prime Minister Liz Truss, the Conservative government introduced a controversial “mini budget” that offered the biggest tax cuts Britons had enjoyed since 1972, some 45 billion pounds’ worth of relief for individuals and corporations. Kwasi Kwarteng, the new chancellor of the exchequer, also promised reforms to child care, immigration, agricultural productivity, business regulations, digital infrastructure and barriers to home-building. Here, in theory, was another opportunity for radical improvement, a kind of neo-Thatcherite program with tax cuts to attract capital and spur investment, and streamlined government services to clear the bottlenecks impeding Britain’s growth.

In practice, markets freaked out at the size of the bill and the potential for inflation to rise even higher than the 10.1 percent Britain was suffering. The government was thrown into chaos and, about a month later, Truss resigned.

She had clearly misjudged her moment, and for this, many of the conservatives I’ve spoken with are furious. By trying to move too far, too fast, at a time when inflation was high and the government was fiscally constrained by the fantastic sums it had spent on the pandemic, Truss gave a bad name to some good, much-needed reforms. Conservatives speak gloomily of needing years to recover before it will be safe to offer similarly bold ideas — many of which they are likely to spend in political exile, as it now seems a safe bet that the Labour Party will take over after the next election.

Many conservatives are now looking to play small ball, finding ways to open a few cracks in the regulations and other barriers that hold back British growth. Chief among these is a housing crisis that makes the U.S. situation look rather manageable. At least the United States has plenty of growing cities where it’s relatively easy to find an affordable home (if not as easy as it was before the pandemic).

In the dynamic cities and towns where Britain desperately needs housing — such as London, Oxford and Cambridge — building is constrained by outdated planning rules that make it easy for neighbors to block construction and by greenbelts where development is tightly restricted. At the same time, it’s hard to give stagnating secondary cities new life without public transportation to enable a lot more commuting.

Fixing these problems would enable British workers to move to better jobs, and employers to expand operations — both big productivity boosters. But Britain also needs streamlined processes for building infrastructure, an education system that does as well for the students at the bottom as it does for those at the top, and higher investment.

In theory, tweaking these systems even a small amount could yield big progress toward closing Britain’s productivity gap. In practice … well, we’ll have to see.

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