Business frustrated by central problem of Brexit drag for economy

With soaring inflation, a nascent recession and the fallout from eight weeks of perilous political and economic instability there were no shortage of issues facing Rishi Sunak as he made the annual Prime Minister’s address to the CBI conference.

Yet the one confronting the PM as he travelled to Birmingham is the same that faced his predecessors; how to square an urgent desire for economic growth with a Brexit deal that has not, by common consent, delivered the promised dividend, and by some metrics has demonstrably damaged the economy.

Brexit was in the air at the CBI following a briefing from a “senior government source” to the Sunday Times suggesting the Sunak administration is considering moving to a Swiss-style accommodation with the EU.

If mirrored precisely, that would mean negotiating access to the single market, reversing the largest economic sacrifice of the Brexit deal, in exchange for making payments to the EU and allowing freedom of movement, the most vivid of red lines for the Conservative backbenches.

Downing Street has denied the report but it was enough to reawaken the issue, with help from a very direct nudge by the CBI director general Tony Danker. In his address Mr Danker urged the government to get the politics of Brexit out of businesses’ way.

He called for migration rules to be eased to allow companies to hire the staff they need, pointing out that migration was the only factor delivering growth to the economy, and for the PM to settle the dispute over the Northern Ireland Protocol, the unsquareable circle at the heart of the “bare-bones” free trade agreement agreed by Boris Johnson.

In the three years since that deal was signed these issues have been pushed to the margins, first by the pandemic and then the war in Ukraine, but they have added salience today for two reasons.

First, there is a growing body of evidence of the economic damage Brexit has caused.

The Office for Budget Responsibility, in the forecasts that underpinned last week’s autumn statement, said Brexit has had “a significant adverse impact on trade”, and that its original prediction of a 4% hit to GDP was being borne by real-world data.

Meanwhile, the free-trade deals that were sold by Brexiteers as a great benefit of leaving the single market have failed to convince even those who negotiated them. Last week former environment secretary George Eustace told Parliament the Australia deal was “not very good”.

“Overall, the truth of the matter is that the UK gave away far too much for far too little in return,” he said.

Second, the UK is sliding into recession with the worst-performing post-pandemic economy in the G7, and an acute need for businesses to be able to grow to ease the pain.

That has highlighted the barriers imposed by Brexit, with businesses facing increased cost, bureaucracy and restricted access to the UK’s closest and largest trading partners.

Eight weeks ago it felt peripheral as Kwasi Kwarteng set out a Growth Plan, much of which business liked until it turned out his £45bn tax-cutting spree had fundamentally undermined financial stability.

Last week however Jeremy Hunt swung the pendulum back the other way, with £55bn of tax increases and spending cuts delivering stability.

Having been hit with the re-imposition of Corporation Tax at 25% with no incentives, business is unsurprisingly asking what help they will get to deliver on a growth agenda that was almost absent from Mr Hunt’s statement.

The prime minister’s response was to reject the thesis, and aim his message at his own MPs in Westminster, rather than the employers in the audience controlling billions in potential investments.

“On trade, let me be unequivocal about this. Under my leadership, the United Kingdom will not pursue any relationship with Europe that relies on alignment with EU laws,” he said.

“Now I voted for Brexit. I believe in Brexit and I know that Brexit can deliver, and is already delivering, enormous benefits and opportunities for the country – migration being an immediate one, where we have proper control of our borders and are able to have a conversation with our country about the type of migration that we want and need.”

For years the CBI was a home fixture for a Conservative PM but Brexit changed the relationship. When Boris Johnson notoriously said “f*** business” during the referendum campaign it was the CBI’s opposition he was talking about.

Last year that relationship reached its nadir when he used his CBI conference speech to extemporise about Peppa Pig World.

There have been two prime ministers and twice as many chancellors since then, but the central problem remains: if Brexit is failing the economy on its own terms, when will government have the mettle to change them?