The repeated references to Brexit increasing UK food prices in the media and on this MB, has prompted me to investigate how justified this claim is.
On 1st December the London School of Economics and Political Science (LSE) published an article claiming that leaving the EU added an average of £210 to household food bills over the two years to the end of 2021, costing UK consumers a total of £5.8 billion. (Ref. 1)
This report was picked up by most of the anti Brexit media with wildly exaggerated headlines. The report also repeated a previous claim by the Centre for Economic Performance at the LSE that leaving the EU increased the price of food by 6%.
Who are the LSE?
The LSE is a public research university joined to the University of London; 70% of its 11,000 students from outside the UK. It is a member of The European University of Social Sciences, CIVICA, a network of 8 European universities. On 16 June 2020, the European Commission raised the status of the LSE from “associate partner” to “full member” of CIVICA. The LSE is a member of the European Union body the European University Institute. Whilst the UK may have left the EU, the LSE has certainly not, and has been running an intense political campaign to discredit Brexit. It has published over 100 articles and papers in the last couple of years as part of its "Brexit and Beyond" programme, organised by the LSE's European Institute and School of Public Policy. It acts a reference source for the Independent, Guardian, and FT to publish anti Brexit slanted articles, and it would appear even the Bank of England.
LSE Brexit publications are dominated by the economic arguments, only explores the downside and not the upside, and rarely mentions issues such as sovereignty, judiciary, and democracy.
The original technical paper.
The publication on 1st December was a synopsis of a paper published on 25th April entitled "Post-Brexit Imports, Supply Chains, and the Effect on Consumer Prices". (SCR) (Ref.2)
This post is essentially a critique of that paper, which should be read first.
The first statement that caught my attention in this paper was "
Voting for Brexit had large negative effects on the UK economy between 2016 and 2019, leading to higher import and consumer prices, lower investment, and slower real wage and GDP growth. However, at the aggregate level, there was little or no trade diversion away from the EU, implying that many of the anticipated long-run effects of Brexit did not materialize before the new UK-EU trade relationship came into force in 2021." No data is presented to support these sweeping statements which are contrary to the facts that UK GDP was higher in 2018 and 2019 than it was in 2016 and 2017 (Ref. 4) and UK exports were at record levels in 2018 and 2019. (Ref. 3)
In 2021 UK GDP reached an all time record. (Ref. 4)
The LSE are part of that school of thought following a study carried out by the National Institute for Economic and Social Research (NIESR) published in November 2018 which suggested that the government's Brexit deal will cost the UK £100 billion per year by 2030. The study also indicated that Gross Domestic Product (GDP) will be 3.9% lower by 2030. After nearly two years of Brexit there is no substantive evidence to support that forecast.
I deduce from the statement "
at the aggregate level, there was little or no trade diversion away from the EU, ............ before the new UK-EU trade relationship came into force in 2021" that there were some adverse effects, but there were equally benefits. The report is consistent in one respect; there is no reference to the benefits of Brexit, to which they seem blind.
Change in trade pattern.
Secondly the report states "
Following the implementation of the TCA*, there is a clear and sizeable drop in imports from the EU", and "
the fall in imports from the EU is far more substantial and observable than the fall in exports to the EU" , and "
Overall, UK imports from the EU have fallen both in absolute terms since the referendum and relative to imports from non-EU countries since the TCA’s implementation".
* EU–UK Trade and Cooperation Agreement (TCA)
The SCR report goes into great detail for each individual category of import.
It seems logical to me that as imports from the EU have reduced then the unit costs can be expected to increase as all businesses carry fixed costs that have to be spread across the turnover and unit costs will consequently be higher if the amount of trade is lower. Furthermore some costs such as transport will cost more per tonne moved if the tonnage is lower, due to for example smaller consignments. Consequently even variable costs will be adversely affected by lower activity. So I would fully expect imports from the EU to cost more per item if the level of imports is lower.
But by the same argument it is reasonable to expect that goods imported from non-EU countries will cost less per unit if more has been imported. The report states that there is evidence that some sectors began to reorganise their supply chains away from EU countries pre-TCA, but does not address the costs of goods imported from non EU countries. It is my contention that the increase in imports from non-EU countries will have reduced (or at least resulted in less inflation of) the unit cost of those imports. It is also my contention that UK businesses will have benefited from increased costs of EU products. For example, Finsbury Food Group reported a record sales for their financial year to 2 July 2022 and an increase in volume of 8.7%. British cheese production is at record levels. Wensleydale cheese producers saw monthly sales multiply by 30 during lockdown. Highland Fine Cheeses sales rose by 33%. South Caernarfon Creameries has enjoyed record profits and sales and is investing £20m expanding its production facilities.
UK producers will inevitably benefit from an increase in prices of EU imports and be able to increase their prices and still be competitive, and increase job security.
Change in UK purchasing behaviour.
The owner of Highland Fine Cheese has said "
The last two years have also perceptibly changed people’s thinking about where food comes from, and the conditions in which it is produced. There has been a distinct re-shoring of shopping baskets.” 59% of UK consumers bought from local shops and services more regularly during lockdowns, which would account for a reduction imports. HFC's owner has also said that domestic cheese-makers have also benefited from significant increase in the price of imports from European exporters who also have to contend with rising costs of raw materials, energy and labour. (Ref. 5) And, as I will show later, he could also have added the increased costs of packaging, transport, and shipping.
I experienced an example of the change in consumer behaviour in 2020. In a small village near where I live there is a small market gardener who sells some of its product from a stall on a green in the village. When the pandemic struck the stall disappeared which I assumed was a lockdown measure to stop transmission of the virus. When the lockdown ended the stall did not reappear till months later. When it did, I stopped to purchase some products; they sell a wide variety of vegetables, fruit, eggs, jams, etc. I saw the lady who owned the facility in her garden and got chatting. I asked if she had had a difficult time during the pandemic. Her reply took me by surprise as she said she had had a "terrible time". When asking what had happened she said they had been overwhelmed by demand from everyone in the village and could not cope. They kept running out of produce (hence no stall for a long time) as everyone in the village wanted to buy from her rather than have to go to town during the lockdown and had kept buying from her after the lockdown. The point here is people were buying local produce rather than going to the supermarket and buying produce which could be British or imported. Rather than going to town and buying chips they were buying local potatoes and making their own chips for example. I mention chips because nearly 70% of the frozen potatoes that the UK consumes comes from the Netherlands and Belgium.
Benefits from the change in UK purchasing.
The change in UK consumer purchasing habits is a double impact. The more home product purchased the less imported product purchased, but also there is less home produced product available to export.
Brexit has been good news for many food producers; although they have not all been making huge profits, because as with the rest of Europe they have struggled with higher costs due to shortages, transport, and energy inflation. 2022 has been a very difficult year for food and drink producers due to higher costs as a consequence of the war in Ukraine, nevertheless the good news is UK food and drink exports to both the EU and non EU are now exceeding the pre-pandemic level.
Another factor is that there is a view that in the long term EU food production will decline due to climate change and the unacceptability of intensive farming to environmentalists. Consequently it is in the UK's best long term interests to increase home production and to spread the dependency on imports, and reduce the very high dependency on the EU for food.
Imports from the EU have reduced by a greater amount than exports to the EU, leading to the UK have a lower negative balance of trade with the EU. That is a benefit to the country. The improved balance of trade is demonstrated clearly with Germany where trade has reduced significantly and the UK trade deficit with Germany has reduced from -£25 billion in 2016 to -£15 billion in 2021.
Thoroughness of the SCR paper.
I am not impressed by the exhaustiveness of the report. For example Figure 1.1 on page 10 of the report (Ref. 2) shows and is titled
"EU imports declined relative to non-EU Imports after the Trade and Cooperation Agreement came into effect", i.e. in 2021. However the same change in trade pattern occurred in 2012, but there is no comment or explanation as to why. What happened in 2012 which caused the same thing to happen to trade patterns in 2021?
Figure 1.3 on page 13, shows that the volume of import of toys, games and sports equipment from the EU and non-EU drifted apart after 2010 in favour of the non-EU, then after 2015 drifted together in favour of EU imports, until 2020 when both increased sharply, possibly due to stock building in anticipation of no trade agreement. Subsequent to the TCA the imports from the EU crashed, returning to the 2014 position. What is the reason for these changes? The report gives no explanation. It's as though the authors are only interested in making reference to anything they can blame Brexit for.
Figure 1.4 on page 14 states that
"imports of fats, oils and waxes from the EU fell sharply after the TCA came into force". I don't see any significantly different change in the graph from what has occurred in previous years such as 2011, 2017, and 2018 when spikes in trade have occurred in both EU and non-EU imports. The spikes are of course because of large shipments some months and none other months. If you look very closely there is a hint of stocking towards the end of 2020 followed by a drop in imports at the beginning of 2021 but EU imports soon return to a higher mean level than the previous two years. Consequently
"fell sharply" is not in accordance with the facts.
Next, look at Figure 1.6 on page 16. (Ref. 2) This graph shows a dramatic reduction in imports of coffee, tea, and spices from the EU relative to the non-EU imports. This huge drop will have contributed to the effect on Figure 1.1. Why was there a sharp jump in EU imports of these products in 2014? There is no explanation for these significant changes; however one possible explanation for the sharp drop in 2021 is the so called "Rotterdam effect". Large shipments of bulk product arrive in Europe at Rotterdam and Antwerp in large ships and are then offloaded and transferred into smaller ships to transport to smaller UK ports. When the UK was in the EU these imports would have been counted as coming from the Netherlands or Belgium, now the UK has left the EU they are classified according to their country of origin. Plus there is the impact of the developments at British ports, that I have referred to in my quarterly reviews, resulting in the UK is now taking larger ships than it used to.
When it comes to the Figure 1.7 on page 17 (Ref. 2), I start to despair! The title says
"UK imports of textiles declined after the referendum, even before the TCA came into force". Well there is a one eyed observation! It was EU imports that declined, but non-EU imports increased, apart from a dip during the pandemic in 2020. But more importantly, the trend has been happening since 2014, years before the referendum. It is clear the authors are totally non-objective in their interpretation of the graphs.
As a passing comment, the shape of the Figure 1.7 graphs is what I expect to see in years to come, not allowing for wars or pandemics of course. Namely a steady decline in imports from the EU and a steady rise in imports from the rest of the world.
Impact on prices.
Section 3 of the report deals with the impact of Brexit on consumer prices, which, whilst at the time of the report were
"the largest increase in the cost of living for a generation", were actually much lower than later in 2022 due to the war in Ukraine.
Given the length of the report, it seems surprising to me that little mention is made of the impact of the pandemic; the only significant reference being to the impact of the pandemic on the import of automotive products. Automotive products were hit seriously by shortage of microprocessors, and is still affected today. But the most important comment in the report to me lies towards the end of the report with the comment on the Figure 3.2 on page 36. The report states (on page 35) "
We find no obvious impact of Brexit across all products".
The post pandemic shortage of microprocessors is not the only shortage to impact production and trade. Another is the shortage of packaging that has impacted a whole range of products and trade particularly food, see below. The authors of the report are either unaware of this or choose to ignore it. They don't rule it out as a factor affecting trade. There was an unprecedented increase in shipping costs in 2020, with huge increases in the cost of container hire. (Ref. 6)
According to the FT, thousands of empty containers were left stranded in Europe in the first half of 2020 due to hundreds of cancelled trips during lockdowns. When demand resumed in the second half of the year, competition for containers sent prices through the roof.
Another factor affecting prices was wage inflation. Wage increase collapsed at the start of the pandemic from typically 2% - 4% to negative values in quarter 2 2020. But then wage increases increased rapidly through 2020 to peak at over 9% by mid 2021 before falling back. The level of wage increase from early 2021 was forcing businesses to increase prices. (Ref. 7)
It is logical that all these pandemic related effects will have cost increases across the whole of the economy and throughout the food supply chain.
Time periods examined.
The report analyses three periods after he Brexit referendum on 23 June 2016. Firstly "post-referendum" as the period after the referendum and before Boris Johnson’s election as prime minister on 12 December 2019; secondly ‘pre-TCA’ refers to the time period from the election up until the implementation of the TCA on 1 January 2021, and thirdly ‘post-TCA’ denotes the period from 1 January to 30 September 2021.
First period - "post-referendum".
With respect to the results for food products, the report states for the first period examined that "
in all quarters leading up to the Brexit referendum and in almost all leading up to the 2019 election there was no (statistically significant) difference in price changes between products that were more and less exposed to imports from the EU."
This is very significant as one of the key arguments that the cost of imports from the EU have increased is the drop in the value of the £ in 2016 following the referendum. In the years preceding the referendum the value of the £ was typically $1.56. In 2016 it dropped to a mean value of $1.35, and settled out at typically $1.28 during the years 2017 to 2020 and actually rose to a mean of $1.39 in 2021. (Ref. 8)
Clearly therefore food prices could not have inflated due to a drop in the value of the £ post 2017, as there was no significant drop in the value of the £ after 2016 until well into 2022, long after the period of the report. During the periods under examination from 23.6.2016 to 30.9.2021 the value of the £ relative to the Euro fluctuated relatively little.(Ref. 9)
Periods post December 2019 election.
Near the start of the SCR report, bullet point five of the executive summary, page 5, states
"The increase in UK-EU trade barriers has led to a 6% increase in food prices in the UK over the period between the end of 2019 and September 2021 in comparison to the years before December 2019", which is the statement the anti-Brexit media has leapt on. This comment is expanded in section 3.3 Results, by stating "
a 3.7% increase in consumer prices following the December 2019 election and a 6% increase following the introduction of the TCA". This statement is open to misinterpretation and misleading. The 3.7% increase is for the period prior to the TCA compared with the period prior to the December 2019 general election. But the 6% increase after the TCA is also compared to the period prior to December 2019, not the period immediately prior to the TCA. That is to say the increase in prices post TCA compared with prior TCA is just 2.3%. (Just as an aside, the wording in the report says "
consumer prices" but the Figure 3.1 states "
food prices".) So the wording in the executive summary is not literary incorrect but is misleading, as no
"trade barriers" to EU imports came into force till the TCA came into force on 1 January 2021.
Period pre-TCA.
So what was the reason for the 3.7% increase in food prices for the period from 2 December 2019 to the implementation of the TCA on 1 January 2021, since there was no devaluation of the £ and no change in terms of trade?
The first obvious cause, which hardly gets a mention in the report is the Covid 19 pandemic which broke out in China in December 2019, WHO declared an international emergency in January 2020, a pandemic in March 2020 and there was a crash in trade in April 2020. Covid-19 is ruled out by the authors as a factor to price changes in the SCR report as they state key events in the pandemic are not obviously correlated with the changes. I believe that is presumptive bias. Such a sharp reduction in trade during 2020 will inevitably have increased unit costs of food trade. Figure 3.2 on page 36 (Ref.2) shows the impacts of Brexit on prices of all products. I agree with the report statement on page 35:
"We find no obvious impact of Brexit across all products"; there is none. But there is clearly a spike in prices in quarter 3 of 2020. There was clearly a surge in prices on all products during the period July to September. There is no reason to believe Brexit caused that surge for just three months, and every reason to believe there was a pandemic impact due to lockdowns with things returning to some degree of normality as lockdown restrictions were eased. If all prices increased markedly for a quarter due to the pandemic, why should food be any different?
UK food inflation was declining at this time and actually went into deflation during the last few months of 2020 which will have reduced inflation generally on all products in quarter 4 of 2020, and hence the drop on Figure 3.2, just prior to the TCA beginning. (Ref. 10)
Consequently it is hard to understand the claim that only Brexit contributed to 3.7% increase in food prices during 2020. In fact during 2020 European food price inflation was consistently higher than UK food inflation. (Ref. 11) and I would argue that importing food from Europe actually contributed to higher UK food inflation than would have been the case had all UK food been home produced or imported from non-EU countries.
Non-Brexit inflationary factors.
After the end of the Brexit transition period on 1 January 2021, UK food prices continued to deflate. (Ref. 12)
The upturn in food inflation began in June 2021 when it was less deflationary and became positive, i.e. inflationary, in August 2021, after which it ramped up steeply. Surely, if the TCA had contributed significantly to UK food inflation, the start of the increase would have been in the first quarter of 2021? As there was an increase in imported EU food price in early 2021 according to the LSE, there must have been a larger reduction in food prices from UK produce and non-EU imports. That suggests a Brexit benefit to me!
I would suggest that the root cause of increased inflation in the second half of 2021 is primarily due to the rapid rise of fuel prices from the middle of 2021 which rapidly inflated transport costs. (Ref. 13) Transport costs also due to a shortage of HGV drivers, and higher pay awards to drivers. (Ref. 14) There was a shortage of drivers across Europe but it was particularly acute in the UK following the government introducing the IR35 reform in the private sector in April 2021, after being delayed by a year due to the pandemic. This led to a lot of foreign drivers choosing not to work in the UK any longer as they could no longer avoid income tax.
Another impact of the pandemic is the shortage of packaging. As early as March 2020 just after the start of the pandemic there were warnings of a national cardboard shortage as more and more local councils suspended their recycling collections due to the lockdowns. (Ref. 15)
Throughout 2020 and 2021 the food and drink industry was hit by shortages of packaging, containers, polymer pellets for plastic food packaging, and rapidly escalating shipping costs. According to the Financial Times there was a $6,000 rise in shipping costs per container from April to October 2021. All of these factors impacted on the movement of food in both directions between the UK and the EU. From the start of the pandemic there grew a shortage in cardboard not only due to lockdowns affecting recycling, but also production at the paper mills, and a huge increase in demand for cardboard for on-line trade and postage of items, and hoarding of cardboard by the public. (Ref. 16)
Simon Ellin, chief executive of the Recycling Association, said:
“It’s the perfect storm, really. Because of the huge demand for home deliveries, cardboard has been in huge demand since the first lockdown in March 2020. " (Ref. 17)
Home deliveries included a large increase in home dining and food delivery due to less frequenting of pubs and restaurants. There was more food being purchased for home consumption from supermarkets and restaurants (takeaway) and even businesses like breweries and vineyards switched to online delivery to survive, and used more cardboard packaging.
One of the major impacts that the UK’s cardboard shortage was numerous price increases for raw materials. The box making industry was not been able to keep up with the demand for corrugated packaging, which I can vouch for from personal experience. During 2021 I went into my usual dog food supplier and found they did not have any of the brand I normally purchase. I asked whether there was a shortage of dog food and was told
"No, there is plenty of dog food at the factory but no packaging to transport it". There were many cases of shortages on supermarket shelves that were blamed on Brexit but were in reality due to post pandemic packaging shortages and a shortage of aluminium cans. The only genuine Brexit impact was many companies stockpiled material in the final months of 2020, when the crisis was at its worst (Ref. 18) because of uncertainty about any Brexit deal thereby adding to the packaging shortage.
The increase in packaging, transport, and shipping costs made it prohibitively expensive for a great many UK exporters to ship to the EU and EU exporters to ship to the UK. A report by GWP Group in February 2022 summarised the cardboard shortage issues and said the Brexit was a minor contributor. (Ref. 19)
Reasons for food price increase
At the bottom page 30 and top of page 31, the SCR report states
"The observation that these price changes for products more reliant on the EU occur exactly in line with Brexit events suggests that Brexit is indeed the cause of the price increases for food products. Notably, there is no observable correlation with events relating to the Covid-19 pandemic".
The report
"suggests" Brexit is the cause of price increase on the basis of coincidence, there is no proof. Just because there there is no observable correlation with events relating to the pandemic, does not mean the pandemic has not contributed to higher prices.
The impacts of the pandemic have been multifarious being wide ranging and spread over the whole period of time, exactly the same whole period of time as the food price increases. The impacts include change in purchasing habits, increased fuel costs, packaging shortage, increased transport/shipping costs, increased labour costs, etc. and started immediately after the first lockdown and are still with us today. The impacts have obviously increased prices.
Some impacts are not immediate in the effect. When I was a young coke manager, I was experiencing a problem with the tar quality being produced which was very erratic, being worse some weeks and months than others. A long detailed investigation found that the root cause was one of the physical parameters of the coal blend being fed to the coke ovens. It was not immediately apparent because a change in the blend did not impact on the tar quality till circa 10 days later. The same lag arises with shipping costs. Increased shipping costs do not impact on end product prices till up to two months later. Consequently I would not expect all the various impacts of the pandemic to have a strong correlation with food prices.
Another impact on food prices that gets no mention is climate change and severe weather incidents. In September 2019, the European Environment Agency states
"Adverse impacts of climate change are already being felt across Europe. Extreme weather, including recent heatwaves in many parts of the EU are already causing economic losses for farmers and for the EU’s agriculture sector." (Ref. 20) Global food prices have increased since the middle of 2020. (Ref. 21) German food inflation increased markedly at the start of 2020 and rose sharply from mid 2021, which will have contributed to the price of food imports from Germany. (Ref. 22) German food inflation mirrors much of Europe (Ref. 23) having been consistently higher than the UK since 2017. Germany was severely impacted by the extreme weather conditions in Europe in 2021. (Ref. 24)
I have not seen any quantitative assessment of the impact of climate change and weather extremes on European food prices and I've no doubt that it would be difficult to prove. There is also the opposite side of the coin, a warmer climate will extend the growing season. However I believe the LSE are wrong to dismiss a cause of inflation such as the pandemic, because they cannot see a correlation in their analysis.
Period post-TCA.
It was stated above that the increase in food prices post TCA compared with prior TCA was found to be 2.3% by the LSE. It would be remiss of me to ignore that Brexit has increased the cost of some imports from the EU due to other factors. Sectors that have high non-tariff barriers such as agriculture, food, and motor vehicles have experienced falls in imports. UK businesses have reported experiencing problems importing from the EU due to customs delays at the border, additional customs, and administrative costs, and regulatory checks. But these issues have generally related to intermediate products to UK businesses not end products, intermediate products accounting for two thirds of trade according to the SCR paper. Some of the articles in the press showed pictures of general food such as tinned food and pasta packets, and in the text referred to general food inflation with reference to the price of basics such as eggs, dairy products and coffee. This is misleading the public and high proportion of food imported is bulk raw products such as vegetables, oils, fruit, green leaf products, etc. that are then processed in British factories. Many businesses have circumvented the issues by switching to UK suppliers, or non EU suppliers, increasing stock, or setting up depots in the EU and have adjusted to the new regulatory requirements. Naturally there is a cost associated with all this that is ultimately borne by the consumer, but the total increase in food cost in the post TCA period was supposedly 2.3%. Some of this will be due to barriers created by Brexit post TCA, but some will also be due to increased transport costs and inflation in the EU country of origin, some of which like Spain (Ref. 25) and the EU generally (Ref. 11) were experiencing higher food inflation that the UK in 2021.
Most of the reasons that are quoted for impacting on EU imports actually came into effect on 1.1.2021, whereas the the SCR report suggests that most of the increase in food prices was in 2020. There can be no disputing that the non-tariff barriers created by the TCA will have impacted on prices in 2021 and contributed to a 2.3% increase. However the ubiquitous impact of the pandemic from the first quarter of 2020 surely accounts for the bulk of the 3.7% increase in prices in 2020, the impacts of the pandemic that then reduced in 2021.
There is no denying on my part that there will have been some inflationary impacts due to Brexit in 2020 due to importers repositioning themselves in terms of supply chains and stock building in anticipation of the possibility of no trade deal with the EU. However I believe it is disingenuous of the authors to combine the food inflation for the two years 2020 and 2021 and compare it with 2019 when the primary impact of Brexit, i.e. the TCA, did not occur till 1.1.2021, when most of the food inflation they claim occurred in 2020. It is my contention that the reason the author's analysis found higher food inflation in 2020 than in 2021 was because it was largely due to the pandemic not Brexit. On page 31 the report states
"The reason for these price increases is straightforward: additional barriers at the border such as checks, increased waiting times, and additional paperwork are costly for producers". This is not disputed but my point is these barriers did not come into effect until the TCA on 1.1.2021.
Origin of UK food and inflation rates.
During 2021 58% of the food consumed in the UK originated in the UK, as increase of 4% on 2020. 42% of food consumed originated in other countries, 23% from the EU. (Ref. 26)
Consequently 55% of imported food originated from the EU, far less than the supposed 77% in 2015 constantly reported in the media this year. With a quarter of UK food originating in the EU, the cost of it would have inflate 4% for a 1% increase in UK food inflation and over 9% to account for the 2.3% in 2021 stated in the SCR paper. As shown in reference 12 UK food prices were deflating for most of 2021 and only increased to 0.8% pa inflation in September, 30th September 2021 being the end date of the period the SCR paper examined. Of course that does not mean the food imports from the EU did not increase UK food bills, but for that to happen to the degree claimed, UK home produced and non-EU imported food would have had to be deflating at a very significant degree.
It should be recognised that there is a plus side to this issue. Imports of food have increased from non-EU countries many of which such as African countries need the business far more than the rich EU countries. Secondly the increased regulatory checks on EU imports increases UK food security. Many of the EU countries governments can be relied on to ensure their produce meet the required standard, but can all 27 EU member countries' governments be relied on? Consequently I do not agree with the Adam Smith Institute who argue that after Brexit we are a sovereign country and should choose not to impose non tariff barriers. I believe that would be reckless; we should choose to impose barriers most appropriate to the UK, rather than those decided by Brussels. Border checks are required to ensure that any applicable tariffs or duties are paid and that imported goods from wherever they come meet the relevant standards in areas such as food and product safety and disease control, to prevent smuggling and illicit activity, and to comply with international obligations. I would actually trust some non EU countries before some EU countries on the veracity of their data and sturdiness of their controls.
Consequently there are benefits from any increased cost of imports from the EU, which I don't believe amounted to the total claimed by the report. Even if the total claimed was correct, it amounts to an average less than 12 pence per day per UK citizen, and even that does not apply to you if you don't buy those products affected from the EU and prefer to buy British.
Returning to the LSE article on 1st December, it states that over the two years to the end of 2021 increased prices cost UK consumers a total of £5.8 billion. Again over two years, not a per annum figure. So what were the actual consumer spends? Answer:
2019 - £95.2b; 2020 - £107.3b, 2021 - £105.8b. (Ref. 27)
That's a £12.1b increase in 2020, and a £1.5b
reduction in 2021 after the TCA commenced. It is possible that increased costs of food imported from the EU contributed to an increase in consumer spending, but did just 23% of the food consumed in 2021 contribute to an significant increase in costs when the actual spending declined? With world food prices going through the roof in 2022, I await the LSE's assessment of the Brexit effect on 2022 with interest.
The article on 1st December report also stated that leaving the EU increased the price of food by 6%. Since the referendum, the annual rate of UK food inflation for December each year were
2016: -1.1%; 2017: 3.9%; 2018: 0.7%; 2019: 1.7%; 2020: -1.4%; 2021: 4.2%. (Ref. 28)
Those figures actually support the argument that the fall in the value of the pound in 2016 could have contributed to an increase in inflation in 2017, but it was short lived. The combined food inflation for 2020 and 2021 was 2.8%. So it is hardly credible that food inflation increased by 6% due to Brexit, particularly as they were so many other inflationary factors that I have spelt out at length above.
Summary.1. The LSE SCR report identifies that there were no significant increases in prices as a result of the fall in the value of the £ in 2016.
2. There was no significant diversion of trade from the EU prior to 1.1.2021.
3. The fall in imports from the EU was far more substantial than the fall in exports to the EU and consequently the UK has improved its balance of trade with the EU.
4. There has been a change in the purchasing behaviour in the UK imitated by the pandemic lockdown whereby more British produce is being purchased.
5. The LSE SCR report finds no obvious impact of Brexit across all products.
6. The LSE SCR report finds that prior to the 2019 election there was no statistically significant difference in price changes between products that were more and less exposed to imports from the EU.
7. The LSE SCR report states that only food prices were impacted by Brexit after the 2019 election.
8. The LSE SCR report deduces there was a a 3.7% increase in consumer prices following the December 2019 election, but takes no account of inflation due to the pandemic and its subsequent effects or the effects of global warming and extreme weather incidents.
9. The LSE SCR report rules out Covid-19 as a factor to price changes,
"as key events in the pandemic are not obviously correlated with the changes and, furthermore, we are able to control for economy-wide macro-impacts such as national lockdowns." However it seems that only the dates of lockdowns is considered and no consideration given to the consequential effects of the pandemic, namely packaging shortages, shipping costs, container hire, wage inflation, and from mid 2021 fuel price inflation.
10. Whilst newspaper reports emphatically state Brexit led to 6% food inflation, the actual LSE wording is
"Our estimates suggest that, over the two years to the end of 2021, Brexit increased food prices". I have highlighted the word "suggest". The LSE states
"timing of the most notable price rise for EU-exposed products coincides with the implementation of the TCA ", which clearly not correct as the larger proportion of the inflation they found was in the period prior to the TCA. Suggestion is not proof, nor is coincidence.
11. The LSE SCR report makes a number of statements about its graphs that are patently incorrect, or at best misleading, and fails to explain the reasons for many of the peaks, dips, and trends on the graphs.
12. The introduction of controls on food imports from the EU increases UK food security at a very minimal cost.
13. UK expenditure on food reduced in 2021, the first year of Brexit.
14. There was a 1.4% reduction in the cost of food in 2020 and a 4.2% increase in 2021, i.e. 2.8% increase over the two years from 2019.
References
1.
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