As the date of leaving the European Union approaches, government analysis has revealed its predictions for Brexit’s impact. This includes its effect on wages. Whilst a range of models for Brexit have been tested, most indicate that a drop in wages is the likeliest scenario.
The Brexit White Paper released by the government in the summer minimised the risk to wages but still predicted a 0.9% drop in pay. It also looked at other hypothetical situations. If additional costs and regulations are added to trade by leaving the Customs Union, then any free-trade agreement may lead to a wage decrease of up to 6.4%.
Meanwhile, a relationship based on the European Economic Arena (EEC) suggested a 1.5% fall could be experienced. All of these calculations were based on Britain’s future trading relationship as one specific aspect of any Brexit deal.
If there is no deal, the EU Exit: Long Term Economical analysis sees these potential wage falls rising to anything between 8.3% and 11.8%. This analysis does not just look at wages but also other areas likely to be affected by leaving the European Union, particularly without a new deal to take its place. Other aspects studied include the impact on migration and economic growth. It is the predicted downturn in long-term growth as well as productivity that will lead to wage reductions.
Further economic damage is predicted with a no-deal Brexit. Manufacturing may be the sector worst hit, but all sectors are likely to see a slowing of economic activity. Manufacturing is presently responsible for 8% of the UK’s economic production.
In contrast, achieving the deal set out in the White Paper could actually increase production in the manufacturing industry by combining minimal barriers on trade with Europe with increased trading opportunities with non-EU countries. Other concerns around a no-deal scenario include the invalidation of qualifications achieved in one country when travelling to the other and potential higher costs of business travel.
As a result of the analysis, the government has made suggestions on how to counter issues with productivity and long-term growth. This includes encouraging the development and utilisation of new technologies, incentives for innovation and specialisation, and increasing openness between competing businesses.
As well as improving long-term growth and productivity, these steps could reduce prices and improve choices for consumers. All of this could in turn lead to increased incomes. Chancellor Philip Hammond has still warned that the economic impact of leaving the European Union is still likely to be negative for the UK.
One expert on pay and benefits from xPertHR warned that the possible 10% fall in wages if the UK left the European Union without a deal was a damaging figure. It stands in contrast to wages finally beginning to increase again after the financial crash of 2008. Since that time, wage growth has stagnated compared to rising costs. These new figures will cause further worries to employees that they will again be unable to keep up with their bills.
Overall, analysis does seem to suggest that some falls in wages are inevitable when leaving the European Union. There are, however, steps that can be taken to mitigate this risk. This includes ensuring a deal is agreed rather than leaving with no deal.