The UK’s vote to leave the EU arose in part from deep social and geographical divides across the country. But could the decision to leave in turn impact on inequalities? In the two years since the referendum, some have argued that Brexit could boost the incomes of poorer groups through cheaper food prices, while others have argued that the most vulnerable groups and regions would bear the greatest burden of a ‘hard’ Brexit. Based on data on GVA impacts and price impacts, this briefing tests these claims and explores how the effects on trade of Brexit could influence inequalities across income groups, geographies, genders and ethnicities.
We find that there is a relatively weak relationship between the expected impact of Brexit by sector and a sector’s average wage, with higher paid sectors somewhat more likely to be negatively affected by Brexit. We also find that price impacts have a broadly neutral effect on income inequality. Our analysis suggests that, while Brexit is unlikely to worsen income inequality, all income groups - including the poorest - will face negative impacts. At the same time, there is little evidence that post-Brexit trade deals will benefit the worst-off overall; any reductions in import tariffs would be unlikely to compensate for the increase in prices due to Brexit-induced trade barriers between the UK and the EU.
The research on the geographical impacts of Brexit points in different directions: on the one hand, analysis of potential impacts by the LSE suggests that GVA impacts in London and the South East will be greatest because they have the highest concentration of services industries, which will be hit the hardest; on the other hand, analysis of EU exposure by City-REDI indicates that the Midlands and the north of England are most at risk because they have stronger trade links with the EU. Our analysis of new HMRC goods trade data suggests that it is areas outside of London – including Flintshire and Wrekham, Sunderland, Telford and Wrekin, south and west Derbyshire, and Luton – that are most dependent on EU goods exports. Therefore the geographical implications of Brexit differ depending on the measure used.
With respect to geographical price impacts, we find that areas outside London will be most affected by price increases brought about by new trade barriers after Brexit. London is least affected because a greater proportion of households’ expenditure goes on housing costs, which are not expected to be significantly impacted by Brexit. This reflects previous findings on the distributional impacts of inflation since the referendum.
Our analysis of the consequences of GVA impacts for gender indicates no evidence of a differential impact in the case of a soft Brexit, and a marginally higher impact for women in the case of a hard Brexit. We also find no evidence of a difference in price impacts for men and women.
In terms of ethnicity, we again find no evidence that the GVA impacts will affect ethnic groups differently in the case of a soft Brexit. We find that Asian/Asian British and Black/Black British groups are somewhat more affected in the case of a hard Brexit, because they tend to work in services industries which are more likely to suffer (notably finance and other business services). On the other hand, we find that price impacts will affect ethnic minority households less than White households, because their share of spending on housing his higher. This corresponds with our regional results, as London has a higher share of ethnic minority residents than other parts of the country.
Overall, our analysis suggests that claims that Brexit will benefit the worst off or entrench inequalities further as too simplistic. The available research suggests that exiting the EU – in particular a hard Brexit – will have a negative GVA and price impact across different income groups, regions, genders and ethnicities, but it will not necessarily increase inequalities. The precise impacts will depend on the nature of the final deal and on how the government manages the impacts of Brexit on regions and sectors after the UK leaves the EU. An agreement that protects the UK and the EU’s trading relationship – such as our proposed ‘shared market’ model, which proposes regulatory alignment with the single market alongside a comprehensive UK-EU customs union – should help to minimise any negative economic effects, including for the most vulnerable groups.