The likely impact of Brexit
The choice made by UK citizens to leave the European Union means that local areas are tasked with thinking about how and where the country's membership of the EU directly effects their local economies, and what the impact of leaving might be within that. To support places, in 2017 the Centre led a major programme of work focusing in on 10 local authorities with diverse local economies to help those individual areas understand the impact Brexit is likely to have, and to consider how they might prepare and respond with more effective policy. The conversations and analysis also offers lessons for other UK LEPs, local authorities and combined authorities, and the following briefing sets these out.
The project was supported by LSE’s Knowledge Exchange and Impact fund and we worked together with colleagues from Birmingham, West of England LEP, Cambridge, Enterprise M3 LEP, Hull, Leeds, North East LEP, Peterborough, Preston, and Sheffield to do just that.
Our initial work started by profiling the different areas – how reliant they were on trade with the EU, where their Foreign Direct Investment (FDI) came from, what kind of EU workers lived and worked locally. In initial meetings we provided the ten cities with analysis of what the data looked like for each of them, and asked for their reflections about how they expected to be able to respond, including candid discussions about:
- which expected changes and adjustments would be most consequential given the labour market and industrial base of each place;
- how to monitor changes to the local economy to ensure a timely response;
- what resources they could realistically use to mitigate the negative impacts of Brexit, and take advantage of opportunities it offers.
One clear lesson that emerged early on was that, although individual places were having these discussions locally there was great value in bringing together a range of diverse places and experiences to encourage peer review learning across areas. This is something the What Works Centre would be keen to support in the future.
A second lesson that emerged from these discussions is that while much has been written about the impact that Brexit might have on the national economy, we know far less about how that impact might vary across the UK. The local areas we were working with were keen to know what might be instore for them. To respond to this, we worked with colleagues at the Centre for Economic Performance (Swati Dhingra and Steve Machin) and the Centre for Cities (Naomi Clayton) to take a first look at the local economic impacts of Brexit. A briefing is freely available on the Centre for Cities website, at: http://www.centreforcities.org/publication/brexit-...
More work needs to be done, but the report provides a starting point for different areas in thinking about how Brexit might affect their local economy.
The different factors and responses to Brexit
By discussing likely Brexit impacts with such different places, the project found that different local economies might be more or less vulnerable to different factors. For example, Bristol is particularly dependent upon the EU as a market for its exports. Other places are potentially vulnerable to one dominant EU based firm. And while loss of EU labour would affect a city like Cambridge by cutting into their high-skilled specialists, Peterborough would more likely suffer from a shortfall in labour to fill low-skilled jobs.
Similarly, the adjustments that will likely take place over the medium term, for example, a reduced pool of highly skilled EU migrants in the UK, might mean that cities like Bristol and Cambridge lose even more of their specialists to London. The uncertainty of exactly how Brexit will be implemented along with the complexity of the UK’s relationship with Europe means that predicting how each city will fare over the medium and long term is fraught with difficulty. As ever, we expect that those places with more diversified economies will be the most resilient.
Despite these differences across places in the ways in which Brexit might affect them, it very quickly became apparent that many aspects of the policy responses – particularly around labour markets, trade and investment – weren’t so different. A lot of questions around an effective policy response to Brexit has strong overlap with more general questions about the effectiveness of local economic growth policies.
The briefing available to download below brings together existing toolkits and evidence on developing more effective local economic growth policy to support individuals to gain higher skills, or to support businesses to grow. Below we link to those toolkits and reviews summarised in the document, but you can download the PDF briefing at the bottom of this page for the full summary on the guidance which is more specifically related to Brexit, including three toolkits on exporting and investment, which were produced directly for the projects and based on suggestions from the local areas.
Using our evidence reviews and toolkits to respond to Brexit
Given our focus on local economic growth, we place particular emphasis on outcomes that most directly capture change in a local economy: wages, employment, and productivity. There are, of course, many other important ways in which places differ – in terms of the quality of life that they offer and the cost of living, for example. But, ultimately, if a local economic growth policy is not having a positive effect on wages, employment or productivity it’s pretty hard to claim that it is improving local economic performance. That is why this is the main remit of the Centre.
This is not a recipe book. Local context matters and local objectives differ. But areas that are aware of the evidence we present here will be better placed to design cost-effective local interventions that can help drive local growth and better respond to Brexit. We certainly do not know all the answers, and a key message that emerges from our work is that we need to do more to understand policy effectiveness and to improve the use of evidence in policy making. This is true for many policy areas, but especially important for local economic growth, because on the basis of existing evidence too many schemes have no, or only modest, measurable impact on policy objectives. We need more piloting and testing to better understand what works, where and for whom.
Improved policy design is key to raising both success rates and improving cost-effectiveness. The briefing summarises a lot of evidence which can help with the design process. To keep things manageable, the PDF document does not spend time carefully caveating every single finding. However, it’s important to recognise that many of the findings build on a relatively small number of studies, so these (unwritten) caveats are important.
The online reviews and toolkits listed below provide a little more detail than the document.
Skills policy is an important way to support individuals and businesses in responding and adapting to the changes that Brexit is likely to bring to labour markets. In the UK, area level differences in skills are the most important factor driving differences in local economic performance. For individuals, higher skills are associated with better labour market outcomes: higher skilled people are more likely to get a job and earn more income than lower skilled people. For local areas, there is a clear link between skills and economic growth and labour market outcomes. The following reviews and toolkits provide guidance on how to design more effective skills policy.
- Employment training evidence review
- Careers Counselling toolkit
- Financial Incentives toolkit
- Pre-qualifications toolkit
- Reminders toolkit
- General information on employment training
- Apprenticeships evidence review
- Mentoring toolkit
- Financial Incentives toolkit
- Pre-apprenticeships toolkit
- General information on apprenticeships
Responding to major job losses:
- Responding to major job losses toolkit
Places will need to respond to the changes in trade patterns brought about by Brexit by helping firms adjust and take advantage of new opportunities. As discussed above, in the UK, area-level differences in skills are the most important factor driving differences in local economic performance. But, even if we could equalise skills across areas, disparities would persist because of area-level differences in productivity.
Some of these differences in area-level productivity are explained by the quality of local institutions or the available infrastructure (e.g. roads, rail and broadband) as well as by the size of the area itself and its proximity to other areas. But reducing spatial disparities, and driving growth across all local areas, will also require us to tackle other firm-level factors – such as differences in technologies, in private sector investment rates, and in management and entrepreneurial capacity – that also help explain differences in productivity across the UK. The following reviews and toolkit offer guidance for places to support and grow their local business base to help prepare the local economy for the impacts Brexit may have.
- Business advice evidence review
- Mentors toolkit
- Tailored Support toolkit
- Training toolit
- Subsidised Consultancy toolkit
- Public Advisors toolkit
- General information on business advice
Access to finance:
Export and inward investment support:
- Investment Promotion Agencies (IFAs) toolkit
- Export Promotion Agencies (EPAs) toolkit
- Export Credit Agencies (ECAs) toolkit