Brexit to reduce workers’ real pay by £470

Following the UK’s departure from the European Union (EU), the Resolution Foundation has revealed that it now will “reduce productivity and wages in the decade ahead”.

In joint research published by the organisation and LSE, it shared that Brexit has “more broadly reduced how open and competitive Britain’s economy is”.

The report dubbed The Big Brexit outlines estimations that indicate labour productivity will be reduced by 1.3% by the end of the decade by the changes in trading rules alone.

This will contribute to weaker wage growth, with real pay set to be £470 per worker lower each year, on average, than it would otherwise have been.

Sophie Hale, principal economist at the Resolution Foundation, explained that Brexit has reduced the UK’s ability to compete and be open to trade with different countries, which will in turn impact wages.

“Brexit represents the biggest change to Britain’s economic relationship with the rest of the world in half a century. This has led many to predict that it would cause a particularly big fall in exports to the EU, and fundamentally reshape Britain’s economy towards more manufacturing,” Hale continued.

“The first of these has not come to pass, and the second looks unlikely to do so. Instead, Brexit has had a more diffuse impact by reducing the UK’s competitiveness and openness to trade with a wider range of countries. This will ultimately reduce productivity, and workers’ real wages too.

“Some sectors – including fisheries – still face significant change to come in the years ahead. But the overall services-led nature of the UK economy will remain largely unaffected. Some manufacturing sectors, such as food manufacturing, will grow but others will shrink, including advanced manufacturing.

“The latter are generally higher productivity, and pay higher wages, than the former, showing how a less open economy feeds through into household living standards.”

It revealed that the shift towards a more closed economy will have a large impact on some sectors in particular, but the report noted that it would “transform the structure of the economy overall – tradable professional services are expected to shrink as a share of the economy by just 0.3 percentage points, and manufacturing by just 0.1 percentage points”.

Modelling suggests that some of the sectors in the UK to be hit worst includes the manufacture of electrical equipment. In contrast, however, the manufacture of food products is set to grow post-Brexit as it supplies the UK market.

Trends in payroll will be explored during the fourth episode of Global Payroll Question Time on 13 July – save your free space here.