The economic impact of Brexit will leave less money for vital public services, according to new report

25 February 2019

The effective delivery of a range of vital public services is likely to decline after Brexit, according to a new report from the London School of Economics and Political Science (LSE) and funded by the Nuffield Foundation.

The report finds that the economic impact of Brexit will leave less money for these services, and a reduction in immigration means there will be fewer trained workers to work in key areas like health, social care, and housing construction.

Furthermore, the impact on public finances will come via negative effects on economic growth, and also reductions in migration - EU citizens coming to work in the UK currently contribute positively to the economy, and to the money available to spend on public services.

Reductions in immigration could in principle create new opportunities for UK workers but only if public investment is found for training and education, for example in healthcare, and higher wages, for example in social care.

There is also a risk to workers’ rights and other social safeguards: the need for new international trade deals may lead to lower standards, particularly if there is a “hard” Brexit. Pressures to secure new trade deals outside the EU may lead to accepting more competitive frameworks – which could undermine existing protections, including opening the NHS services to additional international health company competition or lower standards of food safety.

Some effects of Brexit could be more positive. House prices could fall, which would help affordability for some. And (subject to future trade deal negotiations) there may be new flexibilities around policies such as nationalisation, subsidies to UK industry, and allowing national and local government to award contracts to British or local firms. But the report points out that the UK has not previously used all its existing powers to introduce these types of policy, under existing EU rules, unlike other EU countries.

The research provides a comprehensive examination of the potential effects of Brexit in relation to social policies and disadvantage. It suggests that more vulnerable groups may be among those most affected by Brexit effects, including:

  • people receiving benefits, including Universal Credit, due to faster rises in inflation
  • people with fewer skills, who will be less able to navigate industrial restructuring;
  • people working long hours or in precarious employment, who have been beneficiaries of EU employment legislation;
  • people who are unable to afford to pay for social care if local authorities cannot provide it;
  • EU nationals living in the UK and British nationals in other EU countries, who may face difficulties accessing their social rights in practice.

The paper proposes five main actions to help mitigate Brexit risks:

  • investment in education and training to support health care needs;
  • more resources for public services, in part to raise wages in social care to attract UK workers;
  • a significant strategy of regional and industrial investment;
  • commitment that UK rights legislation will keep pace with progress made in the EU
  • immediately, an end to the cash freeze on working-age benefits, so that the most vulnerable are not hit hardest by the inflation caused by currency depreciation. 

Dr Kitty Stewart, Associate Director of CASE said: “Some of the dangers for public services and for groups most at risk could be overcome with vigorous compensatory investment by the UK government. But this requires both political commitment and fiscal capacity. In practice, the government’s ability to make these investments looks set to be very tightly constrained by the economic impact of Brexit.”

Mark Franks, Director of Welfare at the Nuffield Foundation said: “In a debate that is understandably politically and emotionally charged, this analysis provides a new, independent, and comprehensive assessment of the likely impacts of Brexit on social policy across the board – from tax and spending and the provision of public services, to workers’ and human rights. Crucially, it also provides options for social policy that could help mitigate the risks of negative impacts, which are likely to be of value whatever precise form Brexit goes on to take.”  

See also

 

What does Brexit mean for social policy in the UK? SPDO research paper 3, February 2019: 

More about the CASE project >