Brexit is fuelling the cost of living crisis, and Rishi Sunak risks making it even worse – iNews

Back in 2017, just over a year after Vote Leaves triumph in the EU referendum, Jacob Rees-Mogg declared Brexit would cut costs for millions of ordinary families. Rightly identifying that food and clothing make up a disproportionate amount of the budgets of the less well off, he said such costs could come down significantly once the UK was fully free of Brussels orbit.

What Brexit should be about is ensuring the standards of living, he said. Cheaper oranges from Florida rather than Spain could reduce peoples food costs by 20 per cent, he said. Wine from Australia and California rather than Itay could be 30 per cent cheaper, he said.

Rees-Mogg doubled down on his prediction in 2019. We could have cheaper food, clothing and footwear straight away by getting rid of the protectionist anti-trade tariffs that the EU imposes, he told the BBC.

Unfortunately, the phrases cheaper or straight away dont quite capture what happened to the prices of such basic goods since the UK-EU post-Brexit trade deal kicked in from 1 January 2021. Far from prices falling, theyve been soaring.

Earlier this month, Rees-Mogg was confronted with callers angry about the sharp rise in the cost of living. When Brenda from St Ives (sadly, not from Bristol) said on LBC that he had lied about the benefits of quitting the EU, the Minister for Brexit Opportunities replied: There is a global inflation in food prices which has nothing to do with Brexit.

A similar case was made by Boris Johnson in Tuesdays Cabinet meeting, as ministers discussed preliminary ideas for helping cut the cost of living. The PM told cabinet that the public were facing real pressures on prices because of continued Covid lockdowns in China and Putins continued crazed malevolence in Ukraine pushing up things like wheat prices.

Of course, much of the inflation is indeed a global problem. But new research by the London School of Economics (LSE) and the think tank UK in a Changing Europe suggests Brexit may well be playing a role too.

The LSE paper, which disentangled the impact of Covid and predates the war in Ukraine, identified a sudden and persistent 25 per cent fall in relative UK imports from the EU after the Brexit trade deal last year. Crucially, it also found that while UK exports overall to the EU were steady, small firms in particular saw a 30 per cent fall in export relationships to the EU.

The LSEs Thomas Sampson tells me that his working assumption is that the fixed costs and extra red tape caused by Brexit have been absorbed by bigger firms, but have led smaller businesses (for whom such costs make up a bigger proportion of their spending) to just stop exporting to the EU altogether.

Theres more. Another report, published by the think tank UK in a Changing Europe on Wednesday, found that trade barriers on imports from the EU have led to a 6% increase in food prices in the UK. Products with high EU import shares such as fresh pork, tomatoes and jams were more affected than those with low EU import shares such as tuna and exotic fruits like pineapple.

There is some good news for Brexit supporters, however. The report also suggests that there has been significant adjustment by UK businesses to the reality of trading outside the EU, with many using fellow British firms in their supply chains instead.

Its also worth saying that some ministers get increasingly irritated when asked why the UK lacks better trade and regulation deals with the EU.

Yesterday, in evidence to the Lords European Affairs Committee, the normally mild-mannered City minister John Glen was so riled by Lord Hannay that he blurted out: The point is we have left the EU. I just wonder whether you are quite reconciled to that. Hannay, a former Brussels representative for Margaret Thatcher, hit back that the suggestion he was a Remainer was improper. For the usually sedate Lords, the exchange counted as fireworks.

Yet even though we are nearly six years on from the Brexit vote, and nearly three years on from Johnson becoming PM, only now is the Government looking at ideas to help with the cost of living (including any Brexit freedoms like cutting our global tariff on things like rice, that cant be produced in the UK). The lack of urgency, even now, was confirmed when No 10 today said the domestic and economic strategy committee, tasked with this new prices-busting drive, will report back in coming weeks.

As for fuel bills, several Tories are still baffled that Rishi Sunak didnt seize on the Brexit freedom to scrap VAT on energy in his Spring Statement. One minister tells me: The VAT cut [on energy] would play perfectly into the governments narrative so well. Especially because the Treasurys energy stuff [a loan to be paid back over five years] doesnt cut it.

Still, perhaps the most telling contribution at Cabinet on Tuesday was from the Chancellor, with his warning of the importance of not feeding into further inflation rises and his emphasis that the UK is currently spending 80 billion servicing its debt.

No new spending will accompany any of these whizzo schemes to tackle rising prices. Thats why, even though the PM finally sees that childcare is a growing cost of living issue, the lame response appears to be relaxing carer-to-child ratios rather than investment in breakfast and after-school clubs that really tackle child hunger and improve attainment.

A survey by the Pregnant Then Screwed campaign group this year found that one in four parents have had to cut down on food, clothing and heating in order to afford childcare. Some 62 per cent said that the cost of childcare is now the same or more than their rent or mortgage.

The Government last year gave 24 million for breakfast clubs over the next two academic years but the funding is woefully inadequate. In a rare spending commitment, Labour is actually committed to spending 500m for universal breakfast club provision, part of Shadow Education Secretary Bridget Phillipsons 14bn Covid recovery plan.

Indeed, the admirably candid defence minister James Heappey admitted the public want more action beyond what they got in the recent mini-Budget. The cost of living is getting to such a point now where even people on good wages are struggling to make ends meet and they are looking to the Government to help them with solutions.

For many Brexit voters, quitting the EU was always meant to be a means to an end. As well as a desire to take back control of their own destiny, there was a hope that areas that had for years been neglected would finally get the attention they deserved. But overselling promises of swift cuts in costs of food and clothing and other essentials looks more unwise now than at the time.

Red tape and trade are arguably fuelling inflation, so the Government already risks the charge that Brexit is worsening the cost of living, not easing it. And with a Treasury refusing to offer any more direct help, that impression may only get worse.

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Brexit is fuelling the cost of living crisis, and Rishi Sunak risks making it even worse - iNews