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Brexit: local impacts and responses

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The Centre has been awarded funding from the LSE Knowledge Exchange and Impact Fund to work with a small number of local authorities and LEPs to consider the impact of Brexit on their local economic growth, and how they can respond most effectively.

A year on from when David Cameron set the date for the EU referendum, the Brexit Bill is currently making its way through parliament and Theresa May is expected to trigger Article 50 by the end of March. Local authorities across the country have been working with local stakeholders to examine the potential risks and opportunities associated with leaving the EU. Some are monitoring the impacts through business surveys and/or have set up advisory groups.

Many remain uncertain about what the potential impacts might be as we don’t yet know the terms of Britain’s exit and new international trade agreements will have to be reached. At the national level, most economists are still pessimistic about Brexit’s longer term impacts on the UK economy, despite many admitting that the short-term forecasts were too gloomy. Underneath the broad growth forecasts, there are concerns about the risks in terms of trade, foreign investment, skills shortages and the higher education sector. These are shared at the local level.

The exact nature of the impact on local areas will in part depend on their economic profile. Centre for Cities recent research shows that some areas are highly dependent on single industries or large firms – 79 per cent of Sunderland’s exports are generated by the car industry – which make them vulnerable to changes in market demand or trade agreements, for example. The EU is the UK’s biggest trading partner accounting for around half of the country’s exports but ranges from 70 per cent in Plymouth to 25 per cent in Derby. Most city economies have a diverse range of sectors and businesses – and local partners need to understand the implications of Brexit across the spectrum.

More generally, buoyant local economies may be better protected from the effects of Brexit, while less buoyant economies that have been hit hard by past recessions may see unemployment start to rise again. Assessment of the potential impacts – both positive and negative – needs to reflect the economic realities of local areas and their interconnections with other areas. Some cities may be better able to adjust to reductions in the flow of international migrants as they already draw in large flows of domestic migrants, for example.

Over the course of this project, we will be working with our local partners to examine these issues in more detail and build understanding of potential implications associated with Brexit at the local level. As the government begins the process of exiting the EU, local authorities and LEPs will need to monitor the impacts, so we will also be working with our local partners to draw together relevant and robust indicators that provide as comprehensive picture as possible in a timely way.

One of the most immediate effects of the vote is the loss of access to EU funding, which is often used to lever additional public and private funding to deliver a range of local economic development projects. It is not clear whether these funding allocations (beyond the contracts already signed) will be directly replaced, but whatever the arrangement, good policy design and the efficient use of funding will be more important than ever. That brings us to the second major aim of the project: to inform policy responses based on what works.

Local partners will need to consider how to restructure their approach to economic growth in light of Brexit, building on what works. The policy reviews and toolkits provide an evidence base on what policies are likely to be most effective in responding to the implications of Brexit, whether it is supporting businesses to make the most of any opportunities that arise or supporting communities affected by job losses. On the latter, for example, the evidence on support for displaced workers suggests that retraining post-displacement is generally more effective than outplacement services, and that the employment and earnings effects from large, area-specific schemes look larger than those for more traditional schemes (although not necessarily more cost-effective). We will use the broad range of evidence gathered to work with partners to consider how local authorities and their partners can best respond.

We will be providing updates on the project, which runs until July, to share the lessons learnt. Please do get in touch with the team if you have any questions in the meantime.