One of the primary arguments for Brexit was reducing immigration, controlling our borders.

The
call to limit immigration is not unique to Britain. Many countries throughout Europe have felt
this pressure recently, as well as the United States with Donald Trump using it as one of his main
running points in the presidential election.
Common logic often leads people to the idea that a larger population will mean less money and
jobs per capita. The thinking is that the more people in a country, the more money and jobs will
be spread thin. Reasonably, there are many in Britain concerned that immigration is negatively
affectively their standard of living (Barrett, 2017). 2014 saw a population growth of 0.70% in the
UK compared to the previous year, with just under 50% of this being attributable to net
migration (Ons.gov.uk, 2017). I will use the Solow Model to predict what impact reducing
population growth, through immigration, will have on the standard of living in Britain.

Figure 1.

Figure 1, above, shows the Solow Growth Model before and after lowering population growth.
Lowering population growth (n) reduces the slope of the break-even investment curve ((+n)k).
To adjust to the new break-even investment curve, k* is forced to grow and settle at a new
steady-state level of capital at k2*. The steady-state point naturally adjusts as it sits at the point
where depreciation equals investment, and without adjusting there would be a surplus of
investment at the original k* (Mankew, N.G. 2012).
This adjustment means that the new steady-state has an increased level of capital per worker (k).
Since income per worker (y) and consumption per worker (c) are endogenous variables
according to the production function y = f(k) (Mankew, N.G. 2012), capital per worker
increasing will have the same impact on them. Increasing a workers income increases their
standard of living. Therefore, the Solow Model predicts that if one of Brexits impacts is that
through reduced immigration, population growth will decrease, the standard of living in Britain
will improve.

The Solow Model is a great tool to use here for analysing the impact of population growth on the
standard of living in Britain, but population growth isnt the only factor to assess Brexits impact.
The European Union is Britains largest trade partner, accounting for roughly half of Britains
total trade. Having open access to the EUs single market is paramount to this. It reduces trade
costs, making goods and services cheaper to buy and also sell in the giant EU market. With
higher costs, Britains exports will decrease. In the long run, reduced trade lowers national
productivity. A loss of 6.3-9.5% of total GDP is forecasted due to this, significant figures
(Dhingra, Swati, et al., 2016).
If Britain can broker a deal similar to what Norway has with the EU, having open access to the
EU, there will still be costs. Analysis suggests a fall in 1.3-2.6% in average UK income
(Dhingra, Swati, et al., 2016). That is just actual financial loss, not considering the deal would
require Britain to retain freedom of movement in regards to the EU. While we would have access
to the market, Britain would have no seat at the table when choices are to be made, one of the
negatives that helped pushed Brexit to a win. With all past evidence and current deals, Britains
overall trade clearly looks like it will take a substantial hit. With GDP going down as well as one
of Britains main sectors in trade, the standard of living in Britain is going to be lessened.

The city of London is currently one of the main financial centers in the world. It is seen as and
widely used as a financial hub, connecting Britain, the EU and the rest of the world. Brexit can
potentially damage this. Banks from all over the world have subsidiaries set up in London,
giving them access into the EU market and Britain itself at the same time. Leaving the EU will
prevent bank subsidiaries in London from having access to the EU single market. Forced to
choose, non-EU banks will potentially leave London and set up a subsidiary in the EU as it will
give them access to the larger of the two separated markets. There is an option for these banks to
have subsidiaries in both Britain and the EU but that would be very costly to them, having to
deal with three different sets of regulations and making intra-bank transfers difficult (Springford,
J. and Whyte, P., 2014). If these banks to move to the EU, there will be job losses, especially in
London where they are mainly based.
Clearing houses that are based in Britain, again particularly London, and deal with negotiations
in the EU will very likely be forced by the European Central Bank to relocate to the EU (Miethe,
J. and Pothier, D., 2016). London with be recognized as an offshore location that is out of the
zone that is allowed to deal with EU negotiations.
Also worthy of note is hedge and private equity funds will have their access to the EU and
customers within restricted, if working out of Britain. If London is to remain a hotbed for these
types of firms, they would need to conform to EU regulations for these matters. They would lose
all sovereignty in these areas, with sovereignty being a main proponent of Brexit. The EU would
have to change their stance on third countries, which Britain will become, and there is little to
support this (Springford, J. and Whyte, P., 2014).
Britain is clearly at risk of losing some of its stake in the financial world, with London still
holding as a financial center but potentially less so than before. With all the potential job losses
due to firm relocations and possible cut backs if costly EU regulations are followed, there will be
a reduction in Britains overall standard of living.

Looking at how Brexit reducing immigration, and therefore population growth, effects the
standard of living in the Britain is effectively done using the Solow Model. It clearly predicts an
improvement in the overall standard of living in the nation through lowering immigration.
However, this is not the full story of Brexits impact. With two significant sectors in Britain,
finance and overall trade, being negatively affected and both lessening the standard of living,
there is more to the puzzle. The Solow Model helps predict Brexits impact but other factors are
important to note and when all combined, likely are even more crucial in assessing the overall
effect on Britain.
Bibliography:

Barrett, D. (2017). Immigration is the public's biggest concern, poll says. [online]
Telegraph.co.uk. Available at:
http://www.telegraph.co.uk/news/uknews/immigration/11816808/Immigration-is-the-publics-
biggest-concern-poll-says.html [Accessed 16 Mar. 2017].

Ons.gov.uk. (2017). Overview of the UK population- Office for National Statistics. [online]
Available at:
https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationesti
mates/articles/overviewoftheukpopulation/february2016#how-are-the-characteristics-of-the-uk-
population-changing [Accessed 16 Mar. 2017].

Mankew, N.G. (2012). Macroeconomics. Harvard: Macmillan.

Dhingra, S., Ottaviano, G.I., Sampson, T. and Reenen, J.V., 2016. The consequences of Brexit for
UK trade and living standards.
(Springford, J. and Whyte, P., 2014. The consequences of Brexit for the City of London. Centre
for European Reform.)

Miethe, J. and Pothier, D., 2016. Brexit: What's at Stake for the Financial Sector?. Diw
Economic Bulletin, 6(31), pp.364-372.