Friday, 24 January 2020

Is "f*** business" now government policy?

Hardly had the electronic ink dried on my previous post, which included some discussion of the government’s approach to the business effects of Brexit, than Sajid Javid gave a clear and strong indication of just what that is to be. In an interview with the Financial Times, the Chancellor stated that “there will not be alignment” with EU regulations, that businesses have already had since 2016 to prepare for this, and still have until the end of the year to “adjust”.

In a way, there was nothing new in this. Ever since Boris Johnson came to power, and certainly since the changes to the Withdrawal Agreement and Political Declaration that followed, it has been clear that his government will be far less committed to alignment than, even, Theresa May’s (the ‘even’ is worth stressing since, of course, she had already taken the biggest step towards divergence by ruling out single market membership). Yet Javid’s was perhaps the hardest statement so far, and significant in coming from the person in charge of economic policy. For it seemed to suggest that there would be no regulatory alignment at all.

One problem with assessing such statements is that it is by no means clear that government ministers, even including the Chancellor, actually understand the full meaning of the terms they use and, therefore, the implications of what they are saying. But business groups certainly took him at his word (£), with the motor industry immediately warning – for the umpteenth time - that this would add billions of pounds to their costs, and aerospace, chemicals, and food and drinks industry spokespeople giving similar responses.

Known unknowns

There are multiple problems with what Javid said. One is that it is simply absurd to suggest that businesses have had since the Referendum to prepare. As anyone who has followed even the cursory details since then knows, the entire British polity has been convulsed in the debate about what leaving the EU actually means. Even now, with 11 months to go until the end of the transition period, the nature of that relationship has still to be negotiated. So how are businesses expected to prepare?

It is not enough just to know the general shape of what is in prospect (‘a free trade deal’) since that says very little about the detailed operational issues which will arise according to the specific nature of that deal. Moreover, a strict interpretation of the ‘no alignment’ line might well suggest that no such deal will even be reached, or only one of the most minimal sort, so in that sense even the general shape of things is not clear. At the very least, as things stand, there is no assurance of any deal, so even the most basic question of whether and what tariffs will apply is still open, and for some businesses the answer to that in itself will be the make or break issue.

Beyond that, if alignment with the EU is to end, then what regulations will replace them? None of that has been specified (except in a very few areas, such as the post-Euratom nuclear regulatory system), and so no business can know what it is supposed to be adjusting to. Very large businesses might be able to afford to plan for various scenarios, but even that would not be enough to make all the detailed operational preparations.

Did Javid know what he was saying?

One clue to the fact that Javid may not really have understood the implications of what he said lies in his comment in the same interview that Japan exports cars to the EU, yet does not follow EU regulations. That’s clearly nonsense – those cars it sells to the EU must conform, and the extensive investment by Japanese car firms within the UK and elsewhere, in order to be in the single market, is partly explained by this. But I think that what Javid probably had in mind was one of the basic, but mistaken, beliefs of many Brexit advocates (who, presumably, are now influential as advisors to the government). It is that what is at stake is adherence to product standards and that, therefore, a firm simply adopts the standards of the country it wants to export to for the products it wants to sell there. Meanwhile, firms which are solely domestic should not be subject to EU regulations, and their being so represents an objectionable intrusion into national sovereignty.

There are numerous difficulties with this. First, it ignores the fact that the issue isn’t just one of conforming with standards – as if all that meant was a business making internal changes to what it produced, though that in itself is a cost - but of the licensing and/or inspection needed to ensure or to demonstrate that conformity. The more regulatory regimes a business has to comply with, the higher the cost. So, far from ‘reducing the regulatory burden’ on business, that burden is increased when countries have their own regulations. Indeed, that is the foundational insight and basis of any single market, including that of the EU.

Second, it is not just about the EU. EU standards are substantially intertwined with wider, global, standards. That is, they have to some extent spread beyond the EU (e.g. chemicals regulations) or themselves incorporate standards systems from outside the EU (e.g. automotive regulations). Thus divergence from EU regulations is incompatible with the ‘Global Britain’ strategy that supposedly underpins Brexit. Or, to put it better, the distinction that Brexiters draw between being an EU member and being a global trading nation is a totally false one.

Conversely, the idea of a British set of regulations is deeply constraining. It is inconceivable that such regulations would themselves become a new international standard, so as to, again for example, supplant existing international chemicals and automotive regulations. In this sense, the question of whether these British standards would be ‘higher’ or ‘lower’ than those of the EU – whilst potentially important in its own right – isn’t so much the issue as the fact that, higher or lower, they would only apply to British businesses (though see below for clarification on what ‘British’ means here). Even if the standards are the same – which makes the whole exercise pointless anyway – there would still be a need for double registration/ licensing of conformity.

Regulatory independence has no benefits

For those businesses that currently export, that just adds a layer of regulatory cost (i.e. regulation for the domestic market only), whilst for those that currently don’t it adds a huge barrier to developing export business in the future (i.e. having to shift to, and/or demonstrate conformity with, the international standards). And it is actually even more constraining than that, because these domestically-regulated businesses would also be precluded from supplying exporting companies to the extent that their products were components within a finished product that did need to comply with EU and international regulations. There is simply no business benefit to this at all – its only conceivable value is political flag waving that we have ‘our own’ standards.

As regards the automotive industry – but something similar would apply to many others – all of this was laid out quite starkly by the Brexit Select Committee in 2017 when it considered the question of regulatory alignment: “there is no argument for a separate set of UK standards” (paragraph 27) … “we have not identified any potential benefits for regulatory divergence from the EU … There are only costs.” (Paragraph 30)

There is a further and very important dimension to all this. Not only does divergence from EU regulations damage British participation in the European single market, it also substantially damages the existence of the UK single market. That is to say, because of the terms of the Withdrawal Agreement for Northern Ireland, the more (Great) Britain diverges from the EU, the more significant the Irish Sea border becomes. That has economic consequences in shrinking the UK single market, but it also has major political consequences, most obviously for Northern Ireland but also for Scotland, since it further cements the ways in which Northern Ireland will remain in the EU single market. That is to say, the more Great Britain diverges from the EU, the more Northern Ireland diverges from the UK.

Clarifications?

Subsequent to Javid’s interview, some supposed clarifications were made by the Business Minister, Nadhim Zahawi, but if anything these muddied the waters further. First, he said that a zero tariffs, zero quotas trade deal would mean that there would be no cliff edge at the end of the transition period, and would eliminate the bulk of the paperwork for exporters. But, apart from the fact that such a deal has yet to be done, it would certainly not solve the paperwork problem, as Pauline Bastidon of the Freight Transport Association pointed out.

Second, as so often in the Brexit debate, it seems that Zahawi doesn’t appreciate the different issues posed by tariff and non-tariff barriers to trade. A tariff deal is irrelevant to the regulatory issues and, on those, he was back in the same territory as, implicitly, Javid had been. That is, again, he seems to think that it is just a matter of British firms following particular standards. He implied that these might be the same as EU standards – for example of chemicals – but that Britain would no longer be a rule-taker.

But this makes no sense at all. If Britain simply replicates EU rules then it is, effectively, a rule-taker. Yet at the same time, unless it is formally within the ambit of EU regulatory agencies then simply following the rules will not be enough, without licensing and enforcement, to gain the economic benefits of doing so. And, as noted above, it would entail double registration and licensing processes simply in order to follow the identical standards. So, if he actually understands and means what he says, it is yet another Brexit lose-lose: as a rule-taker there is a loss of ‘sovereignty’, whilst without formal participation in regulatory systems there is also an economic loss.

Sajid Javid also made some subsequent remarks on the subject, this time at the World Economic Forum in Davos (in between being taught some brutal, public lessons in realpolitik by the US Trade Secretary). In response to questions he re-stated that there was no point leaving the EU and still “sticking to all its rules”. This can be parsed in two ways. It might mean, as he implied before, exiting ‘all its rules’, or it might mean sticking to some but not others. The next day he spoke of not diverging "for the sake of it", which might imply the latter. But, in that case, which of them? Without saying, businesses can’t be expected to prepare. He also reiterated his belief that a trade deal could be done by the end of the year, but mentioned as if in passing that this would include “services”. But since any deal on services would necessarily include some element of regulatory alignment, did this mean that he now accepted this? Or did he not realise that this was an implication? And which specific services was he referring to anyway?

When dogma becomes policy

It’s by no means impossible that our politicians simply don’t understand what they are doing. If so, that isn’t unusual – they are not elected or appointed as ministers for their technical expertise – but it is being compounded by not listening to those who do and, very likely, listening too much to Brexit dogmatists who do not, or do not want to, understand. It really would not be a big ask to expect them to sit down for short lectures from non-partisan experts like Dmitry Grozoubinski on trade, Pauline Bastidon on logistics, and Anna Jerzewska on customs. Not with a view to coming to terms with the horrendously complicated technical details of these domains, which isn’t their job, but just to grasp the broad outlines of each which, on current evidence, they don’t.

That seems unlikely to happen. So we have to conclude that they may not know what they mean, but they do mean what they say. That is, perhaps without really understanding the consequences, they will pursue a policy of wholesale regulatory divergence. For this is not now a matter of an interview here or a speech there. There have been reports that government ministers actually regard whole, highly successful, sectors of the economy as expendable. Even that might – just about – make sense if at the same time they could point to sectors which are going to be boosted by their Brexit plans. So far, none have been identified.

Certainly there was much Brexiter excitement about a Reuters’ report this week that more than a thousand EU financial firms are to open new offices in London because of Brexit. But, alas, beneath the headline lay a different, more complex and less positive story – that, precisely in order to cope with the separation of regulatory regimes (i.e. the anticipated shift from ‘passporting’ to ‘equivalence’), these firms were establishing London offices. This would create an estimated 2,400 jobs. There was some ambiguity in the report as to whether this was across the headline 1000+ firms (<2.4 jobs per firm) or just across 300 of them (8 jobs per firm) but, either way, these are presumably ‘brass plate’ operations for registration purposes, not substantive operational moves.

Thus, as the report confirmed, it only mitigates the flow of jobs the other way. For example, just this week investment bank JP Morgan announced the latest phase of its relocation from London to Paris, where hundreds of its staff will be amongst the estimated 4000 from across the financial services who by the end of the year will have moved to Paris alone, with Dublin, Frankfurt and Amsterdam also pulling in jobs (and business and taxes).

As soon as the decisions was made that Brexit could not mean the ‘Norway model’ of single market membership that many leavers voted for, it was clear that the services sector was going to be substantially damaged. And frictionless trade for goods has long been a pipe-dream. But this apparent hardening to complete regulatory unilateralism suggests that manufacturing industry, too, is to be sacrificed simply in order to proclaim ‘independence’. Like blue passports, the value is purely symbolic. Unlike blue passports, the economic consequences will be severe in terms of jobs, the tax base and, hence, public services.

For in telling businesses so clearly that they have less than a year to prepare for a scenario that is still unknown but which looks to be deeply problematic for them, and which they have repeatedly and explicitly warned against, Javid has sent a message as clear in its own way as Boris Johnson’s revealing “f*** business”* comment. For businesses that export, have international supply chains, or which supply such firms, the message to those that can do so is to use the transition period to relocate. For others, perhaps especially SMEs, for whom relocation may not be an option, it may simply mean closing down. The costs and complexities just of new customs procedures, let alone those of future but unspecified regulatory changes, may simply be overwhelming.

But, as suggested in my previous post, we seem now have reached a point where all costs are irrelevant and all that matters is the bright, shining light of Brexiter purity. Which may be a fine and splendid thing to some, but you can’t eat it and it doesn’t pay the bills.



*I dislike the coy use of asterisks, but have used them because I have the idea that, otherwise, some internet filter settings may prevent readers accessing this post.

Friday, 17 January 2020

As costs mount, Brexit goes round the same old circles

A report from Bloomberg Economics this week estimates the cost of Brexit since the Referendum result to be £130 billion, with a further £70 billion predicted by the scheduled end of the transition period. £200 billion is a colossal sum and in any other political context you’d expect it receive far more attention than it has. Of course it is only one estimate, but it comes from a credible source (and it is consistent with others) and, again of course, it is a cost compared with what would have happened and, in that sense, one which does not present a bill to be paid nor something directly felt in people’s pockets. Still, it does make the raging debates over who should pay for the cost of the Sussex’s security seem rather trivial.

Perhaps there’s a sense, now, that we all know Brexit is going to be hugely expensive and so it’s not worth discussing it anymore. Not that committed Brexiters necessarily accept this. Just as the predictions of economic costs were dismissed on the grounds that ‘you can’t predict what is going to happen in the future, anything might happen’, so, now the costs are racking up, they are dismissed on the grounds that ‘you can’t know what caused past events to occur, they might have occurred anyway’.

It is a hermetically sealed logic that cannot be reasoned with. And even to try provokes the second, though contradictory, line of defence, where we are invited to believe that Brexit was chosen as the result of an earnest political science seminar about theories of sovereignty, and was nothing to do with economics at all (this, presumably, is why the slogan chosen for the bus was a claim about … the supposed economic benefits of Brexit).

As for what the economic costs of Brexit will eventually end up being, that will to some degree depend on what kind of trade deal gets done and here confusion continues to reign. The EU have produced two detailed briefing packs (here and here) which, so far as I know, have no counterpart on the UK side, at least in the public domain. There is a sense that we are heading towards a re-run of what was symbolised by the famous picture of the opening of the withdrawal talks, where the EU side sat with bulging files whilst the UK relied upon David Davis’s vacuous grin.

The recurrent dynamics of Brexit

If so, there are good reasons for that and they go back to the three unchanged underlying dynamics of Brexit which I outlined after the election result. In brief, these are lack of realistic definition of what Brexit means or how to do it; the insatiable demands of the Brexit Ultras; and the general political imperative of all governments to avoid economic and social breakdown. These are contextualised by a fourth factor, namely (largely self-inflicted) time pressure.

As regards the first of these, the UK government is still to a degree in thrall to the Brexiter fantasies of a quick and easy deal in which the complexities and trade-offs are seen as just a ploy by the EU that will be overcome by determined negotiation by a ‘true Brexit’ administration. So, at times, the government is still talking as if a comprehensive, deep trade agreement, perhaps with a substantial services element (£), can be achieved by the end of the year whilst at other times the implication is that it will be much more limited, but that that is fine. As from the outset, the Brexiters – who are now firmly in control of the government – have no agreed, realistic idea of what they want.

In consequence, there are other ways in which the start of the trade negotiations is likely to be analogous to that of the Article 50 talks. It is already written into the Political Declaration that the highly technically complex and politically contentious issue of fisheries will be amongst the first matters to be discussed. It may well play the part of the financial settlement, which the UK first tried to deny the EU had any right to. But with EU briefings suggesting that they will insist (£) on a more or less status quo deal on fishing as a prerequisite for any progress on other issues, it may also be the subject for a re-run of the 2017 ‘row of the summer’ over sequencing.

This brings into play the second of the recurrent dynamics. There are clear signs that Brexit Ultras like John Redwood and Owen Paterson are squaring up to make fisheries, which have always been totemic to Brexiters despite being a tiny part of the UK economy, a defining issue. With some suggesting that the UK might accept that EU proposal in return for a better deal on financial services there is a good chance that this will prove to be an early flashpoint between the government and its hard line MPs. Their position will be not just that the UK should not accept the EU proposal, but should not make any agreement on fisheries until the entire deal is done or, simply, walk away from the talks without a trade deal at all.

If so, that will add impetus to the established pattern in which the Brexit Ultras always push for a harder or ‘purer’ form of Brexit. That saw the shift from their advocacy of soft (single market/ Norway) to hard (FTA/ Canada) Brexit. It has reappeared now in the demand that the UK should, in parallel with or even as a priority over negotiating an EU trade deal do so with the US, as argued by ERG leader Steve Baker this week (£).

As with the fisheries issue, there is no economic logic to this at all. The geographic closeness of the EU and the volume of UK trade that results from that, as well as from decades of EU membership, makes a EU trade deal massively more important than any Free Trade Agreement with the US could ever be. Moreover, to some extent, the two deals are mutually exclusive in that they entail alignment with different regulatory orbits.

But the issue here is not economic logic, even though its advocates present it as if it were by, for example, their irrelevant talk of the size of the US economy. Rather, having belatedly understood that the trade deal they for so long championed will entail some regulatory alignment with the EU – and the deeper the deal, the greater that alignment – the Ultras find even that hard Brexit to be unbearable.

For some that may be informed by an ideological belief in low regulation, small state politics – the Singapore-on-Thames delusion – and, to that extent, there’s an obvious reason why it will preclude a deal with the EU. However, I believe that the more fundamental reason is a pathological loathing of the EU in every manifestation, and indeed of non-EU European institutions such as the European Court/ Convention of Human Rights (ECHR). They want to expunge every last trace of the EU’s presence in the UK. It is much closer to a religious mania than an ideological axiom, and, as for economic cost, that is irrelevant. No cost is too high to pay. If they were to gain the next concession, and get a US trade deal ahead or instead of an EU deal then they would certainly then make leaving the ECHR their next demand.

It is that ‘Brexit at any cost’ fixation which comes into conflict with the third dynamic that for any government, even one fixated by Brexit, the basic political pressure to avoid economic meltdown means that reality sometimes has to intrude. That could include recognizing the economic case for sacrificing fishing for financial services. More generally, to the extent that it is understood that there is only time for a minimal deal, if that, it may also be understood by government that, for many sectors of British business, such a deal would be little or no different to there being no deal at all [£]. It may also be sinking in that, trade deal aside, there is little prospect of the new arrangements for Northern Ireland being ready in time.

That, presumably, is what lies behind Boris Johnson implicitly recognizing, for the first time, that it may not be possible to do a deal in time (£). This may be the precursor to accepting that there will be an extension to the transition period. Time will tell on that, but as was shown by the ease with which he dropped his ‘die in a ditch’ pledge, such a volte face is well within his range.

Businesses and Brexit

Whether or not he extends (though especially if he does not) what is in prospect is the gradual leaching away of business from the UK, ratcheting up the costs of Brexit. This may well attract as little attention as the Bloomberg report and of course – as with all the examples so far – Brexiters will deny the cause. In this, they will be aided by the fact that few companies which relocate or (which is even more below the radar) decide to make new investments elsewhere will publicly attribute this to Brexit.

For it is important to understand that now that Brexit is unavoidable the relationship between business and the remain cause has fundamentally changed. Before, business lobbying against Brexit was consistent with, and part of, the remain campaign. But businesses rarely lobby on the basis of political principle rather than their own self-interest. With the remain cause lost, they will now make decisions based on that self-interest but will have no motivation to denounce Brexit policy as they do so.

On the contrary, especially to the extent that many will want to go on doing some business in the UK they will have no interest in alienating many customers and the government. An individual remainer might – for example – seek to publicise their decision to emigrate and to take their skills and taxes elsewhere in order make the political point that this is what Brexit has done. Few if any businesses will do anything like that. So it will be a slow and quiet economic puncture, not a noisy blow-out.

This scenario is made all the more likely because whatever economic realism derives from the third dynamic, it is in conflict with the lack of realism of the first and second. This can be seen in the report this week that Business Secretary Andrea Leadsom has substantially reduced contact with business groups (£) such as the CBI because she is irritated by them raising concerns about Brexit.

Here, again, there is a recurrent pattern in which those – in business, or the civil service, or elsewhere – who know the realities and complexities are sidelined for their lack of ‘true belief’. In ways that would have been astonishing to the traditional Tory Party, the CBI have long been regarded with scorn by Brexiters and, more generally, there were many reports during May’s administration of businesses being excluded by DExEU if they voiced scepticism about Brexit.

The paradox of Brexit

It is one of the biggest paradoxes of Brexit, because most of those who understand what it entails at a practical level do not support it, whilst most of those who support it strongly do not understand what it entails at a practical level. That is evident in microcosm even in the current row about Big Ben chiming on ‘Brexit Day’, with those who know the costs and technicalities involved advising against it, whilst the Brexit ‘bongers’ insist this is just remainer negativity and that a can-do attitude will overcome any obstacles if, indeed, they really exist.

At the wider level, this paradox presents any Brexit government with a massive problem. Either it ignores those with the knowledge and flounders around trying to square the impossible circle of ‘true Brexit’ with no adverse consequences, or it listens to those with knowledge and has to compromise on at least aspects of ‘true Brexit’.

Whilst that has been true throughout the Brexit process, it is now an acute issue with the trade negotiations starting and the timescale tightening. A key part of any trade negotiation process – and one reason they take a long time – is that governments need to engage and consult with the business and other groups which will be affected by whatever is agreed. If government as a whole persists with the Leadsom line then the incentives for businesses to stay and invest in Britain sharply diminish, as they see that the government does not have – and, worse, does not want to have - a serious grasp of the issues involved. With time running out, the business decisions will need to be taken before realism intrudes, if, indeed, it ever does. And businesses will make those decisions.

However, if the government does start to engage seriously with business (and other experts and stakeholders) then the paradox asserts itself in a new way, with this realism conflicting with the first two dynamics. This is exactly what we saw with the May government. Having delighted the Ultras by embracing hard Brexit, and accepted the lack of realism of the Brexit promise by imagining that, even so, there could be ‘frictionless trade’ for goods and services, there came a point in 2018 when May understood how damaging this would be. That was what led to the Chequers Proposal which – flawed as it was – began to recognize some of the complexities and trade-offs. Cue Johnson and Davis resigning and the government falling into the disarray from which it never recovered.

It is true that Johnson’s majority makes him far more secure than May. On the other hand, the time pressures Johnson has created for himself are all the greater, and his negotiating position with the EU is also much weaker than May’s at the time of Chequers. May had the possibility of extending Article 50, as she did, and, until the Withdrawal Agreement was completed, the core EU concerns around the financial settlement, Irish Border, and Citizens’ Rights remained unresolved. Now, Johnson could only extend the transition period with difficulty, both because of domestic politics and because, on the EU side, transition extension is less assured than it was for Article 50 extension. Meanwhile, the EU’s core withdrawal demands have been met. And, in any case, the votes of the ERG are more than enough to defeat Johnson, despite his majority.

Thus the conflict between economic realism and political exigency continues to be unresolved and resolution is unlikely to occur via a single decision taken at a single moment. Rather, we can expect an ongoing process of tacking this way and that as the negotiations with the EU progress and the internal fights of the Tory Party continue. The consequence is that neither economic realism nor political exigency will definitively win out. Instead, so many concessions will be made to the Ultras as to ensure considerable economic damage, whilst so many concessions will be demanded of them that they will always regard Brexit as having been betrayed.

Thus, as has been clear for a long time, we will end up a country made much poorer in order to please the Brexiters whilst having to endure their perpetual displeasure with what has been done. It is as perfect a lose-lose scenario as can be envisaged, and the Bloomberg report has put a figure on just the first instalment of just the economic aspect of that loss. There is much, much more to come.

Friday, 10 January 2020

We’re beginning to see what ‘taking back control’ looks like

It’s widely remarked upon that ‘take back control’ was a brilliant campaign slogan, not least because it could be taken to mean whatever people wanted it to mean. But as the cliché has it, politicians campaign in poetry and govern in prose. Whatever lofty dreams the slogan may have inspired, we are now beginning to see the more prosaic realities of what it is going to mean in practice, and how these are puncturing the delusions that not only characterised the Referendum campaign but which have proved remarkably resistant to the battering received by events over the last three years.

Having to have reality explained - yet again

The core delusion was tackled again this week by the new President of the European Commission, Ursula von der Leyen, during her visit to the UK. In polite, regretful and measured tones – painfully at odds with so much of the political debate here - she pointed out the basic fact that, by definition, the UK’s new relationship with the EU will be less close and less beneficial than that of a member state, and less close and less beneficial than that of a member of the single market. It is a statement of the blindingly obvious, to the extent of being a definitional truth and virtually a tautology. Michel Barnier made exactly the same point in 2017, and again just a few weeks ago.

Von der Leyen also made the points, equally obvious to anyone with any knowledge, that a comprehensive deal could not be done by the end of the transition period, that the time available for even a minimal deal would be tight, and that the greater the distance the UK wanted in the relationship, the less comprehensive the deal would be. Again, these are no more than definitional facts. That anyone, let alone a major stateswoman, should have to explain them again arises solely because all of them are still denied, and apparently not even understood, by many Brexiters. It is actually quite embarrassing to be in a situation where such delusion has not just persisted but now occupies central stage in British politics, so that it falls to those abroad to state the obvious. But such is the pass to which the Brexit ‘patriots’ have brought our country.

There is little sign that this is making inroads amongst the cheerleaders for Brexit. Barnier’s 2017 speech was said to have “dashed the hopes” of something better than a free trade deal when the something better – single market membership – is what Britain had ruled out. Nothing has changed since. The rabidly pro-Brexit Daily Express characterised von der Leyen’s comments as having “THREATENED” the UK, describing her as having “lashed out” at the Prime Minister in her speech. Similarly, responding to the recent report (£) of Barnier saying that the UK would have to adhere closely to EU rules to get a good trade deal, Ruth Lea – a leading member of Patrick Minford’s erstwhile Economists for Brexit group – tweeted that this was “yet more bluster” rather than a statement of the obvious.

Having to take what you are given

Yet for all their media and social media outrage, the Brexit foot soldiers have not noticed that their government has quietly abandoned any idea that a trade deal can yield ‘exactly the same benefits’ as the single market or preserve ‘frictionless trade’. The Brexiter dream of a British exceptionalism, summed up as ‘having your cake and eating it’, has ended. Britain will accept what’s left after everything it has ruled out with its own red lines has been taken away. At the moment, as regards trade with the EU, that looks as if it’s going to mean, at best, a possible zero tariffs, zero quotas deal for goods trade.

This falls a very long way short of single market membership, of course, or of the Vote Leave assurance of membership of a supposed “free trade zone stretching from Iceland to Turkey”, and even a long way short of Canada +++ that Brexiters used to speak of so breathlessly. Ironically, it is, in a certain way, consistent with the Brexiter idea that the EU would want a deal because of the UK’s trade deficit – but that deficit is in goods trade only, and so such a minimal deal would be a more beneficial one for, yes, German car makers and such like exporting to the UK than it would for the smaller volumes of goods the UK exports to the EU.

Such an approach reflects the longstanding failure of Brexiters to understand the difference between a free trade area and a single market, nested within which is a myopic and outdated focus on tariffs on goods. Thus what is in prospect does little or nothing for services, where the UK currently has a trade surplus with the EU, little for international supply chains in manufacturing, and nothing for all the non-tariff and regulatory barriers to both goods and services trade.

If a report in this week’s Financial Times (£) is correct, the government is minded to regard the clamorous objections of, for example, the auto, aerospace and pharmaceutical sectors – all of which rely on international supply chains and regulatory harmonization -  as the noise of declining industries and, by implication, sees these as sacrificial in order to get a quick deal done. Certainly it seems to be accepted by both sides that passporting for financial services will end, possibly to be replaced with inferior ‘equivalence’ regimes.

So a deal will perhaps, even probably, be done. But so what? Anyone can do a bad deal in which they take what they are given because they’ve made anything better impossible. Far from having your cake and eating it, you get a cake with all the icing and chocolate stripped off, and what you eat is plain and stale sponge.

Pretending a bad deal was what you wanted

On any rational basis, this is insane economics. And it is not true to say that the Brexit vote was nothing to do with economics and was not why leave voters chose to leave. For, if that was so, the Brexiters would not have put such ferocity into repudiating Project Fear, and such energy into claims of how good future trade terms would be. Rather, we have a government knowingly pursuing a policy that will be economically damaging, but hoping that the electorate will, as per my previous post, forget that the damage was due to Brexit and forget the promises made about how things would be. But this, then, sets up an interesting paradox, which will be very important in the coming years.

To sustain their position, Brexiters will have to pretend that a minimal trade deal is, actually, a comprehensive trade deal, exactly as promised. Yet, in that case, they will have to drop the claim that the EU have been punitive or have out-negotiated the UK. Indeed, that is precisely the move that Johnson pulled off with his Withdrawal Agreement, and it might be fairly easy to do as regards a trade deal, since few people understand what that really means, and may well believe that getting ‘zero tariffs’ is a great British victory rather than the minimal outcome ‘threatened’ by the EU.

So this, too, is what taking back control looks like – a shabby con trick in which the mug punter is promised a shiny new roadster and given a rusty old banger. And there is something peculiarly English (I use this word deliberately) in the idea that the punter thus conned will drive off saying ‘better not make a scene and, anyway, it could be worse’. Politically, much depends on whether that is indeed what happens, or whether the electorate recall what they were promised and, if so, who they blame for not delivering it.

Learning your place in the world

If trade negotiations with the EU are already shaping up to give Britain what it has unwittingly chosen, it is also already beginning to be clear that the rest of the world is adjusting to the new reality of post-Brexit Britain. An excoriating article in The Times of India mocks the decline of British ‘soft power’. Meanwhile, it was reported that Australia has turned down a UK proposal to end the use of work visas as part of a future trade deal because it “could cause an exodus of highly trained workers to the UK and an influx of unskilled British workers to Sydney and Melbourne”. Apparently, they prefer an ‘Aussie-style immigration system’.

These are just two small examples from this week, but they are indicative of the emerging direction of travel. Having initially been bemused by the Referendum result, and then confused by the political crisis that followed, the election result has now cemented the new reality of Britain’s place in the eyes of the world – a “diminished” figure, being taught daily that it just isn’t important enough or powerful enough to exert much “control” over anything.

There is nothing shameful in that – it is true of all countries bar, perhaps, superpowers. But other countries accept that and address it precisely though the formation of blocs and alliances that allow them to live more comfortably and easily in the world. What is embarrassing is the hubristic refusal to understand that, and to enact a Vainglorious Revolution that forces us to live with less comfort and ease in the world. That is compounded by having a Prime Minister who not only embodies such hubris but who is also widely seen as untrustworthy and unserious, but Brexit would make it so in any case.

Events in the Middle East this week underscore this, as indeed have some other recent international crises. It’s important not to over-state this, because even without Brexit the Trump presidency would represent a major challenge for British diplomacy. One key part of the post-imperial role that Britain found – more by chance than choice, perhaps – was as the Transatlantic Bridge between the US and the EU. Trump was always going to strain that bridge at one end. But completely uprooting the pier at the EU end has made that even more unstable. The UK is now uncomfortably adrift, with many of its key strategic priorities (such as the Iran nuclear deal) bound up with the EU whilst being in abject desperation for a politically symbolic (though economically relatively trivial) trade deal with the US.

The haplessness of that situation is shown by reported pressure from Brexiters within cabinet to pursue trade talks in parallel with both the EU and the US – a deferral, rather than an understanding, of the choices to be made. It is also a peculiarly unrealistic idea even in its own terms: if no deal, or a limited deal, is done with the EU there will be an immediate deterioration in terms of trade at the end of the year, which is not true as regards a US deal and, anyway, a US deal of any sort in Trump’s election year is highly unlikely.

So in an economically regionalised world, the UK has decided to have no region. In a politically multi-polar world, it is caught between poles. That is as evident in relation to dealing with Russian nationalism as it is to standing up to China over Hong Kong or addressing the endless saga of the Chagos Islands. Again, these would pose severe challenges without Brexit, but are made more difficult by the loss of the economic and diplomatic muscle that EU membership brings and the addition of pressures to create new trading relationships outside the EU. Indeed, in this sense, the economic and geo-political aspects of Brexit are inseparable.

Thus we are at the very beginning of paying the huge price not so much for pursuing a poor strategy – and many of the issues alluded to are problematic and contentious in their own right and might, usefully, have been up for reconsideration - but for having, with Brexit, abandoned strategy altogether. So taking back control in this context means simply drifting, rudderless, ignoring – perhaps not even being aware of - the consequences and choices of Brexit.

Having Brexit defined for you

From the outset of this blog I’ve been arguing – like many, many others – that the core problem with the Brexit Referendum was that it was a vote against something, EU membership, without being a vote for anything that had been defined. That has been the underlying truth in all the years that have followed. But, now, something is beginning to change. For with the ineluctable passage of events the meaning of Brexit is, gradually, starting to be defined.

But that definition is not being decided primarily by internal British political debate about what kind of country we want to be and what a post-Brexit economic and geo-political strategy would look like. Every opportunity to do that – during the Referendum campaign, as a post-referendum consensus-building process, or in the 2017 or 2019 General Elections – has been squandered. And Johnson’s ‘just get it done’ approach to Brexit compounds that error, making a virtue of the refusal to take the time and create the process to plan it. Not so much oven-ready as half-baked.

So instead, as we come within weeks of leaving the EU, Brexit is being defined for us by others whether in the EU or beyond. We don’t know what it will end up looking like - except for being economically poorer, politically weaker, and culturally meaner - and we won’t have very much say in it, although domestic choices can make it more or less bad. In ‘taking back control’ we have, in some fundamental way, lost control of our future. Over and over again we refused, collectively, to get real. Now we’re going to be made to do so.

Friday, 3 January 2020

The battle between remembering and forgetting

It’s difficult to know whether to regard Boris Johnson’s reported ban on Ministers and officials using the word Brexit after 31 January as sinister or silly – or perhaps both. But it is a helpful reminder of the dishonesty and chicanery that the Brexit process is going to continue to embody in the coming months. More profoundly, it symbolises how those months are going to entail a battle between remembering and forgetting.

New lies for old

At the most obvious level, the idea of not mentioning Brexit after 31 January is part of the more general smokescreen to pretend that, on this date, it will be “done”. In the same way, and according to the same reports, there are to be no further official references to negotiating a deal with the EU. For, according to the new scripture, the ‘deal’ has already been done – it is the Withdrawal Agreement – and so the negotiation of future terms cannot be referred to in this way.

It’s a transparent ploy, in itself, but it is also the offspring of some older lies. For Brexiters, including at one time Johnson, used to believe, or pretend to believe, that both exit terms and future terms could be wrapped up within the Article 50 period. Indeed, many Brexiters, including at one time Johnson, used to say that exit terms – and especially the financial settlement - should not and need not be agreed until future trade terms had been. All of these claims were always untrue. So now the inconvenience of these old lies is to be covered over with a new one: that there is only one deal to do, and it has been done.

The announcement that DExEu is to close on the same date is presumably intended to communicate the same message. However here, at least, there is a more charitable interpretation which is that, as a piece of government machinery, it was always misconceived and, in particular, created crossed chains of command with Downing Street and the Cabinet Office. Notably, the Institute for Government has argued since 2016 that it should not have been created. More recently IfG’s Joe Owen has made the case for closing it now but notes that, of course, this does not mean – as the announcement might be taken to imply - that the amount of civil service effort needed to deliver Brexit has reduced.

A policy with no purpose

But banning the Brexit word has a deeper significance, too, and one which I think historians will find both interesting and perplexing. For it is an extension of something which has been underway almost since the Referendum result itself. Few, if any, of the original advocates of Brexit any longer make any case for it being a good thing in its own terms, or, in any specific way, as having any beneficial outcomes.

Under Theresa May, there was a palpable sense that she was enacting a policy she knew to be damaging and that her task was to achieve what damage limitation she could – the scope for which she almost entirely closed down by virtue of her Lancaster House speech. Brexiters chalked this miserabilism up to her remainer negativity, but they, too, have ceased to claim any great benefits for Brexit.

During the election campaign, and now, Johnson has talked only of ‘getting it done’ in order to be able to focus on the people’s priorities. That very formulation at least implies that getting Brexit done is not one of those priorities, and the policies of NHS and infrastructure spending and so on that he claims to be the priorities could all be done, and be more easily done, without Brexit happening at all.

So, for many months now, the only argument made for Brexit is that it must be done because that was the outcome of the Referendum vote. For some, perhaps, that argument does over-ride all others, to the extent of thinking that even if it is a bad thing in itself it must be done for reasons of trust or democratic legitimacy. Yet – even if those were good arguments - it is strange that its most prominent campaigners no longer make any other case, and that this case is only one of avoiding the negative consequences of not proceeding rather than identifying the positive consequences of doing so. Why on earth would we not mention it, indeed why would we not take every opportunity to trumpet it, if it is such a wonderful thing?

Johnson’s New Year message

In this sense, the edict not to mention Brexit, despite it only being halfway to completion, links to Johnson’s New Year message calling for everyone to unite together and move forward from the divisions of the Referendum. Both are suggesting that we all simply shrug our shoulders and forget the promises that were made for Brexit, the damage it has already done, the damage it has still to do, and, indeed, all the decisions that have still to be made.

It’s as if it were an embarrassing episode at the Christmas office party that it would be bad taste to remind anyone of in the new year. That would be absurd enough, but when the message comes from the person who – metaphorically speaking – was caught photocopying his buttocks and who – literally speaking – is the boss it is at best self-serving and at worst an abuse of power.

The important question is how realistic is this strategy? People – and it is probably most people – may be heartily sick of the divisions and problems that Brexit has caused, but they aren’t all going to simply forget about them. Johnson has conducted his whole career, and, it seems, much of his personal life, on the basis of creating a colossal mess and then avoiding all responsibility for it. But Brexit is far, far bigger than any of his previous messes and he’s not easily going to be able to shrug it off and walk away, which both the B-word edict and the New Year’s message suggest he is going to attempt to do.

The bigger part of that strategy is, presumably, going to be to try to keep the forthcoming trade negotiations with the EU as secretive as possible and, also, to make them seem entirely boring and technical, and hope that no one pays too much attention. That means the electorate, of course, but also the more extreme of his backbenchers. That may have some hope of success – some electors in any case believe that Britain left the EU in 2016, others will be happy enough to think that it was done on 31 January. And no doubt there will be many in the pro-Brexit press who will acclaim any trade deal, even a minimal one, as a great triumph.

Meanwhile, ongoing news of company relocations or disinvestments will be explained away as ‘nothing to do’ with the thing we no longer mention. In any case, since little will change in the transition period it will be easy to claim that Brexit has been ‘done’ without the adverse effects predicted by the ‘doomsters’. Subsequent to that, such effects will be dismissed as due to other causes since they came so long after Brexit was ‘done’.

Perhaps the strangest thing about the coming period is that whilst declaiming a future in which Britain’s potential will be “unleashed” – by implication because of ‘casting off the shackles’ of EU membership – behind the scenes what will probably be going will be a slow drip-feed of measures to re-attach the UK to EU systems and processes. An early precedent and template for such an approach can be found in data protection legislation. These measures may not have a high profile and are likely to lie outside of anything specifically identified as trade deal – or, more likely, be about non-trade matters - but will either seek to reproduce, or be inferior or more expensive versions of, existing relationships. To the extent that they are noticed at all, people will wonder what the point is; more likely, Johnson is gambling on them being too arcane to attract much interest.

Confronting realities

Even so, in important ways, the coming year is going to see Johnson forced to confront many of the realities which he has either denied or been ignorant of, and that will be true no matter how many of the officials and politicians involved are ‘true believers’. To an extent that has already started in that, mercifully, we no longer hear anything of the ‘alternative arrangements’ for the Irish border nor the GATT Article XXIV nonsense. But there is much more reality to come.

In particular, the underlying confusions which gave rise to all the ‘easiest deal in history’ claims are going to be ruthlessly exposed. Such claims – made at various times by Liam Fox, David Davis, Peter Lilley, and Johnson himself – are based, when they are based on anything other than windy chauvinism, on the idea that the UK is already completely aligned with the EU, and therefore a trade deal will be easy.

That is a proposition which resolutely refuses to accept that as a consequence of Brexit, the UK, even in the transition period, will be a third country with respect to the EU. So it is not that the current membership terms are the baseline for negotiation, to be subtracted from. Rather – as regards trade – WTO terms are the baseline to which things might be added by negotiation. There is not a special ‘alumni club’ for ex-members of the EU.

It’s true, as EU Trade Commissioner Phil Hogan said the other day, that the fact of current convergence and integration could make a close relationship easy. But that is only so if the desired outcome is convergence and integration. Since, as Hogan went on to say, the UK desire is apparently for divergence then current convergence is not helpful at all. In reality, this just amounts to a reprise of the Barnier staircase: for as long as UK red lines over, in particular, the ECJ and freedom of movement continue, then that circumscribes what kind of deal can be done. If the UK adds, as it has under Johnson, new red lines over level playing field commitments, that makes any deal more minimal still.

It is here that Johnson will confront the biggest difficulties in his ‘don’t mention Brexit’ strategy. If he holds firm to seeking only a very minimal trade deal, there is going to be a lot of economic fallout. If he does not, then there will be a lot of political fallout. If either of those things happen, then Brexit will certainly continue to be at the forefront of public debate, and the claim that it has ‘been done’ will ring hollow.

Brexit talks to continue …

In this sense, as noted in a recent post on this blog, the underlying dynamics of Brexit will not change after 31 January as regards the contradictions and conundrums of what it means for the UK. Yet, in another sense, there will be a change as regards the dynamics between the UK and the EU. During the Article 50 negotiations, Brexiters repeatedly spoke of how ‘EU negotiations’ always go to the last minute of the last hour. In this, they failed to see the difference between, for example, treaty negotiations amongst the existing, ongoing member states – with last minute horse-trading to facilitate an agreement - and those between the EU-27 and the one, departing, state. The late breakthrough which did happen was simply based on the UK accepting the Irish Sea border that it had previously rejected.

And just as the Article 50 negotiations differed from normal intra-EU negotiations, so too will future terms talks, which will occur under Article 218 which governs EU negotiating rules with third countries, differ from the Article 50 talks*. Amongst other things, depending on the scope of the future terms agreement this will have implications for whether unanimity or qualified majority within the European Council is needed to conclude any agreement reached.

Alongside this difference in legal process, there is a sense that the political priority which Brexit has for the EU – which, except perhaps in the very immediate post-Referendum period was never as all-encompassing as it was for the UK – will diminish further. It will be one amongst many issues which the new EU leadership team face and, necessarily, the UK-EU trade relationship matters far more for the UK, for whom the EU is its largest trade partner, than it does for the EU. If Johnson continues down the track that makes a distant relationship inevitable then, by the same token, it becomes even less salient for the EU. If he changes track, then the compromises the EU will require will loom large. Either way, the realpolitik of the power difference between the EU and the UK will become ever clearer.

And Brexit talk to continue …

For all that the government may not wish the public to notice this, judging by what happened with the Article 50 negotiations there will be plenty of press releases and statements from the EU about how talks are progressing. There is also likely to be plenty of noise from business lobbies in the UK, if a minimal deal is in prospect, and from irate Brexiters if an extensive deal is in prospect. There will be plenty of talk of preparations if no deal 2.0 is in prospect. And there will certainly be ongoing and intensifying discussions of the future of Scotland and Northern Ireland within the UK.

For all of these reasons, I think it is unlikely that Johnson will achieve his aim of getting the nation to move on from and forget the Brexit that he did so much to cause and is going to spend at least the next year enacting. Apart from anything else, for all his talk of respect and friendship, Johnson is offering no compromise towards remainers in the form that Brexit is to take. And whilst some – even some who once cared passionately – will no doubt cease to be engaged by or interested in Brexit it remains the case that it is a policy which only ever had a bare majority in support, and that for only a fleeting period of time.

So the idea that it can all be brushed over and forgotten like an ill-advised newspaper column is, surely, naïve? Or, perhaps, to think otherwise is naïve? For Johnson’s hope is presumably that the electorate are ignorant, lazy and forgetful – like all populists he has a low opinion of the people he purports to speak for – and that the post-truth politics that have got him so far will protect him from being held accountable.

At all events, the tight rope that Johnson will walk this coming year will be defined by whether people remember what was promised and how false those promises were or whether, as he hopes, they forget and, indeed, ‘move on’, accepting what happens as ‘just the way things are’. He has already set down the first chips in that cynical gamble. In the coming year, we’ll see whether he is right.




*There is a fiddly complexity here in that Article 50 utilises Article 218 (3) but, for the future terms talks, the entirety of Article 218 applies. There has also been some discussion within legal circles about whether, in fact, future terms negotiations could be conducted under Article 50 rather than under Article 218 – however, the consensus seems to be against this.

Friday, 20 December 2019

Johnson's 'no deal 2.0' virtue signalling

The first week of Johnson’s new administration has seen both speculation about, and the beginning of some answers to, how he intends to undertake Brexit. The outrageousness of that situation shouldn’t pass without comment. We have just had an election campaign in which Johnson made ‘getting Brexit done’ the central theme. Yet, as pointed in a previous post, he avoided saying almost anything about how it would be done – and neither the opposition parties nor the media were able to pin him down.

So he will now claim a mandate from voters for doing it any way he wants. It is a travesty of democracy, which replicates the way that during the Referendum Brexiters refused to tell voters what they were voting for, only to define it later and claim it as the ‘will of the people’. Thus whilst a reasonable interpretation of the election was that people were voting for ‘Johnson’s deal’, as expressed in the Withdrawal Agreement (WA) with the EU and operationalised domestically by the Withdrawal Agreement Bill (WAB), Johnson is already changing the latter.

Amongst these changes, the most striking is to make it illegal for the government to seek an extension to the transition period, with the associated removal of a parliamentary vote on extension. It might be argued that this is consistent with Johnson’s campaign pledge not to seek such an extension, but that pledge did not entail (legally) removing the option just (politically) not exercising it.

Of course, doing so is, in a way, a meaningless gesture. Just as with the ‘enshrining in law’ of the 29 March leaving date, it is something that can always be removed by further legislation if necessary. In that sense, it is simply what in other contexts would be called ‘virtue signalling’.

A signal to the Tory Party

Yet gestures and signals matter, and so in another way it is not meaningless. It carries a message, perhaps to voters though I think at this point more to his party, that Johnson will not renege on his campaign pledge. This in turn underscores that, as I pointed out in my post-election post, the ERG remain a powerful force.

Indeed, given the near unanimously pro-Brexit character of the new intake, the ERG are larger and more powerful than ever before. As this new signal indicates, any idea that Johnson’s majority frees him to pursue a softer Brexit – even assuming he wanted to – is surely mistaken. Forty-five rebels can take it away, and there are certainly that number who would have no compunction in doing so, as their track records show.

This incipient possibility is underscored by the very fact of the ERG’s continued existence. For what is the purpose of this ‘party within a party’ now that the Conservatives as a whole are fully committed to Brexit and are led by the erstwhile figurehead of the Leave campaign?

The answer to this question is, as again pre-figured in my earlier post, that the endless civil war within the Tory Party is far from over, and is almost certainly going to revive in the coming months. Indeed, less than a week after their landslide win, it is reported that there are splits within the cabinet (£) over, precisely, revisions to the WAB (although, in this case, potential changes to the powers of British courts vis a vis the ECJ, rather than over the transition period extension).

These splits probably won’t amount to much now, but they lie waiting in the wings. And they were manifested in a different way this week. Early reports suggested that the revised WAB would scrap the previous commitments to workers’ rights. Later, this was disowned. Then it emerged that they had indeed been removed from the WAB. In this can be seen how there is still a political juggling act going on, and very likely a degree of administrative chaos. Far from being master of all he surveys, Johnson is, like any other Prime Minister, subject to diverse pressures (e.g. from the ERG but also from his new ex-Labour seats). But, anyway, just as enshrining no extension to the transition period in law does not mean that the law can’t be changed, neither does the enshrining – or not – of workers’ rights.

So the conclusion is the same: what matters about these legal signals is not that they set in stone what will happen, but that they reflect the political messages Johnson wants to send which, in turn, reflect the political exigencies he faces.

A signal to the EU

Party issues aside, there is another audience for the transition period gesture and it is the EU. Johnson, and the Brexiters generally, have always believed that Theresa May failed to be sufficiently hardball in negotiations and think that they can do better. One aspect of that is, simply, having a majority. Interviewed on Radio 4 this week, the former Brexit Secretary David Davis – a man who has been wrong in just about everything he has ever said about Brexit – opined that this in itself strengthened the UK’s hand because it meant that remainer politicians would no longer be able to disrupt the government’s plans.

This is based on the Brexiter myth that what happened in the WA negotiations was that the UK was undermined domestically – and by remainers rather than by the Brexiters who opposed May’s deal - rather than it arising from the UK’s own negotiating red lines, as enthusiastically approved by the Brexiters. But even if that were not a myth it could actually be argued that having a majority makes negotiations more difficult – the familiar tactic of international negotiations of saying ‘we cannot agree to this because we will never get it through parliament’ is eroded.

That aside, the signal the transition period law is meant to send the EU is that the UK is ready to leave without a future terms deal if necessary, and to pressurise the EU into agreeing such a deal quickly, a point made this week by, again, David Davis. It is about as ill-judged an approach as could be imagined, having learnt none of the lessons – or the wrong lessons – from what happened with the Article 50 (A50) negotiations.

For, then, as soon as A50 was triggered, it was the UK which was always most under time pressure. And that pressure was all the greater because of not having an agreed, detailed, plan for what was being sought from the future terms during phase 2 of the A50 negotiations. The latter is likely to be the same this time, because of the tensions between ERG purism and business and economic pragmatism.

Time pressure exists in the future terms negotiations anyway, since the transition period cannot be easily or endlessly extended. Johnson’s WAB gesture just increases that, making it more difficult, politically, to extend. So it just recreates the time dynamic which was so damaging to the UK in those previous negotiations. For, make no mistake, the timescales proposed are ludicrous. It is not even just a matter of the eleven months between the UK leaving and the end of the transition period, since some, at least, of this will be needed for ratification. And the timescale for extending the transition period is even tighter – just until the end of June.

For the EU, the effect of Johnson’s signal was only ever going to be to lead them to say – as they immediately did (£)  - that, given this self-imposed additional time constraint, only a very minimal deal will be available. As before, the threat of no deal is a rather empty one (and may even breach the good faith requirements of the WA)  since it would be so much more damaging for the UK than the EU for simple reasons of economic scale and the asymmetry of the trading relationship.

It could have been different, but it’s going to be the same

So all that Johnson has achieved so far is to limit his options, purely for reasons of domestic politics despite the fact that his majority might have freed him from such constraints. As with Theresa May, but with even less excuse, he is repeating the errors which have dogged Brexit from the beginning.

For whilst I’ve never thought Brexit is viable, still less desirable, those who do have consistently made a mess of it. It’s not completely unimaginable that a self-confident, pragmatic Brexit government could approach the complexities of undertaking it in a realistic way. That would entail dropping the confrontational, aggressive and paranoid posturing towards the EU and instead approaching the negotiations as the technical, bureaucratic exercise they to some large extent are.

It would also mean eschewing all the grandstanding about deadlines and recognizing that it would be a long and gradual process, requiring extensive consultation with parliament, businesses, civil society and others as to how to deliver it. By contrast, the revised WAB removes the role of parliament in setting negotiating objectives and even its right to receive updates on progress.

It would – again, for those who seriously believe in it – be conducted with the confidence of knowing that it was about building a desirable and durable new national and geo-political strategy which involved patience, the formation of new relationships externally, and the development of consensus domestically. Nothing like that has happened. Instead, the process has been, and continues to be, rushed, and conducted in a way which has destroyed trust and good will with the EU and credibility beyond the EU.

Meanwhile, at home, remainers – or even just those who are concerned or perplexed – have been stigmatised and insulted, and consultation confined to those who are ‘true believers’. Yet if Brexiters want their ‘great national project’ to succeed they need to bring with them a decent proportion of the nearly half who voted to remain, the more than half who would now do so, and the two parts of the United Kingdom which did so.

Theresa May set the stage for most of this – not least in her desperate wish to be accepted as a true convert – and Johnson is continuing it. At root, it is driven by the constant suspicion of the Brexit Ultras, both inside and outside the Tory Party, that they will be betrayed, and fear of what they will do as a result. Like a metastasising tumour, that suspicion and that fear have now spread throughout the body politic.

If there was a chance to press the re-set, it would have to have been begun by Johnson immediately. It would take great leadership, and it might well fail – but it is already clear that he isn’t even going to try. And, thus, any possibility of doing Brexit in a half-way sensible manner has now disappeared.

Hence, now, Johnson even with his big majority is still making the same mistakes for the same reasons and is now digging himself, and the UK, into a deeper and deeper hole. He is either going to have to do the mother of all U-turns and extend the transition period, or do an extremely limited deal – perhaps to be followed by several years of supplementary deals – or end the transition period with no deal.

No deal 2.0

It’s important to clarify that the ‘no deal’ now being entertained at the end of the transition period is not the same as that which would have obtained had there been no WA. The new version – call it no deal 2.0 – would be different because the WA terms would be in place. That is, primarily, the agreement on the financial settlement, on Citizens’ Rights and on the Northern Ireland arrangements. So it would be somewhat less damaging than the original no deal (‘no deal 1.0’) and that matters, in particular for EU-27 nationals in the UK and for UK nationals in the EU-27. Moreover contingency planning for ‘no deal 2.0’ will presumably be more advanced than before.

Equally, it’s important to recognize that there are three, partially overlapping, features to what has to be done during the transition period.

Trade

The first, which gets by far the most attention, is future trade terms. I’ve written a lot about that on this blog, but just briefly to recap. Future trade terms matter, economically, because about half of UK trade is with the EU. It is true by definition that even the most ambitious Free Trade Agreement (FTA) will have little provision for services, because that is the nature of FTAs and one of the ways they differ profoundly from single market membership.

Thus any FTA will be worse for a service-based economy, such as the UK’s, than single market membership. But even considered as primarily goods-based agreement, FTAs can have varying depths and extents. The quicker a deal is done, and the less that the UK agrees to in terms of Level Playing Field (LPF) conditions (e.g. state aid rules, competition rules and environmental standards), the shallower and more limited it will be.

Johnson has already indicated an unwillingness to accept extensive LPF (some think that could change, but if so it will open up a row with the ERG), and the added time pressure he has created simply increases the chance that any deal done will be so limited – for example with respect to coverage of intellectual property rights and data management - as to significantly damage even goods trade. The more limited it becomes, the closer it is to the no trade deal position of falling back on ‘WTO terms’ which would be the least advantageous of all the outcomes.

Non-trade

The second feature of the transition period negotiations, which gets far less media attention than it should, relates to future terms for all the non-trade issues as set out in the Political Declaration. These include security, law enforcement, aviation and other transportations, fishing, science, energy and much else. Here, again, the less time there is the more difficult and more limited a deal becomes.

However, on these issues, there is not even the fall back of something like WTO terms, as there is for trade. Instead, what would happen under ‘no deal 2.0’ would be some limited, temporary workarounds in at least some of these areas. Some have already been developed by the EU in preparation for ‘no deal 1.0’, for example a basic framework for aviation.

This shouldn’t be mistaken for the ‘micro-deals’ that ‘managed no-deal’ Brexiters used to speak of. They are not deals at all, they would be unilateral measures taken by the EU and in the interests of the EU which might have the side-effect of protecting the UK from the worst disruption. Even so, the implications of no deal for, perhaps especially, security would be very serious.

Northern Ireland

The third feature of ‘no deal 2.0’ relates to Northern Ireland. Failing to reach a trade deal would have particular consequences for Northern Ireland since, by virtue of the WA, it will be in a different position to the rest of the UK and, in this scenario, there would be a sudden and sharp divergence. Moreover, with or without a trade deal, the Northern Ireland protocol of the WA needs to be operationalised.

This entails considerable complexities, as set out by Professor David Phinnemore of Queen’s University, Belfast, some of which would vary according to the nature of any trade deal that might be done, others of which need to be resolved anyway. Under ‘no deal 2.0’ the time available to do so would be extremely tight, perhaps impossibly so.

So this is a qualitatively different aspect compared with the first two features of ‘no deal 2.0’. For whereas the first two arise from what does or does not develop from the political declaration on future terms, this third one, whilst interacting with those future terms, arises from the way that an unextended transition period would impact on the capacity to deliver the agreed terms of the WA which, of course, will be a legally binding international treaty.

Whether Boris Johnson, given his comments during the election campaign, begins to understand what this treaty entails must be open to question. But his government will have to get to grips with it, and fast, especially given his clear intention not to extend the transition period.

Johnson’s gamble

Just from the first week of his new premiership, it’s possible to see that Johnson has embarked on a series of gambles in the domestic management of his party and in the negotiations with the EU. But he is taking a far bigger gamble without, apparently, realising it.

That gamble relates to the UK economy, and the investment and location decisions of businesses from some of the very largest right down to some self-employed individuals. An indicator that this is indeed the story of the week can be seen in how the pound, having risen on news of Johnson’s election victory, returned to its previous level when the transition period policy was announced.

For Johnson is saying, unequivocally, that from January 2021 businesses will be outside of the single market and customs union and that, unequivocally, if necessary that will be without any new trade deal being in place. He is also, therefore, telling them that they will face increased barriers to trade of a greater or lesser extent, whatever happens. For example, even if there were a zero tariffs, zero quotas goods trade deal, there will still be the extra costs of new customs procedures and, of course, new barriers to the hiring and deployment of staff.

In the time horizons of both business and personal planning that is a short period. Johnson perhaps believes, like so many Brexiters, that despite all the evidence to date the ‘Project Fear’ warnings were just that, so he can virtue signal about no deal with impunity. He’s doing so for political reasons but, in doing so, creating a potentially horrible economic trap. For the more his party, the electorate and the EU believe him the more likely it is that businesses will do so too, and act accordingly.



Huge and heartfelt thanks to Matt Roxburgh @mattroxburgh for responding to my Twitter appeal for help and patiently fixing the technical problems that prevented some readers from accessing last week’s posts, a task made more difficult by my techno-uselessness. Hopefully, no problems with this post – but if so down to me not Matt - although previous posts may still have problems until I have completed work on them.

This will be the last post on the blog this year. I will resume at the beginning of January. Many thanks to all who have read, publicised or said kind things about it this year. Very pleased to have the 3 millionth visit recently. Hugely appreciated, and never taken for granted.

Sunday, 15 December 2019

General Election 2019: the aftermath

In my previous post, the morning after the election, I discussed what the result is likely to mean for what follows with Brexit. Even in the short time since then we have seen the beginning of the contours of what was said there developing. In particular, as Tony Connelly’s assessment of the election implications spells out, the practicalities for the construction of the Irish Sea border will now have to be worked out. Agreed to by Boris Johnson in his almost indecent haste to get a deal done, possibly without even understanding what he had agreed to, it now has to be turned into a reality, with all the economic and political consequences that will bring.

We also see the beginnings of the row over transition period extension, with reports that the EU (rather than the UK) may propose such an extension, perhaps via a sequencing process in which some sectors are dealt with first and others deferred to an extended period. On the other hand, Michael Gove has repeated the promise that all the future terms negotiations will be completed by the end of December 2020. The only way I can see that coming true would be if, first, the UK effectively accepted whatever terms the EU propose or, second, if the deal done was so limited in scope as to be highly damaging to the UK.

But these and other issues will be the stuff of the future. This post is going to finish off the series concerned with the analysis of the General Election itself, by considering some of the causes of the result. Clearly there is already a mass of commentary about that, but here the focus will be mainly on the Brexit-related aspects.

What just happened?

The first thing that happened is that the Tory Party made a good fist of Brexit, in an electoral sense. The ‘Get Brexit Done’ theme was, as pointed out elsewhere, deeply dishonest and will set up many problems for the future. But, as a slogan, it had undeniable political cut through. They were also lucky in that Farage lost his nerve and did not stand in Tory-held seats. Yet, in another way, by standing in Labour held seats he deprived the Tories of an even bigger win and saved several Labour seats where the BXP vote was larger than the Labour majority. One side-effect of the campaign is that it should now see the end of Farage as a political figure, if only because the Tories have now embraced ‘Faragism’.

Even in the face of this, it is surprising that the LibDems did not manage to make some gains, even allowing for their longstanding disadvantage in the first-past-the-post system. When, before the election, they announced their ‘revoke Article 50’ policy I received a lot of criticism from some for writing that this was a mistake of both principle and tactics that would dog them if and when an election came. But on that it is pretty clear that I was right. In particular, it made it far less likely that they would attract the votes of Conservative remainers, and its partial abandonment late in the campaign was, simply, too late.

On the other hand, the criticism of the LibDems and Labour, made by Anna Soubry and many others, for having facilitated the election in the first place is probably unfair. It’s a difficult judgment, and we’ll never know if it was the right one, but I thought then and still think that – once the Withdrawal Agreement Bill had passed its second reading - the alternative would have been that it would eventually have passed and Brexit would happen. And there was no sign of a parliamentary majority for another referendum. In those circumstances, an election was the last hope but, clearly, it proved a false one.

Labour's disaster

As for Labour, they deserve some though not all of the criticism they are receiving. It is nonsense to claim as many, such as Len McCluskey, are that they would have done better, still less won, had they embraced Brexit and not had a confirmatory referendum policy. That claim ignores the fact that had they done so they would have lost support amongst the majority of its 2017 voters, who were pro-remain.

It also wrongly assumes that it would have been appealing to Labour leave voters. For it is very clear that, irrespective of Brexit policy, those were exactly the kind of Labour voters who were repelled by Jeremy Corbyn – seeing him not necessarily as ‘too left-wing’, but as unpatriotic and just plain alien. It doesn’t matter whether that perception is fair or not, or whether it was trumped up by the media or not. Whatever its cause, it was the case, and it would have been the case whatever Labour’s Brexit policy had been. The polling evidence is clear that Corbyn rather than Brexit was the main problem amongst those who ceased to support Labour.

What is certainly the case – and has been highlighted on this blog many times over the last three years - is that Labour’s entire positioning on Brexit since 2016 has been a disaster of oscillation, ambiguity, and shifts that came too late or with too little clarity. From Corbyn’s early call for an immediate trigger to Article 50, through to his belated acceptance of a confirmatory referendum, to his dithering over what side he’d be on in such a referendum to his, in my view reasonable but far too belatedly adopted, ‘neutrality’ stance, it has always been grudging, shifty and unconvincing.

Moreover, Labour were wrong to vote to trigger Article 50 – thereby being forever open to the accusation of having supported Brexit in principle – wrong to eschew single market membership as a compromise form of Brexit, if Brexit was to be done, and wrong to wait so long before endorsing another referendum. By the time they got to this election, they were still talking in the meaningless terms of single market access (or variants of that) which had been so misleading during the Referendum itself. Their ultimate ‘renegotiate and then refer to the people’ position made the best of a bad job given what had gone before, but it was too late to atone for what had gone before.

Much of the blame for all this can be laid at Corbyn’s – or his inner team’s – door. He never showed much interest in or understanding of Brexit, which would be bad enough given that it is the dominant issue of the day. But, worse, he did not seem to understand that delivering on his preferred terrain of anti-austerity policies could not be separated from Brexit itself.

In fact, polling evidence suggests that the actual policy platform was not unpopular with those former Labour voters who abandoned Labour. Things like rail nationalisation, for example, are vote winners. In that sense, despite being widely mocked for it, Corbyn’s claim about having ‘won the argument’ is not entirely risible. And it should be of some comfort to the Left were it not for the diversion of the personality cult around Corbyn as the person to deliver it: singing ‘oh, Jeremy Corbyn’ was never a substitute for serious politics.

Deeper roots

However, asking what happened in this election is, in a way, the wrong question, in that some of what happened has been building for years, if not decades. There’s always been a tension between working-class and middle-class Labour, between nationalists and internationalists, and between class-based and identity-based politics. In particular, the decline of Labour’s traditional vote reflects the long-term decline of the regional, industrial, unionised working-class. Similarly, the tension between the remnants of that and the middle-class, public sector worker and London-centred parts of its base has been going since at least the New Labour years.

But Brexit and its aftermath have inflected, sharpened and perhaps finally cemented these divisions. Immediately after the Referendum I wrote an academic analysis in the Socio-Economic Review of how it had clarified a new politics of ‘cosmopolitans and locals’. Many others have made a similar diagnosis, even if using different terminology (e.g. ‘nativists and globalists’) to make essentially the same point. I speculated that in due course the two party structure of UK (or, at least, English) politics would come to reflect that.

Arguably, that has come half-true in this election, with the Tory Party having emerged as the ‘local’, or English nationalist, party. If so, and assuming that there will be no change to the first-past-the post-system, then what now needs to happen is the construction of the other, ‘cosmopolitan’ party – reflecting the cleavages of age, education, social liberalism that are already in play. Tactical voting is not, as we have just seen, going to be the answer. That implies not the reconstruction of the Labour Party but the wholesale merger of Labour and LibDems with, in the process, a redefinition of each of them.

A new party?

This would not be the ‘remain party’. Painful as it is for remainers to accept, remain is now a dead cause. Pointing to the fact that 52% of voters backed ‘remain parties’ in the election is as much of a dead end as the ‘only 37% of the electorate voted to leave’ rabbit hole. In the medium to long-run it might become a ‘rejoin party’, but for the time being it would be pushing for the least damaging Brexit deal, developing a wider policy programme within the confines of the fact of Brexit, and opposing what is already emerging as the populist agenda of the new government.

Nor would it be a ‘centrist party’, because the very notion of centrism is predicated on a politics that has now disappeared. It would be on one wing of this new local-cosmopolitan landscape. One reason to think it could emerge is that it is already clear that the ‘Local Party’, despite Johnson’s talk of “healing divisions”, is going to humiliatingly grind its victory into the faces of what that horny-handed son of the soil Dominic Cummings (Durham School and First Class degree from Oxford) sneeringly calls “educated remainer types”.

It’s a strange, Pol Pot-like, move for the Tories to turn on the educated in this way but it reflects the peculiar mix of Maoist and Silicon Valley disruptor thinking which has now captured that party. It's no longer the party of business and the professions. It's not even the party of 'grammar school aspiration' in the way it was under Heath or even Thatcher. Rather, it's a bizarre melange of public school entitlement and the resentment of those with no post-compulsory schooling. This new positioning can only have the effect of cementing the new divide, since the more it asserts a new ‘them’, the more it creates a new ‘us’.

However, calls for a Liberal-Labour rapprochement are almost as old as the Labour Party itself and so it’s probably unlikely to happen now. Even so if, as many now think, the break-up of the United Kingdom is not very far away, and if, as is at least possible, Labour suffer another crushing defeat in 2024 then it’s perhaps not impossible in the not too distant future. It would be a vehicle for, as Timothy Garton Ash wrote this weekend, a ‘European England’ that might still eventually emerge from the wreck of Brexit.

The future of this blog

Coming to the more immediate future, and to less weighty matters, several people have asked me if this blog will continue now that Brexit is a certainty (and been kind enough to suggest that they hope it will). The answer to that is ‘yes’, for two reasons.

One is just because, to repeat a point made ad nauseam, Brexit will not end with Britain’s departure from the EU at the end of next January. It will continue for many months, and very likely years, to come. Over that time, it may become (even) more difficult to separate out Brexit per se from British politics more generally. Still, the blog will continue to focus primarily on Brexit-related issues. Some of these may be highly technical, for example on trade and customs issues, but my approach will continue to be one of trying to place these within a wider political analysis.

The second reason is the original rationale for this blog. At the time of the first post in September 2016, when of course there were very few readers, I wrote that “the blog will not attempt to re-argue the case for remaining in the EU or for the reversal of the decision, as I do not think that this is in prospect. Instead, I will analyse the unfolding consequences”.

In the intervening years, there have been many times when I thought that the decision might, in fact, get reversed. This was partly because of the total incompetence with which Brexit has been pursued, but mainly because of the extraordinary resilience and ingenuity of the remain campaign. That campaign has made some mistakes but, overall, has done far more than could ever have been expected. It nearly won - and may yet be the springboard for a future movement.

So now that it is once again the case that there is no prospect of Brexit being reversed, the rationale for the blog remains as it was from the beginning. So too does my original sentiment in that first post that Brexit is a national catastrophe. But that does not take away the need to provide an ongoing analysis of it which, whilst clearly and avowedly partisan, aspires to be based on evidence, logic, and fair and rational argument.

If nothing else, there may be some value in creating a more or less continuous record of what Brexit has done to our country, not least as a reminder that this is so very different to what, in 2016, Brexiters promised. So it can make its own very small contribution to holding them to account for what they have done.


Note: I am aware that in the last few days some people have been having problems reading the blog, with a large yellow box covering over most of the text. It seems to only affect Android devices. I’m sorry about this but I do not know the reason or the solution, though some people have reported that it also depends on what browser you use.