Wednesday 27 June 2018

What business is saying about Brexit, and why

Much attention has been focussed on the dismissal of warnings from Airbus – and an increasing number of other businesses - by Jeremy Hunt, Boris Johnson and others. Less attention has been given to the specific reason given by Hunt as to why Airbus should keep quiet: that it undermines the British government’s capacity to negotiate with the EU.

This is nonsense, for the simple reason that the EU negotiators, and all informed commentators, know full well how damaging Brexit will be for most businesses, especially those with closely integrated European Just-in-Time supply chains (£) like Airbus but, to varying degrees, all businesses of all sizes which trade with the EU-27. Indeed companies and trade bodies have been warning about it for well over two years and with growing insistence since last year, because of the way that business investment cycles and location decisions work. This isn’t a game of poker – or, if it is, it is one in which both players can see each other’s hands.

The only people who persist, wilfully, in not recognizing this damage are the Brexiters who dismiss it as (of course) Project Fear. Even that dismissal is perverse, since if the warnings are indeed nonsense then making them would not be helpful to the EU negotiators in the way suggested by Hunt anyway.

In fact, the only thing which make the negotiations difficult is that Britain, to the extent that its government can agree on an aim, is seeking as the outcome things that it has already excluded by virtue of its red lines. Specifically, Britain is seeking something like the kind of frictionless trade that is only achievable by being in the single market and a customs union, which it has ruled out; and participation in agencies and programmes regulated by the ECJ, which regulation it has rejected.

So, in summary, this is the central paradox of the government’s Brexit approach thus far: it is seeking to negotiate something which it has already rejected.

This is the real meaning of the ‘Barnier stepladder’. It is not so much that, as leading Brexit academic Professor Anand Menon recently put it, “this is the choice that the EU has presented us with”. It is rather just a tabulation of the types of relationship which have been identified by numerous other analysts, going back well before the referendum – but set against the red lines Britain itself has specified.

It’s true that Britain can expect to have a ‘bespoke deal’, but only in the trivial sense that every relationship with the EU has its own particularities (e.g. the Canada FTA is different to the South Korean FTA): but the basic binary of being inside or outside the single market is unavoidable, as Sir Ivan Rogers, amongst many others, has repeatedly pointed out.

On Barnier’s diagram, the British red lines mean that the only trade options left are a Canada style FTA or no deal. Personally, I do not see how a Canada FTA (or any other FTA) can be compatible with the UK (and EU) red line of there being no hard Irish border. But, leaving that aside for today (although, of course, it is a core issue), we might wonder why Brexiters are so troubled by this? After all, before the referendum, those who were not saying that we would be ‘like Norway’ were usually, like Boris Johnson, extolling the virtues of a Canada-type arrangement. If this were indeed so desirable then, again, there would be no problem save, perhaps, timing. The EU are, apparently, quite willing to enter into such a relationship.

But, of course, Johnson’s was a false prospectus. As he and other Brexiters were warned, but ignored, at the time, a ‘Canadian’ hard Brexit would be completely inadequate for services, and also for most manufacturing, because of the non-tariff barriers that the single market seeks to abolish. A no deal Brexit would be even worse for trade and – potentially far more immediately damaging – for non-trade issues such as air travel. Again, there’s no mileage in the idea, floated by Fox, Davis, Johnson and others, that somehow the EU can be made to believe the UK would walk away with no deal: it is, literally, incredible and the EU know that to be so whatever bluster the Brexiters put up. No country is going to deliberately engage in such self-immolation (though that does not mean it might not happen through a series of accidents).

So at least for the government – although some ministers have apparently still not grasped it – it is no longer possible to regard either Canada or, still less, no deal as viable policy. Thus it has lighted on the idea that it is possible in some way to ‘negotiate’ membership benefits without membership. That won’t happen not because the EU are punishing us, and certainly not because we have ‘shown our hand’, or had it revealed by Airbus et al but, simply, because it is a logical and legal impossibility.

The question then becomes: is the government going to realise that in time, which means either forcing the Brexiters within and outside the government to accept that or at least to face them down? This, supposedly, is what next week’s cabinet meeting is intended to result in, but we have heard that before. Perhaps the pressure of time and the pressure from businesses will yield results this time. I am not so sure, though, because even the softening of hard Brexit which seems to be under consideration seems to be a long way from realism, being based, still, on the ‘customs partnership’ idea and, now, on seeking single market membership for goods only. The former is an entirely untested and highly bureaucratic model, relying on high levels of trust and goodwill. The latter, I believe, seriously understates the complex inter-relationship between goods and services and, even if the EU accepted it I doubt it could be made to work in practice. I’ll post more on this if and when it emerges as government policy.

The fact that, thus far, the government have refused to face up to the real options available and the choices to be made is what is leading so many businesses to speak out now (and, it seems, many more are saying similar things privately). It is not simply about no deal Brexit versus hard Brexit, it is that even hard Brexit will damage them. In this sense, whilst it is true that businesses want clarity, it certainly does not follow that once they have clarity they will be happy to stay in the UK. It is just that they will then be able to make the decision as to whether to stay or not, with all that means for jobs and taxes which the Labour Party would do well to note. Thus clarity may be good for them, to allow them to make plans, but it won’t necessarily be good for the rest of us: for many manufacturing and services businesses the only clarity that will make them likely to stay would be for Britain, in fact or in very near effect, to stay in the single market and a comprehensive customs union.

In the absence of that, there probably won’t be big, immediate pull outs – especially where there are large sunk cost installations as in the car industry - but, rather, gradual disinvestment over many years. Indeed, there is already evidence of that as the government’s own figures show. But whilst ruling out the least economically damaging option, the government has not accepted what the alternatives must, by definition, be. What businesses are saying to them is that it’s time – in fact it’s long overdue – to get real. In that way, far from undermining the negotiations they are pushing for the only way in which the negotiations can make progress.

Saturday 23 June 2018

Two years into the Brexit disaster

It is now two years since Britain, in a catastrophic and historically unprecedented act of national self-harm, voted to leave the EU. Since then we have seen the installation of a new Prime Minister who, when she had the strength to do otherwise, endorsed not just Brexit but a hard and divisive form of it. Of her own volition, albeit urged on by the Brexiters, she started the Article 50 process with no idea about how to undertake it – perhaps the biggest strategic error in modern British history. She then called and failed to win outright a General Election – perhaps the biggest political error in modern British history.

A weak and deeply divided government is now embroiled in negotiations with the EU with little sign that it understands the complexities involved, or even the most basic realities. Effectively, it is trying to operationalise the central lie of the Leave campaign: that it is possible to leave without consequences. Meanwhile, the economic damage is growing and Britain is experiencing a bitterly divisive cultural war.

On this blog I have traced these developments as they have unfolded on a weekly basis, but in this post I want to step back from the details to paint a broad picture of how we got to where we are now, and what we might expect from now on.

The campaign and its consequences

It is important to keep remembering what happened during the referendum, because the claims made during the campaign, and the claims made about the campaign since then, continue to structure the current debate.

It has become fashionable to say that both campaigns were equally dishonest, but that simply is not so. Leave mainlined on what even they admitted was a lie about the EU budget contribution and NHS funding, and another lie about impending Turkish membership of the EU.

And these were just the headline lies. Beneath them were a myriad of others, such as that future terms could be sorted out informally before Article 50 was even triggered so there was no danger of a cliff-edge fallout; that the Irish border would be unaffected; or that a good, quick exit deal was assured because ‘German car makers’ would insist on it as endlessly claimed by Brexiters, including businessman Peter Hargreaves who paid for a leaflet to be sent to every UK household at the start of the campaign urging a leave vote.

No one has ever been held to account for these and all the other lies told during the campaign. Since then, we’ve also learned enough about the conduct of the Leave campaign and possible Russian interference to, at the very least, place a cloud over the legitimacy of the result.

By contrast, Remain was certainly pedestrian and passionless, but its projections (based on assumptions and models, of course, but not lies) of the consequences were not ‘Project Fear’, as repetitively and routinely alleged, but attempts to counter the vague and unsubstantiated claims of Leave that all would be well, or even rosy, if we left. It’s notable that such claims have since been repudiated by many Brexiters, most recently Nigel Farage.

There are reams that could, have been, and will be written about all this. The outcome we know: a narrow victory for leave. The narrowness is important as it means there was never the unequivocal result subsequently claimed. That is why the Brexiters constantly talk about it having been the biggest vote in British history – meaning the total number of votes cast was the highest – as if that implied an overwhelming vote for Brexit. In fact, the most accurate way of describing the result would be that the country replied ‘we don’t really know’.

Moreover, the combination of Leave’s lies and their failure to specify what leaving meant in terms of the future means that there is not (as many Leavers seem to sense) any real mandate for Brexit, and certainly not hard Brexit. Many leading leavers campaigned on the basis of staying in the single market, for all that they deny it now. Others, like Michael Gove, talked ambiguously of being part of a “free trade zone that extends from Iceland to the Russian border” whilst making no budget payments and having no ECJ jurisdiction. If that meant anything, it meant being, like Iceland, in EFTA/EEA.

From these lies, ambiguities and confusions much has flowed. Crucially, the fact that Britain voted against being in the EU but not for anything else. The claims now made by Brexiters that the vote itself mandated hard Brexit (in the sense of leaving the single market and any form of customs union) is very easily disproved. If it were true, it would not have taken seven months of argument and speculation before this meaning was announced by Theresa May in her Lancaster House speech of January 2017.

Two years of chaos

In the two years that have followed the referendum, we have seen economic and political chaos. Economically, what was dismissed as Project Fear has largely come true. The latest research from the Centre for European Research suggests, amongst other things, that the British economy is 2.1% smaller than it would have been had the vote gone the other way. That it has not been more severe is mainly because Article 50 was not triggered immediately in the way that forecasters had reasonably assumed because Cameron had said it would be the case.

Even so, there was an immediate and massive currency collapse (which, in itself, would in any other circumstances have been a major political crisis) and consequent inflation and real wage erosion, collapsing investment, a recruitment crisis in the NHS and elsewhere, and the beginnings of what threatens to be a catastrophic brain drain, corporate pull-out and tax base collapse.

There is now a crescendo of warnings from business that we are very close to the point of no return. Whole sectors – from strategically crucial science to socially crucial care homes - are in turmoil as, relatedly and even more importantly, are the lives of millions of EU-27 people here and UK people in EU-27 who have based their entire life plans on Britain being in the EU.

Politically, the vote saw an immediate crisis that was resolved by anointing a Prime Minister who failed to undertake the obvious act of leadership which was to find a form of Brexit which would be bearable for most people on both sides of the narrow divide. Instead, she insisted that Brexit must mean the hard Brexit of the Tory Ultras and of UKIP. With that, she not only ruled out an EFTA/EEA soft Brexit for trade but by insisting on there being no role whatsoever for the ECJ she has created massive problems across a host of other areas.

The implications for Northern Ireland are now widely recognized, but there are many others. For example, it is the hard line stance on the ECJ which means that we must also leave Euratom, with numerousconsequences including for the availability of cancer treatment. Such a prospect was not even remotely discussed during the referendum and is highly unlikely to be what anyone thought they were voting about. Something similar could be said of EASA, the European Aviation Safety Agency, also thrown into doubt by hard Brexit with potential effects on flying rights within Europe.

There is not even the shadow of the pretence that this approach to Brexit is in ‘the national interest’. It is about, as the whole situation has always been about, an implacable, dogmatic minority of Tory MPs and the ungovernable party and country they have created. Indeed, having lost her majority in the botched and unnecessary General Election (which, don’t forget, she insisted until she called it would not be in the national interest, but when she called it did so on the basis that it was) May is more than ever the prisoner of the ERG Ultras and, now, the DUP.

Nowhere is this lack of concern with the national interest clearer than on the international stage, rendered all the more complex since the election of Donald Trump. Britain now no longer has any coherent or workable geo-political strategy, something which is good news only for Vladimir Putin. Worse, we have become an international laughing stock both for the crazy Brexit decision and for the woeful ignorance and ill-preparedness of the way we are attempting to implement it. But the Christmas cracker patriots don’t care about that. No harm that they do to our country can ever be too much in exchange for their intellectually moribund and practically flawed notion of sovereignty, and no lie is too great to be told in pursuit of it.

For that matter, these great patriots have been more than happy to ramp up the internal divisions they have created. More sinister than their adolescent sneering at ‘remoaners’ is their McCarthyite rhetoric of ‘saboteurs’ and ‘traitors’ subverting ‘the will of the people’, matched at street level by the upsurge of violence against EU – and indeed non-EU – immigrants, and rape and death threats against their opponents. Their ambition to pauperize and isolate our country is not sufficient: they also want to grind us into cultural dust.

The ironies of victory

Yet alongside that is a huge irony. From the moment of the referendum result, and ever more clearly as time has gone on, it has been plain that despite years of having dreamt of Brexit the Brexiters have not the tiniest clue as to how to put it into practice. Not even a rough plan. All they have are vapid slogans which do not begin to address the cataclysm they have unleashed. Even now they continue to talk in meaningless or nonsensical terms of ‘securing access’ to, and having ‘frictionless trade’ with, the single market, or of ‘trading on WTO terms’, refusing to engage with the enormous practical complexities that Brexit entails.

Perhaps that lack of substance explains the viciousness of their rhetoric. At all events it has meant that they are wholly dependent on ‘the establishment’ – the civil service, business and civil society leaders, most of whom know that Brexit is a crazy idea - to try to implement their nonsense. But, even with that dependence, they still lash out at any expert who dares to inject any realism into the debate meaning that government policy has been constructed within a bunker of yay-saying groupthink.

Indeed victory has neither assuaged the anger of the Brexiters nor given them much joy. They have almost completely given up on making any positive claims for its possibilities and, at best, offer a dour, Dunkirk spirit, backs-to-the-wall grind and at worst a ludicrous, lachrymose, self-pitying victimhood that the EU is ‘punishing’ us for leaving rather than taking responsibility for the consequences of the choice that they urged, so mendaciously, upon us. I say ‘us’ because it is not just remainers who have something to complain about, so too do those who were duped into voting leave by the breath taking lies of the Brexiters, lies which still pour incontinently out of them. Many, as the voting statistics show, were from the poorest and most vulnerable in society who will be most badly affected by Brexit and least able to insulate themselves from its effects.

The politics of the impossible

Meanwhile, the negotiations with the EU are making little progress, partly as a consequence of the reckless irresponsibility of triggering Article 50 before holding an election, thus wasting three of the twenty-four months available. There is still, even now, no agreed plan as to what Britain wants to achieve, still less a plan which is remotely viable: the continuing refusal to face up seriously to the Irish border issue being the most egregious example.

The government’s entire position continues to be the wholly illusory fantasy that it is possible to be both outside the EU and yet, in some magical way, to continue to enjoy most of the benefits of being a member (lamentably, Labour’s policy is almost identical). To take just one of many examples which illustrates, in microcosm, this point consider the European Medicines Agency (EMA). Brexiters like David Davis opined that there was no reason why it could not stay in the UK (£). In fact, the EMA is leaving and with it not just numerous jobs (and associated taxes) but Britain’s place as a global scientific and commercial hub in pharmaceuticals. That was an inevitable consequence of Brexit, but how did Brexiters react? By saying that the EU was punishing Britain.

It’s important to understand this central fact: Brexit is in many people’s view undesirable, but the form in which it is being pursued, even if it were desirable, is impossible.

Yet whilst pursuing a course which, to get anywhere near achieving it, would require maximum flexibility from the EU, goodwill has been shredded by bellicose rhetoric, accusations of punishment, and hostility and suspicion about ‘the other side’. Perhaps the most damaging aspect of the British approach has been the way that immediately after have reached the phase 1 agreement senior Brexiters, including David Davis, seemed to imply that they were not bound by it.

This led in due course to the Prime Minister herself declaring that the backstop arrangements agreed for the Irish border, that she had signed up to, were not, in fact, acceptable to her. That has not only led to the talks stalling over the legal text of the Withdrawal Agreement but has also seriously undermined trust. This is compounded by many ‘noises off’ from Brexit Ultras to the effect that once Brexit has formally happened anything agreed to get past that date is up for re-negotiation.

Internally, we are a country still bitterly divided and the wounds are daily re-opened by the crowing of the Brexiters and the hard line decisions of the government. There is neither in parliament nor – according to recent opinion polls – any longer a majority in the country for Brexit and certainly not a majority for hard Brexit. But parliament – or more accurately the House of Commons – has refused to use its power to do anything to even moderate Brexit, a situation made more complicated by Labour’s ambiguous and evasive stance.

In the absence of any effective brake being put upon them the Brexiters are able march us on, like First World War generals, high on gimcrack patriotism, plethorically flushed with self-righteous certainty, prideful of their own willed and wilful ignorance - urging the troops to one more big push, regardless of – no, glorying in - the resultant slaughter.

The more damaging and impossible the plan, the more viciously they wave the tattered banner of ‘the will of the people’, virtually the only argument they now make for a policy that the majority of people no longer support. Meanwhile, many who know full well that what is unfolding  is a disaster effectively shrug their shoulders and say that nothing can be done and that, no matter how foolish it is, it must be done.

No good outcomes are left

It is still, even at this late hour, just about possible that we can avoid catastrophe and I fervently hope that we do. At the moment, all outcomes seem about as likely as each other, and none of them are good, they just come in varying shades of bad.

Perhaps the most likely outcome now is years of transitional agreements and ongoing talks which will be unsatisfactory to leavers and remainers alike, and will result in a slow-burn economic decline and waning geo-political relevance.

There could be a no deal crash out in March 2019, with unimaginable consequences – shortages of food and medicine, suspension of flights and much else - in terms of economic hardship and political convulsions. That is both possible and for a small hard core of Brexiters desirable.

Or there could be another referendum – and today’s People’s Vote march in London shows that there is strong support for that - the result of which would be unpredictable and the consequences, either way, highly polarising.

Or … who knows? All of this is uncharted water, and few who have observed the last couple of years would dare predict what will happen now.

Even so, no one should imagine that there is any scenario in which we go back to being the country we were on 23 June 2016. That country is, irrevocably, gone.