The stories of Brexit disruption catalogued in my last few posts continue apace, not least because firms which had built up stockpiles in anticipation of the end of the transition period are now starting to replenish them. However, remaining stockpiles and the new* trade barriers, plus the pandemic, mean that freight movements between the UK and the EU are still 38% down on this time last year. Some 65% of trucks returning to Calais/Dunkirk are empty, over twice what is normal, and there are daily reports of companies struggling, or failing, to deal with export processes (£).
The UK is not yet imposing full import controls, but even without that there are numerous reports of customers astounded to find that they have to pay customs duties, import VAT and handling charges on goods delivered to them from the EU. This links with reports of uncollected incoming freight piling up at ports (£).
There are now the very beginnings of hard data about the aggregate effects, including indications of a harp drop in services exports. Obviously Covid is playing a big part, but the fact that the UK figures are worse than the US, France and Germany amongst others is suggestive of a Brexit effect, and the IMF has reduced its forecast for UK output growth for the first quarter of 2021 by 1% as a result of Brexit disruption.
The long-term effects of Brexit on trade have yet to be seen but the fundamental reality remains, not as a matter of doctrine but as matter of plain definition: Brexit creates new barriers to trade with the EU and so suppresses trade with the EU. As I argued in a piece in Byline Times this week these barriers are in the process of becoming structurally embedded, and small firms are the biggest losers (£). Of course it may, now, be creating new opportunities – for customs agents, say, as when the government said Brexit was ‘growing the customs sector’, or for staff at Kent lorry parks – but it would be perverse to call these, in any substantive sense, ‘benefits’.
That is not to deny that there are numerous business benefits of Brexit. It’s just that they don’t accrue to British businesses and people. EU countries are the happy beneficiaries of financial services leaving London (£). Irish ferry companies are mopping up business by creating new routes to bypass Brexit Britain to the detriment of Welsh ports (activity through Holyhead has dropped by 50% and through Fishguard by a whopping 75% since the end of the transition period). Dutch, and no doubt other, warehousing and logistics firms are experiencing a boom as UK firms seeks bases in the EU.
The latter connects with the most extraordinary Brexit story of the week, with it being reported that government officials are advising British firms to set up EU subsidiaries (and, hence, to shift employment) to avoid the problems of Brexit. The reason this is extraordinary is not in the idea of firms doing so – that is simply the economic logic of the situation Brexit has created – but in the fact that a government extolling the virtues of Brexit is providing such advice. That said, it’s a story that needs to be treated with a little caution in that it’s not clear how widespread this advice is, nor whether it is official advice as opposed to informal suggestion.
Brexiters’ reactions
It is interesting, and politically important, to see how leading Brexiters are reacting to what is happening, not least because this may set the tone for how leavers, especially, in the general public respond. It’s a mixed bag, but mainly depressing. Some are simply boneheaded refusals to understand it, as with John Redwood calling for the government to intervene to ensure the free flow of goods between Great Britain and Northern Ireland. But of course the end to such a free flow was integral to the Withdrawal Agreement. Since Redwood stood on a manifesto to which that agreement was central, voted for it in parliament, and the government signed it his comment is either stupid or dishonest.
Others resort to sophistry, to put it more charitably than is probably warranted, such as former Brexit Party MEP Ben Habib. He claimed this week that the plight of the fishing industry was not down to Brexit but caused by the pandemic suppressing demand as restaurants in the UK and EU were closed, by the Trade and Cooperation Agreement (TCA) having given EU fishing boats unfettered access to UK waters so that EU fishermen could supply EU restaurants (even though Habib says these are closed), and by the bureaucracy created by the TCA for UK fish exporters to the EU.
Where to begin? The pandemic has been going on for a year, but the rotting fish piles only began when the transition period ended, so they plainly are very much to do with Brexit. It can’t be because EU fishermen have taken all the fish, or these fish piles would not exist, and these fish piles are there not because there are no customers for them but because they can’t be shipped to those customers. That is, indeed, because of the bureaucracy that now attaches to UK exports, including fish, to the EU. Which is, precisely, down to Brexit because it was created by leaving the single market and customs union, as advocated by Habib.
A different account was given this week by another Brexit Party ex-MEP Lance Forman, who himself works in the fish industry (he owns and manages a smoked salmon business). He offered a more coherent argument, yet one which still denies that what is happening is a problem of Brexit. Rather, he suggested it is a problem of lack of preparedness for the bureaucracy entailed by Brexit. It’s a fine distinction, in that the bureaucracy is, itself, a problem of Brexit which adds new costs to trade with the EU. But it’s true that some of the export delays might well have been avoided with better preparation. However, a big reason for that lack of preparation was that, until far too late, Brexiters refused to admit that there would be new bureaucracy – denouncing warnings as Project Fear – and because they regarded any extension to the transition period, which might have aided preparation, as unconscionable.
Forman also bemoaned the fact that the EU is applying import controls when the UK is not doing so. But that arises simply because the UK government is not ready to do so, again an argument for extending transition, but not some unreasonable disparity of treatment. Thus, whilst the tone is more urbane, it is all of a piece with reports, such as the Daily Mail’s, which speak of the “dirty tricks” of “pernickety jobsworths” in enforcing the rules which the 17.4 million – who, don’t forget, knew exactly what they were voting for, and it is remainer elitism to suggest otherwise – voted for.
Whatever the tone, the meaning is the same: a refusal to accept that the damage that is being done to British business, well beyond fishing, is the direct consequence of Brexit and the unavoidable responsibility of those who advocated it. This isn’t surprising, because it has long been the hallmark of Brexiters that they abjure responsibility – it’s always someone else’s fault or because, as its apologists are wont to say of Communism, Brexit inevitably hasn’t been done ‘properly’. In May 2018 I compiled a list of six excuses that Brexiters make for why the consequences of Brexit are nothing to do with them. They continue to be rolled out.
Brexit really does mean Brexit
But I think there are some other features of Brexit mentality lurking in all this as well. One is the frequent implication that the EU is some kind of cuddly uncle who will or ought to be ‘nice’ to Britain. That’s sometimes found amongst remainers, too, but it is far more bizarre from Brexiters who, having spent decades denouncing the EU for every evil under the sun, now seem to expect that it will just benignly waive the rules in order to help the UK out of a mess of its own making. Linked to that is the phenomenon, which I have also noted in the past on this blog, whereby some Brexiters seem to think that leaving the EU was a kind of symbolic act, rather than one with concrete legal effects. So it seems to come as a surprise and, somehow, ‘not fair’ when the EU applies the rules to Britain that apply to other third countries.
It is neither surprising nor is it ‘petty’ or ‘vindictive’ to do so, as was said during the recent row (£) about the confiscation of a ham sandwich. This rule exists and is enforced because of the very real dangers of African swine fever, which can devastate pig farming, or even of foot and mouth disease. Indeed this is why, back in 2019, the British government launched a campaign warning tourists not to bring such items back home with them. So what, exactly, do Brexiters expect EU border officials to do? Just shrug and say that because you’re coming from Britain the rules don’t apply? Or let you off because you didn’t realize these rules existed and that Brexit would mean they applied to Britain?
What of the future?
There is an obvious linkage between this lack of realism and the idea that the adverse effects of Brexit are the fault of the EU, or ‘punishment’ from the EU. To the extent that this narrative takes hold there is little chance of any honest appraisal of Brexit. Equally, it contributes to the continuing antagonism with which the Brexiters seem determined to conduct relations with the EU post-Brexit.
The ongoing row over the diplomatic status of the EU’s Ambassador is a good example of this. It’s not just that this is – indeed – petty, it’s also, as Georgina Wright argues on the Institut Montaigne blog, misguided in terms of the UK’s interests and global standing. Britain’s stance on this is causing serious anger across the EU’s member states (£) and it is intensifying, with the EU now cancelling a meeting with the UK’s Ambassador (£).
That matters, because apart from growing the economic costs of Brexit, the geo-political ones have also been profound. As Dr Rudolf Adam, of the University of the Federal Armed Forces Neubiberg (Munich), writes “the enduring legacy of Brexit is a massive loss of respect and sympathy for a country that for centuries was admired as a bastion of pragmatism and liberal values. The UK is losing soft power faster than hard power.”
Amongst other things, that implies the UK needs to work constructively with the EU through the TCA partnership apparatus and also, especially, to make the Northern Ireland Protocol work via the Joint Committee. Moreover, there are and will be a huge range of security and foreign policy issues – Hong Kong, Russia – where the UK will need the support and friendship of the EU and, no doubt, vice versa. And any idea that the UK can take a leading role in international responses to climate change, or anything else, whilst maintaining a ‘dog in the manger’ attitude to the EU is absurd.
From that point of view, there’s no conceivable benefit to Britain in taking this position of the EU Ambassador. It would seem to be explained partly by the visceral hatred that Brexiters have for the EU. It may also be a prelude to far more substantive conflicts over the TCA and may have the effect, if not the intention, of providing a ready-made narrative to justify pulling out of it.
Equally, again in effect if not intention, continued and growing antagonism towards the EU serves to divert attention from the Brexiters being held to account for what they have done, because it enables them to present the consequences of Brexit as being the fault of the EU and to deflect anger onto the EU. In this way, Brexiters can continue to re-fight the battles of the referendum.
It’s hard to resist the conclusion that this lies behind current attempts to justify Brexit by reference to the failures of the vaccination programme in the EU or the row over vaccine delivery (£), which needless to say is more complicated than the tabloids allow (see also, for the wider context of the issue, this report in Politico). Tellingly, as Maria Tadeo, Bloomberg TV’s Europe reporter, says, within EU countries, the narrative of this row is not generally framed in terms of Brexit at all. It certainly has little to do, or should have little to do, with the case for a long-term strategic partnership between the EU and the UK.
Shaping the narrative
The coming few months will therefore be very significant for two reasons. Firstly, because this is the period during which the effects of Brexit will be most visible and, therefore, during which the possibility of holding Brexiters to account is the greatest. This is why it is important to keep highlighting those effects and challenging attempts to deny them. If they manage to implant a narrative that these effects are nothing to do with Brexit, or are down to the EU being unreasonable, that may well become established and much more difficult to challenge later. For, by then, the visible effects will have declined (though the underlying damage will continue) and, of course, the longer-term effects will be difficult to definitively disentangle from those of Covid, in particular.
That cuts both ways, of course, in that it makes highly dubious the current attempts to claim that, had Brexit not happened, the UK’s vaccine programme would have suffered compared with how it actually is. That may or may not be true – any such claim requires a long string of counterfactuals about what would and would not have been done by multiple actors in that alternative universe. Clearly that isn’t so for straightforward cases such as that leaving the customs union creates new processes and costs for exporters.
Secondly, and even more importantly, although the damage of Brexit itself is now unavoidable regardless of who is held to be responsible for it, it is not inevitable that post-Brexit UK-EU relations have to be added to the list of that damage. As I have been arguing for months, the mandate of the 2016 referendum has now been fully discharged. Nowhere in that vote was there a mandate for Brexiters to permanently sour UK-EU relations post-Brexit, nor should those relations continue to be seen through the prism of the now dead question of whether the UK should remain a member of the EU.
So the current period is potentially crucial for changing the tone of those relations and shifting them from the virulently hostile ones the Brexiters are seeking to embed. It’s clear, as with the vaccine row, that they will weaponize whatever comes to hand in that attempt. The chances of such a change of tone are, in any case, negligible given that we have a government which is Brexiter to the core. But they are not non-existent because no government has complete control of the narrative. Other politicians, journalists, grass roots organizations, and civil society generally also have a role. And then, as the old cliché has it, there are ‘events, dear boy, events’.
*Some people dislike the term ‘new’ in this context, because what is happening is, rather, the re-imposition of barriers which had been removed by the customs union or single market. However, I think it is a reasonable usage for two reasons. First because, obviously, it is intended to mean ‘new as compared with when the UK was an EU member’. Second, because in a certain sense we are not simply facing a return to pre-customs union, pre-single market days as these rules are now being applied in the context of a very different economy to when the UK joined the EEC in 1973, in particular as regards the realities of international supply chains.
"Best guy to follow on Brexit for intelligent analysis" Annette Dittert, ARD German TV. "Consistently outstanding analysis of Brexit" Jonathan Dimbleby. "The best writer on Brexit" Chris Lockwood, Europe Editor, The Economist. "A must-read for anyone following Brexit" David Allen Green, FT. "The doyen of Brexit commentators" Chris Johns, Irish Times. @chrisgrey.bsky.social & Twitter @chrisgreybrexit
Pages
▼
Friday, 29 January 2021
Friday, 22 January 2021
Get ready for 'Long Brexit'
Another week and more stories of the disruption that Brexit is bringing to UK-EU trade in addition those in my recent posts. Fishing continues to be the most high-profile example in the media coverage, with a major protest in London this week, but increasingly the impact on the meat trade is being reported along with numerous others. Inevitably it is perishable goods which are the most obviously impacted by transport delays, but the problems go much wider. More major logistics groups, as well as a host of smaller companies, are now simply suspending deliveries between the UK and the EU.
As mentioned in the previous post, disruption in the form of queues has been muted by the low volumes of goods traffic over the New Year period – about 25% of normal in the first week of the year and 40% last week on the short Channel – so much greater problems are expected (£). I also referred in the previous post to the fact that at the end of March the grace period on applying full certification rules to shipments from Great Britain to Northern Ireland will end, and this week haulage industry leaders warned that when that happens they will face “an abyss”. According to Richard Burnett, CEO of the Road Haulage Association, “these are not teething problems. These are structural problems”.
It’s an almost impossible task to keep track of everything that is going on but there are two useful resources for doing so. One, mentioned in my previous post, is Yorkshire Bylines Davis Downside Dossier. Another is the ongoing Twitter thread being created by Daniel Kelemen, Professor of Political Science and Law at Rutgers University. However, even these listings show only the tip of the iceberg.
The legacy of lies
The crucial point, unsurprisingly being avoided or misrepresented by the government and by Brexiters more generally, is that this isn’t just a matter of ‘teething problems’ and it isn’t simply because Johnson agreed a ‘bad deal’. It is true that, had there been more time to prepare, some of the problems of conforming with the new situation could have been dealt with. But that would only have made the consequences of Brexit less visible and less newsworthy. It wouldn’t have changed the underlying reality of there being new barriers to trade.
That reality represents the exposure of the lies or misunderstandings, going right back to before the referendum, that a trade deal would more or less replicate the conditions of single market and customs union membership. Associated with that was the monocular focus on the removal of tariffs as being the sole issue. It has not come out of a clear blue sky. It was warned of repeatedly (Dr Matt Bishop of Sheffield University gave an excellent summary with multiple links in February 2020) and those warnings were ridiculed and dismissed. But now we have, precisely, a zero tariffs trade deal and the warnings have been proved right.
The pervasiveness of the lie also (along with lack of time and Covid) explains the lack of preparations because many businesses thought that if there was a trade deal then their terms of trade would continue unaltered. A report in The Times this week (£) – which includes a lot of crunchy detail on the massive problems facing especially smaller exporters – quotes Ruth Corkin, the VAT and indirect tax Director of Hillier Hopkins, reportedly the only British accountancy firm to offer a customs agent service to SMEs dealing with Brexit. As such, it seems a fair assumption that she has extensive contacts with such firms and is right to say that some had assumed that because there’s a trade deal “everything will be hunky dory and like it was before”.
If so, it was an entirely understandable assumption given the last five years of promises and lies. But even firms which did understand and prepare for the new realities have been caught out by the complexities of the new requirements and the inadequacy of the administrative and IT systems they have to deal with. A particular problem (the link in the previous sentence gives an example) is the outdated Customs Handling of Import and Export Freight (CHIEF) system, a legacy system which is still being used because of delays in creating the new Customs Declarations Service (CDS). Another problem now being reported by Joe Mayes of Bloomberg is a desperate shortage of ‘transit guarantees’ and delays in new ones being issued by HMRC, this being due to delays in another IT project, the New Computerised Transit System. (These examples of deficiencies in the systems needed even for a frictive border might also serve to remind us of the hollowness of Brexiters’ claims for technologies which would make borders completely frictionless).
A fundamental shift in the trading economy is underway
There are now daily reports of the damage being wrought, but focussing on each individual one is to miss the point of what is happening. What is underway is a fundamental shift in the ‘tectonic plates’ of the UK trading economy and its supply chains, happening in real time and under our noses, but with little comment on the aggregate picture. And it is going to get worse when all the new rules are stringently applied on the EU side and applied at all on the UK side. It is reaching, or will reach, into every niche of economic life, from business travel to the EU (£) to having to make a declaration if an individual or group takes more than £10,000 out of Great Britain (i.e. including trips to Northern Ireland) to an EU country.
As Shane Brennan, CEO of the Cold Chain Federation puts it “the big worry here is that ‘not trading’ becomes the habit”. My view is that this is an inevitability, partly because some trading firms will simply give up as things are too costly or too complex (for SMEs, in particular), but mainly because of the impact on customers. If they experience even a short period of disruption leading them to go to an alternative supplier then, very likely, they will stick with the new supplier.
This is evident in an example in Joe Mayes’ report where the Managing Director of Sealight, which exports LEDs, explains that “[EU] clients will say: ‘Forget this, it is just too much”. He expects his firm’s annual sales to drop by 25%. In the same report it is suggested that some 20% of SMEs have suspended exports to the EU. Those affected include companies selling via platforms like Amazon and Ebay.
Meanwhile other businesses, both large and small, are struggling to get the imports they need – hair salons being just one example – and they will surely face price rises, if not now then down the line, because EU hauliers are now charging €10/km to carry freight to the UK, up from €1.50/km. That aside, British purchasers of EU goods are finding that they face charges (due to customs, VAT and handling fees). These are not necessarily known in advance and are demanded at point of delivery by couriers. Again, after the initial ‘disruption’, the long-term effect is likely to be that customers cease to order such goods.
Most of the current focus is on the impact on goods trade, because it is this which is affected by new customs formalities and, when falling foul of rules or origin, tariffs. A huge additional, and so far under-reported, problem is the impact of regulatory duplication caused by Brexit, an important example being the £33 billion a year UK chemicals industry. Moreover it shouldn’t be forgotten that new non-tariff barriers are, under the surface, affecting service businesses. An illustration is the report that some 2,500 jobs and £170 billion of assets had moved from the UK financial services sector to France alone up to the end of 2020. That was before (though of course in anticipation of) the end of the transition period and is expected accelerate now. There are also new warnings of significant threats to the UK’s huge fund management industry.
Today’s announcement that Nissan will continue its Sunderland operations is great news for its workers and suppliers there. It’s an important example of why having a trade deal with the EU is better than ‘no deal’ would have been. It’s also an example of the ‘shifting tectonic plates’ in that Nissan will move production of the battery for the Leaf model from Japan to the UK so as to ensure it meets the rules of origin for tariff free export to the EU, including the three year window provided for by the TCA for electric car batteries. But it doesn’t follow that the rest of the auto industry will stay, nor does it negate the fact that other damage is occurring. In terms of assessing Brexit it is ‘not bad news’ rather than being a positive achievement. For despite what Brexiters will be saying loudly today, it is not a demonstration of the success of Brexit to retain companies that were already here, and are staying despite the new trade barriers that Brexit has erected.
Overall, it will take a long time before the full effects of all these new trade barriers are known, but Dr Thomas Sampson of the LSE, writing in a new UK in a Changing Europe report (p.106), suggests that over ten years UK exports to the EU will drop by 36% and imports by 30% compared to EU membership. These are big figures, and it shouldn’t be forgotten – as Brexiters sometimes do – that they will have knock-on effects on firms and individuals who don’t themselves engage in trade with the EU. These may be firms that supply goods and services to traders, individuals employed both by such firms and by trading firms, or customers experiencing higher prices or less choice/ quality in what they can buy. And, as mentioned in my previous post, trade deals with non-EU country are not going to go very far in compensating for all this.
It’s important not to focus solely on economics and trade. Brexit is going to have multiple, short and long-term impacts on almost every area of British life. The UK in a Changing Europe report I just mentioned – by happy coincidence entitled, like this blog, Brexit & Beyond - is a superb new resource assessing just about every conceivable one of these areas, each written by a leading academic expert. It is well worth taking the time to digest it. Equally worthwhile are the (sometimes less high-profile) writings of industry experts. One example this week is a blog this week by Clive Simpson, a journalist specialising in the space industry, on how Brexit it set to affect that (one of the few topics not directly covered by the compendious UK in a Changing Europe report).
Assigning – and evading - responsibility
Simpson also proposes the term “long-Brexit” (analogous to ‘Long Covid’, so perhaps ‘Long Brexit’ would be better) to apply to the ways that short-term Brexit impacts will morph into chronic problems. It is a useful idea because the very elongated timeframes of Brexit should not deter us from linking the effects of Brexit to the decisions (and indeed promises) made going back to 2016.
There may sometimes be problems of causality when looked at over such timeframes, and the Brexiters will use that to try to gaslight us about what is happening and why, as well as about what they originally said. Indeed this week saw a spectacularly egregious example, with Jonathan Saxty in The Telegraph (£) lachrymosely complaining that “Brexiteers” (sic) were wrongly being blamed for the problems they had warned of all along. To those who have been on the end of the ubiquitous ‘Project Fear’ dismissal it had a hollow ring, to say the least.
The main lines of the Brexiter rebuttal of responsibility for the policy they urged are clear enough. Adverse effects will be denied or downplayed; admitted but with a denial that Brexit was the cause; admitted but blamed on the EU for acting unreasonably; or admitted but blamed on Brexit not having been done properly, with this in turn blamed upon ‘the remain establishment’. What can be assured is that they will never take responsibility. It will be important to continue to challenge this, and it continues to be disappointing that the Labour Party is not taking the lead in doing so. That is a great error, as former Labour MEP Richard Corbett has cogently argued this week.
But there is a more insidious problem, which is that many – by no means all of whom will be Brexiters – will slip into saying that the problems caused by Brexit need to be ‘sorted out’ by the government, perhaps by means of discussion with the EU. That won’t always be misplaced. It is certainly for the government to sort out its customs IT systems, for example. And there may be areas where discussion with the EU can clarify features of the Trade and Cooperation Agreement (TCA), or where this or that extension of grace periods on certain measures can be agreed. However, the fundamental architecture of the deal, and therefore its effects, is a direct consequence of the policy of hard Brexit, and we have that policy because the (hard) Brexiters insisted upon it. To use the ‘Long Brexit’ analogy, the cause of the symptoms is the virus.
From this point of view the provisions of government compensation and support, which have been offered in the case of fisheries and are being considered for the music industry (£), are palliative rather than curative. And where does it end? Compensating all businesses for all the costs of Brexit would involve huge sums, especially coming on top of the government support rightly and necessarily being provided because of coronavirus. It’s ironic, too, that after all the promises, including that of extra money for the NHS, Brexit should now be revealed as something requiring compensation.
UK and EU relations
Meanwhile, as the early effects of Brexit play out, the wider context of the EU-UK relationship shouldn’t be forgotten. The TCA set in train a complex set of decisions and deadlines which have been mapped by the Institute for Government. An immediate issue is that the European Parliament has yet to ratify the TCA and the deadline for doing so looks set to be extended to April. Ostensibly this is to allow translation work but what lies behind it seems to be continuing concerns about the robustness of the governance mechanisms, which are also due to be discussed today by EU Ambassadors.
This in turn reflects the now embedded distrust in the UK’s intentions, a distrust that can only be fed by fresh mutterings in the undergrowth (of which I suspect we will hear more) about the possibility of the UK reneging on parts of the Withdrawal Agreement, as well as the rather more high-profile talk of ‘reviewing’ workers’ rights. The latter may, as Mike Buckley argued in a piece in Byline Times this week prove more difficult to enact than the government think, not least because of potential sanctions under the TCA but, as he astutely observes, may prove to be an example of the UK constantly pushing at the boundaries of EU patience in terms of what might or might not be allowable under the TCA. Hence continuing EU concerns.
In any case, although the British Parliament settled for a “farce” in its scrutiny of the TCA, it’s not unreasonable that the European Parliament intends to scrutinise it diligently and seriously. Boris Johnson’s reported “rage” and “warning” that ratification must occur by the end of February is unwarranted but also irrelevant as there’s not much he can do. But it illustrates that neither he nor the Brexiter press are going to allow any good grace to be introduced to how the UK interacts with the EU.
That gracelessness is especially evident in the story that emerged yesterday that the government is refusing to grant the EU’s new (and first) Ambassador to the UK full diplomatic status. It is petty, reflecting how, even having got Brexit, Brexiters are determined to sour and antagonise relations with the EU, and it is foolish in the context of the ongoing negotiations deriving from the TCA.
But beyond that, it reveals an extraordinary irony, because the government’s justification is that full diplomatic status is not warranted as the EU is ‘not a nation state’ but simply an ‘international organization’. Yet for years the Brexiters’ core complaint was that the EU had become a super-state, making the UK’s membership sovereignty-sapping in a way that was quite different to its membership of other international organizations. So as the costs of Brexit rip through our country, revealing all the lies told of there being no costs, it is tacitly admitted that this was another lie. Indeed, it was the foundational lie.
As mentioned in the previous post, disruption in the form of queues has been muted by the low volumes of goods traffic over the New Year period – about 25% of normal in the first week of the year and 40% last week on the short Channel – so much greater problems are expected (£). I also referred in the previous post to the fact that at the end of March the grace period on applying full certification rules to shipments from Great Britain to Northern Ireland will end, and this week haulage industry leaders warned that when that happens they will face “an abyss”. According to Richard Burnett, CEO of the Road Haulage Association, “these are not teething problems. These are structural problems”.
It’s an almost impossible task to keep track of everything that is going on but there are two useful resources for doing so. One, mentioned in my previous post, is Yorkshire Bylines Davis Downside Dossier. Another is the ongoing Twitter thread being created by Daniel Kelemen, Professor of Political Science and Law at Rutgers University. However, even these listings show only the tip of the iceberg.
The legacy of lies
The crucial point, unsurprisingly being avoided or misrepresented by the government and by Brexiters more generally, is that this isn’t just a matter of ‘teething problems’ and it isn’t simply because Johnson agreed a ‘bad deal’. It is true that, had there been more time to prepare, some of the problems of conforming with the new situation could have been dealt with. But that would only have made the consequences of Brexit less visible and less newsworthy. It wouldn’t have changed the underlying reality of there being new barriers to trade.
That reality represents the exposure of the lies or misunderstandings, going right back to before the referendum, that a trade deal would more or less replicate the conditions of single market and customs union membership. Associated with that was the monocular focus on the removal of tariffs as being the sole issue. It has not come out of a clear blue sky. It was warned of repeatedly (Dr Matt Bishop of Sheffield University gave an excellent summary with multiple links in February 2020) and those warnings were ridiculed and dismissed. But now we have, precisely, a zero tariffs trade deal and the warnings have been proved right.
The pervasiveness of the lie also (along with lack of time and Covid) explains the lack of preparations because many businesses thought that if there was a trade deal then their terms of trade would continue unaltered. A report in The Times this week (£) – which includes a lot of crunchy detail on the massive problems facing especially smaller exporters – quotes Ruth Corkin, the VAT and indirect tax Director of Hillier Hopkins, reportedly the only British accountancy firm to offer a customs agent service to SMEs dealing with Brexit. As such, it seems a fair assumption that she has extensive contacts with such firms and is right to say that some had assumed that because there’s a trade deal “everything will be hunky dory and like it was before”.
If so, it was an entirely understandable assumption given the last five years of promises and lies. But even firms which did understand and prepare for the new realities have been caught out by the complexities of the new requirements and the inadequacy of the administrative and IT systems they have to deal with. A particular problem (the link in the previous sentence gives an example) is the outdated Customs Handling of Import and Export Freight (CHIEF) system, a legacy system which is still being used because of delays in creating the new Customs Declarations Service (CDS). Another problem now being reported by Joe Mayes of Bloomberg is a desperate shortage of ‘transit guarantees’ and delays in new ones being issued by HMRC, this being due to delays in another IT project, the New Computerised Transit System. (These examples of deficiencies in the systems needed even for a frictive border might also serve to remind us of the hollowness of Brexiters’ claims for technologies which would make borders completely frictionless).
A fundamental shift in the trading economy is underway
There are now daily reports of the damage being wrought, but focussing on each individual one is to miss the point of what is happening. What is underway is a fundamental shift in the ‘tectonic plates’ of the UK trading economy and its supply chains, happening in real time and under our noses, but with little comment on the aggregate picture. And it is going to get worse when all the new rules are stringently applied on the EU side and applied at all on the UK side. It is reaching, or will reach, into every niche of economic life, from business travel to the EU (£) to having to make a declaration if an individual or group takes more than £10,000 out of Great Britain (i.e. including trips to Northern Ireland) to an EU country.
As Shane Brennan, CEO of the Cold Chain Federation puts it “the big worry here is that ‘not trading’ becomes the habit”. My view is that this is an inevitability, partly because some trading firms will simply give up as things are too costly or too complex (for SMEs, in particular), but mainly because of the impact on customers. If they experience even a short period of disruption leading them to go to an alternative supplier then, very likely, they will stick with the new supplier.
This is evident in an example in Joe Mayes’ report where the Managing Director of Sealight, which exports LEDs, explains that “[EU] clients will say: ‘Forget this, it is just too much”. He expects his firm’s annual sales to drop by 25%. In the same report it is suggested that some 20% of SMEs have suspended exports to the EU. Those affected include companies selling via platforms like Amazon and Ebay.
Meanwhile other businesses, both large and small, are struggling to get the imports they need – hair salons being just one example – and they will surely face price rises, if not now then down the line, because EU hauliers are now charging €10/km to carry freight to the UK, up from €1.50/km. That aside, British purchasers of EU goods are finding that they face charges (due to customs, VAT and handling fees). These are not necessarily known in advance and are demanded at point of delivery by couriers. Again, after the initial ‘disruption’, the long-term effect is likely to be that customers cease to order such goods.
Most of the current focus is on the impact on goods trade, because it is this which is affected by new customs formalities and, when falling foul of rules or origin, tariffs. A huge additional, and so far under-reported, problem is the impact of regulatory duplication caused by Brexit, an important example being the £33 billion a year UK chemicals industry. Moreover it shouldn’t be forgotten that new non-tariff barriers are, under the surface, affecting service businesses. An illustration is the report that some 2,500 jobs and £170 billion of assets had moved from the UK financial services sector to France alone up to the end of 2020. That was before (though of course in anticipation of) the end of the transition period and is expected accelerate now. There are also new warnings of significant threats to the UK’s huge fund management industry.
Today’s announcement that Nissan will continue its Sunderland operations is great news for its workers and suppliers there. It’s an important example of why having a trade deal with the EU is better than ‘no deal’ would have been. It’s also an example of the ‘shifting tectonic plates’ in that Nissan will move production of the battery for the Leaf model from Japan to the UK so as to ensure it meets the rules of origin for tariff free export to the EU, including the three year window provided for by the TCA for electric car batteries. But it doesn’t follow that the rest of the auto industry will stay, nor does it negate the fact that other damage is occurring. In terms of assessing Brexit it is ‘not bad news’ rather than being a positive achievement. For despite what Brexiters will be saying loudly today, it is not a demonstration of the success of Brexit to retain companies that were already here, and are staying despite the new trade barriers that Brexit has erected.
Overall, it will take a long time before the full effects of all these new trade barriers are known, but Dr Thomas Sampson of the LSE, writing in a new UK in a Changing Europe report (p.106), suggests that over ten years UK exports to the EU will drop by 36% and imports by 30% compared to EU membership. These are big figures, and it shouldn’t be forgotten – as Brexiters sometimes do – that they will have knock-on effects on firms and individuals who don’t themselves engage in trade with the EU. These may be firms that supply goods and services to traders, individuals employed both by such firms and by trading firms, or customers experiencing higher prices or less choice/ quality in what they can buy. And, as mentioned in my previous post, trade deals with non-EU country are not going to go very far in compensating for all this.
It’s important not to focus solely on economics and trade. Brexit is going to have multiple, short and long-term impacts on almost every area of British life. The UK in a Changing Europe report I just mentioned – by happy coincidence entitled, like this blog, Brexit & Beyond - is a superb new resource assessing just about every conceivable one of these areas, each written by a leading academic expert. It is well worth taking the time to digest it. Equally worthwhile are the (sometimes less high-profile) writings of industry experts. One example this week is a blog this week by Clive Simpson, a journalist specialising in the space industry, on how Brexit it set to affect that (one of the few topics not directly covered by the compendious UK in a Changing Europe report).
Assigning – and evading - responsibility
Simpson also proposes the term “long-Brexit” (analogous to ‘Long Covid’, so perhaps ‘Long Brexit’ would be better) to apply to the ways that short-term Brexit impacts will morph into chronic problems. It is a useful idea because the very elongated timeframes of Brexit should not deter us from linking the effects of Brexit to the decisions (and indeed promises) made going back to 2016.
There may sometimes be problems of causality when looked at over such timeframes, and the Brexiters will use that to try to gaslight us about what is happening and why, as well as about what they originally said. Indeed this week saw a spectacularly egregious example, with Jonathan Saxty in The Telegraph (£) lachrymosely complaining that “Brexiteers” (sic) were wrongly being blamed for the problems they had warned of all along. To those who have been on the end of the ubiquitous ‘Project Fear’ dismissal it had a hollow ring, to say the least.
The main lines of the Brexiter rebuttal of responsibility for the policy they urged are clear enough. Adverse effects will be denied or downplayed; admitted but with a denial that Brexit was the cause; admitted but blamed on the EU for acting unreasonably; or admitted but blamed on Brexit not having been done properly, with this in turn blamed upon ‘the remain establishment’. What can be assured is that they will never take responsibility. It will be important to continue to challenge this, and it continues to be disappointing that the Labour Party is not taking the lead in doing so. That is a great error, as former Labour MEP Richard Corbett has cogently argued this week.
But there is a more insidious problem, which is that many – by no means all of whom will be Brexiters – will slip into saying that the problems caused by Brexit need to be ‘sorted out’ by the government, perhaps by means of discussion with the EU. That won’t always be misplaced. It is certainly for the government to sort out its customs IT systems, for example. And there may be areas where discussion with the EU can clarify features of the Trade and Cooperation Agreement (TCA), or where this or that extension of grace periods on certain measures can be agreed. However, the fundamental architecture of the deal, and therefore its effects, is a direct consequence of the policy of hard Brexit, and we have that policy because the (hard) Brexiters insisted upon it. To use the ‘Long Brexit’ analogy, the cause of the symptoms is the virus.
From this point of view the provisions of government compensation and support, which have been offered in the case of fisheries and are being considered for the music industry (£), are palliative rather than curative. And where does it end? Compensating all businesses for all the costs of Brexit would involve huge sums, especially coming on top of the government support rightly and necessarily being provided because of coronavirus. It’s ironic, too, that after all the promises, including that of extra money for the NHS, Brexit should now be revealed as something requiring compensation.
UK and EU relations
Meanwhile, as the early effects of Brexit play out, the wider context of the EU-UK relationship shouldn’t be forgotten. The TCA set in train a complex set of decisions and deadlines which have been mapped by the Institute for Government. An immediate issue is that the European Parliament has yet to ratify the TCA and the deadline for doing so looks set to be extended to April. Ostensibly this is to allow translation work but what lies behind it seems to be continuing concerns about the robustness of the governance mechanisms, which are also due to be discussed today by EU Ambassadors.
This in turn reflects the now embedded distrust in the UK’s intentions, a distrust that can only be fed by fresh mutterings in the undergrowth (of which I suspect we will hear more) about the possibility of the UK reneging on parts of the Withdrawal Agreement, as well as the rather more high-profile talk of ‘reviewing’ workers’ rights. The latter may, as Mike Buckley argued in a piece in Byline Times this week prove more difficult to enact than the government think, not least because of potential sanctions under the TCA but, as he astutely observes, may prove to be an example of the UK constantly pushing at the boundaries of EU patience in terms of what might or might not be allowable under the TCA. Hence continuing EU concerns.
In any case, although the British Parliament settled for a “farce” in its scrutiny of the TCA, it’s not unreasonable that the European Parliament intends to scrutinise it diligently and seriously. Boris Johnson’s reported “rage” and “warning” that ratification must occur by the end of February is unwarranted but also irrelevant as there’s not much he can do. But it illustrates that neither he nor the Brexiter press are going to allow any good grace to be introduced to how the UK interacts with the EU.
That gracelessness is especially evident in the story that emerged yesterday that the government is refusing to grant the EU’s new (and first) Ambassador to the UK full diplomatic status. It is petty, reflecting how, even having got Brexit, Brexiters are determined to sour and antagonise relations with the EU, and it is foolish in the context of the ongoing negotiations deriving from the TCA.
But beyond that, it reveals an extraordinary irony, because the government’s justification is that full diplomatic status is not warranted as the EU is ‘not a nation state’ but simply an ‘international organization’. Yet for years the Brexiters’ core complaint was that the EU had become a super-state, making the UK’s membership sovereignty-sapping in a way that was quite different to its membership of other international organizations. So as the costs of Brexit rip through our country, revealing all the lies told of there being no costs, it is tacitly admitted that this was another lie. Indeed, it was the foundational lie.
Friday, 15 January 2021
Dawning realities
Having initially spoken of there being some bumps in the road, Michael Gove last weekend told businesses to prepare for “significant disruption” as a result of Brexit. He was right to do so, because on top of the extensive difficulties traders were already experiencing, outlined in my previous post, this week there have been reports of “a high volume of vehicles being refused and delayed” at ports. Couriers are reporting that “Brexit delays and costs are escalating rapidly” whilst DPD, one of the largest couriers, has temporarily suspended all UK-EU road services.
These distribution problems are now leading to some shortages in shops and they are set to get worse (£). Northern Ireland is the worst affected place, despite there being a three month grace period during which full certification rules on food coming from Great Britain are waived, which may or may not be extended. As regards exporters, one of the worst affected industries seems to be the Brexit icon of fisheries, unsurprisingly since this is a highly perishable product and the EU is its main market. (It shouldn’t be forgotten that EU fishermen are also suffering from Brexit – in which they had no say – especially in Ireland, although there is an EU support fund to help them and the other businesses being damaged.)
It is irrelevant that there are no big queues at ports because the overall volume of traffic is still much lower than normal, not least because part of the damage lies in hauliers simply not undertaking journeys. So even with turn-backs and delays there aren’t, at least for now, queues building. Beyond that, an under-appreciated point, made by Shane Brennan, head of the cold chain trade body, is that there is not simply a single, physical, border. Rather, hauliers, customs agents, vets, and government agencies each, in effect, act as ‘borders’ – making decisions and undertaking processes which determine whether or not a laden truck actually passes or even reaches the physical border.
This in turn is a reminder that customs formalities are only one of the new barriers to trade that Brexit has created (or revived). There are also issues such as product labelling and veterinary checks. To put that another way, we are experiencing the consequences of Great Britain being outside both the customs union and the single market. In this sense, talk from Boris Johnson and others of using Article 16 of the Northern Ireland Protocol is misplaced as the disruptions are the foreseeable result of what was agreed (the idea is flawed for other reasons, too). I’ll return to the Article 16 issue in more detail in a future post if it starts being raised as a serious possibility. For now, the point is that what we are seeing is the start of what Brexit looks like, at least when a very narrow definition of sovereignty is made the overriding priority in its execution.
What will it mean when things ‘settle down’?
This means that even when the immediate disruptions ‘settle down’, as in due course most of them very likely will, there will most definitely not be a return to the pre-Brexit situation. For one thing, some firms may not survive these immediate problems, or will permanently have lost customers. But in any case, any such settling down will merely conceal rather than remove the newly (re)instated barriers. It will consist either of firms simply not doing all or any of the trade that they used to – with knock on effects on jobs and product availability – or doing so with additional costs which will, most likely, be passed on to UK customers in the form of higher prices.
That may mean anything from a few more pence on some vegetables to many hundreds of pounds on a new car, as was announced this week by Ford explicitly as a result of the new post-Brexit terms of trade (in this case, tariffs due to the application of rules of origin). An illustration of the scale of the costs caused just by the new border friction is that “the average cost of transporting a lorryload of goods to Britain from Germany was 26 per cent higher in the first week of 2021 compared with the average for the third quarter of last year” (£).
Whether visible as disruption or hidden by being incorporated into new standard procedures, these new barriers and their consequences do not indicate that the Trade and Cooperation Agreement (TCA) is a ‘bad deal’ in itself. Rather, for the most part they would exist regardless of what was in the TCA precisely because no such agreement could prevent all the effects of leaving the single market and customs union. So they are the result of that decision rather than the TCA which flows from it, as are the even less visible impacts on services trade.
Accordingly, they are not going to be ‘fixed’ by further discussions with the EU about the TCA, or by the operation of the Partnership Council and its sub-bodies. As regards Northern Ireland, specifically, they derive from what is I think the still under-recognized fact, plain since Johnson’s Withdrawal Agreement, that Brexit has put an end to the UK single market.
So as and when the visible disruptions settle down what will emerge will be an underlying and permanent readjustment and downgrade of the UK economy (though Northern Ireland may well benefit from being by far the most attractive part of the UK for investment in manufacturing). This will not, as some Brexiter MPs are claiming, be offset by the government’s recently signed trade deals because these only (at best) replicate agreements the UK had via the EU. In due course there may be trade deals with countries that the EU does not have deals with, but that will take time – during which plenty of damage will have been done - and is highly unlikely to come close to making up for lost trade with the EU.
Beyond the immediate disruption
It would also be wrong to think that all that is at stake is a temporary period of disruption followed by a new (albeit worse) normal. That may describe the situation as regards things like customs formalities for goods trade, but coming down the line are some potentially greater disruptions. One will depend on what the EU decides to grant the UK financial services sector in terms of regulatory equivalence. The TCA only provides a temporary fix, and reaching the permanent outcome is likely to be a long, drawn-out process with, depending on what is decided, a potentially major effect on the British economy given the size of the sector.
Another crucial issue will be the EU decision on UK data protection adequacy, for which the TCA again only provides a temporary bridging mechanism pending that decision. As with the VAT issue discussed in my previous post, it is an area of great technical complexity but with a huge practical significance for a wide variety of businesses of all sectors and sizes, as well as for security cooperation. The outcome will potentially add another swathe of administrative processes and costs. There’s a good discussion of the issues by Dr Karen Mc Cullagh of University of East Anglia on the DCU Brexit Institute blog, including an explanation of the way that, as in so many other areas, Brexiter ideas of ‘sovereignty’ conflict with the practical realities of modern life.
Of course the adverse realities of Brexit are not just about trade, any more than EU membership was just about trade, even though that is how generations of British politicians have represented it. One example is losing access to the Erasmus scheme for student exchange. More generally, the many advantages of freedom of movement have now disappeared, restricting the opportunities and impoverishing the lives of those who might otherwise have made use of them.
For that matter – and it’s the reason why freedom of movement of people is one of the indivisible four freedoms of the single market – losing this freedom itself has an economic aspect, illustrated by the case of touring musicians and other performers. There was a strand of Brexit support which seemed to imagine that it would only affect people coming from the EU to the UK and not vice versa. Even if that had been so it would still have been a wretched thing, but of course it wasn’t. Hence, now, reports of the dissatisfaction of British owners of second homes in Spain.
The causes of the disruption
The main reason why the current and ongoing consequences of Brexit may not be very well-understood is that the Brexiters lied about them, and many still are.
This also partly explains why the visible disruptions are occurring. For years, businesses were told that talk of disruption was just Project Fear or, if it came from the EU, derided as a threat of ‘punishment’, rather than being a simple statement of fact. That slowed government preparations and made some businesses underestimate the scale of what they had to prepare for. And although some government preparation was done earlier, it was not until February of last year that any government minister – Michael Gove – formally admitted that there would be border frictions.
As regards the Irish Sea border, the Prime Minister and other ministers maintained it would not exist, and the Northern Ireland Secretary still is. To do so whilst also asking people to prepare for the coming changes was, to massively understate things, giving a hopelessly mixed message.
In addition to this, the government’s approach to the TCA negotiations, based as it was on taking them to the last minute in anticipation of the EU ‘blinking’, baked in the disruptions that we are now seeing. It meant that businesses had to try to absorb highly complex new processes which were not fully specified until days, or in some cases hours, before they had to be implemented. That this was over the Christmas and New Year holidays and during the deepening coronavirus crisis could only compound the difficulties. It is again an understatement to say that this was grossly irresponsible.
Alongside the lies told about Brexit, there were two other features which have contributed to the current problems which, whilst involving untruths, were not in most cases deliberate lies. One, which I first remarked on several years ago, was a pervasive sense amongst Brexit supporters that, somehow, nothing much would change as a result. That was obviously linked to the lies about how it would be quick, easy and cost-free but was different to them in treating Brexit as a symbolic act (of, perhaps, freedom) that had no connection with the taken-for-granted systems that make modern life work – for example in terms of putting food in shops or planes in the air. So you could leave the EU, and it would be a wonderful liberation, and then carry on as before. As Sally Jones, trade strategy and Brexit lead for the EY consulting firm, speaking of the re-introduction of barriers to trade, put it, “people forget just how difficult things were in the past”.
Related to this was a lack of understanding about how these systems actually worked. That’s not unreasonable – few of us understand the inner workings of our computer or our car. This perhaps explains why we do not hold votes on whether to rip out the motherboard or crankshaft in the name of consumer sovereignty. Similarly, few understand the hidden complexities of trade, customs, supply chains etc. Indeed, Brexit throws up so many technical niche areas that no one person could possibly be conversant with them all.
What is unreasonable is that Brexiters ignored or denied this, and derided those who pointed it out. For example, in March 2017 I wrote about how Brexiters almost invariably talked about trade as if it were a simple once-only movement of goods from country A to country B. We are seeing the results of the naivety now with, for example, the stories of how pan-European distribution hubs in the UK face tariffs when they re-export goods and, more generally, the problems faced by international supply chains of all sorts.
This isn’t a betrayal of Brexit – it’s the reality of Brexit
So decisions about Brexit, lies about Brexit, the way Brexit was undertaken, and misunderstandings about what Brexit meant are now having the consequences we are seeing (for a regularly updated list of them, see Yorkshire Bylines’ ‘Davis Downsides Dossier’). It’s important to keep on saying this for two reasons.
One is the way that, all too predictably, some are now already talking of there having been a Brexit ‘betrayal’, for example over fisheries and Northern Ireland (£), and of the TCA being a ‘disaster’ in particular for its limited services coverage. But these and other consequences were entailed by hard Brexit rather than being a betrayal of it. The criticism should be of the denial that there would be such consequences. It’s a crucial distinction because, without it, Brexiters can and will continue the lies by pretending that, done differently, there was a hard Brexit that avoided the consequences.
Secondly, recalling the underlying reasons matters because another prevailing reaction seems to be a general shrugging off of what is happening as if it were ‘just one of those things’. I don’t think that is just because coronavirus is the main preoccupation as it is very similar to how the collapse of sterling after the referendum vote, which would in other times have been a major crisis, caused barely a political ripple. Similarly, imagine the reaction if in the past there had been the kinds of disruptions described at the start of this post. The explanation, at least in part, is that the Brexiters have so aggressively attacked those who draw attention to such things that the media and some politicians have become cowed.
What is to be done?
As the realities of Brexit continue to emerge, it’s crucial to be honest about what it means and about how we got here. From that point of view the near political silence about what is happening, with the partial exception of fisheries, is both disappointing and – if anything about the Brexit process could be so any more - astounding.
Obviously the pandemic is the dominant issue at the moment but the significance of the Brexit-induced disruption should surely not be ignored. The government won’t, for obvious reasons, want to talk about it but the Labour opposition certainly should. Not only would it be right to do so in its own terms, simply because it is a growing crisis, but it would also be a way of setting in train what Labour’s policy towards EU relations would be if it won the next election. That could be one part of meeting the challenge to Keir Starmer, as posed by Rafael Behr this week, to “narrate a journey to a better Britain”.
So it is neither right, nor electorally prudent, to remain silent for fear of alienating ‘red wall’ voters or of inviting Johnson’s predictable ‘remoaner’ jibes. And whilst parties in Scotland, Northern Ireland and Wales are raising it, Labour as the official opposition has a particular role to play and it isn’t – with some limited exceptions – doing so. In particular, it seems truly extraordinary that Starmer did not use even one of his six questions to the Prime Minister this week to raise the extensive disruptions to trade which are occurring and their longer-term significance.
Starmer’s stance through 2020 was that it was for the government to deliver its promised deal and that Labour would hold Johnson to account for it. So now we have the deal, but where’s the holding to account? Worse, how can there be any holding to account when he has just said (£) Labour would not seek any major changes to the TCA if in power? In consequence, at least as regards the two main political parties, there is now a virtual conspiracy of silence about Brexit, compounded by Jacob Rees-Mogg closing down the cross-party committee that would have scrutinised the deal.
That said, even if it were not for coronavirus and regardless of the immediate political reaction, it is far too early to expect the kind of serious ‘national conversation’ about Brexit that we need to have. The wounds of the last five years are still too raw and the divisions too entrenched. Moreover, it will have to be informed by broader considerations than those of the current disruptions. A Chatham House report this week discussed what kind of global role is now feasible for the UK, and that is one part what needs to be considered. So too are the strategic implications of a regionalised and multi-polar world, and an understanding of the strategic issues which led the UK to join the EU (EEC) in the first place, which – as Professor Robert Saunders argues in an excellent essay - Brexit now re-poses.
Still, an honest account of the immediate disruptions is not irrelevant to that and perhaps the first step towards it. It is probably necessary to experience the realities of what leaving means in order to expose the lies of those who led us so carelessly to abandon our membership.
These distribution problems are now leading to some shortages in shops and they are set to get worse (£). Northern Ireland is the worst affected place, despite there being a three month grace period during which full certification rules on food coming from Great Britain are waived, which may or may not be extended. As regards exporters, one of the worst affected industries seems to be the Brexit icon of fisheries, unsurprisingly since this is a highly perishable product and the EU is its main market. (It shouldn’t be forgotten that EU fishermen are also suffering from Brexit – in which they had no say – especially in Ireland, although there is an EU support fund to help them and the other businesses being damaged.)
It is irrelevant that there are no big queues at ports because the overall volume of traffic is still much lower than normal, not least because part of the damage lies in hauliers simply not undertaking journeys. So even with turn-backs and delays there aren’t, at least for now, queues building. Beyond that, an under-appreciated point, made by Shane Brennan, head of the cold chain trade body, is that there is not simply a single, physical, border. Rather, hauliers, customs agents, vets, and government agencies each, in effect, act as ‘borders’ – making decisions and undertaking processes which determine whether or not a laden truck actually passes or even reaches the physical border.
This in turn is a reminder that customs formalities are only one of the new barriers to trade that Brexit has created (or revived). There are also issues such as product labelling and veterinary checks. To put that another way, we are experiencing the consequences of Great Britain being outside both the customs union and the single market. In this sense, talk from Boris Johnson and others of using Article 16 of the Northern Ireland Protocol is misplaced as the disruptions are the foreseeable result of what was agreed (the idea is flawed for other reasons, too). I’ll return to the Article 16 issue in more detail in a future post if it starts being raised as a serious possibility. For now, the point is that what we are seeing is the start of what Brexit looks like, at least when a very narrow definition of sovereignty is made the overriding priority in its execution.
What will it mean when things ‘settle down’?
This means that even when the immediate disruptions ‘settle down’, as in due course most of them very likely will, there will most definitely not be a return to the pre-Brexit situation. For one thing, some firms may not survive these immediate problems, or will permanently have lost customers. But in any case, any such settling down will merely conceal rather than remove the newly (re)instated barriers. It will consist either of firms simply not doing all or any of the trade that they used to – with knock on effects on jobs and product availability – or doing so with additional costs which will, most likely, be passed on to UK customers in the form of higher prices.
That may mean anything from a few more pence on some vegetables to many hundreds of pounds on a new car, as was announced this week by Ford explicitly as a result of the new post-Brexit terms of trade (in this case, tariffs due to the application of rules of origin). An illustration of the scale of the costs caused just by the new border friction is that “the average cost of transporting a lorryload of goods to Britain from Germany was 26 per cent higher in the first week of 2021 compared with the average for the third quarter of last year” (£).
Whether visible as disruption or hidden by being incorporated into new standard procedures, these new barriers and their consequences do not indicate that the Trade and Cooperation Agreement (TCA) is a ‘bad deal’ in itself. Rather, for the most part they would exist regardless of what was in the TCA precisely because no such agreement could prevent all the effects of leaving the single market and customs union. So they are the result of that decision rather than the TCA which flows from it, as are the even less visible impacts on services trade.
Accordingly, they are not going to be ‘fixed’ by further discussions with the EU about the TCA, or by the operation of the Partnership Council and its sub-bodies. As regards Northern Ireland, specifically, they derive from what is I think the still under-recognized fact, plain since Johnson’s Withdrawal Agreement, that Brexit has put an end to the UK single market.
So as and when the visible disruptions settle down what will emerge will be an underlying and permanent readjustment and downgrade of the UK economy (though Northern Ireland may well benefit from being by far the most attractive part of the UK for investment in manufacturing). This will not, as some Brexiter MPs are claiming, be offset by the government’s recently signed trade deals because these only (at best) replicate agreements the UK had via the EU. In due course there may be trade deals with countries that the EU does not have deals with, but that will take time – during which plenty of damage will have been done - and is highly unlikely to come close to making up for lost trade with the EU.
Beyond the immediate disruption
It would also be wrong to think that all that is at stake is a temporary period of disruption followed by a new (albeit worse) normal. That may describe the situation as regards things like customs formalities for goods trade, but coming down the line are some potentially greater disruptions. One will depend on what the EU decides to grant the UK financial services sector in terms of regulatory equivalence. The TCA only provides a temporary fix, and reaching the permanent outcome is likely to be a long, drawn-out process with, depending on what is decided, a potentially major effect on the British economy given the size of the sector.
Another crucial issue will be the EU decision on UK data protection adequacy, for which the TCA again only provides a temporary bridging mechanism pending that decision. As with the VAT issue discussed in my previous post, it is an area of great technical complexity but with a huge practical significance for a wide variety of businesses of all sectors and sizes, as well as for security cooperation. The outcome will potentially add another swathe of administrative processes and costs. There’s a good discussion of the issues by Dr Karen Mc Cullagh of University of East Anglia on the DCU Brexit Institute blog, including an explanation of the way that, as in so many other areas, Brexiter ideas of ‘sovereignty’ conflict with the practical realities of modern life.
Of course the adverse realities of Brexit are not just about trade, any more than EU membership was just about trade, even though that is how generations of British politicians have represented it. One example is losing access to the Erasmus scheme for student exchange. More generally, the many advantages of freedom of movement have now disappeared, restricting the opportunities and impoverishing the lives of those who might otherwise have made use of them.
For that matter – and it’s the reason why freedom of movement of people is one of the indivisible four freedoms of the single market – losing this freedom itself has an economic aspect, illustrated by the case of touring musicians and other performers. There was a strand of Brexit support which seemed to imagine that it would only affect people coming from the EU to the UK and not vice versa. Even if that had been so it would still have been a wretched thing, but of course it wasn’t. Hence, now, reports of the dissatisfaction of British owners of second homes in Spain.
The causes of the disruption
The main reason why the current and ongoing consequences of Brexit may not be very well-understood is that the Brexiters lied about them, and many still are.
This also partly explains why the visible disruptions are occurring. For years, businesses were told that talk of disruption was just Project Fear or, if it came from the EU, derided as a threat of ‘punishment’, rather than being a simple statement of fact. That slowed government preparations and made some businesses underestimate the scale of what they had to prepare for. And although some government preparation was done earlier, it was not until February of last year that any government minister – Michael Gove – formally admitted that there would be border frictions.
As regards the Irish Sea border, the Prime Minister and other ministers maintained it would not exist, and the Northern Ireland Secretary still is. To do so whilst also asking people to prepare for the coming changes was, to massively understate things, giving a hopelessly mixed message.
In addition to this, the government’s approach to the TCA negotiations, based as it was on taking them to the last minute in anticipation of the EU ‘blinking’, baked in the disruptions that we are now seeing. It meant that businesses had to try to absorb highly complex new processes which were not fully specified until days, or in some cases hours, before they had to be implemented. That this was over the Christmas and New Year holidays and during the deepening coronavirus crisis could only compound the difficulties. It is again an understatement to say that this was grossly irresponsible.
Alongside the lies told about Brexit, there were two other features which have contributed to the current problems which, whilst involving untruths, were not in most cases deliberate lies. One, which I first remarked on several years ago, was a pervasive sense amongst Brexit supporters that, somehow, nothing much would change as a result. That was obviously linked to the lies about how it would be quick, easy and cost-free but was different to them in treating Brexit as a symbolic act (of, perhaps, freedom) that had no connection with the taken-for-granted systems that make modern life work – for example in terms of putting food in shops or planes in the air. So you could leave the EU, and it would be a wonderful liberation, and then carry on as before. As Sally Jones, trade strategy and Brexit lead for the EY consulting firm, speaking of the re-introduction of barriers to trade, put it, “people forget just how difficult things were in the past”.
Related to this was a lack of understanding about how these systems actually worked. That’s not unreasonable – few of us understand the inner workings of our computer or our car. This perhaps explains why we do not hold votes on whether to rip out the motherboard or crankshaft in the name of consumer sovereignty. Similarly, few understand the hidden complexities of trade, customs, supply chains etc. Indeed, Brexit throws up so many technical niche areas that no one person could possibly be conversant with them all.
What is unreasonable is that Brexiters ignored or denied this, and derided those who pointed it out. For example, in March 2017 I wrote about how Brexiters almost invariably talked about trade as if it were a simple once-only movement of goods from country A to country B. We are seeing the results of the naivety now with, for example, the stories of how pan-European distribution hubs in the UK face tariffs when they re-export goods and, more generally, the problems faced by international supply chains of all sorts.
This isn’t a betrayal of Brexit – it’s the reality of Brexit
So decisions about Brexit, lies about Brexit, the way Brexit was undertaken, and misunderstandings about what Brexit meant are now having the consequences we are seeing (for a regularly updated list of them, see Yorkshire Bylines’ ‘Davis Downsides Dossier’). It’s important to keep on saying this for two reasons.
One is the way that, all too predictably, some are now already talking of there having been a Brexit ‘betrayal’, for example over fisheries and Northern Ireland (£), and of the TCA being a ‘disaster’ in particular for its limited services coverage. But these and other consequences were entailed by hard Brexit rather than being a betrayal of it. The criticism should be of the denial that there would be such consequences. It’s a crucial distinction because, without it, Brexiters can and will continue the lies by pretending that, done differently, there was a hard Brexit that avoided the consequences.
Secondly, recalling the underlying reasons matters because another prevailing reaction seems to be a general shrugging off of what is happening as if it were ‘just one of those things’. I don’t think that is just because coronavirus is the main preoccupation as it is very similar to how the collapse of sterling after the referendum vote, which would in other times have been a major crisis, caused barely a political ripple. Similarly, imagine the reaction if in the past there had been the kinds of disruptions described at the start of this post. The explanation, at least in part, is that the Brexiters have so aggressively attacked those who draw attention to such things that the media and some politicians have become cowed.
What is to be done?
As the realities of Brexit continue to emerge, it’s crucial to be honest about what it means and about how we got here. From that point of view the near political silence about what is happening, with the partial exception of fisheries, is both disappointing and – if anything about the Brexit process could be so any more - astounding.
Obviously the pandemic is the dominant issue at the moment but the significance of the Brexit-induced disruption should surely not be ignored. The government won’t, for obvious reasons, want to talk about it but the Labour opposition certainly should. Not only would it be right to do so in its own terms, simply because it is a growing crisis, but it would also be a way of setting in train what Labour’s policy towards EU relations would be if it won the next election. That could be one part of meeting the challenge to Keir Starmer, as posed by Rafael Behr this week, to “narrate a journey to a better Britain”.
So it is neither right, nor electorally prudent, to remain silent for fear of alienating ‘red wall’ voters or of inviting Johnson’s predictable ‘remoaner’ jibes. And whilst parties in Scotland, Northern Ireland and Wales are raising it, Labour as the official opposition has a particular role to play and it isn’t – with some limited exceptions – doing so. In particular, it seems truly extraordinary that Starmer did not use even one of his six questions to the Prime Minister this week to raise the extensive disruptions to trade which are occurring and their longer-term significance.
Starmer’s stance through 2020 was that it was for the government to deliver its promised deal and that Labour would hold Johnson to account for it. So now we have the deal, but where’s the holding to account? Worse, how can there be any holding to account when he has just said (£) Labour would not seek any major changes to the TCA if in power? In consequence, at least as regards the two main political parties, there is now a virtual conspiracy of silence about Brexit, compounded by Jacob Rees-Mogg closing down the cross-party committee that would have scrutinised the deal.
That said, even if it were not for coronavirus and regardless of the immediate political reaction, it is far too early to expect the kind of serious ‘national conversation’ about Brexit that we need to have. The wounds of the last five years are still too raw and the divisions too entrenched. Moreover, it will have to be informed by broader considerations than those of the current disruptions. A Chatham House report this week discussed what kind of global role is now feasible for the UK, and that is one part what needs to be considered. So too are the strategic implications of a regionalised and multi-polar world, and an understanding of the strategic issues which led the UK to join the EU (EEC) in the first place, which – as Professor Robert Saunders argues in an excellent essay - Brexit now re-poses.
Still, an honest account of the immediate disruptions is not irrelevant to that and perhaps the first step towards it. It is probably necessary to experience the realities of what leaving means in order to expose the lies of those who led us so carelessly to abandon our membership.
Friday, 8 January 2021
Brave new world
As trailed in the previous post, this blog is now retitled ‘Brexit & Beyond’ to reflect that we are now in a significantly new stage of the Brexit process, with the UK having left the EU, finished the transition period, and agreed a new arrangement for future trade and cooperation. As it has since 2016, the blog will continue to provide a broad non-technical analysis of the political, economic and cultural events associated with Brexit, normally on a weekly basis, drawing on a wide range of news sources and expert technical commentaries.
It is a new stage, but the new title is meant to suggest that it is also a continuation, not least because of the numerous loose ends left, and reviews created by, the EU-UK Trade and Cooperation Agreement (TCA). These are helpfully summarized in a diagram created by Professor Simon Usherwood of Surrey University. More generally, there will be a whole new institutional architecture, in the Partnership Council and its sub-bodies, within which the UK-EU relationship will unfold.
Moreover, from now on it will be possible to compare the realities of Brexit with what was claimed or promised for it. I don’t think that doing so amounts to “leap[ing] with glee onto every bureaucratic bump in the road out of Europe”, as counselled against by the columnist Clare Foges in a thoughtful article in The Times this week (£), and it most certainly isn’t, and shouldn’t be taken as, what she rightly calls “gruesome” relish in “businesses suffering or Leave-voting areas getting poorer”. Regular readers of this blog will know that I have repeatedly warned against that on grounds of both principle and political tactics.
Rather, it has two purposes, one being the primarily analytical one of making sense of events and the other the political one that it is legitimate and necessary to hold accountable those who made these claims and promises. Truth matters; at least I think it does, or at any rate that it should.
So whilst it would perhaps be churlish - and, anyway, impossible – to record every such “bureaucratic bump” it is likely that many of them will be relevant to those two purposes if, for example, they are in fact instances of the non-tariff barriers to trade that Boris Johnson has told the public do not exist. For as Professor Ian Begg of LSE writes on the Federal Trust blog “the essence of the [TCA] is the re-imposition of non-tariff barriers swept away in the process of creating the EU single market”. In that sense, “bureaucratic bumps” are a feature, not a bug, of Brexit.
Two kinds of claim for Brexit
It is already clear that assessing those Brexit realities is going to be as fraught with difficulty as it was for the original claims and promises. For already there have been a string of misleading and sometimes downright false statements made by Boris Johnson and others about what those realities are. Yorkshire Bylines have begun a useful register compiling and debunking them.
It’s worthwhile to draw a distinction between cases where there is at least some room for different interpretations with those which are plain lies.
In the former category an example might be the abolition of the ‘tampon tax’ (i.e. VAT on women’s sanitary products) in that it is true that the UK was able to do this when it did – on 1 January – because of Brexit, but it was in train to happen anyway and, arguably, might have happened earlier had the UK continued its previous push for a change in EU rules which fell by the wayside once the Brexit process got underway. Still, it’s not entirely bogus to interpret it as a benefit of Brexit (though strange that some of those most vociferously doing so had voted against it).
In the second category is the statement by Northern Ireland Secretary Brandon Lewis that “there is no ‘Irish Sea border’”. This is simply untrue, because that is precisely what was created by the Withdrawal Agreement yet Lewis is quite shameless in denying it, as he also did last February. It was absurd then, but how much more so now when there is direct evidence of companies in Great Britain suspending deliveries to Northern Ireland, and direct evidence of delays at the border? Lewis’s position is all the more ludicrous because, at the same time, he is extolling the unique benefits of Northern Ireland’s dual status. And apart from the fact that the Irish Sea border is part and parcel of that status, it begs the obvious question of why, if it is so advantageous for Northern Ireland to be in the goods single market and customs union, it makes sense for Great Britain not to be?
Slightly less brazen, but almost equally misleading, is Home Secretary Priti Patel’s claim (£) that the UK’s security is enhanced by Brexit. I briefly indicated in my previous post why this is not so, and it has since been explained in more detail (and with more authority) by Julian King, former EU Commissioner for the Security Union. A key issue, as he confirms, is real-time access to EU databases and, more generally, patching administrative solutions to the gaps created by being a third country. There are also still unresolved issues about whether the EU will grant the UK data adequacy equivalence (which also matters hugely for trade) and about how to replace the European Arrest Warrant. Overall, KIng describes what has been agreed as “a damage limitation exercise”. That is worthwhile in itself, of course, but it can hardly be described ‘making Britain safer’.
Borders and business
Brexiters have been quick to point out that there have not been huge lorry queues at channel ports in the first few days since the end of transition (with John Redwood dishonestly contrasting this with the single market by referring to the pre-Christmas chaos caused by Covid). But few with detailed understanding of the issues had anticipated there would be, partly because firms had been stockpiling in advance and partly because of the new year holiday. Now, of course, there is a new lockdown, further suppressing trade flows.
Nevertheless, there have already been some reports of freight being turned away at the borders because of a lack of correct documentation, and these are likely to increase according to significant new industry warnings of much greater disruption in prospect, especially, though not limited to, Northern Ireland. The long warned of shortage of vets to undertake post-Brexit SPS tests has caused some major delays to fish exports. There have been some supply chain disruptions, a high-profile example being shelves empty of ready meals in M&S stores in France, illustrating that even some very large firms were not fully prepared. There is also some evidence that EU-based truck drivers are unwilling to take on trips to the UK.
Some of these effects will be short-term, as businesses get used to the new customs requirements or adjust supply chains, though that in itself is indicative of the foolishness of having made a deal at the last moment, so that there was no genuine transition or implementation period, and the more so in the middle of a pandemic. In any case, it can’t be assumed that they will have no long-term impact because if customers find that a few of their orders do not arrive they may well switch, permanently, to new suppliers.
This is an aspect of the more significant long-term danger, as suggested in my previous post, being not so much of queues at ports but that trade simply reduces because of the increased burden of customs formalities. EU importers of UK goods now have to do extra customs paperwork, which they will not do if they can source the same or similar products from within the EU. Similarly, several UK firms have already announced (£) that they will permanently or temporarily cease to export to the EU because of the additional customs processes as well as, in some cases, the costs of having to duplicate the UKCA and CE safety marks, an especially absurd consequence of Brexit.
Apart from the re-introduction of customs formalities, new UK VAT rules which started on 1 January have put new requirements on EU exporters (and those of all countries) of low value goods to the UK to register for, collect, and pay VAT in the UK. Already, several have announced it is not worth their while doing so: they will simply cease to offer their products in the UK market, either temporarily or permanently. Edwin Hayward, author of Slaying Brexit Unicorns, has produced a listing of some 140 examples of companies which for this or some other Brexit-related reason are not, at least for now, exporting to the UK. This is undoubtedly the tip of a very large iceberg.
The VAT change is a complex one both in itself and in how it relates to Brexit, which illustrates how, from now on, it will often be difficult to disentangle exactly what is caused by Brexit and what would have happened anyway. For these changes are due to happen on an EU-wide basis later this year so would have applied to the UK as well had it still been a member or in transition. However, crucially, firms in member states will be able to use the EU’s ‘one stop shop’ single VAT return, avoiding the need to register in each country, but that will not cover the trade they do with UK customers which will require a separate, UK-only, registration. So, in that sense, this is a new Brexit impediment to EU-UK trade. Moreover, it creates particular complexities for Northern Ireland because of its dual status following Brexit.*
So we are beginning to see the serious limitations of a free trade deal, as compared with membership of the single market and customs union. Fishermen are learning that ‘taking back control of our waters’ brings with it new barriers to their largest market, the EU. The food and drink industry is discovering (£) that ‘zero tariffs, zero quotas’ does not help when goods fall foul of ‘rules of origin’. Thus when goods arrive from the EU to UK distribution hubs and then go back to customers in the EU, they face full tariffs. It is not just food and drinks companies affected, of course, but at least 50 major UK retailers including B&Q, Boots and Dixons.
Meanwhile, there has been an immediate and dramatic flight of trading in EU shares from the City of London (£) to EU financial centres – not a huge market in itself, but a sign that where business has international mobility it will move to wherever it is most advantageous. A senior fund manager has described this as “a stunning own goal for the UK [which] is only the beginning”, and the consensus view is that it is business which will not return to the UK (£). Less dramatic (except perhaps for those directly affected), 80,000 UK-run websites with an EU domain name have been suspended. Anyone concerned that this will affect the Leave.EU site need not worry, though, as our patriotic friends took the precaution of re-registering it in Ireland.
It is a new stage, but the new title is meant to suggest that it is also a continuation, not least because of the numerous loose ends left, and reviews created by, the EU-UK Trade and Cooperation Agreement (TCA). These are helpfully summarized in a diagram created by Professor Simon Usherwood of Surrey University. More generally, there will be a whole new institutional architecture, in the Partnership Council and its sub-bodies, within which the UK-EU relationship will unfold.
Moreover, from now on it will be possible to compare the realities of Brexit with what was claimed or promised for it. I don’t think that doing so amounts to “leap[ing] with glee onto every bureaucratic bump in the road out of Europe”, as counselled against by the columnist Clare Foges in a thoughtful article in The Times this week (£), and it most certainly isn’t, and shouldn’t be taken as, what she rightly calls “gruesome” relish in “businesses suffering or Leave-voting areas getting poorer”. Regular readers of this blog will know that I have repeatedly warned against that on grounds of both principle and political tactics.
Rather, it has two purposes, one being the primarily analytical one of making sense of events and the other the political one that it is legitimate and necessary to hold accountable those who made these claims and promises. Truth matters; at least I think it does, or at any rate that it should.
So whilst it would perhaps be churlish - and, anyway, impossible – to record every such “bureaucratic bump” it is likely that many of them will be relevant to those two purposes if, for example, they are in fact instances of the non-tariff barriers to trade that Boris Johnson has told the public do not exist. For as Professor Ian Begg of LSE writes on the Federal Trust blog “the essence of the [TCA] is the re-imposition of non-tariff barriers swept away in the process of creating the EU single market”. In that sense, “bureaucratic bumps” are a feature, not a bug, of Brexit.
Two kinds of claim for Brexit
It is already clear that assessing those Brexit realities is going to be as fraught with difficulty as it was for the original claims and promises. For already there have been a string of misleading and sometimes downright false statements made by Boris Johnson and others about what those realities are. Yorkshire Bylines have begun a useful register compiling and debunking them.
It’s worthwhile to draw a distinction between cases where there is at least some room for different interpretations with those which are plain lies.
In the former category an example might be the abolition of the ‘tampon tax’ (i.e. VAT on women’s sanitary products) in that it is true that the UK was able to do this when it did – on 1 January – because of Brexit, but it was in train to happen anyway and, arguably, might have happened earlier had the UK continued its previous push for a change in EU rules which fell by the wayside once the Brexit process got underway. Still, it’s not entirely bogus to interpret it as a benefit of Brexit (though strange that some of those most vociferously doing so had voted against it).
In the second category is the statement by Northern Ireland Secretary Brandon Lewis that “there is no ‘Irish Sea border’”. This is simply untrue, because that is precisely what was created by the Withdrawal Agreement yet Lewis is quite shameless in denying it, as he also did last February. It was absurd then, but how much more so now when there is direct evidence of companies in Great Britain suspending deliveries to Northern Ireland, and direct evidence of delays at the border? Lewis’s position is all the more ludicrous because, at the same time, he is extolling the unique benefits of Northern Ireland’s dual status. And apart from the fact that the Irish Sea border is part and parcel of that status, it begs the obvious question of why, if it is so advantageous for Northern Ireland to be in the goods single market and customs union, it makes sense for Great Britain not to be?
Slightly less brazen, but almost equally misleading, is Home Secretary Priti Patel’s claim (£) that the UK’s security is enhanced by Brexit. I briefly indicated in my previous post why this is not so, and it has since been explained in more detail (and with more authority) by Julian King, former EU Commissioner for the Security Union. A key issue, as he confirms, is real-time access to EU databases and, more generally, patching administrative solutions to the gaps created by being a third country. There are also still unresolved issues about whether the EU will grant the UK data adequacy equivalence (which also matters hugely for trade) and about how to replace the European Arrest Warrant. Overall, KIng describes what has been agreed as “a damage limitation exercise”. That is worthwhile in itself, of course, but it can hardly be described ‘making Britain safer’.
Borders and business
Brexiters have been quick to point out that there have not been huge lorry queues at channel ports in the first few days since the end of transition (with John Redwood dishonestly contrasting this with the single market by referring to the pre-Christmas chaos caused by Covid). But few with detailed understanding of the issues had anticipated there would be, partly because firms had been stockpiling in advance and partly because of the new year holiday. Now, of course, there is a new lockdown, further suppressing trade flows.
Nevertheless, there have already been some reports of freight being turned away at the borders because of a lack of correct documentation, and these are likely to increase according to significant new industry warnings of much greater disruption in prospect, especially, though not limited to, Northern Ireland. The long warned of shortage of vets to undertake post-Brexit SPS tests has caused some major delays to fish exports. There have been some supply chain disruptions, a high-profile example being shelves empty of ready meals in M&S stores in France, illustrating that even some very large firms were not fully prepared. There is also some evidence that EU-based truck drivers are unwilling to take on trips to the UK.
Some of these effects will be short-term, as businesses get used to the new customs requirements or adjust supply chains, though that in itself is indicative of the foolishness of having made a deal at the last moment, so that there was no genuine transition or implementation period, and the more so in the middle of a pandemic. In any case, it can’t be assumed that they will have no long-term impact because if customers find that a few of their orders do not arrive they may well switch, permanently, to new suppliers.
This is an aspect of the more significant long-term danger, as suggested in my previous post, being not so much of queues at ports but that trade simply reduces because of the increased burden of customs formalities. EU importers of UK goods now have to do extra customs paperwork, which they will not do if they can source the same or similar products from within the EU. Similarly, several UK firms have already announced (£) that they will permanently or temporarily cease to export to the EU because of the additional customs processes as well as, in some cases, the costs of having to duplicate the UKCA and CE safety marks, an especially absurd consequence of Brexit.
Apart from the re-introduction of customs formalities, new UK VAT rules which started on 1 January have put new requirements on EU exporters (and those of all countries) of low value goods to the UK to register for, collect, and pay VAT in the UK. Already, several have announced it is not worth their while doing so: they will simply cease to offer their products in the UK market, either temporarily or permanently. Edwin Hayward, author of Slaying Brexit Unicorns, has produced a listing of some 140 examples of companies which for this or some other Brexit-related reason are not, at least for now, exporting to the UK. This is undoubtedly the tip of a very large iceberg.
The VAT change is a complex one both in itself and in how it relates to Brexit, which illustrates how, from now on, it will often be difficult to disentangle exactly what is caused by Brexit and what would have happened anyway. For these changes are due to happen on an EU-wide basis later this year so would have applied to the UK as well had it still been a member or in transition. However, crucially, firms in member states will be able to use the EU’s ‘one stop shop’ single VAT return, avoiding the need to register in each country, but that will not cover the trade they do with UK customers which will require a separate, UK-only, registration. So, in that sense, this is a new Brexit impediment to EU-UK trade. Moreover, it creates particular complexities for Northern Ireland because of its dual status following Brexit.*
So we are beginning to see the serious limitations of a free trade deal, as compared with membership of the single market and customs union. Fishermen are learning that ‘taking back control of our waters’ brings with it new barriers to their largest market, the EU. The food and drink industry is discovering (£) that ‘zero tariffs, zero quotas’ does not help when goods fall foul of ‘rules of origin’. Thus when goods arrive from the EU to UK distribution hubs and then go back to customers in the EU, they face full tariffs. It is not just food and drinks companies affected, of course, but at least 50 major UK retailers including B&Q, Boots and Dixons.
Meanwhile, there has been an immediate and dramatic flight of trading in EU shares from the City of London (£) to EU financial centres – not a huge market in itself, but a sign that where business has international mobility it will move to wherever it is most advantageous. A senior fund manager has described this as “a stunning own goal for the UK [which] is only the beginning”, and the consensus view is that it is business which will not return to the UK (£). Less dramatic (except perhaps for those directly affected), 80,000 UK-run websites with an EU domain name have been suspended. Anyone concerned that this will affect the Leave.EU site need not worry, though, as our patriotic friends took the precaution of re-registering it in Ireland.
The deep roots of these problems
These kinds of problems arise in the first instance from the nature of TCA, but their roots lie very deep within the entire Brexit project. What was concealed, during the Referendum and thereafter, under the meaningless phrase ‘access to the single market’ was a complete misunderstanding of what the single market is, allied with a highly dated understanding of free trade being mainly about removing tariffs rather than non-tariff barriers, and a total ignorance of the nature of modern supply chains. This in turn is reflected in the relative absence of provision for services in the TCA.
It is of course much too early to know how all this is going to affect the British economy (or, to be less abstract, jobs, prices and tax revenues). Whilst many of the effects already seen were predicted (and dismissed as Project Fear), as were many others which will become evident soon given the inevitable consequence of creating new barriers to trade with the UK’s largest trading partner, others will be unanticipated and will take many months, if not years, to emerge. Often, they will involve highly technical things – VAT rules and rules of origin, for example – that few will understand and which will seem far removed, both conceptually and temporally, from the Referendum vote. Brexit is akin to an economic depth charge, with the effects only slowly rippling out over a wide area.
How do Brexiters respond?
Brexiters have three inadequate and also contradictory responses to all of this. The first is to say that it is entirely irrelevant and simply an example of ‘remainers’ failing to understand that Brexit is about taking back control and the reassertion of sovereignty. Their sovereignty argument does not stack up even in its own terms, as was once demonstrated once again this week in an elegant essay by Public Law Professor Mark Elliott of Cambridge University. But even supposing that it did, this isn’t at all how they are ‘selling’ Brexit. If it were, they would not be making all the bogus claims about how much Brexit is, or will, improve things. They would honestly acknowledge the costs, economic and non-economic, but say they were worth paying.
The second response is an extension of the first, which is to deny the problems that Brexit is creating, or to downplay or trivialise them. In effect, this is to reprise the Project Fear narrative, but with the added dishonesty of denying demonstrable facts and not just well-informed predictions. Almost inevitably, such denials are accompanied by irrelevant (and usually inaccurate) reference to some of the macroeconomic forecasts of 2016.
The third response is to make claims about how, in the future, any immediate negative effects will be overcome (what we might call ‘Project Hope for the best’). Domestic production will increase to substitute for imports from the EU (which it may, but to what extent and with what implications for cost and/or quality is questionable) and/or new global markets will be developed (which they may, but the gravity model of trade, which applies almost as much for services as for goods, suggests limits to the extent of that). Not only are such claims dubious but, again, they give the lie to the line that the case for Brexit is one of sovereignty, regardless of the economic cost. Brexiters still can’t decide whether their project is one of political principle or economic pragmatism or, more accurately, they flip opportunistically to the one whenever the other is discredited.
The demand to accept Brexit, or to move on
But I think there is a much deeper aspect to such arguments and counter-arguments, deriving from the complex political psychology of Brexit. Ever since the Referendum it seems as if Brexiters have both expected and needed those who disagreed with them to recant and to acknowledge that, after all, Brexiters had been right. Of course, it can be said that remainers have also sought to convince their opponents that they made a mistake. But I don’t think that, had remain won, anyone would have expected Brexiters to suddenly say that staying in the EU was the right decision or even tried to get them to do so. In any case, asking people to accept an unwanted status quo is very different from asking them to support an unwanted radical change.
Several factors lie behind this Brexiter need for affirmation. It is in part an insecurity, based perhaps on a lurking knowledge that what they have brought about is so damaging. Related to that, for some it is ‘remainer negativity’ which is the cause of any damage or, at least, which has soured what was supposed to be a moment of triumph. A stronger version of that is, to the extent that Brexiters believe themselves to have been a ‘resistance’ movement that has enacted a national liberation, they expected the whole of the country to welcome it, and are genuinely bemused that at least half the country does no such thing. And at least for some of the most vociferous Brexiters that links to a populist authoritarianism, in which opponents are derided as traitors and saboteurs.
So the early jibes that remainers should ‘suck it up’ and accept ‘the will of the people’ morphed into the expectation that they bestow ‘losers’ consent’ and now into the demand that they at least ‘put Brexit behind them’ or at most ‘get behind Brexit’ so as to, as ERG leader Steve Baker suggests, ‘move forward together’. Lurking behind these escalating demands lies an implicit and much darker accusation than that of being ‘bad losers’. It was evident this week when numerous Brexiters, including public figures, equated those who had campaigned peacefully for a second referendum with the insurrectionist mob which stormed the US Capitol building on Wednesday.
Apart from being a morally contemptible and intellectually vacuous false equivalence, it is hardly likely to engender ‘togetherness’ and is ironic given that it was Nigel Farage who once threatened to “pick up a rifle” if a “proper Brexit” was not delivered, and that numerous Brexiters talked of riots and civil disorder in the event of another referendum. And, in case anyone has forgotten, the only example of lethal violence in relation to Brexit was the murder of Labour MP Jo Cox by a far-right terrorist.
Even apparently reasonable calls for unity are all too often couched in divisive ways. For example, as a letter to The Times (£) put it this week, “we should all of us be looking forward to the future and how we can now help our country succeed. This includes ‘remoaners’ who wish to wallow in the past.” It hardly needs to be pointed out that to express that aspiration in such heavily loaded and pejorative terms makes it unlikely to be realised.
Even so, it is the force of such demands which, I think, explains why Keir Starmer has been and still is so reluctant to even talk about Brexit and its effects. I don’t think that is a viable stance, politically, for how can so central a policy be treated by the official opposition as taboo? It has only been just about feasible because of the urgency of the coronavirus crisis. Certainly for society more widely it is unrealistic because, like it or not, the referendum result – partly because of its closeness, partly because of the way it was achieved – could never be enough in itself to create a widespread endorsement of Brexit. That was compounded by the failure to create any process to develop such an endorsement and, on the contrary, to pursue Brexit in a way which maximized alienation amongst its opponents.
In that sense, too, this new phase of Brexit is not a radical break with what has happened over the last five years, but grows organically out of it. Of course everyone must ‘accept’ Brexit and the TCA in the specific sense that these are established facts, but that doesn’t preclude people from actively working to deepen the TCA or, for that matter, to rejoin the EU. Nor does it stop people passively resenting what has been done and deploring its consequences for themselves and others, or mean that they will refrain from pointing these out. And this will not be assuaged, but rather exacerbated, if the Brexiters continue to lie about what those consequences are and even further inflamed if, as Daniel Hannan proposes, they now proceed to use Brexit to enact the deregulatory agenda that, undoubtedly, has always been the motivation of some of them.
Far from Brexit being over, we are at the beginning of the very long and hard road that lies beyond.
*I am extremely grateful to Richard Asquith, VP for Global Indirect Tax at Avalara, for patiently answering my questions about the new UK VAT rules. He is not, of course, in any way responsible for what I have said about them, nor for any errors I have made in what I have said.
These kinds of problems arise in the first instance from the nature of TCA, but their roots lie very deep within the entire Brexit project. What was concealed, during the Referendum and thereafter, under the meaningless phrase ‘access to the single market’ was a complete misunderstanding of what the single market is, allied with a highly dated understanding of free trade being mainly about removing tariffs rather than non-tariff barriers, and a total ignorance of the nature of modern supply chains. This in turn is reflected in the relative absence of provision for services in the TCA.
It is of course much too early to know how all this is going to affect the British economy (or, to be less abstract, jobs, prices and tax revenues). Whilst many of the effects already seen were predicted (and dismissed as Project Fear), as were many others which will become evident soon given the inevitable consequence of creating new barriers to trade with the UK’s largest trading partner, others will be unanticipated and will take many months, if not years, to emerge. Often, they will involve highly technical things – VAT rules and rules of origin, for example – that few will understand and which will seem far removed, both conceptually and temporally, from the Referendum vote. Brexit is akin to an economic depth charge, with the effects only slowly rippling out over a wide area.
How do Brexiters respond?
Brexiters have three inadequate and also contradictory responses to all of this. The first is to say that it is entirely irrelevant and simply an example of ‘remainers’ failing to understand that Brexit is about taking back control and the reassertion of sovereignty. Their sovereignty argument does not stack up even in its own terms, as was once demonstrated once again this week in an elegant essay by Public Law Professor Mark Elliott of Cambridge University. But even supposing that it did, this isn’t at all how they are ‘selling’ Brexit. If it were, they would not be making all the bogus claims about how much Brexit is, or will, improve things. They would honestly acknowledge the costs, economic and non-economic, but say they were worth paying.
The second response is an extension of the first, which is to deny the problems that Brexit is creating, or to downplay or trivialise them. In effect, this is to reprise the Project Fear narrative, but with the added dishonesty of denying demonstrable facts and not just well-informed predictions. Almost inevitably, such denials are accompanied by irrelevant (and usually inaccurate) reference to some of the macroeconomic forecasts of 2016.
The third response is to make claims about how, in the future, any immediate negative effects will be overcome (what we might call ‘Project Hope for the best’). Domestic production will increase to substitute for imports from the EU (which it may, but to what extent and with what implications for cost and/or quality is questionable) and/or new global markets will be developed (which they may, but the gravity model of trade, which applies almost as much for services as for goods, suggests limits to the extent of that). Not only are such claims dubious but, again, they give the lie to the line that the case for Brexit is one of sovereignty, regardless of the economic cost. Brexiters still can’t decide whether their project is one of political principle or economic pragmatism or, more accurately, they flip opportunistically to the one whenever the other is discredited.
The demand to accept Brexit, or to move on
But I think there is a much deeper aspect to such arguments and counter-arguments, deriving from the complex political psychology of Brexit. Ever since the Referendum it seems as if Brexiters have both expected and needed those who disagreed with them to recant and to acknowledge that, after all, Brexiters had been right. Of course, it can be said that remainers have also sought to convince their opponents that they made a mistake. But I don’t think that, had remain won, anyone would have expected Brexiters to suddenly say that staying in the EU was the right decision or even tried to get them to do so. In any case, asking people to accept an unwanted status quo is very different from asking them to support an unwanted radical change.
Several factors lie behind this Brexiter need for affirmation. It is in part an insecurity, based perhaps on a lurking knowledge that what they have brought about is so damaging. Related to that, for some it is ‘remainer negativity’ which is the cause of any damage or, at least, which has soured what was supposed to be a moment of triumph. A stronger version of that is, to the extent that Brexiters believe themselves to have been a ‘resistance’ movement that has enacted a national liberation, they expected the whole of the country to welcome it, and are genuinely bemused that at least half the country does no such thing. And at least for some of the most vociferous Brexiters that links to a populist authoritarianism, in which opponents are derided as traitors and saboteurs.
So the early jibes that remainers should ‘suck it up’ and accept ‘the will of the people’ morphed into the expectation that they bestow ‘losers’ consent’ and now into the demand that they at least ‘put Brexit behind them’ or at most ‘get behind Brexit’ so as to, as ERG leader Steve Baker suggests, ‘move forward together’. Lurking behind these escalating demands lies an implicit and much darker accusation than that of being ‘bad losers’. It was evident this week when numerous Brexiters, including public figures, equated those who had campaigned peacefully for a second referendum with the insurrectionist mob which stormed the US Capitol building on Wednesday.
Apart from being a morally contemptible and intellectually vacuous false equivalence, it is hardly likely to engender ‘togetherness’ and is ironic given that it was Nigel Farage who once threatened to “pick up a rifle” if a “proper Brexit” was not delivered, and that numerous Brexiters talked of riots and civil disorder in the event of another referendum. And, in case anyone has forgotten, the only example of lethal violence in relation to Brexit was the murder of Labour MP Jo Cox by a far-right terrorist.
Even apparently reasonable calls for unity are all too often couched in divisive ways. For example, as a letter to The Times (£) put it this week, “we should all of us be looking forward to the future and how we can now help our country succeed. This includes ‘remoaners’ who wish to wallow in the past.” It hardly needs to be pointed out that to express that aspiration in such heavily loaded and pejorative terms makes it unlikely to be realised.
Even so, it is the force of such demands which, I think, explains why Keir Starmer has been and still is so reluctant to even talk about Brexit and its effects. I don’t think that is a viable stance, politically, for how can so central a policy be treated by the official opposition as taboo? It has only been just about feasible because of the urgency of the coronavirus crisis. Certainly for society more widely it is unrealistic because, like it or not, the referendum result – partly because of its closeness, partly because of the way it was achieved – could never be enough in itself to create a widespread endorsement of Brexit. That was compounded by the failure to create any process to develop such an endorsement and, on the contrary, to pursue Brexit in a way which maximized alienation amongst its opponents.
In that sense, too, this new phase of Brexit is not a radical break with what has happened over the last five years, but grows organically out of it. Of course everyone must ‘accept’ Brexit and the TCA in the specific sense that these are established facts, but that doesn’t preclude people from actively working to deepen the TCA or, for that matter, to rejoin the EU. Nor does it stop people passively resenting what has been done and deploring its consequences for themselves and others, or mean that they will refrain from pointing these out. And this will not be assuaged, but rather exacerbated, if the Brexiters continue to lie about what those consequences are and even further inflamed if, as Daniel Hannan proposes, they now proceed to use Brexit to enact the deregulatory agenda that, undoubtedly, has always been the motivation of some of them.
Far from Brexit being over, we are at the beginning of the very long and hard road that lies beyond.
*I am extremely grateful to Richard Asquith, VP for Global Indirect Tax at Avalara, for patiently answering my questions about the new UK VAT rules. He is not, of course, in any way responsible for what I have said about them, nor for any errors I have made in what I have said.