Friday, 18 February 2022

Mugged by reality

In his last ‘Week in Brexitland’ post, the journalist Nick Tyrone suggests the political conversation about Brexit is shifting from the abstract to “whether the Brexit we’ve ended up with now is good or bad in the specific”. My sense is that this shift has been occurring for two or three months, mainly as a result of the rumblings of discontent from Thatcherite Brexiters which came to a crescendo with David Frost’s resignation, with their particular beef being the absence of the de-regulatory agenda they wanted from Brexit.

Boris Johnson’s creation of Jacob Rees-Mogg as Minister for Brexit Opportunities is clearly part of his response to it. Yet whilst Rees-Mogg has immediately assured the public that many “big wins” are already in the pipeline, he has also lifted attention away from the specifics of Brexit ‘as it is now’ by suggesting that “within a decade” the economy will be so transformed that no one will want to re-join the EU. This is similar to David Frost’s ‘test’ for the success of Brexit being that in ten years’ time “nobody is questioning Brexit. It was self-evidently the right thing to do”.

There’s clearly some way to go. “When are the commanding heights of Remain going to let it go?” wailed Telegraph Associate Editor Camilla Tominey last weekend (£). It was a strange article, associating any criticism of Liz Truss with pro-Russian remainery which is, to say the least, a novel analysis (she’d be far more likely to find apologism for Putin amongst certain Lexiters). But as to her question, the answer is likely to be never, or at least not until it has been demonstrated that Brexit is both not doing any harm and is doing some positive good, or at very least until the net balance of harm and good is clearly positive. In other words, not until specifics are delivered rather than abstract promises made.

When will they let it go?

And here Tominey has a problem, one shared by the rest of the right-wing commentariat impatient with Brexit, such as her Telegraph stable mate Daniel Hannan. For just as Hannan monotonously thunders that “Brexit is being squandered” (£) so too does Tominey lament that the government “simply hasn’t got Brexit done well enough”. So why should remainers be withdrawing opposition to, yet alone saluting the success of, Brexit when those who actually advocated it are so continually and so uniformly telling us it is failing? In fact, given that, a better question would be when will they let it go?

Equally, neither remainers nor sceptical leavers are likely to be won over when the claims made for specific Brexit benefits are so dishonest. Tominey identifies two. One is the usual lie about the vaccines programme, debunked many times before. The other, less familiar, one is the pioneering work being done on fusion power in the UK as host of … the Joint European Torus! Her point is that this shows that remainers were wrong to say that Brexit would end such scientific collaborations.

But this is a deeply twisted logic. First, some may have warned that all such collaborations would end and, indeed, had continuing involvement not been agreed that might have happened, as has been the case with the Erasmus scheme and the Galileo programme. Second, the more common warning was that such collaborations would become more difficult and more limited, and this has proved to be the case. And third, and most fundamentally, even taken at face value this isn’t a ‘benefit of Brexit’ as it would have happened without Brexit and is simply an avoidance of damage.

Even though it is only a passing line in a newspaper article, this is a fresh illustration of the observation I made a few weeks back of an emerging trend to justify Brexit in terms of it not having been as damaging as some warnings said it would be, often at the same time misrepresenting the nature of those warnings. More to the present point, it serves to show the hole the Brexiters are now in. Evidence of Brexit benefits is almost non-existent, and the only major claims they make for it are false. Evidence of the damage of Brexit stacks up almost daily, and they have virtually given up denying that damage. Deflecting from this by abstract claims about having regained sovereignty is not persuading the public and, crucially, is no longer satisfying the Brexiters themselves.

Getting specific means getting real

Hence the shift, now, to talking about specifics. But again the Brexiters are in a hole. Rees-Mogg talks in terms of specific gains, and of the positive impact on GDP – for now, once again, we are in the terrain of Brexit being presented as economically beneficial, rather than, as so often since the referendum they have pretended, being solely about the abstraction of ‘sovereignty’. Yet, whilst specific, these are still in the uncertain future. What about concrete gains, right now?

Here, the same old problems of the practical benefits of regulatory freedom recur. Take the new alcohol duties system, which Rishi Sunak trumpeted in the budget as only being possible because of Brexit. In this he was correct because it enabled him to levy duty based on the alcohol by volume (ABV) of a product. But this is devastating for the wine importing industry (£) because, unlike beer or spirits, the ABV of wine varies according to climate, and to the weather in a particular season.

Amongst other things this means that Australian wines, which tend to have high ABVs because of the climate, will attract much more duty and this will actually outweigh the benefit they get from the much-vaunted UK-Australia trade deal. It also means that UK wine importers will be having to constantly monitor the seasonal variations in ABVs. As with so many other features of Brexit, small firms will be especially hard hit, but all will experience an increase in ‘red tape’ which in turn feeds into inflation. “In this post-Brexit world where better regulation is a big sale, it would be hard to design a system more complex”, according to the CEO of the Wine Society.

Almost any sector of business or civil society yields a similar picture. Whilst generalist op-ed writers like Tominey and Hannan continue to promulgate airy ideas of regulatory reforms, their more specialist colleagues - including in the Telegraph – are alive to the gap between such ideas and practical realities. Thus in a response* to Rees-Mogg’s recent call for ideas to ‘slash EU red tape’ another of its Associate Editors, Ben Wright, wrote a closely-argued piece on financial services regulation (£). Delving into “arcane bit[s] of industry minutiae” which nevertheless have huge consequences, he concludes that “the idea that the City has been hogtied with EU red tape that can be slashed and thrown on the bonfire is, I’m afraid, simplistic to the point of sophistry”. (There are some emergent issues about changes to insurance companies solvency requirements which Wright touches on but I don’t have space to discuss today so will come back to in a future post.)

Wright goes on to warn of the dangers of what elsewhere I’ve called the ‘performative Brexit’ in the meaning of changing post-Brexit rules just because it is possible, even if it’s damaging – which is a good description of the alcohol duties situation. That can be avoided, as shown by the case of Intellectual Property Rights regulation, mentioned briefly in a recent post, where on examination of the practical detail the case for change was found wanting and abandoned.

Rees-Mogg to the rescue?

it’s exactly such practical scrutiny of the facts that needs to be brought to bear across the board, but whether a Brexit ideologue like Rees-Mogg is the man for that job is, to say the least, open to question. Certainly his outright denial this week that Brexit has damaged trade suggests not. Yet it’s not completely impossible, as shown by his apparent welcome of the ultra free-market Institute for Economic Affairs’ (IEA) proposal for the UK to continue to recognize the EU’s CE conformity assessment mark for an indefinite period, whilst continuing with the introduction of the postponed UKCA system albeit not with a view to it necessarily displacing the CE mark. In familiar IEA fashion the market would decide, in the form of consumer decisions, which mark became dominant.

As I’ve long argued on this blog the UKCA plan is utterly crazy and, although the IEA proposal doesn’t entirely scrap it, this is a fairly sensible idea (in practice, I suspect it would mean the UKCA mark withering on the vine). But, as the IEA report makes clear, it is part of a wider proposal that post-Brexit UK should unilaterally recognize EU standards and regulation, and potentially those of other territories, as a way of removing non-tariff barriers to trade (NTBs). To re-emphasise, this is not about ‘mutual recognition agreements’; it is about the UK unilaterally recognizing the regulations of others irrespective of whether the other party reciprocates.

If, as reported, Rees-Mogg is supportive of this entire approach – or even if it is only the specific CE proposal he supports – it marks a very significant departure from the ‘sovereignty at all costs’ mantra associated with David Frost and many Brexit Ultras. Within the longstanding contradiction between free-market globalism and nationalist and often protectionist localism that the Brexit project contains, it would be more than a tilt towards the former.

Moreover, Rees-Mogg’s unequivocal statement of support for the need to remove NTBs wherever possible might at least betoken recognition of one of the key issues Ben Wright identifies, namely the extent to which regulation is global, not even the product of the EU, and not something where the UK can usefully act independently. This applies as much to the car industry as it does to financial services, as was laid out quite starkly by the Brexit Select Committee in 2017 when it concluded: “there is no argument for a separate set of UK standards” (paragraph 27) … “we have not identified any potential benefits for regulatory divergence from the EU … There are only costs” (paragraph 30). Of course if Rees-Mogg is really so hostile to NTBs one might wonder why he is also so adamantly opposed to single market membership.

For the goods manufacturing sector generally, there is a further and very important political dimension to all this given the still very much live issue of the Northern Ireland Protocol. Not only is divergence from global and EU regulations likely to damage the competitiveness of British firms because it increases NTBs, it also serves to thicken the Irish Sea regulatory border. That is to say, the more that Great Britain diverges from the EU, the more Northern Ireland diverges from the UK. (This issue is only partially addressed by the IEA proposals in that whilst, as it says, unilateral recognition of EU standards would reduce or avoid checks on NI-GB goods movements, it would not make any difference to those from GB to NI).

Brave New World?

Given the existence of established global regulations in many sectors it’s often suggested that the real Brexit prize is in new, high-tech areas where the UK could lead in regulatory development and/or benefit from regulatory independence from the EU. That comes not just from Brexiters but sensible commentators such as the FT's Peter Foster, and as such should be given a serious hearing.

One of the most frequently mentioned examples, given by Foster and also by Rees-Mogg in his reference to ‘big wins’ in the pipeline, is gene editing of food crops and, indeed, new UK legislation in this area was announced last month, following a consultation exercise last year. This will be more flexible than EU regulation in that it will distinguish between gene editing and genetic modification allowing the former to be more readily exploited (at least in England; arrangements in Scotland and Wales will be different and, especially relevant to the point just made about border thickening because it will create a new phyto-sanitary divergence, Northern Ireland will continue to be bound by EU regulations).

Whether this is a good thing or not in terms of science, ethics or the environment I am not remotely qualified to assess. Certainly the consultation revealed significant opposition as well as support, but that is probably not unusual in any such process. Some key players, such as the John Innes Centre, which is a leading research institution for plant and microbial science, suggest that the changes don’t go far enough. It’s also worth noting that within the EU similar kinds of change are under consideration. So the Brexiters might be right to claim that the UK is able to move more quickly, and this is not necessarily a case where the UK is intending to move in a way which is irresponsibly lowering standards. Indeed countries including Argentina, Brazil, Japan and the US have in various ways moved in a similar direction. By the same token, even if a bit later, the UK might well have been able to make these changes without leaving the EU.

Whatever its other merits may be, this case raises several questions about post-Brexit regulatory ‘wins’. One is just about scale: could such flexibilities in new and niche industries compensate for the Brexit costs being entailed elsewhere, for example in the chemicals industry? I doubt it. Another is whether the UK’s regulations will act either as a magnet for firms in this sector to locate or invest? Possibly, but to what extent and for how long seems doubtful. And could it be the template for whatever may emerge as a dominant global regulatory structure (towards which there is already some movement) or, in the end, will the regulatory pull of the biggest players be more important than the speediness of the smaller ones? The latter is possible, and seems more likely to me.

Of course I don’t know if my tentative answers to these questions are correct, and the Parliamentary research briefing on the government’s plans, whilst highly informative in other ways, doesn’t offer any real help with them. But in due course they will become answerable in specific terms, not just flag-waving about independence. In the ‘Bioscience’ section (pp. 48-50) of the UK in a Changing Europe’s report on post-Brexit public policy, Dr Adrian Ely concludes that the gene editing regulatory change is “the first real test-case [for Brexit] in the bioscience sector. In its rush to diverge on this issue, the government is coming to understand the complexities of reconfiguring a tightly interwoven set of technical, legal, and institutional arrangements, and the political challenges of balancing public opinion, strategic industries, and different trade interests”.

Making Brexit work?

This gets to the key point about all of the ways in which Brexit is now moving from the abstract to the concrete, whether that be alcohol duties, conformity assessment marks, or regulations for intellectual property, financial services, car-making, gene editing or anything else. As it does so, it schools Brexiters in the realities they have for so long evaded. Although no doubt some will squeal to their dying day that they have been mugged by the ‘remain Establishment’, the truth is that they are going to be mugged by reality.

The other side of that coin is that even those most opposed to Brexit need not be so dogmatic as to believe that every single EU regulation that exists right now is the best possible regulation that could ever exist. So, whilst the jury is out for now, it may be that particular changes to gene editing regulation, and perhaps similar cases, will have desirable effects. If so, it’s possible to be supportive of them without taking them to justify Brexit. That can only be judged in the round, both in economic cost-benefit terms as well as those of culture and geo-politics. It’s quite possible to think that taken as a whole Brexit is a failure, and was always going to be a failure, whilst also recognizing that it needn’t have been done as damagingly as it has been and that, even now, there are still better and worse choices to be made.  

Within this context, the Labour Party’s still emergent stance on Brexit could begin to make sense. In remarks this week, Sir Keir Starmer said there was no case for re-joining the EU which, in terms of practical politics in both the UK and the EU at the moment, is true. Given this, it also makes sense for him to speak of making sure “we take advantage of the opportunities of Brexit” in a way similar to what I’ve just suggested. An obvious example, with much political traction, is Labour’s proposal to use the freedom to remove VAT from energy bills just as Brexiters promised would happen.

This doesn’t – or certainly needn’t – mean accepting Brexit in any sense other than recognizing the fact that the UK has left the EU. Nor does it mean that re-joining will never happen. Indeed, seeking a close and harmonious relationship with the EU is a necessary, but not sufficient, condition for that. But whether or not it ever happens it still makes sense to make what can be made of Brexit – after all, we still have to try to live as best we can – whilst waiting and working for the political weather to change.

That may happen all the more quickly the more relentless the focus is on concrete practicalities. The Brexiters’ comfort zone is the fatuous, dishonest and evidence-free claims and slogans – from ‘taking back control’ to ‘the will of the people’ – that have got us into this wretched mess, and which have made politics too toxic to deal with it. The more their own dissatisfaction with the results pushes them to make practicalities the established terrain of Brexit politics, the more difficult it will be to deny the existence of that mess or the most obvious solutions to it. In the end, reality always wins.

 

*It’s no longer clear Rees-Mogg is the right person to address remarks about financial service regulation. It is now reported that he will not make any decisions about this, because of the major conflict of interest that arises from his part-ownership of an investment firm.

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