The Brexit quart won’t fit into Labour’s pint pot

The landscape of the politics of Brexit remains a broad and highly contested terrain, ranging from those convinced it was a great and necessary triumph, to be defended at all costs, to those urging its immediate reversal, with many shades of opinion between. But, under the Labour government, what might be called the immediate practical politics of Brexit operates within a far more restricted space in which only ‘micro-issues’ are subject to political decisions. Those micro-issues and decisions matter, and are worthy of attention, but, ultimately, the question is whether this disjuncture of scale is a sustainable one.

Wes Streeting’s facts of life

The Health Secretary Wes Streeting, whether intentionally or not, recently gave a very clear exposition of the perverse position the government has adopted. He was asked why the idea, not of rejoining the EU, but even of joining the single market was undiscussable. Whilst happy to recall that he, himself, had “campaigned passionately” against Brexit (this, at least, is something which is now sayable for cabinet ministers), he argued that “the people have moved on, the country has moved on and the EU has moved on”, so that there was “no appetite” for such questions to be re-opened.

This is familiar enough stuff, but Streeting then went on to say something more surprising, which I’m not sure has been explicitly expressed by any other cabinet minister: “there’s no doubt that what we warned about in advance of the referendum in terms of the impact on economic growth has come to pass, and that’s a fact of life we have to deal with. I think the sweet spot is working as closely with the European Union where we can, but also showing the agility to work with and through other partners in other markets as well …” [1]

This is different to the kind of things Keir Starmer, in particular, has said, accurately but irrelevantly, about the fact that not all Britain’s economic problems stem from Brexit. Sometimes, that has even morphed into the implication that ‘therefore’ these problems can be solved irrespective of Brexit. By contrast, the Streeting version is that the costs of Brexit are significant but just have to be accepted and, at best, mitigations made at the margin. In effect, this elevates the ‘mustn’t grumble’ mentality, which I alluded to in my most recent post, to the level of government policy.

That still leaves open the question of what Streeting means by “working as closely as possible with the EU where we can”. I wrote in a post at the end of the summer, pointing to the government’s lack of a clear and coherent post-Brexit strategy (a lack which still remains), that the most likely reading of Labour’s approach was that it would be the “maximalist” one of seeking “the maximum closeness, cooperation and alignment with the EU short of breaking the Labour manifesto commitment to its negative red lines”. Actually, it would have been more accurate to say that this is the best that can be hoped for. For that approach has yet to be demonstrated, as illustrated by the current rejection of a Youth Mobility Scheme (YMS), despite that fact it would not violate those red lines.

Backbench pressure?

I also pointed out in that post that one important way in which this government differs from its Tory predecessor is that the backbench pressure will be towards closer ties with the EU, rather than resistant to them or, indeed, agitating for even more distant ties. That is true, but what it is turning out to mean in practice is backbench pressure for such a ‘maximalist’ approach.

Thus, writing recently in the Guardian, Stella Creasy, the MP who chairs the Labour Movement for Europe, set out just that case. It included some of the things mentioned in my post, including seeking to join the Pan-Euro-Mediterranean Convention, and embracing, even extending, the EU’s proposals for a YMS. It also supported amendments to strengthen the governments Product Regulation and Metrology Bill (discussed in another recent post), further enhancing the way it will tend to keep many UK and EU regulations aligned.

What Creasy’s article self-avowedly did not do was make the case for rejoining the EU or for abandoning the government’s red lines. Saying that is neither praise nor criticism. It is simply a fact. What it betokens is that the practical politics of Brexit under this government is therefore now entirely about the nature and extent of Brexit damage limitation. That is, there is no dramatic difference of principle between what Streeting said and what Creasy wrote: the issue is entirely one of specific ‘micro-issues’ to be addressed within the framing they share.

That framing still leaves room for some policy debates and choices. Apart from the government’s stated ambitions, such as an SPS deal with the EU, there will be constant decisions to be made, with important upcoming examples including linking UK and EU Emissions Trading Schemes and aligning UK and EU deforestation regulations. Yet, important as these things are, they are still decisions to be made within the limited parameters of what the present government regards as practical politics.

A vanishingly small space?

A year ago I reviewed a book by Peter Foster, the Financial Times journalist who has been one of the best analysts of Brexit (I apologise for these repeated links to earlier posts, but they help, I hope, to provide context and sometimes corroboration, whist avoiding excessive repetition). That book is perhaps the most detailed articulation of what ‘maximalism’ (in this context) means in terms of specific measures.

In my review, I suggested that: “one danger which a Labour government looks likely to face is that, along with Brexiter denunciations, it will also be attacked by remainers and rejoiners as being insufficient to the magnitude of the task. The positive reading of that is it will push Labour towards Foster’s more maximalist version of its presently disclosed policy. The negative reading is that, squeezed between those who say it is too much and those who say it is too little, the space for pragmatism will remain vanishingly small.”

It's arguably too early to be sure yet, but it looks as if it is the latter outcome which is emerging. In practice this would mean that, rather than post-Brexit policy being located right up against the edge of Labour’s red lines, those lines will mark the far boundary of what is possible, and policy will settle between that and the kind of ad hoc accommodations the Sunak government was forced to make despite Brexiter opposition (e.g. watering down the scrapping of retained EU law, postponing if not effectively scrapping UKCA, agreeing the Windsor Framework). That is, if the Sunak approach is defined as minimalism, and the Creasy (or Foster) approach is defined as maximalism, the Starmer government’s approach will end up being somewhere between the two.

If this is so (and, actually, even if what emerges does turn out to be the maximalist approach), it is likely to come under increasing strain as it collides with economic reality. That was illustrated by the government’s much-vaunted International Investment Summit last week. This was the context of both the Streeting interview and the Creasy article, and it also provoked commentators to ask the question which, even if the government wants to believe that ‘the country has moved on’ will not go away: what about Brexit?

Counting the costs of Brexit: latest news

It is a question given added salience by a report the same week from Stephen Hunsaker of UKICE, calculating that, since 2017, the UK may have lost £44 billion of public investment which it would otherwise have received from the European Investment Bank. Like other counterfactual estimates (i.e. what would have happened if Brexit hadn’t happened), such as those of foregone trade, this may have little cut-through with the public. It is hard for people to get agitated about the loss of something that they ‘would have had’ in an alternative history. But for policymakers such things are, or should be, highly important and, indirectly, they do actually have a political significance: even without recognizing the mechanism, voters react negatively to the effects.

There was also a reminder of ‘the costs of Brexit’ in terms of payments made under the Brexit ‘divorce settlement’. This came as the result of a parliamentary question from SNP MP Stephen Gethins about how much has been paid so far, and how much remains to be paid, to which the answers turn out to be £24 billion and £6.4 billion respectively.

Strictly speaking, these are not ‘costs of Brexit’ because they are payments for liabilities the UK had incurred as an EU member so, in that sense, would have been paid one way or another regardless of Brexit. Nevertheless, it shouldn’t be forgotten that many Brexiters insisted, amongst them Nigel Farage, that there would be no ‘divorce settlement’ to pay or, even, that the EU would owe money to the UK. Even when installed as Foreign Secretary, Boris Johnson said the EU could “go whistle” for a financial settlement. Others of them fantasized that nothing should be agreed until the future terms of trade were also agreed, a fantasy which did not survive what turned out to be the non-existent ‘battle of the summer’ of 2017, although it still lingers on in Brexiter mythology as one of the many ways that Brexit ‘could have worked’.

More generally, the financial settlement was expected to be the most contentious aspect of the Withdrawal Agreement, and one of the more curious parts of the Brexit saga is the way that, having effectively been settled as part of the ‘phase 1 agreement’ in the autumn of 2017, it has scarcely figured in discussion since. By contrast, the issue of Northern Ireland, which had been dismissed by Brexiters as a triviality, proved to be far more toxic, festering on until the Windsor Framework was agreed in February 2023, aspects of which remain unimplemented even now, and is still a running sore to many, including many advocates of Brexit.

All this is worth recalling if only because we should never forget the grotesque ways in which Brexiters fooled themselves and misled others about the most basic realities of leaving the EU. More specifically, in the present context, it serves as another illustration of how, every step of the way, what Brexiters sold as a cost-free project has incurred cost after cost after cost.

A third recent reminder of this is the Reuters’ report that the Lord Mayor of the City of London estimates that Brexit has led to the loss of 40,000 jobs from Britain’s financial centre since 2016. It was a noteworthy report not least because, rather like the financial settlement, the figure for City job losses also has a special place in the iconography of the Brexit process.

Before the referendum, a widely cited report from accountants PWC estimated that the figure would be 70,000 to 100,000. This was dismissed as ‘Project Fear’ by leave campaigners, who later claimed vindication when, in 2022, another accounting giant, EY, estimated that the actual figure had been ‘only’ 7000 jobs. Of course, this was only a vindication because, by then, defence of Brexit had long since moved to claiming it had not been as bad as expected, rather than that it had had the positive benefits promised. If the latest 40,000 figure is correct then, on that logic, it could still be claimed as a vindication. Nevertheless, it would be closer to the lower end of the PWC estimate than to the EY estimate.

Foregoing jobs of this type, on this scale has significant implications. For example, economics commentator Jonty Bloom calculates that, if the figure is indeed 40,000, this represents well over £1 billion per year of foregone tax revenue (even conservatively assuming these jobs to have had an average salary for the sector, and considering only the income tax and national insurance they would have paid). Again, these are counterfactual costs but, whilst that inevitably means they are estimates, counterfactual analysis is the only way of assessing the effects of Brexit. Indeed Brexiters themselves recognize this whenever they claim (usually wrongly or misleadingly) that such-and-such a thing is a ‘benefit of Brexit’ because it wouldn’t otherwise have been possible.

Foregone jobs aside, the wider issue is that, apart from a few pro-Brexit diehards, no one seriously thinks that, overall, Brexit has been anything other than bad for the UK financial services industry. Even the pro-Brexit Telegraph reported (£) earlier this year that Brexit was the “prime suspect in the death of the stock market” and that the referendum was a decisive moment in the City’s “brutal losing streak”. Meanwhile, a review of the sector jointly produced by the City of London Corporation and the Treasury last year (i.e. under the Tory government) identified “strengthening and deepening the EU-UK business relationship” as “a top priority for the UK based financial and professional services sector.”

There’s little sign that this priority will be delivered by the new government, for all Labour’s wooing of the Square Mile. As a recent analysis by Hannah Brenton of Politico explained in some detail, the sector remains “out in the cold”, rarely featuring in the government’s statements about the ‘reset’ with the EU, and barely mentioned in discussions with the EU. Yet, as Brenton points out, financial services account for some 12% of UK GDP and contribute £100 billion in tax revenues (2022 figures). A government which has made GDP growth its central mission and which has a pressing need for tax revenues to repair highly-stressed public services can hardly afford to ignore the sector’s stated priority needs in this way.

Some other facts of life

Constant reminders of the costs of Brexit, such as these, will continue to exert pressure on the narrowness of the political space within which Labour are willing to discuss it. Next week’s budget will be an important example. At one level, it will push discussion of Brexit even further to the margins, as commentators will find many others things in it to talk about.

At another level, it will make the costs of Brexit even more relevant. Battles between the Treasury and spending departments are a basic fact of political life, and those over the forthcoming budget are no different (rather than being, as some reports suggest, the sign of a government in chaos). Nevertheless, they have an added dimension when budgetary constraints are so much tighter than they would have been as the result of a calamitous decision about national strategy.

To put it another way, Wes Streeting may think the costs of Brexit are “just a fact of life we have to deal with”, but he must know that much of the political credibility of the government, not to mention his own career, depends on the funding settlement he obtains for the NHS. The same goes for other ministers and other public services. For this reason, even if ‘the people have moved on from Brexit’ and even if counterfactual losses have no cut-through, it doesn’t follow that bearing those costs has no political consequences. It’s another fact of political life that voters expect results. [2]

From that point of view, the limited space of Labour’s Brexit politics, and the Brexit micro-issues to which it confines the government, is always going to be faced with the question of why it is so small. The ‘macro-question’ of Brexit as a national strategy will not go away. And that isn’t solely or even, ultimately, mainly because of the question of whether Brexit was a mistake. It is for similar, if now updated, strategic reasons to those which, in the 1960s and 1970s, drove the UK repeatedly to seek membership of what was then the EEC (this argument was made with great elegance by the historian Robert Saunders, in an essay marking the day that Britain left the EU). Those reasons, too, are facts of life, deriving from those of economics, geography, and the nature of international relations.

So the issue for this and future governments is the disjuncture between what is economically (and geo-politically) desirable and what is politically viable. The present government has an answer to this, and it is not entirely without merit: it is that re-opening the macro-question of Brexit would be economically damaging because of the instability which would result from the political toxicity of doing so. On this account, there is no disjuncture: it’s not economically desirable because it’s not politically viable. And it’s true that, in particular, many big businesses which have adapted themselves to being outside the single market and customs union are not keen to have that all thrown up into the air again for an indeterminate period with an uncertain outcome.

However, whilst it isn’t unreasonable for the government to take account of those concerns, they do not define the interests of Britain’s economy as a whole, nor those of its citizens. Acting as if they do is not only unhelpful to smaller businesses and to consumer choice, it institutionalizes higher costs, lower investment, and a lower tax base than would otherwise be the case. Equally, it does little to address the geo-political damage of Brexit.

This doesn’t mean, at least in my estimation, that the present government is going to pivot to joining (or rejoining) the single market, let alone the EU. It does mean, though, that an approach based on simply “living with” the costs and damages incurred by choices made by, and in the aftermath of, the 2016 referendum is inherently fragile. It is very unlikely that the politics of Brexit can forever be contained within the small space to which it is currently confined by Labour. For it is also a fact of life that attempts to fit a quart into a pint pot – to use measures that some Brexiters might appreciate – will result in a leakage, if not indeed a flood.

 

Notes

[1] The last words of this quote seem to suggest a continuation of the last government’s faith in post-Brexit Britain’s ‘nimbleness’ in being able to set its own regulations and make its own trade deals. There’s little reason to share it. But in one respect, at least, there has been a departure from this hubris in that all the existing advisers to the Board of Trade have been dismissed, including Daniel Hannan, one of the major architects of Brexit, and Australia’s former leader Tony Abbott, one of its few international champions.

[2] In the present context, it’s an even harsher fact of political life that some voters expect results that they have denied themselves by their vote to leave the EU, or, however they voted in the referendum, by their unwillingness to see that decision revisited. But there’s nothing new about people holding perversely contradictory views, and it’s one of the tasks of political leadership to persuade them of the need to face realities. The core of the present government’s ‘Brexit problem’ is that it believes this is not possible – and it may well be right.