Brexit is back in the news again. That is partly the aftermath of the budget, discussed in my previous post, which was followed by speeches at the Mansion House by Chancellor Rachel Reeves and the Governor of the Bank of England Andrew Bailey. The latter highlighted the economic damage of Brexit and called for a re-building of relations with the EU “while respecting the decision of the British people”.
It's true that, as economics commentator Simon Nixon observed, this marked a notable break with official Brexit omerta. Still, it was not exactly dynamite stuff. The economics are well-known and the political message was identical to the government’s own stated policy. Indeed, Reeves’ own Mansion House speech said the same thing. In that sense, Bailey’s comments showed the limitations of government policy in that, as he must know, closer relations with the EU will only marginally reduce the ongoing costs of Brexit. So, despite being accused by Matthew Lynn in The Spectator of “reopening the Brexit debate”, Bailey hardly did that, unless even the barest mention of Brexit is now to be described that way.
If his comments attracted attention, it was mainly because of the wider context of now intense discussion about what the coming Trump presidency is going to mean for post-Brexit Britain. In my previous post I suggested that ‘hot takes’ on this were not wise, and to an extent I think that is still the case. Apart from the fact that he isn’t yet in office, he is by any standards a capricious politician. What he may actually do when he comes back to power is highly unpredictable.
Trump’s psychodrama
I don’t mean, of course, that it isn’t already abundantly obvious that it is going to be dire. The choices he is already making for key appointments demonstrate he is going to oversee a depraved, intellectually and morally bankrupt, regime. About the only thing which may save us from the worst is that it may well also be too incompetent and too prone to infighting to deliver what it threatens.
However, within that broad picture, it remains to be seen exactly what he does in terms of the two issues most obviously of concern the UK: defence posture as regards NATO generally and Ukraine specifically, and a blanket hike in trade tariffs. I’ll discuss the latter shortly, and whilst I won’t discuss the former in this post there is a good analysis by Benjamin Martell of Edinburgh University in The New European, building on his and others’ report for the Independent Commission on UK-EU Relations earlier this year.
Beyond the difficulty of predicting what he will do, I think there is an undesirability in doing so. One of the ways in which narcissistic bullies like Trump exert power – and it’s the same in playgrounds, prisons, and some businesses as it is in politics – is precisely to generate a psychodrama of fearful uncertainty around themselves: ‘what will he do? What will we do if he does that? What will he do then if we do that?’
In this way, those around the narcissist become unwittingly complicit in his way of exercising power. It is very difficult to find a way of resisting that kind of power, but one possibility might be to stand back a little from the frenzy. To play it long and cool, rather than short and hot. Admittedly, that is not a luxury open to the heroic defenders of Ukraine, but it might be good advice to the UK. However, as a matter of fact, political actors and commentators here are currently engaged in trying to work out what Trump means. So the frenzy can’t be ignored.
Trump’s tariff threats
In the UK, and very directly connected with Brexit, much of that frenzy has been to do with trade. Specifically, if Trump does impose a blanket 10% or even 20% on imports to the US it would mean, at the upper end of that range, an estimated 0.8% fall in annual UK economic output. That it is not even worse is because the bulk of UK exports to the US are services (which do not attract tariffs) rather than goods. But, in the context of already anaemic growth forecasts, and the very urgent political and economic need for improved growth, that would be quite bad enough. That seems to be the baseline assumption in most commentary, but of course if it turned out to be 10%, or if the uplift was only applied to certain sectors (and depending what these were) the impact would be less. But it still wouldn’t be good.
If any of these scenarios happens, then one response, and it may well be the EU’s response, could be to impose retaliatory tariffs on imports from the US. A trade war, in other words. The UK could do that on its own account, but it is far too small to be able to win a trade war with the US. So this exposes the weakness of post-Brexit Britain. For many of those opposed to Brexit, it re-presents a choice between the EU and the US, to which the answer must be the EU. According to Brexiters, though, the opposite is true (£), and being outside the EU means that the UK could strike a deal with the US on its own account.
Others, by no means confined to Brexiters, see a less stark choice. Peter Mandelson, tipped as the possible next Ambassador to the US, sees a third way, with the unfortunately worded suggestion (£) that the UK could “have its cake and eat it”. It’s a possibility endorsed (£) by the generally acute Financial Times commentator Robert Shrimsley. Similarly, Andrew Haldane, the former Chief Economist at the Bank of England, believes a deal is possible without prejudicing relations with the EU. One reason for making such a claim is that not only are most UK exports to the US made up of services, but it is services trade where the UK has a trade surplus. Given that Trump’s tariffs are aimed at those countries with surpluses in goods trade, the UK isn’t so much his target as potential collateral damage.
What does a ‘deal’ mean?
However, the discussion of all this has already become mired in confusion. That is principally because it has conflated two potentially very different things. One is the old Brexiter dream of a UK-US Free Trade Agreement (FTA), meaning, at its most basic, an across-the-board removal or reduction of all or most tariffs, but potentially including the removal of some non-tariff barriers to trade. The other is a specific deal to be exempted from the blanket imposition of Trump’s new tariffs. An FTA would improve the current terms of trade. An ‘exemption deal’ would simply return terms of trade to the status quo ante.
They are also different in that FTAs typically take a long time to negotiate, whereas an exemption deal, at least in principle, need not. And that reflects the fact that the things required of the UK for an FTA would be likely to involve substantial concessions on regulatory issues (‘chlorinated chicken’ being the symbolic one), especially as regards agriculture and pharmaceuticals. What would be needed for an exemption deal is less easy to predict, but could be things like voluntary export quotas, restrictions on Chinese imports, or agreement to import large quantities of US military equipment – but not, necessarily, regulatory concessions. [1]
These two scenarios therefore have different implications for the other side of the coin, UK-EU relations. An FTA, to the extent it entailed regulatory change, would move the UK further from the EU regulatory orbit. That would derail the current direction of Labour’s ‘reset’ policy, which is primarily based on continuing alignment with the EU. It would certainly derail the centrepiece of that policy, a UK-EU SPS deal (which would entail regulatory alignment on agricultural standards, especially). It would also have implications for Northern Ireland, which would remain bound by EU goods regulations, and thus would ‘thicken’ the Irish Sea Border. A more limited exemption deal might well avoid these things, but would certainly do political damage to the reset in terms of trust, assuming that it left the EU fighting a trade war with the US which the UK had managed to slide out of.
A trade deal with Trump?
Some Brexiters would undoubtedly argue that the distinction I’ve drawn is irrelevant, in that an FTA would also be an exemption deal (even though an exemption deal wouldn’t be an FTA). That’s true, but it doesn’t affect the point that an FTA would take longer to agree, and in the meantime there would be no exemption from the blanket new tariffs. Nor does it recognize the profound political difficulties any UK government would face if it met likely US demands on regulations.
But there is a more fundamental issue. Brexiters, both in the Tory and Reform parties, are now talking as if a UK-US FTA was there for the taking under Trump’s first presidency, and will now be available again. Kemi Badenoch is even claiming (£) that there is an “oven ready agreement negotiated by the last Tory government”. This is nonsense. There was no such agreement [2]. In fact, Trump blew hot and cold about a deal first time round. That’s actually a specific example of my earlier point about how narcissistic bullies use uncertainty to exert power. And even if he ever did offer such a deal, it would be on one-sided terms (that would probably be true under any US administration, but certainly under Trump’s ‘winner takes all’ version of deal-making).
In any case, this latest upsurge of talk about trade talks is exhibiting some of the same deficiencies as the earlier version. One concerns the relative importance to the UK of trade with the US and the EU. Brexiters, including Badenoch, are already wheeling out the misleading claim that the US is the UK’s largest trade partner. That’s misleading because it treats each member of the EU as a separate trade partner. They aren’t, to the extent that all are part of a single market and customs union. Brexiters really can’t have it both ways, saying that EU membership prevented the UK from being independent, especially in trade policy, but then talking as if each EU member is a separate trading entity. Secondly, it resurrects the misleading idea that a UK-US FTA would be much of an economic prize anyway. The previous government’s figures suggest it would provide an additional 0.07% to 0.16% per annum to GDP over 15 years.
Nevertheless, what we are going to see, and are already beginning to see, is Brexiters pretending that there is an easy, perfect solution to the Trump tariffs, but one that the Labour government is refusing to take because it is anti-Trump and pro-EU. We will see, as is also already beginning, Nigel Farage claiming with smirking self-importance that he has his own special relationship with Trump, giving him a unique influence and insight, just as he did first time round. Along with that will be noises from Trump supporters, and again they are already beginning, suggesting a deal is possible if only the UK abandons ‘EU socialism’. Trump will undoubtedly throw fuel on to that fire (‘I offered them a great deal, it was a beautiful deal, but they didn’t want it. I d’know why, I hear they preferred the EU, I d’know, but it was a beautiful deal’).
Beneath this, there is a still more fundamental issue. Trade policy is never wholly about economics, or economic rationality. But this is unusually so for Trump. If it wasn’t he would hardly even be contemplating the blanket tariff, which will increase prices in the US (though, despite what some think, that probably won’t bother his supporters). Instead, trade policy for Trump is about beating his enemies, in this context meaning the EU and China (which may face 60% tariffs). So there’s no point in thumbing through Ricardian theory on comparative advantage to try to understand Trump’s policy. But the corollary is that there’s no point in trying to frame responses in these terms.
In concrete terms, this means that the UK government should not weigh its (distinctly limited) options simply in terms of economic effects. An exemption deal might reduce the immediate economic damage, but its longer-term costs to the UK, both economic and geo-political, would be considerable in terms of the EU and, very possibly, China. The potential Chinese dimension is worth stressing, because at issue for the UK is not a just a two-way tug between the EU and the US, but being stuck between all three blocs. That was brought into focus by Keir Starmer’s attempts this week to improve relations with China, which might well be jeopardized by any form of deal with the US. To put all this another way, the only deals Trump does are those that favour him.
The cleavage in 21st century politics
This brings us to the final, and deepest, level of what is at stake here, and it is far more important than tariffs on this or that, or small percentages of GDP. It is that what Trump represents, as Brexit does, is what I’ve elsewhere discussed as ‘anti-ruleism’. In the most basic way, his anticipated blanket tariff policy makes a mockery of WTO rules. But his entire approach to politics is one which rejects the rule of law, scientific rationality, and, ultimately, the concept of ‘rational-legal authority’. I try to avoid social science jargon on this blog, but I think it may be useful here.
The sociologist Max Weber developed the idea that modern, industrial societies were increasingly characterised by systemic, codified rules and laws, objectively formulated and applied. So we obey X because s/he is the legitimate holder of the office (of President, or CEO, or whatever), not because of the person holding it. Weber contrasted that with authority that was ‘traditional’ (e.g. monarchy, church) or ‘charismatic’ (derived from the persona of the leader).
Trump fairly obviously seeks to elevate charisma over rules, but more to the point he embodies a hostility to ‘rules’ as a concept of social organization and politics. In this, he shares a common ideology with the ‘disruptor’ tech bosses, like Elon Musk, who now support him, and, in the UK, with their fanboy Dominic Cummings (£). He also shares it with Vladimir Putin, who relies on a peculiar admixture of charismatic and traditional authority, fused with nationalism, and is equally disdainful of the rules-based international order.
It is also shared by Boris Johnson, exhibited by the way that he (for perhaps idiosyncratic reasons) and the Brexit Jacobins (for reasons of fanaticism) believed it was acceptable to dispose of all conventions and institutions, including parliament itself, in order to ‘get Brexit done’. It is shared by Liz Truss, who still insists those institutions caused her downfall. Emblematic of this is the hostility of both Trump and the Brexiters to bureaucracy and, especially, the civil service, which, not coincidentally, was emblematic, for Weber, of rational-legal authority. That hostility is shared by Kemi Badenoch, in her aggressive diatribes against ‘the bureaucratic class’. Such anti-ruleism is obviously connected with populism, but it isn’t identical to it (there’s a book to be written there). The disjuncture is what did for Boris Johnson, when his disdain for the Covid rules fell foul of the populist idea that ‘rules should apply to all of us’.
There are many different ways of understanding these developments. One way might be to see them in terms of the latest phase in the unwinding of the politics of the Cold War (that would need another book). Another, even more epochal, would be to see them as a kind of Counter-Enlightenment, in which the eighteenth-century battles over rationality are being re-fought but in the other direction (that’s a third book). Of course, the Trump presidency will not last forever. But there is a sense that deep and profound changes are now established in the US and elsewhere. And why not? Despite the brief moment when some claimed ‘the end of history’, history never ends.
However they are framed, the key point is that these developments are about far more than international trade. That is not surprising, because Brexit itself was about far more than trade with the EU; more, even, than membership of the EU. Needless to say, these are not the terms in which most people are framing the current situation, although Rafael Behr of the Guardian comes close to doing so. If it were framed that way then, indeed, the whole question of Brexit would be re-litigated. It is clear that the government have no intention of doing that.
Will Starmer’s government rise to the challenge?
Nevertheless, in terms of the division I have presented here, Keir Starmer is very much on one side, being almost the epitome of rational-legal authority or, so to speak, ‘ruleism’. That is something to be grateful for, yet even framed in the narrower terms of trade and tariffs his government’s response so far is rather wishy-washy. Reeves has spoken of seeking to do a deal with the US “whether that's through a free trade agreement or through further improvements in our trade and investment flows”. But in the same interview she pledged that “we’re not going to allow British farmers to be undercut by different rules and regulations”, effectively ruling out an FTA. As for some exemption deal on new tariffs, she just says that “we'll make the case for free and open trade”. What does that mean in practice? Who knows.
Perhaps, when Trump’s intentions become clearer then so will those of the British government. But my hunch is that they won’t. I don’t think that the government is, as I put it earlier, playing it long and cool. I think it will simply try to muddle through, dodging or fudging the choices in the hope that they become irrelevant, if only through the decisions made by other countries. Arguably, in a situation in which the UK has so little leverage and so few good choices available, that has a certain pragmatism. But as a response to the bigger framing of those choices gestured towards in this post it is wholly inadequate.
Why are Labour in this situation? In some ways it is because, faced with Trump, any British government, like the governments of many other countries, has an almost impossible problem. But, just as, for Britain, Brexit adds to all the economic problems that other countries face, so too does it add to the Trump problem. For this government, in particular, that is compounded by its commitment to a Brexit policy which it does not believe in but is unwilling, and perhaps unable, to repudiate.
Notes
[1] This is my amateurish take on the question. For more detailed analysis (though I think it is pretty much compatible with mine) from trade experts, see Sam Lowe’s Substack newsletter, David Henig on the UK Trade Policy Observatory blog, and Dmitry Grozoubinski’s guest post on Ian Dunt’s Substack newsletter.
[2] It may be that Badenoch was referring to the previous government’s statement of the case for such an agreement (2020) Even if so, that was, emphatically, not an agreement with the US, still less one which is now ‘oven ready’ to be signed with Trump.
Friday, 22 November 2024
Friday, 8 November 2024
The limits and limitations of post-Brexit choices
The very tiniest consequence of Trump’s election victory is that its timing falls messily for me now that this is a fortnightly blog. This post’s main topic, which is last week’s budget, suddenly seems like old news. Equally, writing about that leaves little space to write about the US election.
But that may be no bad thing. I often think that hot takes on big events are foolish, and the scale of this event, in particular, is going to take time to process. It is going to be different, bigger, and potentially far more dangerous than what flowed from his 2016 victory. The consequences go well beyond the focus of this blog, but even within that focus they will be profound. Profound for the UK, for the EU, for the continent of Europe and therefore, inevitably, for the entire Brexit project.
A preliminary list includes issues of defence, most pressingly as regards Ukraine, but also as regards the Baltic states, Eastern Europe both inside and outside the EU, and the Balkans. It also includes economics, and the possibility of substantial tariffs on trade with the US. Both of these things will shine a fresh and very searching spotlight on the economic and geo-political incoherence – an incoherence so great that it can properly be called a stupidity – of Brexit as a national strategy. That can only add weight to calls to join (or rejoin) the EU, though it's hard to see them being heeded. It certainly ought to bring more urgency and ambition to what already seemed the feebleness of the Labour government’s ‘reset’ of UK-EU relations, and which has now been rendered utterly inadequate in both scale and pace.
Yet, at the same time, Trump’s victory will embolden and re-energise the populists and the Brexiters. Earlier this year, when a second Trump presidency was already looking likely, I wrote at length about the relationships between Brexit, Brexitism, Trump and Putin. Most of that still stands, although some of the dynamics will be inflected differently under a Labour government. Thus Nigel Farage is gloatingly cock-a-hoop, directly comparing the result to Brexit, and the crackpot idea of him being the ‘unofficial Ambassador’ to the US is doing the rounds again.
Meanwhile, Kemi Badenoch, the new Tory leader, is already trying to exploit the difficulties that a Trump presidency would pose for any British government, and resurrecting the Brexiters’ favourite idea that he will agree a favourable trade deal with the UK. More generally, Brexiters, who have seen their 2016 ‘triumph’ become not just unpopular but a kind of byword for failure, will see in Trump’s reincarnation the hope that their fortunes, too, can be revived.
Labour’s first budget
All of this and much more will play out in the coming years. However, that doesn’t make last week’s budget an irrelevance and it, too, will have some long-term effects. It was a notable Brexit event, albeit in a peculiarly negative way. That has two aspects, one of them fairly widely remarked upon by commentators, the other, so far as I know, not mentioned by anyone.
The widely remarked-upon aspect was trailed in my previous post, where I wrote that “at one level, [the budget] 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.” And so it proved.
Rachel Reeves’ budget speech lasted well over an hour, but mentioned Brexit only once, and only in passing, when she said that the Tory “Brexit deal harmed British businesses”. The subsequent debate focussed on everything from the rise in employer National Insurance contributions to the supposed impact on family farm inheritance, but only rarely on the Brexit silence.
On the other hand, buried in the accompanying Office for Budget Responsibility (OBR) documents was a reminder that, taking into account what has already happened, its forecast for the impact of Brexit on trade intensity remains the same. This presumably also means that its forecast that the long-run impact will be that GDP will be 4% lower each year than it would otherwise have been also still holds (as last formally stated in May 2024). It is also implicit in the OBR figures, and confirmed explicitly by Treasury Minister Tulip Siddiq, that 60% of this damage is yet to come.
It bears repeating that, for all the tedious misleading graphs, cherry-picked data, and attempted rebuttals that still float around Brexiter-world, and get cited as ‘gotchas’ by keyboard warriors who wouldn’t know an x-axis from the X Factor or the X Files, something like this figure is given by all the major independent estimates. There’s a good discussion of this in relation to the budget by John Wilmslow in Sussex Bylines.
The irrelevance of Brexit
All this is important, and provides a fresh example of the strange post-Brexit landscape in which the mounting economic damage is politically all but undiscussable. However, there is a sense in which the silence about Brexit in the budget was entirely justified. For the aspect which I have not seen mentioned is just how little difference Brexit has made to political debates and policy choices. Brexit was billed by its advocates as a great national liberation. This budget was a big event, setting the direction of travel for the next few years. Yet its basic parameters were indistinguishable from those of all the decades in which Britain was a member of the EU.
This is a demonstration of the fact that Brexit itself was based on an utterly false narrative of policy being substantially constrained by, or dictated by, the EU. Or, to put it another way, the false narrative that Brexit would give the UK greater ‘sovereignty’. In fact, policy remains within the familiar terrain of how much to tax, how much to borrow, and where to allocate funds.
Of course, the precise decisions made about that in this budget were distinctive, but the generic issues involved have not changed at all. It may be that in the weeds of specific measures there were some things, if so, very likely related to VAT, which would not have occurred as an EU member but, again if so, they were very marginal.
The constraints of reality
Brexiters would no doubt say this reflects the failure of the government to take advantage of ‘Brexit freedoms’ but, as the previous government found, these proved to be illusory in practice. And the reason for this is not, as Brexiters would have it, a lack of will. It is because the constraints on UK policy choices were never, in any significant sense, those arising from EU membership. In fact, as regards the budget, the principal constraints are, as was the case before Brexit and as was the case before membership of the EU, the currency and bond markets. As Labour politicians in the 1960s used to complain, it is the ‘Gnomes of Zurich’ who set the parameters of UK economic policy. That was before Britain joined the EEC, but it remained the case afterwards, as Denis Healey found in 1976.
It is still true after Brexit. That was amply demonstrated by the Truss-Kwarteng mini-budget and - though to nothing like the extent that right-wing commentators claimed (£), and perhaps hoped - by Reeves’ budget. If the Reeves budget escaped the market mauling that Kwarteng’s endured it was partly because it was accepted, for example and in particular by the IMF, that the borrowing it involved provided the basis for sustainable growth and necessary public investment. It was also because Reeves explicitly eschewed the Brexitist anti-institutional frenzy which characterized the mini-budget, a frenzy which ended with the ludicrous assertions about ‘deep state’ interference and ‘socialist’ market traders.
But it’s not just fiscal policy which has shown the irrelevance of being outside the EU. The same goes for most parts of regulatory policy, something tacitly accepted by the last government, and slightly more openly accepted by the present government. The reasons, which I’ve rehearsed endlessly on this blog, boil down to the fact that, in or out of the EU, the UK largely has little choice but to accept transnational rules. Moreover, largely for reasons of geographical reality, these are very often those of the EU itself. Even immigration, the strongest candidate for the claim that Brexit has made a difference to policy choices, doesn’t bear out the Brexiters’ thesis. The detailed inner workings and mechanisms of policy have changed, but the basic parameters are framed by the same economic and political questions as they always were.
The constraints of domestic politics
This points to a related issue. It is not just that there are the same external constraints on policy as there were before Brexit. It is that there are the same, or similar, domestic constraints as before. It’s undoubtedly the case that many Brexiters on the free-market right saw leaving the EU as a way to introduce radical ‘neo-liberal’ [1] policies to become 'Singapore-on-Thames' (£), to use the common, though misleading, term. But the assumption that it was only EU membership which stood in the way was false.
The British electorate was and remains a major obstacle. If neo-liberals sought to achieve electoral consent for their vision via the backdoor of Brexit, it was because they had no confidence they could do so through the front door of a general election. That was actually underscored by the coalition of voters brought together by Vote Leave and, later, by Boris Johnson in the 2019 election. Many, if not most, of them wanted no such thing as the ‘Singapore Brexit’ agenda.
Hence, even after leaving the EU and after the pandemic, neither Johnson nor Sunak followed that agenda (£), much to the chagrin of its advocates. Liz Truss undoubtedly wanted (£) to go down something like that route but had not secured electoral support for doing so and, even if the bond markets hadn’t imploded her premiership, it’s far from clear she could have delivered on it politically even within her own party.
All this inflects another way. Just as many right-wing Brexiters saw the EU as a barrier to neo-liberalism, many on the left came to see it as a bulwark against such policies. This at least partly accounts for the shift from Labour’s 1983 ‘Brexit’ policy to its later, largely pro-EU, position. Of course this did not apply to some on the Labour left, who became what we now call Lexiters, but in the process that revealed another aspect of the incoherence of the Brexit coalition. For the Lexiters see the EU as neither a barrier to, nor a bulwark against, neo-liberalism, but as an incarnation of it.
The consequences of this are still playing out. At the time of the referendum, many left-wing remainers believed (and some still do) that because many neo-liberals supported Brexit then ‘therefore’ this was ‘the real purpose’ of Brexit. Ironically, this validates the neo-liberal Brexiters’ own complaint that what has been delivered is ‘not real Brexit’. For, manifestly, Brexit has not ushered in anything remotely like what they wanted.
The Freeports red herring
That ought to be seen as their problem, and as a demonstration that the neo-liberal Brexiters were as deluded and incompetent as every other brand of Brexiter. However, the insistence that this was what Brexit was ‘really all about’ lives on in the ridiculous claims about Freeports, which continue to do the rounds on social media, depicting these as being, or in the process of becoming, deregulated neo-liberal ‘zones of exception’ (there’s an irony in that, too, as it validates Brexiters’ own false claims about Freeports being, in their terms, a ‘Brexit benefit’).
In fact, they are no such thing, and the two pieces of ‘evidence’ cited to suggest otherwise are both flawed, as I discussed in more detail in a previous post. One is that these Freeports would violate ‘EU state aid rules’. It’s questionable whether this is true, but even if it is then it is an odd way to demonstrate their ‘neo-liberalism’. For, as the Lexiters insist, it is the EU’s state aid rules which are one of the principal reasons for regarding it as a neo-liberal institution. (Freeports aside, the Lexiter position on this is another example of the wider Brexiter falsity that it was EU rules, rather than the UK’s own political choices, which were the barrier to the use of state aid: whilst still in the EU the UK gave much less state aid in per capita terms than most other members.)
The other piece of ‘evidence’ given for deregulated Freeports is that the Retained EU Law (REUL) Act 2023 supposedly unleashed massive deregulation by scrapping 600 EU laws. But, apart from the fact that this applies across the country, not just in Freeports (so it is irrelevant to the claims about them), anyone with even a cursory understanding of this issue knows that REUL was a major disappointment to the neo-liberal Brexiters. They had wanted to scrap or automatically sunset all the estimated 4,000 EU laws by the end of 2023, and were infuriated that not only was the number scrapped so small, but that they generally related to trivialities. That decision, taken by Kemi Badenoch when she was Trade and Business Secretary, actually marked a defeat for them. That isn’t to say they may not revive in the future, and no doubt Trump’s victory will embolden their hopes of a similar resurrection, but the idea that REUL was a triumph for their version of Brexit is simply false.
The Freeports issue is an illustration of my wider point here, that the parameters of policy have not been changed by Brexit. It’s something demonstrated, if inadvertently and in a misleading way, when the Freeport alarmists talk about ‘the 86 Freeports and SEZs’ (Special Economic Zones). It’s misleading because Freeports are SEZs (so ‘Freeports and SEZs’ is a misnomer) and doing so enables them to talk of these being ‘rolled out’, when almost all of them have existed for years, and pre-date Brexit. And it’s that which illustrates the point that, both before and after Brexit, policy choices haven’t really changed. In this case, that is because SEZs were and still are predominantly areas with various business tax breaks, most if not all of which did not require Brexit. That doesn’t mean they are good, or that they are effective. It just means that they are pretty much what they have always been.
Back to the budget
This brings us back to the budget. It does so in one trivial way. Before the budget there was a report that it would announce five new Freeports. This report turned out to be mistaken, but not before much gnashing of teeth about how it ‘proved’ Labour had embraced post-Brexit neo-liberalism. Far more importantly, the budget marks a distinct break with recent economic policy, perhaps going as far back as 1979. That isn’t so much because of its taxation decisions as the role it envisages for state investment.
As such, it marks a decisive rejection of the neo-liberal ‘crowding out’ thesis – the idea that public investment crowds out private investment [2]. That was a key part of the intellectual undergirding of what became Thatcherism, and it persisted under George Osborne’s Chancellorship. Arguably, it also lay behind the Blair-Brown governments' embrace of the Private Finance Initiative (PFI). This doesn’t mean that it was the ‘socialist’ budget or the “Marxist nightmare” (£) described by the ludicrous rantings of right-wing commentators. But nor does it warrant the lazy claim that there’s no difference between Labour and the Tories. It was, as Martin Kettle of the Guardian described it, “a budget in the identifiably social democratic Labour tradition”.
Whether it succeeds in delivering the economic growth it promises, and to what extent, is another question, and one made all the more difficult to answer by Trump’s election. But, along with other Labour policies, from industrial policy to workers’ rights – even if none of these go as far as some would want – it puts paid to the idea, at least for now, that Brexit was the harbinger of a new wave of neo-liberalism. In some ways, it could even be described as bringing the UK closer to a ‘European’ economic model.
The limits and consequences of choice
That might seem ironic, but to a certain sort of Brexiter, arguably the most principled sort, it would be no such thing. Such people would say that the point of Brexit was not to usher in any particular policies, but simply to ensure that the policies in place are those chosen by British voters [3]. It is the same argument they make when saying that Brexit did not mean lower immigration, just that immigration levels would be determined solely by the elected government.
It may be a fine sentiment, but it is a naïve one, ignoring the many constraints on the choices available to voters, constraints over which their elected governments have far less control than they used to over EU laws and regulations. Like it or not, voting never has been, and never could be, the sole source of policy. On the other hand, it ignores the fact that, despite those constraints, the same kind of budget as that of last week could have been delivered with or without Brexit. That doesn’t mean that Brexit has made no difference to this and other post-Brexit budgets. It has. But the only real difference it has made is that there is less money.
In a similar way, no British voter chose Trump as American President, and most of them are unhappy about his election and concerned about its implications for Britain, but they will all have to cope with the consequences of it. That would have been true with or without Brexit, but Brexit limits the choices for how to do so.
Notes
[1] I’m aware that some people find ‘neo-liberal’ an imprecise, irritating, or even meaningless term. I use it here as shorthand for the broad proposition that markets are the best way of allocating resources, that they do so best when minimally regulated, and the State should be confined to relatively limited functions.
[2] I’m thinking in particular of the influence of the ‘Bacon-Eltis’ version of the crowding out thesis. Crowding out as an idea has a longer history, but in their telling it was enrolled into the wider neo-liberal narrative of ‘private good, public bad’.
[3] This was the position of the late Tony Benn, who of course was a Lexiter avant la lettre, and, certainly in his version of it, it was not the same as either ‘nationalist’ or ‘sovereigntist’ positions.
But that may be no bad thing. I often think that hot takes on big events are foolish, and the scale of this event, in particular, is going to take time to process. It is going to be different, bigger, and potentially far more dangerous than what flowed from his 2016 victory. The consequences go well beyond the focus of this blog, but even within that focus they will be profound. Profound for the UK, for the EU, for the continent of Europe and therefore, inevitably, for the entire Brexit project.
A preliminary list includes issues of defence, most pressingly as regards Ukraine, but also as regards the Baltic states, Eastern Europe both inside and outside the EU, and the Balkans. It also includes economics, and the possibility of substantial tariffs on trade with the US. Both of these things will shine a fresh and very searching spotlight on the economic and geo-political incoherence – an incoherence so great that it can properly be called a stupidity – of Brexit as a national strategy. That can only add weight to calls to join (or rejoin) the EU, though it's hard to see them being heeded. It certainly ought to bring more urgency and ambition to what already seemed the feebleness of the Labour government’s ‘reset’ of UK-EU relations, and which has now been rendered utterly inadequate in both scale and pace.
Yet, at the same time, Trump’s victory will embolden and re-energise the populists and the Brexiters. Earlier this year, when a second Trump presidency was already looking likely, I wrote at length about the relationships between Brexit, Brexitism, Trump and Putin. Most of that still stands, although some of the dynamics will be inflected differently under a Labour government. Thus Nigel Farage is gloatingly cock-a-hoop, directly comparing the result to Brexit, and the crackpot idea of him being the ‘unofficial Ambassador’ to the US is doing the rounds again.
Meanwhile, Kemi Badenoch, the new Tory leader, is already trying to exploit the difficulties that a Trump presidency would pose for any British government, and resurrecting the Brexiters’ favourite idea that he will agree a favourable trade deal with the UK. More generally, Brexiters, who have seen their 2016 ‘triumph’ become not just unpopular but a kind of byword for failure, will see in Trump’s reincarnation the hope that their fortunes, too, can be revived.
Labour’s first budget
All of this and much more will play out in the coming years. However, that doesn’t make last week’s budget an irrelevance and it, too, will have some long-term effects. It was a notable Brexit event, albeit in a peculiarly negative way. That has two aspects, one of them fairly widely remarked upon by commentators, the other, so far as I know, not mentioned by anyone.
The widely remarked-upon aspect was trailed in my previous post, where I wrote that “at one level, [the budget] 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.” And so it proved.
Rachel Reeves’ budget speech lasted well over an hour, but mentioned Brexit only once, and only in passing, when she said that the Tory “Brexit deal harmed British businesses”. The subsequent debate focussed on everything from the rise in employer National Insurance contributions to the supposed impact on family farm inheritance, but only rarely on the Brexit silence.
On the other hand, buried in the accompanying Office for Budget Responsibility (OBR) documents was a reminder that, taking into account what has already happened, its forecast for the impact of Brexit on trade intensity remains the same. This presumably also means that its forecast that the long-run impact will be that GDP will be 4% lower each year than it would otherwise have been also still holds (as last formally stated in May 2024). It is also implicit in the OBR figures, and confirmed explicitly by Treasury Minister Tulip Siddiq, that 60% of this damage is yet to come.
It bears repeating that, for all the tedious misleading graphs, cherry-picked data, and attempted rebuttals that still float around Brexiter-world, and get cited as ‘gotchas’ by keyboard warriors who wouldn’t know an x-axis from the X Factor or the X Files, something like this figure is given by all the major independent estimates. There’s a good discussion of this in relation to the budget by John Wilmslow in Sussex Bylines.
The irrelevance of Brexit
All this is important, and provides a fresh example of the strange post-Brexit landscape in which the mounting economic damage is politically all but undiscussable. However, there is a sense in which the silence about Brexit in the budget was entirely justified. For the aspect which I have not seen mentioned is just how little difference Brexit has made to political debates and policy choices. Brexit was billed by its advocates as a great national liberation. This budget was a big event, setting the direction of travel for the next few years. Yet its basic parameters were indistinguishable from those of all the decades in which Britain was a member of the EU.
This is a demonstration of the fact that Brexit itself was based on an utterly false narrative of policy being substantially constrained by, or dictated by, the EU. Or, to put it another way, the false narrative that Brexit would give the UK greater ‘sovereignty’. In fact, policy remains within the familiar terrain of how much to tax, how much to borrow, and where to allocate funds.
Of course, the precise decisions made about that in this budget were distinctive, but the generic issues involved have not changed at all. It may be that in the weeds of specific measures there were some things, if so, very likely related to VAT, which would not have occurred as an EU member but, again if so, they were very marginal.
The constraints of reality
Brexiters would no doubt say this reflects the failure of the government to take advantage of ‘Brexit freedoms’ but, as the previous government found, these proved to be illusory in practice. And the reason for this is not, as Brexiters would have it, a lack of will. It is because the constraints on UK policy choices were never, in any significant sense, those arising from EU membership. In fact, as regards the budget, the principal constraints are, as was the case before Brexit and as was the case before membership of the EU, the currency and bond markets. As Labour politicians in the 1960s used to complain, it is the ‘Gnomes of Zurich’ who set the parameters of UK economic policy. That was before Britain joined the EEC, but it remained the case afterwards, as Denis Healey found in 1976.
It is still true after Brexit. That was amply demonstrated by the Truss-Kwarteng mini-budget and - though to nothing like the extent that right-wing commentators claimed (£), and perhaps hoped - by Reeves’ budget. If the Reeves budget escaped the market mauling that Kwarteng’s endured it was partly because it was accepted, for example and in particular by the IMF, that the borrowing it involved provided the basis for sustainable growth and necessary public investment. It was also because Reeves explicitly eschewed the Brexitist anti-institutional frenzy which characterized the mini-budget, a frenzy which ended with the ludicrous assertions about ‘deep state’ interference and ‘socialist’ market traders.
But it’s not just fiscal policy which has shown the irrelevance of being outside the EU. The same goes for most parts of regulatory policy, something tacitly accepted by the last government, and slightly more openly accepted by the present government. The reasons, which I’ve rehearsed endlessly on this blog, boil down to the fact that, in or out of the EU, the UK largely has little choice but to accept transnational rules. Moreover, largely for reasons of geographical reality, these are very often those of the EU itself. Even immigration, the strongest candidate for the claim that Brexit has made a difference to policy choices, doesn’t bear out the Brexiters’ thesis. The detailed inner workings and mechanisms of policy have changed, but the basic parameters are framed by the same economic and political questions as they always were.
The constraints of domestic politics
This points to a related issue. It is not just that there are the same external constraints on policy as there were before Brexit. It is that there are the same, or similar, domestic constraints as before. It’s undoubtedly the case that many Brexiters on the free-market right saw leaving the EU as a way to introduce radical ‘neo-liberal’ [1] policies to become 'Singapore-on-Thames' (£), to use the common, though misleading, term. But the assumption that it was only EU membership which stood in the way was false.
The British electorate was and remains a major obstacle. If neo-liberals sought to achieve electoral consent for their vision via the backdoor of Brexit, it was because they had no confidence they could do so through the front door of a general election. That was actually underscored by the coalition of voters brought together by Vote Leave and, later, by Boris Johnson in the 2019 election. Many, if not most, of them wanted no such thing as the ‘Singapore Brexit’ agenda.
Hence, even after leaving the EU and after the pandemic, neither Johnson nor Sunak followed that agenda (£), much to the chagrin of its advocates. Liz Truss undoubtedly wanted (£) to go down something like that route but had not secured electoral support for doing so and, even if the bond markets hadn’t imploded her premiership, it’s far from clear she could have delivered on it politically even within her own party.
All this inflects another way. Just as many right-wing Brexiters saw the EU as a barrier to neo-liberalism, many on the left came to see it as a bulwark against such policies. This at least partly accounts for the shift from Labour’s 1983 ‘Brexit’ policy to its later, largely pro-EU, position. Of course this did not apply to some on the Labour left, who became what we now call Lexiters, but in the process that revealed another aspect of the incoherence of the Brexit coalition. For the Lexiters see the EU as neither a barrier to, nor a bulwark against, neo-liberalism, but as an incarnation of it.
The consequences of this are still playing out. At the time of the referendum, many left-wing remainers believed (and some still do) that because many neo-liberals supported Brexit then ‘therefore’ this was ‘the real purpose’ of Brexit. Ironically, this validates the neo-liberal Brexiters’ own complaint that what has been delivered is ‘not real Brexit’. For, manifestly, Brexit has not ushered in anything remotely like what they wanted.
The Freeports red herring
That ought to be seen as their problem, and as a demonstration that the neo-liberal Brexiters were as deluded and incompetent as every other brand of Brexiter. However, the insistence that this was what Brexit was ‘really all about’ lives on in the ridiculous claims about Freeports, which continue to do the rounds on social media, depicting these as being, or in the process of becoming, deregulated neo-liberal ‘zones of exception’ (there’s an irony in that, too, as it validates Brexiters’ own false claims about Freeports being, in their terms, a ‘Brexit benefit’).
In fact, they are no such thing, and the two pieces of ‘evidence’ cited to suggest otherwise are both flawed, as I discussed in more detail in a previous post. One is that these Freeports would violate ‘EU state aid rules’. It’s questionable whether this is true, but even if it is then it is an odd way to demonstrate their ‘neo-liberalism’. For, as the Lexiters insist, it is the EU’s state aid rules which are one of the principal reasons for regarding it as a neo-liberal institution. (Freeports aside, the Lexiter position on this is another example of the wider Brexiter falsity that it was EU rules, rather than the UK’s own political choices, which were the barrier to the use of state aid: whilst still in the EU the UK gave much less state aid in per capita terms than most other members.)
The other piece of ‘evidence’ given for deregulated Freeports is that the Retained EU Law (REUL) Act 2023 supposedly unleashed massive deregulation by scrapping 600 EU laws. But, apart from the fact that this applies across the country, not just in Freeports (so it is irrelevant to the claims about them), anyone with even a cursory understanding of this issue knows that REUL was a major disappointment to the neo-liberal Brexiters. They had wanted to scrap or automatically sunset all the estimated 4,000 EU laws by the end of 2023, and were infuriated that not only was the number scrapped so small, but that they generally related to trivialities. That decision, taken by Kemi Badenoch when she was Trade and Business Secretary, actually marked a defeat for them. That isn’t to say they may not revive in the future, and no doubt Trump’s victory will embolden their hopes of a similar resurrection, but the idea that REUL was a triumph for their version of Brexit is simply false.
The Freeports issue is an illustration of my wider point here, that the parameters of policy have not been changed by Brexit. It’s something demonstrated, if inadvertently and in a misleading way, when the Freeport alarmists talk about ‘the 86 Freeports and SEZs’ (Special Economic Zones). It’s misleading because Freeports are SEZs (so ‘Freeports and SEZs’ is a misnomer) and doing so enables them to talk of these being ‘rolled out’, when almost all of them have existed for years, and pre-date Brexit. And it’s that which illustrates the point that, both before and after Brexit, policy choices haven’t really changed. In this case, that is because SEZs were and still are predominantly areas with various business tax breaks, most if not all of which did not require Brexit. That doesn’t mean they are good, or that they are effective. It just means that they are pretty much what they have always been.
Back to the budget
This brings us back to the budget. It does so in one trivial way. Before the budget there was a report that it would announce five new Freeports. This report turned out to be mistaken, but not before much gnashing of teeth about how it ‘proved’ Labour had embraced post-Brexit neo-liberalism. Far more importantly, the budget marks a distinct break with recent economic policy, perhaps going as far back as 1979. That isn’t so much because of its taxation decisions as the role it envisages for state investment.
As such, it marks a decisive rejection of the neo-liberal ‘crowding out’ thesis – the idea that public investment crowds out private investment [2]. That was a key part of the intellectual undergirding of what became Thatcherism, and it persisted under George Osborne’s Chancellorship. Arguably, it also lay behind the Blair-Brown governments' embrace of the Private Finance Initiative (PFI). This doesn’t mean that it was the ‘socialist’ budget or the “Marxist nightmare” (£) described by the ludicrous rantings of right-wing commentators. But nor does it warrant the lazy claim that there’s no difference between Labour and the Tories. It was, as Martin Kettle of the Guardian described it, “a budget in the identifiably social democratic Labour tradition”.
Whether it succeeds in delivering the economic growth it promises, and to what extent, is another question, and one made all the more difficult to answer by Trump’s election. But, along with other Labour policies, from industrial policy to workers’ rights – even if none of these go as far as some would want – it puts paid to the idea, at least for now, that Brexit was the harbinger of a new wave of neo-liberalism. In some ways, it could even be described as bringing the UK closer to a ‘European’ economic model.
The limits and consequences of choice
That might seem ironic, but to a certain sort of Brexiter, arguably the most principled sort, it would be no such thing. Such people would say that the point of Brexit was not to usher in any particular policies, but simply to ensure that the policies in place are those chosen by British voters [3]. It is the same argument they make when saying that Brexit did not mean lower immigration, just that immigration levels would be determined solely by the elected government.
It may be a fine sentiment, but it is a naïve one, ignoring the many constraints on the choices available to voters, constraints over which their elected governments have far less control than they used to over EU laws and regulations. Like it or not, voting never has been, and never could be, the sole source of policy. On the other hand, it ignores the fact that, despite those constraints, the same kind of budget as that of last week could have been delivered with or without Brexit. That doesn’t mean that Brexit has made no difference to this and other post-Brexit budgets. It has. But the only real difference it has made is that there is less money.
In a similar way, no British voter chose Trump as American President, and most of them are unhappy about his election and concerned about its implications for Britain, but they will all have to cope with the consequences of it. That would have been true with or without Brexit, but Brexit limits the choices for how to do so.
Notes
[1] I’m aware that some people find ‘neo-liberal’ an imprecise, irritating, or even meaningless term. I use it here as shorthand for the broad proposition that markets are the best way of allocating resources, that they do so best when minimally regulated, and the State should be confined to relatively limited functions.
[2] I’m thinking in particular of the influence of the ‘Bacon-Eltis’ version of the crowding out thesis. Crowding out as an idea has a longer history, but in their telling it was enrolled into the wider neo-liberal narrative of ‘private good, public bad’.
[3] This was the position of the late Tony Benn, who of course was a Lexiter avant la lettre, and, certainly in his version of it, it was not the same as either ‘nationalist’ or ‘sovereigntist’ positions.
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