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.