Brexit has failed, but there’s no solution in prospect

It’s not at all surprising that so many leading Brexiters, especially those not in government office, now pronounce, as Nigel Farage did this week, that “Brexit has failed” (though it is possible he was interrupted and intended to qualify that bald statement along the usual lines of ‘because it hasn’t been done properly’). It was always embedded in Brexit that this would happen, through a combination of the impossible promises made for it and the addiction to betrayalism and victimhood of so many of its advocates. Indeed, that has been a recurring theme of this blog, and of my book about Brexit.

The rumblings that Brexit has been betrayed, or is Brexit in Name Only, started even before the UK left the EU. But they began to grow more clamorous afterwards and there came a point, which seemed to occur around the time of Spectator Editor Fraser Nelson’s Telegraph column in November 2021 (£), after which it became a common complaint. Now, amongst Brexiters, it’s not even so much a complaint as an uncontentious statement of fact. Farage’s comment wasn’t shocking. Something similar is said day in and day out by Brexiters. For example, also this week, Telegraph columnist Sherelle Jacobs wrote (£), not as the argument of her article but as the taken-for-granted first sentence of it, that “Brexit is dead in all but name.” There are any number of other examples.

Labour can now say the B-word but still not the F-word

No, none of that is surprising. What is surprising is that those who opposed Brexit, especially in the Labour Party, are so shy of saying the same thing. Keir Starmer’s policy of ‘Making Brexit Work’ implicitly acknowledges that Brexit has not been a success, but it is surely bizarre that it is taboo for him or any other Labour frontbencher to say in terms what to so many Brexiters is no more than self-evidently true. Brexit has failed.

Of course, what Brexiters like Farage mean by Brexit having failed is quite different to what Starmer means when he says it needs to be made to work. Starmer’s idea, which now seems little different to Rishi Sunak’s, is to rub some of the harder edges off the Brexit that Boris Johnson and David Frost negotiated, but without changing the fundamental nature of it. For Farage and others, by contrast, the issues are the continuing high level of net migration and the absence of significant regulatory divergence from the EU.

Labour’s policy was re-iterated by Starmer this week, when he committed to “improving” the Brexit trade deal whilst ruling out seeking to re-join either the single market or the EU, and there seems almost no chance of it changing before the next election. Their continuing lead in opinion polls and the results of the recent local elections will be taken to vindicate it, and, anyway, arguably it is the only realistic policy open to them in their first term of office.

Clearly Labour are also wary of allowing the Tories once more to weaponize Brexit against them, as happened this week when they floated the proposal to extend the right to vote in general elections to EU citizens living in the UK. Immediately, Tories started thundering that this was a plot to hold a vote to reverse Brexit. The fear of such attacks is understandable, although given that even the cautious policy of improving the TCA, which is due for review in 2026 anyway, was also represented as reneging on Brexit, arguably Starmer is taking the hit without getting much credit in return.

I still think that this approach could be augmented by the one I set out in my post last December, in brief, by stating that re-joining would be economically desirable but cannot be pursued responsibly or practically until embraced on a cross-party basis by the Tories. In this way, Labour could openly acknowledge the failure of Brexit whilst keeping the Tories responsible for owning it, and still limit the credibility of the accusation of seeking to undemocratically reverse Brexit.

As for the Brexiters’ diagnosis of their project having failed, this was given new impetus this week by two things.

Brexit delivers (one version of) one of its promises

The first is the expectation that figures are about to be released showing a record high level of net migration, exceeding the record already set by last November’s data. As Jonathan Portes, the leading economist in this area, has repeatedly pointed out, this is a policy area where Brexit has actually delivered what it promised, in the sense that freedom of movement of people has ended, and the UK sets its own immigration criteria and levels. That is also Grant Shapps’ defence of government policy. If Brexiters now feel betrayed, it is because of the dishonesty of a referendum campaign that certainly dog whistled to leave voters that immigration levels would fall.

As it happens, the public seem relatively relaxed about this not having happened, perhaps because of a recognition of post-pandemic labour shortages, but it still has salience amongst politicians on the political right, most notably Home Secretary Suella Braverman. Yet, again reflecting the dishonesty and incoherence of Brexit, her and others’ attempts to claim low immigration levels as a promise of Brexit are at odds with the prominent Brexiter business people like Tim Martin, Rocco Forte and Simon Wolfson who have called for a still more liberal regime.

At all events, Braverman is certainly at odds with the UK’s post-Brexit economic needs, as shown by Rishi Sunak’s announcement this week that more visas will be made available for agricultural workers. It is also the case that overseas students, who are rather stupidly included in migration figures, are vital, both economically and intellectually, to UK universities, one of the country’s few genuinely ‘world leading’ sectors.

Thin REUL

The other salt added to Brexiter wounds this week came with the fallout from the scaling back of the Retained EU Law (REUL) Bill, as pre-figured in my recent post, including the listing of the 600 pieces of law to be considered for cutting. This was presented as, and to an extent is, a pragmatic approach by Trade and Business Secretary Kemi Badenoch, although she also managed to imply it resulted from civil service failings (£). But pragmatism is a dirty word to Tory Brexiters, with the likes of John Redwood and the ubiquitous Jacob Rees-Mogg denouncing it, and the creaking great-grandfather of Brexit, Bill Cash, ponderously deriding the triviality of the laws included in the listing.

It may be the case that axing these laws will have little or no effect, since many of them are defunct anyway – although there remain uncertainties and concerns (£) about whether this is so – but if Cash is right it doesn’t seem to occur to him or his fellows that this is one reason why their perpetual complaints about being under the yoke of EU law are so absurd. It certainly won’t occur to them that there are good reasons why their Brexit dream of de-regulation has foundered. One is just that, whatever they may have said since, neither this nor any other form of Brexit was specified at, and therefore mandated by, the referendum. Nor has it ever been put to the electorate by the Tory Party. So if they thought they could smuggle it in by stealth, under cover of Brexit, they have only their own dishonesty and incompetence to blame.

The other is the sheer impracticality of most ideas for significant regulatory divergence, discussed in detail in numerous previous posts, including the recent one on REUL. I won’t repeat that here, but an illustration of the basic point came in a different form this week with the government’s announcement that British food products sold throughout the UK will have to carry a ‘not for sale in the EU’ label. This arises because the Windsor Framework requires food sold in Northern Ireland to be marked in this way, but it is to apply across the UK “for practical and philosophical” reasons.

Not for sale in the EU

The ‘philosophical’ reason is as a sop to unionists and Brexiters: Northern Ireland will not be treated differently, even though the labeling only conceals the basic truth that there is no longer a single Great Britain (GB) and Northern Ireland (NI) goods market. The ‘practical’ reason is so that businesses do not have to use different labelling according to whether the food is sold in GB or NI, and can avoid almost all checks on GB-produced food being transported for sale to NI.

Cue outrage from Brexiters (£), such as Iain Duncan Smith, who declared “this is not why we left the EU. We were meant to be leaving the EU to deregulate, not to over-regulate.” Clearly the penny still hasn’t dropped that acquiring the right to diverge on regulations, even if that right isn’t exercised, automatically increases red tape. That, along with the bureaucratic burdens of being outside the customs unions, is what Brexit has done to businesses, and greater divergence, as envisaged by those who want to scrap the entirety of REUL, ultimately leads, in effect, to the literal or metaphorical marking of all goods and services as ‘not for sale outside the UK’. Meanwhile, it requires those firms which do export to meet the standards of the EU or other destination markets: double regulation, exactly what the single market avoids for trade amongst its members, and, to an extent, with those countries that follow its regulations.

It is astonishing that this still isn’t understood, the more so as, at the same time as complaining that Britain has “squandered the opportunities of Brexit” by failing to deliver regulatory divergence, Brexiters like the Telegraph’s Matthew Lynn (£) are up in arms about the decision of the UK’s Competition and Markets Authority (CMA) to block Microsoft’s takeover of Activision Blizzard, which the EU has now approved. And why is the CMA so foolish, according to Lynn? Because, he explains, “the UK simply does not matter that much. The EU was already looking increasingly ridiculous in its attempts to pose as the world’s regulator – the so-called ‘Brussels effect’, whereby its standards would be adopted globally … For the UK, accounting for only 2.3pc of global output, the idea is even more laughable.” The obligatory sideswipe against the EU aside, the point is both correct and obvious. Yet it seems to elude Brexiters in the wider context of regulatory divergence.  

Tories in turmoil

Although it’s not clear whether they will be able to do much about it when it returns from the mauling it is currently receiving in the House of Lords, the reaction from Tory Brexiters to the watering-down of the REUL Bill looks like being less muted than it was to the reversal they suffered with the Windsor Framework. There are various reasons for that.

Possibly they simply don’t care that much about the arrangements for Northern Ireland – after all, they agreed to the original Protocol which established the basic fact of the Irish Sea border – or reckon that most voters outside Northern Ireland don’t. By contrast, regulatory divergence matters to Brexiters a lot, and they may think that the idea of ‘still being subject to EU law’ will resonate with some leave voters. Moreover, whereas the Windsor Framework, once signed, became very difficult to re-open, and the government categorically confirmed this week that it will not do so (£), it will always be possible to push for the resuscitation of REUL or something like it.

But the biggest reason is, undoubtedly, the now tangible sense since the local election results that Sunak’s grip on power is fading, and that the Tory Party is in turmoil, effectively preparing for who will replace him after the next election is lost.

That was most evident this week with the appearance of Cabinet Ministers Michael Gove and Suella Braverman, as well as Tory MPs Jacob Rees-Mogg, John Hayes, Lee Anderson and Danny Kruger, and aspiring MP Lord David Frost, at the ‘National Conservativism’ (NatCon) Conference, an ironically global gathering of extreme right-wing ideologues.

Meanwhile, at the weekend, there was a gathering of the ‘Conservative Democratic Organization’ (CDO), the pro-Johnson group of grassroots Tory Party members, founded by Peter Cruddas, the disgraced former Tory Party treasurer and Vote Leave and Tory Party donor, who now sits in the House of Lords courtesy of Johnson though against the advice of the Appointments Commission. Johnson himself didn’t bother to attend in person, but Priti Patel, Nadine Dorries and, yet again, Jacob Rees-Mogg did.

Part of what is going on here is simply some of the aspirant replacements for Sunak burnishing their leadership credentials. That almost certainly applies to Braverman, probably to Patel, possibly to Rees-Mogg, and conceivably even to Frost. In itself, that is indicative of Sunak’s faltering authority, as well as presenting a menu of options for his successor which might turn even the strongest stomach and dismay the unfussiest of eaters. More fundamentally, it is about the incipient ideological war within the Tory Party which is going to explode assuming they lose the next election.

I have written about the implications of the NatCon Conference for the Conservative Party in my ‘Brexit Britain’ in the latest edition of Byline Times, so won’t do so here. But the wider picture, as the Guardian’s Gaby Hinsliff writes, is an attempt by “Tory populists” to capture “the ideological soul of the party” at the expense of “Tory realists”. It is a struggle inseparable from the entire story of Brexit and the Conservative Party, and the latest manifestation of the process I discussed at length in February, whereby ‘Brexitism’ threatens to completely displace ‘Traditionalism’ (in the same meaning as ‘realist’ rather than the NatCon sense of traditional Conservatism). Within that, as Rafael Behr wrote this week, Sunak “has not picked a side between reality and dogma, but stands awkwardly between them, in the churned-up bog of a political no man’s land, sinking.”

According to David Gauke, it is “perfectly plausible” that after the election the NatCon (or Populist or Brexitist) takeover of the Tory Party will succeed, and whilst that may do little for its electoral fortunes it will make it impossible for as long as it lasts to envisage a cross-party agreement on substantively closening the relationship with the EU, which would surely be a pre-condition of the EU considering such a change.

Damage and decline continue

As the Tories implode, the damage and decline caused by Brexit grows remorselessly. One issue which put Brexit in the headlines this week has been lurking ever since the TCA was agreed – I think I first mentioned it in January 2021, though, astonishingly, Kemi Badenoch says it “isn’t to do with Brexit” – namely the looming end-of-year deadline by which, in order for electric vehicles to be traded tariff-free between the EU and the UK, their batteries must be at least 60% (by value) sourced in the EU or the UK. Without urgent action, car makers, including Vauxhall, are likely to close factories in the UK.

There is a fairly straightforward, if temporary, solution which Sam Lowe, who has been flagging up this issue for years, explains is to extend the deadline for the application of this ‘rule of origin’ (the link given also explains in more detail the intricacies of this issue, which are greater than my summary of it). But the underlying problem is that the UK has failed to develop what was supposedly one of its post-Brexit industrial priorities, the development of a domestic electric battery industry, exemplified by the failure of BritishVolt gigafactory. And, lurking beneath that, is the UK’s lack of access to the critical minerals needed for such batteries and lack of capacity to process them.

This temporary solution requires, of course, EU agreement to amend the TCA: having ‘sovereignty’ doesn’t give untrammeled freedom of action. As it happens, the EU also faces these problems, making it quite feasible that an extension will be agreed. But the crucial issue will be what happens then. Both the US and the EU (£) are devoting huge resources to securing the minerals and processing capacity, and developing the battery manufacturing capacity, so as to be free of reliance on, especially, Chinese imports. This in turn is linked to the even wider issue, which I discussed in August 2021, about the EU drive for ‘technological autonomy’ and its active efforts to secure supplies of critical raw materials (it also arguably links to the even wider matter of what the growing protectionism of both the EU and the US means for the UK).

There’s little sign that the UK has the political will or resources to do the same. So, even assuming an extension is agreed, if by its expiry the EU has succeeded in making the necessary developments and the UK hasn’t then it will presumably mark the end, in effect, of the UK car industry. And, on the more general issue, that the UK will be squeezed between the US, EU and China in the race for secure and stable access to the materials needed for advanced manufacturing (it’s not just batteries they’re needed for) and, crucially, environmentally sustainable advanced manufacturing. As with regulation, the UK is too small to go it alone.

In a somewhat related way, it was also reported this week (£) that post-Brexit interim arrangements for energy trading make costs for British consumers £1.1 billion a year higher than they would otherwise be. It’s yet another example of the failure of Brexit, and – as with another Brexit development this week, an agreement about how to address the ‘small boats crisis’ (£) – the remedy is closer cooperation with the EU. Yet such remedies are seen by those most willing to admit in public that Brexit has failed as being the cause of, rather than the solution to, that failure.

The invariable cry of those Brexiters bemoaning all this failure is, like Rocco Forte this week (£), that post-Brexit Britain has lapsed into ‘declinism’, which is equally invariably blamed on the “declinist Remainer elite” (£). It’s the same analysis that lay behind Truss’s disastrous mini-budget. The irony is painful. For the reality is that the more Brexit is pursued in the manner they want the more sharply Britain declines.

This is the serious stuff of high-level strategy. It isn’t remotely addressed by the government’s blithe assurances of its commitment to ‘finding solutions’, solutions that don’t exist within the parameters of the Brexit it has created. Nor is it addressed by Labour’s pledge to make Brexit work, since the solutions don’t exist within the modest tinkering with Brexit that Starmer has committed to. Not until the diagnosis that Brexit is a failure is accompanied by realism and honesty about the causes and solutions can it be addressed. There is little sign that the British polity is getting close to that point, and by the time it does the decline may have become irreversible.

Get ready for 'Long Brexit'

Another week and more stories of the disruption that Brexit is bringing to UK-EU trade in addition those in my recent posts. Fishing continues to be the most high-profile example in the media coverage, with a major protest in London this week, but increasingly the impact on the meat trade is being reported along with numerous others. Inevitably it is perishable goods which are the most obviously impacted by transport delays, but the problems go much wider. More major logistics groups, as well as a host of smaller companies, are now simply suspending deliveries between the UK and the EU.

As mentioned in the previous post, disruption in the form of queues has been muted by the low volumes of goods traffic over the New Year period – about 25% of normal in the first week of the year and 40% last week on the short Channel – so much greater problems are expected (£). I also referred in the previous post to the fact that at the end of March the grace period on applying full certification rules to shipments from Great Britain to Northern Ireland will end, and this week haulage industry leaders warned that when that happens they will face “an abyss”. According to Richard Burnett, CEO of the Road Haulage Association, “these are not teething problems. These are structural problems”.

It’s an almost impossible task to keep track of everything that is going on but there are two useful resources for doing so. One, mentioned in my previous post, is Yorkshire Bylines Davis Downside Dossier. Another is the ongoing Twitter thread being created by Daniel Kelemen, Professor of Political Science and Law at Rutgers University. However, even these listings show only the tip of the iceberg.

The legacy of lies

The crucial point, unsurprisingly being avoided or misrepresented by the government and by Brexiters more generally, is that this isn’t just a matter of ‘teething problems’ and it isn’t simply because Johnson agreed a ‘bad deal’. It is true that, had there been more time to prepare, some of the problems of conforming with the new situation could have been dealt with. But that would only have made the consequences of Brexit less visible and less newsworthy. It wouldn’t have changed the underlying reality of there being new barriers to trade.  

That reality represents the exposure of the lies or misunderstandings, going right back to before the referendum, that a trade deal would more or less replicate the conditions of single market and customs union membership. Associated with that was the monocular focus on the removal of tariffs as being the sole issue. It has not come out of a clear blue sky. It was warned of repeatedly (Dr Matt Bishop of Sheffield University gave an excellent summary with multiple links in February 2020) and those warnings were ridiculed and dismissed. But now we have, precisely, a zero tariffs trade deal and the warnings have been proved right.

The pervasiveness of the lie also (along with lack of time and Covid) explains the lack of preparations because many businesses thought that if there was a trade deal then their terms of trade would continue unaltered. A report in The Times this week (£) – which includes a lot of crunchy detail on the massive problems facing especially smaller exporters – quotes Ruth Corkin, the VAT and indirect tax Director of Hillier Hopkins, reportedly the only British accountancy firm to offer a customs agent service to SMEs dealing with Brexit. As such, it seems a fair assumption that she has extensive contacts with such firms and is right to say that some had assumed that because there’s a trade deal “everything will be hunky dory and like it was before”.

If so, it was an entirely understandable assumption given the last five years of promises and lies. But even firms which did understand and prepare for the new realities have been caught out by the complexities of the new requirements and the inadequacy of the administrative and IT systems they have to deal with. A particular problem (the link in the previous sentence gives an example) is the outdated Customs Handling of Import and Export Freight (CHIEF) system, a legacy system which is still being used because of delays in creating the new Customs Declarations Service (CDS). Another problem now being reported by Joe Mayes of Bloomberg is a desperate shortage of ‘transit guarantees’ and delays in new ones being issued by HMRC, this being due to delays in another IT project, the New Computerised Transit System. (These examples of deficiencies in the systems needed even for a frictive border might also serve to remind us of the hollowness of Brexiters’ claims for technologies which would make borders completely frictionless).

A fundamental shift in the trading economy is underway

There are now daily reports of the damage being wrought, but focussing on each individual one is to miss the point of what is happening. What is underway is a fundamental shift in the ‘tectonic plates’ of the UK trading economy and its supply chains, happening in real time and under our noses, but with little comment on the aggregate picture. And it is going to get worse when all the new rules are stringently applied on the EU side and applied at all on the UK side. It is reaching, or will reach, into every niche of economic life, from business travel to the EU (£) to having to make a declaration if an individual or group takes more than £10,000 out of Great Britain (i.e. including trips to Northern Ireland) to an EU country.

As Shane Brennan, CEO of the Cold Chain Federation puts it “the big worry here is that ‘not trading’ becomes the habit”. My view is that this is an inevitability, partly because some trading firms will simply give up as things are too costly or too complex (for SMEs, in particular), but mainly because of the impact on customers. If they experience even a short period of disruption leading them to go to an alternative supplier then, very likely, they will stick with the new supplier.

This is evident in an example in Joe Mayes’ report where the Managing Director of Sealight, which exports LEDs, explains that “[EU] clients will say: ‘Forget this, it is just too much”. He expects his firm’s annual sales to drop by 25%. In the same report it is suggested that some 20% of SMEs have suspended exports to the EU. Those affected include companies selling via platforms like Amazon and Ebay.

Meanwhile other businesses, both large and small, are struggling to get the imports they need – hair salons being just one example – and they will surely face price rises, if not now then down the line, because EU hauliers are now charging €10/km to carry freight to the UK, up from €1.50/km. That aside, British purchasers of EU goods are finding that they face charges (due to customs, VAT and handling fees). These are not necessarily known in advance and are demanded at point of delivery by couriers. Again, after the initial ‘disruption’, the long-term effect is likely to be that customers cease to order such goods.

Most of the current focus is on the impact on goods trade, because it is this which is affected by new customs formalities and, when falling foul of rules or origin, tariffs. A huge additional, and so far under-reported, problem is the impact of regulatory duplication caused by Brexit, an important example being the £33 billion a year UK chemicals industry. Moreover it shouldn’t be forgotten that new non-tariff barriers are, under the surface, affecting service businesses. An illustration is the report that some 2,500 jobs and £170 billion of assets had moved from the UK financial services sector to France alone up to the end of 2020. That was before (though of course in anticipation of) the end of the transition period and is expected accelerate now. There are also new warnings of significant threats to the UK’s huge fund management industry.

Today’s announcement that Nissan will continue its Sunderland operations is great news for its workers and suppliers there. It’s an important example of why having a trade deal with the EU is better than ‘no deal’ would have been. It’s also an example of the ‘shifting tectonic plates’ in that Nissan will move production of the battery for the Leaf model from Japan to the UK so as to ensure it meets the rules of origin for tariff free export to the EU, including the three year window provided for by the TCA for electric car batteries. But it doesn’t follow that the rest of the auto industry will stay, nor does it negate the fact that other damage is occurring. In terms of assessing Brexit it is ‘not bad news’ rather than being a positive achievement. For despite what Brexiters will be saying loudly today, it is not a demonstration of the success of Brexit to retain companies that were already here, and are staying despite the new trade barriers that Brexit has erected.

Overall, it will take a long time before the full effects of all these new trade barriers are known, but Dr Thomas Sampson of the LSE, writing in a new UK in a Changing Europe report (p.106), suggests that over ten years UK exports to the EU will drop by 36% and imports by 30% compared to EU membership. These are big figures, and it shouldn’t be forgotten – as Brexiters sometimes do – that they will have knock-on effects on firms and individuals who don’t themselves engage in trade with the EU. These may be firms that supply goods and services to traders, individuals employed both by such firms and by trading firms, or customers experiencing higher prices or less choice/ quality in what they can buy. And, as mentioned in my previous post, trade deals with non-EU country are not going to go very far in compensating for all this.

It’s important not to focus solely on economics and trade. Brexit is going to have multiple, short and long-term impacts on almost every area of British life. The UK in a Changing Europe report I just mentioned – by happy coincidence entitled, like this blog, Brexit & Beyond - is a superb new resource assessing just about every conceivable one of these areas, each written by a leading academic expert. It is well worth taking the time to digest it. Equally worthwhile are the (sometimes less high-profile) writings of industry experts. One example this week is a blog this week by Clive Simpson, a journalist specialising in the space industry, on how Brexit it set to affect that (one of the few topics not directly covered by the compendious UK in a Changing Europe report).

Assigning – and evading - responsibility

Simpson also proposes the term “long-Brexit” (analogous to ‘Long Covid’, so perhaps ‘Long Brexit’ would be better) to apply to the ways that short-term Brexit impacts will morph into chronic problems. It is a useful idea because the very elongated timeframes of Brexit should not deter us from linking the effects of Brexit to the decisions (and indeed promises) made going back to 2016.

There may sometimes be problems of causality when looked at over such timeframes, and the Brexiters will use that to try to gaslight us about what is happening and why, as well as about what they originally said. Indeed this week saw a spectacularly egregious example, with Jonathan Saxty in The Telegraph (£) lachrymosely complaining that “Brexiteers” (sic) were wrongly being blamed for the problems they had warned of all along. To those who have been on the end of the ubiquitous ‘Project Fear’ dismissal it had a hollow ring, to say the least.

The main lines of the Brexiter rebuttal of responsibility for the policy they urged are clear enough. Adverse effects will be denied or downplayed; admitted but with a denial that Brexit was the cause; admitted but blamed on the EU for acting unreasonably; or admitted but blamed on Brexit not having been done properly, with this in turn blamed upon ‘the remain establishment’. What can be assured is that they will never take responsibility. It will be important to continue to challenge this, and it continues to be disappointing that the Labour Party is not taking the lead in doing so. That is a great error, as former Labour MEP Richard Corbett has cogently argued this week.

But there is a more insidious problem, which is that many – by no means all of whom will be Brexiters – will slip into saying that the problems caused by Brexit need to be ‘sorted out’ by the government, perhaps by means of discussion with the EU. That won’t always be misplaced. It is certainly for the government to sort out its customs IT systems, for example. And there may be areas where discussion with the EU can clarify features of the Trade and Cooperation Agreement (TCA), or where this or that extension of grace periods on certain measures can be agreed. However, the fundamental architecture of the deal, and therefore its effects, is a direct consequence of the policy of hard Brexit, and we have that policy because the (hard) Brexiters insisted upon it. To use the ‘Long Brexit’ analogy, the cause of the symptoms is the virus.

From this point of view the provisions of government compensation and support, which have been offered in the case of fisheries and are being considered for the music industry (£), are palliative rather than curative. And where does it end? Compensating all businesses for all the costs of Brexit would involve huge sums, especially coming on top of the government support rightly and necessarily being provided because of coronavirus. It’s ironic, too, that after all the promises, including that of extra money for the NHS, Brexit should now be revealed as something requiring compensation.

UK and EU relations

Meanwhile, as the early effects of Brexit play out, the wider context of the EU-UK relationship shouldn’t be forgotten. The TCA set in train a complex set of decisions and deadlines which have been mapped by the Institute for Government. An immediate issue is that the European Parliament has yet to ratify the TCA and the deadline for doing so looks set to be extended to April. Ostensibly this is to allow translation work but what lies behind it seems to be continuing concerns about the robustness of the governance mechanisms, which are also due to be discussed today by EU Ambassadors.

This in turn reflects the now embedded distrust in the UK’s intentions, a distrust that can only be fed by fresh mutterings in the undergrowth (of which I suspect we will hear more) about the possibility of the UK reneging on parts of the Withdrawal Agreement, as well as the rather more high-profile talk of ‘reviewing’ workers’ rights. The latter may, as Mike Buckley argued in a piece in Byline Times this week prove more difficult to enact than the government think, not least because of potential sanctions under the TCA but, as he astutely observes, may prove to be an example of the UK constantly pushing at the boundaries of EU patience in terms of what might or might not be allowable under the TCA. Hence continuing EU concerns.

In any case, although the British Parliament settled for a “farce” in its scrutiny of the TCA,  it’s not unreasonable that the European Parliament intends to scrutinise it diligently and seriously. Boris Johnson’s reported “rage” and “warning” that ratification must occur by the end of February is unwarranted but also irrelevant as there’s not much he can do. But it illustrates that neither he nor the Brexiter press are going to allow any good grace to be introduced to how the UK interacts with the EU.

That gracelessness is especially evident in the story that emerged yesterday that the government is refusing to grant the EU’s new (and first) Ambassador to the UK full diplomatic status. It is petty, reflecting how, even having got Brexit, Brexiters are determined to sour and antagonise relations with the EU, and it is foolish in the context of the ongoing negotiations deriving from the TCA.

But beyond that, it reveals an extraordinary irony, because the government’s justification is that full diplomatic status is not warranted as the EU is ‘not a nation state’ but simply an ‘international organization’. Yet for years the Brexiters’ core complaint was that the EU had become a super-state, making the UK’s membership sovereignty-sapping in a way that was quite different to its membership of other international organizations. So as the costs of Brexit rip through our country, revealing all the lies told of there being no costs, it is tacitly admitted that this was another lie. Indeed, it was the foundational lie.

Is "f*** business" now government policy?

Hardly had the electronic ink dried on my previous post, which included some discussion of the government’s approach to the business effects of Brexit, than Sajid Javid gave a clear and strong indication of just what that is to be. In an interview with the Financial Times, the Chancellor stated that “there will not be alignment” with EU regulations, that businesses have already had since 2016 to prepare for this, and still have until the end of the year to “adjust”.

In a way, there was nothing new in this. Ever since Boris Johnson came to power, and certainly since the changes to the Withdrawal Agreement and Political Declaration that followed, it has been clear that his government will be far less committed to alignment than, even, Theresa May’s (the ‘even’ is worth stressing since, of course, she had already taken the biggest step towards divergence by ruling out single market membership). Yet Javid’s was perhaps the hardest statement so far, and significant in coming from the person in charge of economic policy. For it seemed to suggest that there would be no regulatory alignment at all.

One problem with assessing such statements is that it is by no means clear that government ministers, even including the Chancellor, actually understand the full meaning of the terms they use and, therefore, the implications of what they are saying. But business groups certainly took him at his word (£), with the motor industry immediately warning – for the umpteenth time - that this would add billions of pounds to their costs, and aerospace, chemicals, and food and drinks industry spokespeople giving similar responses.

Known unknowns

There are multiple problems with what Javid said. One is that it is simply absurd to suggest that businesses have had since the Referendum to prepare. As anyone who has followed even the cursory details since then knows, the entire British polity has been convulsed in the debate about what leaving the EU actually means. Even now, with 11 months to go until the end of the transition period, the nature of that relationship has still to be negotiated. So how are businesses expected to prepare?

It is not enough just to know the general shape of what is in prospect (‘a free trade deal’) since that says very little about the detailed operational issues which will arise according to the specific nature of that deal. Moreover, a strict interpretation of the ‘no alignment’ line might well suggest that no such deal will even be reached, or only one of the most minimal sort, so in that sense even the general shape of things is not clear. At the very least, as things stand, there is no assurance of any deal, so even the most basic question of whether and what tariffs will apply is still open, and for some businesses the answer to that in itself will be the make or break issue.

Beyond that, if alignment with the EU is to end, then what regulations will replace them? None of that has been specified (except in a very few areas, such as the post-Euratom nuclear regulatory system), and so no business can know what it is supposed to be adjusting to. Very large businesses might be able to afford to plan for various scenarios, but even that would not be enough to make all the detailed operational preparations.

Did Javid know what he was saying?

One clue to the fact that Javid may not really have understood the implications of what he said lies in his comment in the same interview that Japan exports cars to the EU, yet does not follow EU regulations. That’s clearly nonsense – those cars it sells to the EU must conform, and the extensive investment by Japanese car firms within the UK and elsewhere, in order to be in the single market, is partly explained by this. But I think that what Javid probably had in mind was one of the basic, but mistaken, beliefs of many Brexit advocates (who, presumably, are now influential as advisors to the government). It is that what is at stake is adherence to product standards and that, therefore, a firm simply adopts the standards of the country it wants to export to for the products it wants to sell there. Meanwhile, firms which are solely domestic should not be subject to EU regulations, and their being so represents an objectionable intrusion into national sovereignty.

There are numerous difficulties with this. First, it ignores the fact that the issue isn’t just one of conforming with standards – as if all that meant was a business making internal changes to what it produced, though that in itself is a cost - but of the licensing and/or inspection needed to ensure or to demonstrate that conformity. The more regulatory regimes a business has to comply with, the higher the cost. So, far from ‘reducing the regulatory burden’ on business, that burden is increased when countries have their own regulations. Indeed, that is the foundational insight and basis of any single market, including that of the EU.

Second, it is not just about the EU. EU standards are substantially intertwined with wider, global, standards. That is, they have to some extent spread beyond the EU (e.g. chemicals regulations) or themselves incorporate standards systems from outside the EU (e.g. automotive regulations). Thus divergence from EU regulations is incompatible with the ‘Global Britain’ strategy that supposedly underpins Brexit. Or, to put it better, the distinction that Brexiters draw between being an EU member and being a global trading nation is a totally false one.

Conversely, the idea of a British set of regulations is deeply constraining. It is inconceivable that such regulations would themselves become a new international standard, so as to, again for example, supplant existing international chemicals and automotive regulations. In this sense, the question of whether these British standards would be ‘higher’ or ‘lower’ than those of the EU – whilst potentially important in its own right – isn’t so much the issue as the fact that, higher or lower, they would only apply to British businesses (though see below for clarification on what ‘British’ means here). Even if the standards are the same – which makes the whole exercise pointless anyway – there would still be a need for double registration/ licensing of conformity.

Regulatory independence has no benefits

For those businesses that currently export, that just adds a layer of regulatory cost (i.e. regulation for the domestic market only), whilst for those that currently don’t it adds a huge barrier to developing export business in the future (i.e. having to shift to, and/or demonstrate conformity with, the international standards). And it is actually even more constraining than that, because these domestically-regulated businesses would also be precluded from supplying exporting companies to the extent that their products were components within a finished product that did need to comply with EU and international regulations. There is simply no business benefit to this at all – its only conceivable value is political flag waving that we have ‘our own’ standards.

As regards the automotive industry – but something similar would apply to many others – all of this was laid out quite starkly by the Brexit Select Committee in 2017 when it considered the question of regulatory alignment: “there is no argument for a separate set of UK standards” (paragraph 27) … “we have not identified any potential benefits for regulatory divergence from the EU … There are only costs.” (Paragraph 30)

There is a further and very important dimension to all this. Not only does divergence from EU regulations damage British participation in the European single market, it also substantially damages the existence of the UK single market. That is to say, because of the terms of the Withdrawal Agreement for Northern Ireland, the more (Great) Britain diverges from the EU, the more significant the Irish Sea border becomes. That has economic consequences in shrinking the UK single market, but it also has major political consequences, most obviously for Northern Ireland but also for Scotland, since it further cements the ways in which Northern Ireland will remain in the EU single market. That is to say, the more Great Britain diverges from the EU, the more Northern Ireland diverges from the UK.

Clarifications?

Subsequent to Javid’s interview, some supposed clarifications were made by the Business Minister, Nadhim Zahawi, but if anything these muddied the waters further. First, he said that a zero tariffs, zero quotas trade deal would mean that there would be no cliff edge at the end of the transition period, and would eliminate the bulk of the paperwork for exporters. But, apart from the fact that such a deal has yet to be done, it would certainly not solve the paperwork problem, as Pauline Bastidon of the Freight Transport Association pointed out.

Second, as so often in the Brexit debate, it seems that Zahawi doesn’t appreciate the different issues posed by tariff and non-tariff barriers to trade. A tariff deal is irrelevant to the regulatory issues and, on those, he was back in the same territory as, implicitly, Javid had been. That is, again, he seems to think that it is just a matter of British firms following particular standards. He implied that these might be the same as EU standards – for example of chemicals – but that Britain would no longer be a rule-taker.

But this makes no sense at all. If Britain simply replicates EU rules then it is, effectively, a rule-taker. Yet at the same time, unless it is formally within the ambit of EU regulatory agencies then simply following the rules will not be enough, without licensing and enforcement, to gain the economic benefits of doing so. And, as noted above, it would entail double registration and licensing processes simply in order to follow the identical standards. So, if he actually understands and means what he says, it is yet another Brexit lose-lose: as a rule-taker there is a loss of ‘sovereignty’, whilst without formal participation in regulatory systems there is also an economic loss.

Sajid Javid also made some subsequent remarks on the subject, this time at the World Economic Forum in Davos (in between being taught some brutal, public lessons in realpolitik by the US Trade Secretary). In response to questions he re-stated that there was no point leaving the EU and still “sticking to all its rules”. This can be parsed in two ways. It might mean, as he implied before, exiting ‘all its rules’, or it might mean sticking to some but not others. The next day he spoke of not diverging "for the sake of it", which might imply the latter. But, in that case, which of them? Without saying, businesses can’t be expected to prepare. He also reiterated his belief that a trade deal could be done by the end of the year, but mentioned as if in passing that this would include “services”. But since any deal on services would necessarily include some element of regulatory alignment, did this mean that he now accepted this? Or did he not realise that this was an implication? And which specific services was he referring to anyway?

When dogma becomes policy

It’s by no means impossible that our politicians simply don’t understand what they are doing. If so, that isn’t unusual – they are not elected or appointed as ministers for their technical expertise – but it is being compounded by not listening to those who do and, very likely, listening too much to Brexit dogmatists who do not, or do not want to, understand. It really would not be a big ask to expect them to sit down for short lectures from non-partisan experts like Dmitry Grozoubinski on trade, Pauline Bastidon on logistics, and Anna Jerzewska on customs. Not with a view to coming to terms with the horrendously complicated technical details of these domains, which isn’t their job, but just to grasp the broad outlines of each which, on current evidence, they don’t.

That seems unlikely to happen. So we have to conclude that they may not know what they mean, but they do mean what they say. That is, perhaps without really understanding the consequences, they will pursue a policy of wholesale regulatory divergence. For this is not now a matter of an interview here or a speech there. There have been reports that government ministers actually regard whole, highly successful, sectors of the economy as expendable. Even that might – just about – make sense if at the same time they could point to sectors which are going to be boosted by their Brexit plans. So far, none have been identified.

Certainly there was much Brexiter excitement about a Reuters’ report this week that more than a thousand EU financial firms are to open new offices in London because of Brexit. But, alas, beneath the headline lay a different, more complex and less positive story – that, precisely in order to cope with the separation of regulatory regimes (i.e. the anticipated shift from ‘passporting’ to ‘equivalence’), these firms were establishing London offices. This would create an estimated 2,400 jobs. There was some ambiguity in the report as to whether this was across the headline 1000+ firms (<2.4 jobs per firm) or just across 300 of them (8 jobs per firm) but, either way, these are presumably ‘brass plate’ operations for registration purposes, not substantive operational moves.

Thus, as the report confirmed, it only mitigates the flow of jobs the other way. For example, just this week investment bank JP Morgan announced the latest phase of its relocation from London to Paris, where hundreds of its staff will be amongst the estimated 4000 from across the financial services who by the end of the year will have moved to Paris alone, with Dublin, Frankfurt and Amsterdam also pulling in jobs (and business and taxes).

As soon as the decisions was made that Brexit could not mean the ‘Norway model’ of single market membership that many leavers voted for, it was clear that the services sector was going to be substantially damaged. And frictionless trade for goods has long been a pipe-dream. But this apparent hardening to complete regulatory unilateralism suggests that manufacturing industry, too, is to be sacrificed simply in order to proclaim ‘independence’. Like blue passports, the value is purely symbolic. Unlike blue passports, the economic consequences will be severe in terms of jobs, the tax base and, hence, public services.

For in telling businesses so clearly that they have less than a year to prepare for a scenario that is still unknown but which looks to be deeply problematic for them, and which they have repeatedly and explicitly warned against, Javid has sent a message as clear in its own way as Boris Johnson’s revealing “f*** business”* comment. For businesses that export, have international supply chains, or which supply such firms, the message to those that can do so is to use the transition period to relocate. For others, perhaps especially SMEs, for whom relocation may not be an option, it may simply mean closing down. The costs and complexities just of new customs procedures, let alone those of future but unspecified regulatory changes, may simply be overwhelming.

But, as suggested in my previous post, we seem now have reached a point where all costs are irrelevant and all that matters is the bright, shining light of Brexiter purity. Which may be a fine and splendid thing to some, but you can’t eat it and it doesn’t pay the bills.



*I dislike the coy use of asterisks, but have used them because I have the idea that, otherwise, some internet filter settings may prevent readers accessing this post.

The business and economic effects of Brexit matter: ask Brexiters

As the politics of Brexit continues to go round in circles, there is an increasing atmosphere of concern, possibly even desperation, amongst British businesses. The latest CBI Industrial Trends survey, published this week, showed new manufacturing domestic and export orders falling at the fastest pace for three years and optimism regarding export prospects falling at the fastest pace for six years. Meanwhile, concerns about access to skills and labour are the highest they have been since 1974, and manufacturing investment is set to fall at the fastest rate since the financial crisis.

A separate new CBI survey, of both large and small businesses’ Brexit preparedness, shows some even more alarming trends. These include that 80% of firms surveyed said Brexit has had a negative effect on their investment plans (up from 36% a year ago). Of course Tory Brexit Ultras such as Steve Baker have, in a rather extraordinary about-turn considering the historic link between the Conservatives and the CBI, nowadays written off the business group as a “grave menace”, whilst Boris Johnson’s view of business concerns about Brexit is well known.

In another new set of figures, the Society for Motor Manufacturers and Traders (SMMT) has announced a 16.8% fall in UK car manufacturing in September, the fourth consecutive month in which output has fallen. This comes amid ever-louder warnings from the industry of the damage Brexit could cause, the most recent being a very unusual public intervention from the global President of Toyota.

Brexiters dismiss business concerns

Again none of this matters to hardcore Brexiters. A dismissive article by Iain Duncan Smith the other day (cheered on by pro-Brexit economist Ruth Lea) railed against the car industry’s “prophets of doom” suggesting that the industry was of little account anyway. Strangely, the overwhelming importance they ascribe to the German car industry is not matched in Brexiters' regard for that of their own country. But apart from the disdain shown by this former leader of what was formerly called the party of business, the article contained at least two howlers.

One was the observation that UK auto manufacturing had been greatly “rejuvenated by the arrival of the Japanese under Lady Thatcher” – apparently in ignorance of the fact that she attracted them by virtue of British membership of the EU and the single market. The other was an apparent failure to understand the difference between global supply chains and regional just in time supply chains. Duncan Smith appears to think that since car makers source parts from outside of the EU single market and customs union, this must be through the same technique as those sourced from within. Thus he is able to conclude that all those car firm bosses don’t, in fact, understand their businesses in the way he does.

Duncan Smith calls on Anthony Bamford of JCB to pray in aid for his analysis, but he’d do better to look to James Dyson, the second of the triumvirate of businessmen invariably called upon by Brexiters (the third being Tim Martin. In passing, these three feature so regularly because there are so very few pro-Brexit business people – Duncan Smith also invokes the CFO of Aston Martin for the less than ringing endorsement that “Brexit doesn’t materially impact our plans”).

Dyson is relevant here in relation to his announcement this week that he would build his electric car in Singapore. The main discussion about this has been whether or not that is hypocritical in view of his pro-Brexit stance. But that isn’t really the key issue. Rather, it is his stated reason for doing so: “the decision of where to build our car is complex, based on supply chains, access to markets, and the availability of expertise …”. In other words, precisely those matters that UK car makers keep trying, unsuccessfully, to get Duncan Smith and the other Brexit Ultras to understand.

In any case, even if the car industry were as insignificant as the article imagines – and, apart from the fact that it actually employs about 1 million people directly or indirectly and accounts for 12% of UK goods exports, it’s important to consider the strategic significance of the industry as an R&D intensive (£3.65billion per year), high skill hub of the wider economy – it is hardly the case that it is the only one issuing “dire warnings”. Aerospace, pharmaceuticals, financial services … well, why bother to list them: it’s difficult to think of any sector of business, either in manufacturing or in services which is not issuing ever-greater cries of alarm. Brexiters write each individual one of them off, and in the process write off the greater part of the collective voice of business.

The paradox of Brexiters’ economic analysis

The most striking thing of all, though, is the way in which they do so. A few – a very few – Brexiters are quite open in saying that they are advocating and pursuing a policy which will cause considerable economic damage, but judge it to be worthwhile, normally on grounds of sovereignty. A much larger number of Brexiters – and no small number of bien-pensant remainers – chide the remain cause and especially its referendum campaign for over-focussing on economics and on dry analysis, thus misunderstanding what motivated leave voters. Yet, in fact, most Brexiters are at pains to try to make, precisely, economic arguments for what they are doing. Indeed, Duncan Smith’s article is replete with such arguments.

So too was a recent piece in the Daily Express by Jacob Rees-Mogg, claiming Brexit would bring about a leap in prosperity. Just as Brexiters always turn to the same tiny minority of business leaders, so too do they look to a similarly small group of economists. In the case of the Rees-Mogg article it won’t be a surprise to learn that, yet again, Patrick Minford and the Economists for Free Trade (EFT, formerly called Economists for Brexit) are cited for the evidence (as they are in Duncan Smith’s piece).

This time it was their recent ‘Budget for Brexit’ report, which had already been comprehensively taken to pieces by trade expert Frances Coppola, whilst former Chief Economist at the Cabinet Office, Jonathan Portes, tweeted that it “contained fantasy numbers” and was “an insult to the intelligence of its readers” (this, interestingly, in relation to a specific claim about the small size of the auto industry, which is apparently the Brexiter meme de jour).

None of this should be a surprise: the underlying basis of the EFT’s analysis of Brexit has been discredited over and over again (see a previous post for links to several examples). Moreover, whilst Rees-Mogg correctly acknowledges that Minford’s is a minority view he is surely wrong to say it should be given attention because of his “remarkable record” of successful forecasting, as – to take one of many examples - this chart from Chris Giles, Economics Editor of the FT, shows.

Of course, no matter how often this is pointed out and whoever does so it will make no difference. But it reveals again the fact that the Brexiter case is very much based on economics and that they are more than happy – indeed seek – to bolster that case by appealing to expert authority. Contrary to what seems to be the received wisdom on all sides of the debate, the question of whether Brexit will or will not make people worse off is still a key battleground. One of the achievements of the Brexiters is to continue to fight on that ground whilst, paradoxically, arguing with some success that it is not the ground that actually matters.

The enduring importance of economics

Yet it is clear that the reason both remain and leave advocates continue to discuss Brexit in economic terms is because it is a key dividing line amongst remain and leave voters. Polling evidence shows that some 56% of leave supporters (compared with 6% of remainers) think the economy will be better as a result of Brexit, whilst 69% of remainers (12% of leavers) think it will be worse as a result. It’s not at all clear where the cause and effect lie here (i.e. if people’s views of the economic impact explain their position on Brexit or vice versa), but it does suggest that economics – or perhaps more accurately people’s jobs, standard of living, taxes and public services – has not ceased to matter.

And we are no longer in the territory of forecasts. The latest (30 September) assessment by the Centre for European Reform’s Deputy Director John Springford is that the UK economy is 2.5% smaller than it would be had the vote been to remain in the EU, with a knock on effect of £26billion on public finances. The test of whether or not these and other economic effects of Brexit matter to voters is this: do Brexit advocates say that they do not matter? Or do they deny that the effects are happening and/or say that they are nothing to do with Brexit? The answer, almost invariably, is the latter.