How can Brexit Britain navigate Trump’s World?

I apologise for the fact that this is going to be a very long post. But events since the previous one have served not just to illustrate the analysis there of a new global divide, but to show this divide to be deepening very rapidly. As numerous detailed commentaries have explained, the Munich security conference and its aftermath have “laid bare the collapse of the transatlantic alliance”, showing that “the American security shield has gone forever” with the result that “it has been without question the darkest week for Europe since the 1940s”. Phillips P. O’Brien, Professor of Strategic Studies at St Andrew’s University, wrote last weekend that “this is arguably the most important week in European history since 1991 or even 1945”. Unlike those dates, what is happening in 2025 carries little in the way of hope, and, with Trump’s announcements and actions becoming more unhinged by the day, any hope there may be is fading very, very fast.

The analysts I’ve just quoted are not excitable catastrophists, but seasoned, respected experts in politics and international relations. I would like to think I share at least some of those qualities, to at least some degree, and, personally, having for nine years been dismayed by what Brexit has done to Britain, I now actually feel frightened by what may happen here. An obvious response to that would be that there are many places, most especially Ukraine, which have far more to fear. That is most certainly true (and it is also true of the US itself where state-induced political intimidation and fear are flourishing, to the horror of decent Americans). Equally, it may be objected that what is happening has little to do with Brexit. However, that is not true.

What’s it got to do with Brexit?

As all those analysts, and many others, make plain, these ongoing developments are not just about ripping up security alliances and global norms, and not just about the empowerment of nationalist ‘strong men’ to carve up the world according to their whims, crucially important as those things are. Rather, as well as what they mean for relations between states, the pronouncements coming from Washington, most recently in Vice-President J.D. Vance’s Munich speech, are proselytizing for far-right and ‘alt-right’ populism within states. Hence Vance’s praise for Brexit and his comments about the German and Romanian elections, which of course come on the heels of Elon Musk’s repeated interventions in British (£) and German politics.

The two aspects are linked. The Trump regime’s loathing for ‘Europe’ is multi-dimensional, seeing it as a parasite in security terms and the ideological homeland of elitism, woke liberalism, and globalism. The EU, specifically, is despised, and resented, as an economic and regulatory power and, perhaps more diffusely, as an exercise in rules-based international cooperation and pooled sovereignty. Indeed, hatred of Europe and of the EU is one of many strands binding together Trump, Putin and the Brexiters.

Since the UK is geographically, historically, economically and, in many respects, ideologically a European country, this necessarily poses profound questions for this country. But Brexit greatly complicates those questions, not simply because it means the UK is detached from the EU, but because Trumpist approval of that makes it quite likely that the US will attempt to exacerbate that detachment at precisely the moment when its folly is most obvious. That might take the form of offering the UK exemptions from new tariffs (about which much is still unclear) or other, including non-material, favours. Far from the present moment being one where, as Keir Starmer seems to think, the UK can once again be a ‘transatlantic bridge’, the reality is that it has the potential to rupture the country, ripping it further from its ideological and geographical allies in Europe but with no prospect of being anything other than the plaything of Trump’s increasingly vicious and unpredictable whims.

However, it is not just a matter of Trump seeking to meddle in Britain’s international relations and internal politics. Nor is it just that, in doing so, he will be joining Putin’s own longstanding attempts to do the same. If it were only that it would be obnoxious and dangerous. What makes it, also, frightening, is that both Trump and Putin have so many willing and powerful accomplices within the British polity*. That means, most obviously, Nigel Farage, the now dominant alt-right and NatCon elements of the Tory Party, the weird ex-RCP coterie and the Tufton Street mafia – both groupings which enjoy disproportionate media influence – and, it is increasingly clear, the ‘Blue Labour’ movement. And they would be neither so numerous nor so powerful had it not been for Brexit.

It was an apposite coincidence that, on the very same day that Starmer went to Paris to meet other European leaders this week to discuss Trump’s Ukraine démarche, the ‘Alliance for Responsible Citizenship’ (ARC) met for a major conference in London. This was a gathering of the assorted world-wide clans of populism and neo-fascism, with British representatives including Kemi Badenoch, Farage, and the ARC Advisory Board member Maurice Glasman of Blue Labour. For want of a better name, the UK contingent can be called ‘Brexitists’ since their bedrock belief is support for Brexit, denial of its failure, and commitment to some or all of its flawed logics.

There are many things at stake in all these unfolding developments, but for the UK, specifically, their immediate manifestation is the question of this country’s relationships with the EU and the US. The Brexitists are quite clear that this is the latest front in their battle, exemplified by Daniel Hannan (who else?) declaring (£) that “we can’t let Labour drag us back into the shrinking orbit of the anti-Trump Eurosphere”. He was right to identify Vance’s Munich speech as making it undeniable that there is a very fundamental choice to be made but, as usual, entirely wrong about what the response should be.

A new proposal for UK-EU relations

Nevertheless, a response will have to be found, and one proposal was made in a report commissioned by Best for Britain (BfB), which was published at the beginning of last week, and which received a lot of media attention (£). It is a timely, important, and serious piece of work, and warrants serious attention, as a constructive proposal to move beyond the current Brexit impasse and to engage with some of the emerging realities of Trump’s new world order.

The report models the economic effects of ‘strong regulatory alignment’ between the UK and EU as regards goods, and also as regards both goods and services, and then models each of these in the scenario of Trump imposing trade tariffs on all goods imported by the US (at an assumed rate of 20% for those from the UK and the EU). Importantly, pursuing strong regulatory alignment in the meaning of the report would not require the Labour government breaching its ‘red lines’ of not rejoining the EU, the single market, or the customs union, and of not agreeing freedom of movement of people. In that sense, it is intended to be a politically viable proposal from a UK perspective.

The ‘headline’ results are quite striking. With strong regulatory alignment in both goods and services, and if there were no Trump-tariffs, UK GDP could be up to 2.2% higher per annum in the long-run than it would otherwise have been, and, even in the event of Trump-tariffs, up to 1.5% higher. This would make a substantial dent in the standard (OBR) estimate of Brexit making UK GDP 4% lower than it otherwise would have been in the long run, and considerably more effective than the more basic ‘reset’, consisting simply of those things the UK and EU have specified they will seek, which John Springford of CER recently estimated to be worth 0.3% to 0.7% of UK GDP. Moreover, both for many individual EU member states and for the EU as a whole the result would be positive or, in the event of Trump-tariffs, would make their impact less negative than it would otherwise have been. So agreeing deep regulatory alignment is presented as a ‘win-win’ for the UK and the EU.

The core concept of the report is that of ‘strong regulatory alignment’:

“Regulatory alignment in goods in this scenario is based on the principle of mutual recognition by the UK and the EU of each other’s regulations. We envision an expansive approach to mutual recognition, in which the UK and the EU take active steps to minimise regulatory divergence and commit to recognising the equivalence of each other’s regulations.” (p.12, followed by a similar definition for services).

This will be very familiar to readers of this blog, and to Brexit-watchers generally, and perhaps will be ringing some alarm bells, because ‘mutual recognition’ has for years been seen by many Brexiters as the silver bullet to reduce the economic costs of Brexit. BfB, of course, are very far from being Brexiters, but whoever proposes it, it has the same problems. I’ve written about these numerous times before, most recently on the last occasion the idea surfaced.

What is ‘Mutual Recognition’?

This is a very complex issue to unpack in full. In broad terms, mutual recognition (MR) means that goods and services which meet the regulations within one market are deemed to meet those which obtain in another, and vice versa. Within that, one crucial distinction is between MR based on ‘equivalence’ and that based on ‘dynamic alignment’ (and/or other forms, such as MR of conformity assessment testing, which I won’t discuss here, though could also become relevant).

Under ‘equivalence’ agreements, the EU and the UK would recognize that, whilst different in some details, their regulations were broadly compatible, and each party would take responsibility of legally enforcing their own regulations. Under ‘dynamic alignment’ (DA) agreements, one party – and in practice it would almost always be the UK – agrees to completely track EU regulations, and as a result the UK’s regulations would be ‘recognized’ by the EU. This is really only ‘mutual recognition’ by courtesy, as the alignment is all one way, even though the ‘recognition’ goes in both directions, and both the source and the enforcement of regulations would ultimately lie with EU law and EU courts.

So, much depends on what form of MR is envisaged, and in that respect the use of the term ‘equivalence’ in the BfB report is either an unfortunate mistake or a problem. We already know that the EU is very reluctant to enter into equivalence agreements with the UK. They aren’t impossible (there are some in relation to aspects of financial services and, in effect, in the EU recognition of the ‘adequacy’ of the UK data protection regime), but as regards Sanitary and Phytosanitary (SPS) regulations an ‘equivalence’ agreement (sometimes called a ‘New Zealand-style’ agreement) has already been proposed by the UK and rejected by the EU. By contrast, a ‘dynamic alignment’ (or ‘Swiss-style’) SPS agreement has been offered by the EU but rejected by the UK.

It isn’t just on SPS regulations that we’ve already been round this loop. MR based on equivalence in a number of areas featured heavily in the UK government’s February 2020 document on its approach to the negotiations undertaken by David Frost, under Boris Johnson, which ultimately led to the TCA. Almost all those proposals foundered, as they were bound to. In large part that was because what makes equivalence appealing to Brexiters (most especially lack of ECJ jurisdiction) is what makes it unacceptable to the EU. As Michel Barnier put it in 2018: “In the absence of a common discipline, in the absence of EU law that can override national law, in the absence of common supervision and a common court, there can be no mutual recognition of standards.”

What about expansive use of Dynamic Alignment?

However, although regulatory equivalence as the basis of expansive MR is a non-starter, what about ‘dynamic alignment’ (DA)? Since the EU does appear to be willing to use that form of MR for SPS regulation, could it perhaps be used expansively? It’s true that this would overcome the problem that lack of ECJ involvement poses for the EU. It also seems to be true that the presence of ECJ involvement is no longer a red line for the UK under the Labour government. Nevertheless, other issues would still remain.

In particular, even under DA each side has to monitor (and/or trust the other side to monitor) that both sets of regulations are aligned. This is a much more complex matter when DA is being used over a wide range of sectors, as envisaged by the report, partly because there is so much more to monitor and partly because there will often be difficulties in knowing where MR applies and where it doesn’t. This arises because crucially, even under the most ‘expansive’ use of DA, but unlike within the single market, the UK would retain the right to diverge in areas not covered by DA.

To take one increasingly important example, assume, as seems extremely likely at the moment, that the UK retains (and perhaps even exercises) the right to diverge in AI regulation. Given the extent to which AI looks set to be imbricated, in some way or another, within so many different business sectors across both goods and services, imagine how difficult it is going to be to determine whether, in relation to any particular product or sector, DA does, or does not, apply. I don’t say that it would be impossible, and certainly the AI example, specifically, is largely uncharted water, but it would involve huge technical complexity, at least if attempted not for one or two areas but at scale.

Indeed the problem isn’t DA agreements as such, it is scaling them up so as to meet the ‘expansive’ MR regime required to yield the headline economic benefits of the BfB report. Ultimately, that isn’t just about technical complexity, it is because the expansive use of DA is effectively an attempt to reproduce selective aspects of the single market but outside of the ‘ecosystem’ of single market agencies and institutions. As such, the more it is used, the more of a threat it would represent to the integrity of the EU single market meaning, at its most generic, the way in which membership confers distinctive advantages over non-membership. That notion, which some Brexiters tend to treat as meaningless or, alternatively, as some kind of EU ‘theological’ dogma, is actually of fundamental importance (hence, amongst other things, many of the issues that have arisen for Northern Ireland).

So (why) would the EU agree to it?

To that, there are several answers. One is that, unlike proposals for equivalence agreements, MR hasn’t been proposed before on a DA basis. Actually, that isn’t quite true, as arguably it was proposed, at least for goods trade, under Theresa May’s 2018 Chequers Proposal for a ‘common rule book’, but as that caused her government to implode it never really got to the point of being negotiated in detail with the EU in the form of a TCA, and would undoubtedly have encountered much resistance from the EU (I’m skipping over a lot of detail on this point). Still, something like it might eventually have been agreed and, anyway, we are now in different times, not least because EU concerns that Brexit might lead to a bigger exodus of members have now largely disappeared. Even so, the EU continues to face the possibility that an expansive DA deal with the UK might set a precedent, with member states seeking to ‘mix and match’ areas for alignment/ divergence.

The more important answer is that we are in different times because the economic situation of the EU, and especially of its largest members, Germany and France, is now much worse than it was in 2018, and the most important answer of all is Donald Trump. Those two things are related, because the state of many EU economies makes the threat of Trump-tariffs all the more dangerous. It is this, clearly, which the BfB report highlights, showing how a strong alignment scenario between the UK and the EU could offset some of the damage of Trump-tariffs, and it is on this basis that it is presented as a win-win proposal.

That may well be true, but, although the context is different, it is still a rather familiar idea, and another one which we used to hear from Brexiters. Their claim from the outset was always that there would be a very expansive post-Brexit deal, even to the extent of offering “the exact same benefits” as membership, because that would be in the interests of both sides, and they repeatedly complained that the EU was allowing ‘politics’ to get in the way of economic interests. In particular, they repeatedly argued that ‘German car makers’ (as an emblem for other EU industries) would ensure such a deal and, when that proved false, again framed that as an EU failure to represent the economic interests of its members and instead to prioritise Brussels ‘dogma’.

But (apart from their other flaws) these claims were mistaken by not recognizing that, whatever the immediate economic interests of some businesses, or even some countries, the long-term economic interests of all EU members and businesses were absolutely dependent upon retaining the integrity of the single market, and the expansive use of MR, even in its DA form, necessarily risks that, extensively recreating selective aspects of the single market for non-members. Now perhaps it is true that the possible impact of Trump’s tariffs will change the balance of calculations of the risks and benefits of this. But personally, I feel suspicious of yet again going down the track of making proposals based upon assumptions about what the EU will, or ‘ought to’ recognize as being in its own interests.

Having said all this, it could still be argued that Trump’s return, in a dramatically more aggressive and virulent posture than before, has changed everything, not so much, or not simply, because of the economic threat of tariffs but because of having started to rip up the international security order, and all the issues with which I began this post. Is this true? To be honest, I simply don’t know. In some ways, the opposite could be argued. To the extent that the single market is the economic basis of such geo-political clout as the EU has, that might suggest there is all the more reason to maintain its integrity.

Nevertheless, I do think that, despite what some ‘die-hard remainers' think, the understandable unwillingness of the EU to make economic concessions to the UK in return for security and defence cooperation, a proposition which was first made by May when Article 50 was triggered in 2017, and looked like blackmail then, may have changed. Almost everyone now thinks that Europe, as a continent, needs to get itself together as a serious defence player, and that is not going to be easy. It will entail the EU and its members doing many things they find distasteful, and this could be one of them. It might also be that previous, and again understandable, reluctance to entertain a complex and tangled MR-based relationship between the EU and the UK might be reduced. In a world which has suddenly become extremely disordered that might now seem a relative trivial piece of messiness. It would certainly be lazy simply to dismiss that possibility out of hand as ‘cakeism’, or to dismiss the very real differences created by Trump’s return. This isn’t 2016-2020.

The real choice

For all these reasons, there may well be a good argument for the UK to explore the BfB report’s ‘strong alignment’ model and propose it to the EU, at least informally, and see what the reaction is. But I keep coming back to the problem that it is very difficult to see how the EU can embark on a major deepening of relations without a high degree of confidence that the UK is going to be a reliable partner, and there is no real prospect of that whilst Brexitism remains so influential. After all, it’s perfectly realistic to think we may be only three years away from having a nationalist and populist government with a doctrinal hatred of the EU.

For Brussels, that would mean dealing with a UK government which has scant regard for acting in a trustworthy manner about any MR agreements which may be in force and would very likely revoke them anyway. The answer to that concern cannot, realistically, be that, if it happens, the EU can just revert back to the current TCA terms after having put in all the effort of creating an expansive MR regime involving a complex patchwork of agreements.

Some deny any such risk exists, arguing that UK business lobbies would prevent any future government from revoking agreements made by Labour. But this is really just the ‘German car makers’ argument in reverse, and the history of Brexit hardly suggests that business is very effective in controlling a government – in this scenario perhaps a Reform-Tory coalition – animated by ideological loathing of the EU and populist conceptions of ‘sovereignty’. So the risk is real, and it would be a very considerable one for the EU to take.

Moreover, although this wouldn’t in itself remove that risk, it can hardly be encouraging to the EU that the Labour government has not, as yet, made an explicit commitment even to seeking a DA deal on SPS, let alone to any more ‘expansive’ use of DA. As long ago as May 2023 I wrote a post with a footnote pointing out that whenever Labour politicians talked about an SPS deal they invariably invoked New Zealand (i.e. equivalence, not DA) as a model, and that has continued to be the case, so even in this headline area for the reset, the government still remains ambiguous about specifics.

For what it is worth, I think the government will seek DA on SPS, and will agree it with the EU, but it certainly hasn’t been open or enthusiastic about what doing so means, apparently because it fears the Brexiters’ reaction, hence again demonstrating the unsettled nature of the UK polity. So if the BfB report encourages the government to boldly advocate the use of DA, and to take on and defeat its Brexiter critics, then it will have done a good job.

On the other hand, if Brexitism were to be marginalised in the UK, overcoming this problem, then there would be no need to fiddle around with endlessly complex and sub-optimal MR agreements and security pacts as we could move, as quickly as possible, to joining the EU, boosting the continent’s economy, and developing a proper, fully-integrated, European defence and security capacity. So, for all the talk of the UK facing a choice between the US and the EU, the deeper choice that codes is the domestic one of what kind of country we are. That seems no closer to resolution now than it has been since, in 2016, we embarked on the poorly-designed, divisive and poisonous Brexit experiment, an experiment which has now become the most horrific of political lab accidents.

 

Note

*On the other hand, the British, Brexitist, variant of this global right-wing movement faces particular challenges. The British public has generally negative views about Putin and Trump, and a generally positive view of Zelensky (and support for Ukraine). Even Reform voters are strongly anti-Putin. As has been shown before Farage’s views of Ukraine and Putin are his most vulnerable political spot, and this is now becoming very clear.

As costs mount, Brexit goes round the same old circles

A report from Bloomberg Economics this week estimates the cost of Brexit since the Referendum result to be £130 billion, with a further £70 billion predicted by the scheduled end of the transition period. £200 billion is a colossal sum and in any other political context you’d expect it receive far more attention than it has. Of course it is only one estimate, but it comes from a credible source (and it is consistent with others) and, again of course, it is a cost compared with what would have happened and, in that sense, one which does not present a bill to be paid nor something directly felt in people’s pockets. Still, it does make the raging debates over who should pay for the cost of the Sussex’s security seem rather trivial.

Perhaps there’s a sense, now, that we all know Brexit is going to be hugely expensive and so it’s not worth discussing it anymore. Not that committed Brexiters necessarily accept this. Just as the predictions of economic costs were dismissed on the grounds that ‘you can’t predict what is going to happen in the future, anything might happen’, so, now the costs are racking up, they are dismissed on the grounds that ‘you can’t know what caused past events to occur, they might have occurred anyway’.

It is a hermetically sealed logic that cannot be reasoned with. And even to try provokes the second, though contradictory, line of defence, where we are invited to believe that Brexit was chosen as the result of an earnest political science seminar about theories of sovereignty, and was nothing to do with economics at all (this, presumably, is why the slogan chosen for the bus was a claim about … the supposed economic benefits of Brexit).

As for what the economic costs of Brexit will eventually end up being, that will to some degree depend on what kind of trade deal gets done and here confusion continues to reign. The EU have produced two detailed briefing packs (here and here) which, so far as I know, have no counterpart on the UK side, at least in the public domain. There is a sense that we are heading towards a re-run of what was symbolised by the famous picture of the opening of the withdrawal talks, where the EU side sat with bulging files whilst the UK relied upon David Davis’s vacuous grin.

The recurrent dynamics of Brexit

If so, there are good reasons for that and they go back to the three unchanged underlying dynamics of Brexit which I outlined after the election result. In brief, these are lack of realistic definition of what Brexit means or how to do it; the insatiable demands of the Brexit Ultras; and the general political imperative of all governments to avoid economic and social breakdown. These are contextualised by a fourth factor, namely (largely self-inflicted) time pressure.

As regards the first of these, the UK government is still to a degree in thrall to the Brexiter fantasies of a quick and easy deal in which the complexities and trade-offs are seen as just a ploy by the EU that will be overcome by determined negotiation by a ‘true Brexit’ administration. So, at times, the government is still talking as if a comprehensive, deep trade agreement, perhaps with a substantial services element (£), can be achieved by the end of the year whilst at other times the implication is that it will be much more limited, but that that is fine. As from the outset, the Brexiters – who are now firmly in control of the government – have no agreed, realistic idea of what they want.

In consequence, there are other ways in which the start of the trade negotiations is likely to be analogous to that of the Article 50 talks. It is already written into the Political Declaration that the highly technically complex and politically contentious issue of fisheries will be amongst the first matters to be discussed. It may well play the part of the financial settlement, which the UK first tried to deny the EU had any right to. But with EU briefings suggesting that they will insist (£) on a more or less status quo deal on fishing as a prerequisite for any progress on other issues, it may also be the subject for a re-run of the 2017 ‘row of the summer’ over sequencing.

This brings into play the second of the recurrent dynamics. There are clear signs that Brexit Ultras like John Redwood and Owen Paterson are squaring up to make fisheries, which have always been totemic to Brexiters despite being a tiny part of the UK economy, a defining issue. With some suggesting that the UK might accept that EU proposal in return for a better deal on financial services there is a good chance that this will prove to be an early flashpoint between the government and its hard line MPs. Their position will be not just that the UK should not accept the EU proposal, but should not make any agreement on fisheries until the entire deal is done or, simply, walk away from the talks without a trade deal at all.

If so, that will add impetus to the established pattern in which the Brexit Ultras always push for a harder or ‘purer’ form of Brexit. That saw the shift from their advocacy of soft (single market/ Norway) to hard (FTA/ Canada) Brexit. It has reappeared now in the demand that the UK should, in parallel with or even as a priority over negotiating an EU trade deal do so with the US, as argued by ERG leader Steve Baker this week (£).

As with the fisheries issue, there is no economic logic to this at all. The geographic closeness of the EU and the volume of UK trade that results from that, as well as from decades of EU membership, makes a EU trade deal massively more important than any Free Trade Agreement with the US could ever be. Moreover, to some extent, the two deals are mutually exclusive in that they entail alignment with different regulatory orbits.

But the issue here is not economic logic, even though its advocates present it as if it were by, for example, their irrelevant talk of the size of the US economy. Rather, having belatedly understood that the trade deal they for so long championed will entail some regulatory alignment with the EU – and the deeper the deal, the greater that alignment – the Ultras find even that hard Brexit to be unbearable.

For some that may be informed by an ideological belief in low regulation, small state politics – the Singapore-on-Thames delusion – and, to that extent, there’s an obvious reason why it will preclude a deal with the EU. However, I believe that the more fundamental reason is a pathological loathing of the EU in every manifestation, and indeed of non-EU European institutions such as the European Court/ Convention of Human Rights (ECHR). They want to expunge every last trace of the EU’s presence in the UK. It is much closer to a religious mania than an ideological axiom, and, as for economic cost, that is irrelevant. No cost is too high to pay. If they were to gain the next concession, and get a US trade deal ahead or instead of an EU deal then they would certainly then make leaving the ECHR their next demand.

It is that ‘Brexit at any cost’ fixation which comes into conflict with the third dynamic that for any government, even one fixated by Brexit, the basic political pressure to avoid economic meltdown means that reality sometimes has to intrude. That could include recognizing the economic case for sacrificing fishing for financial services. More generally, to the extent that it is understood that there is only time for a minimal deal, if that, it may also be understood by government that, for many sectors of British business, such a deal would be little or no different to there being no deal at all [£]. It may also be sinking in that, trade deal aside, there is little prospect of the new arrangements for Northern Ireland being ready in time.

That, presumably, is what lies behind Boris Johnson implicitly recognizing, for the first time, that it may not be possible to do a deal in time (£). This may be the precursor to accepting that there will be an extension to the transition period. Time will tell on that, but as was shown by the ease with which he dropped his ‘die in a ditch’ pledge, such a volte face is well within his range.

Businesses and Brexit

Whether or not he extends (though especially if he does not) what is in prospect is the gradual leaching away of business from the UK, ratcheting up the costs of Brexit. This may well attract as little attention as the Bloomberg report and of course – as with all the examples so far – Brexiters will deny the cause. In this, they will be aided by the fact that few companies which relocate or (which is even more below the radar) decide to make new investments elsewhere will publicly attribute this to Brexit.

For it is important to understand that now that Brexit is unavoidable the relationship between business and the remain cause has fundamentally changed. Before, business lobbying against Brexit was consistent with, and part of, the remain campaign. But businesses rarely lobby on the basis of political principle rather than their own self-interest. With the remain cause lost, they will now make decisions based on that self-interest but will have no motivation to denounce Brexit policy as they do so.

On the contrary, especially to the extent that many will want to go on doing some business in the UK they will have no interest in alienating many customers and the government. An individual remainer might – for example – seek to publicise their decision to emigrate and to take their skills and taxes elsewhere in order make the political point that this is what Brexit has done. Few if any businesses will do anything like that. So it will be a slow and quiet economic puncture, not a noisy blow-out.

This scenario is made all the more likely because whatever economic realism derives from the third dynamic, it is in conflict with the lack of realism of the first and second. This can be seen in the report this week that Business Secretary Andrea Leadsom has substantially reduced contact with business groups (£) such as the CBI because she is irritated by them raising concerns about Brexit.

Here, again, there is a recurrent pattern in which those – in business, or the civil service, or elsewhere – who know the realities and complexities are sidelined for their lack of ‘true belief’. In ways that would have been astonishing to the traditional Tory Party, the CBI have long been regarded with scorn by Brexiters and, more generally, there were many reports during May’s administration of businesses being excluded by DExEU if they voiced scepticism about Brexit.

The paradox of Brexit

It is one of the biggest paradoxes of Brexit, because most of those who understand what it entails at a practical level do not support it, whilst most of those who support it strongly do not understand what it entails at a practical level. That is evident in microcosm even in the current row about Big Ben chiming on ‘Brexit Day’, with those who know the costs and technicalities involved advising against it, whilst the Brexit ‘bongers’ insist this is just remainer negativity and that a can-do attitude will overcome any obstacles if, indeed, they really exist.

At the wider level, this paradox presents any Brexit government with a massive problem. Either it ignores those with the knowledge and flounders around trying to square the impossible circle of ‘true Brexit’ with no adverse consequences, or it listens to those with knowledge and has to compromise on at least aspects of ‘true Brexit’.

Whilst that has been true throughout the Brexit process, it is now an acute issue with the trade negotiations starting and the timescale tightening. A key part of any trade negotiation process – and one reason they take a long time – is that governments need to engage and consult with the business and other groups which will be affected by whatever is agreed. If government as a whole persists with the Leadsom line then the incentives for businesses to stay and invest in Britain sharply diminish, as they see that the government does not have – and, worse, does not want to have - a serious grasp of the issues involved. With time running out, the business decisions will need to be taken before realism intrudes, if, indeed, it ever does. And businesses will make those decisions.

However, if the government does start to engage seriously with business (and other experts and stakeholders) then the paradox asserts itself in a new way, with this realism conflicting with the first two dynamics. This is exactly what we saw with the May government. Having delighted the Ultras by embracing hard Brexit, and accepted the lack of realism of the Brexit promise by imagining that, even so, there could be ‘frictionless trade’ for goods and services, there came a point in 2018 when May understood how damaging this would be. That was what led to the Chequers Proposal which – flawed as it was – began to recognize some of the complexities and trade-offs. Cue Johnson and Davis resigning and the government falling into the disarray from which it never recovered.

It is true that Johnson’s majority makes him far more secure than May. On the other hand, the time pressures Johnson has created for himself are all the greater, and his negotiating position with the EU is also much weaker than May’s at the time of Chequers. May had the possibility of extending Article 50, as she did, and, until the Withdrawal Agreement was completed, the core EU concerns around the financial settlement, Irish Border, and Citizens’ Rights remained unresolved. Now, Johnson could only extend the transition period with difficulty, both because of domestic politics and because, on the EU side, transition extension is less assured than it was for Article 50 extension. Meanwhile, the EU’s core withdrawal demands have been met. And, in any case, the votes of the ERG are more than enough to defeat Johnson, despite his majority.

Thus the conflict between economic realism and political exigency continues to be unresolved and resolution is unlikely to occur via a single decision taken at a single moment. Rather, we can expect an ongoing process of tacking this way and that as the negotiations with the EU progress and the internal fights of the Tory Party continue. The consequence is that neither economic realism nor political exigency will definitively win out. Instead, so many concessions will be made to the Ultras as to ensure considerable economic damage, whilst so many concessions will be demanded of them that they will always regard Brexit as having been betrayed.

Thus, as has been clear for a long time, we will end up a country made much poorer in order to please the Brexiters whilst having to endure their perpetual displeasure with what has been done. It is as perfect a lose-lose scenario as can be envisaged, and the Bloomberg report has put a figure on just the first instalment of just the economic aspect of that loss. There is much, much more to come.

Theresa May's demise

Almost within minutes of launching her ‘bold new offer to MPs’, in the form of the revised Withdrawal Agreement Bill, last Tuesday it was clear that it had failed and that Theresa May was finished. The only question was when, and now we know the answer. She will resign as Party leader on 7 June.

It was a fitting end in that, far from being bold or new, it was yet another tactical gambit to survive of the sort that has characterised her premiership. She wanted, yet again, to buy a little more time, but there was no more time on sale. Again typically, its proposals were convoluted but, on decoding, amounted to little of substance. Worse, what substance there was alienated those on all sides of the debate.

It was also revealing, in that her statement that she had not realised that Brexit would be as hard as it has proved to be goes to the heart of her failure. There’s really no excuse for this. There were countless warnings of the complexity involved and it is inconceivable that her civil servants did not brief her on this from the beginning. It is clear that Sir Ivan Rogers did just that, and was pressured into resignation for his pains.

Insofar as it’s possible to make sense of this naivety, it seems May thought at the outset that Brexit would be like the negotiations she had had with EU whilst Home Secretary. Then, her approach had been to opt out of everything and then opt back in selectively. That could work in the limited – and, within her own party, relatively uncontentious - area of security and policing cooperation, an area, moreover, where the UK has the advantage of significant capabilities, and in the context of being an ongoing member. As a blueprint for Brexit it was woefully inadequate.

May’s core mistake

Her worst mistake – worse, even, than the ill-fated decision to call an election in 2017, and certainly less forgivable – pre-figured in her 2016 conference speech was to line up with the hard Brexiters to insist in the Lancaster House speech that Brexit meant no single market, no customs union and no ECJ in any form. From that decision – taken in consultation with no one except her closest advisers at the time, not even the Cabinet – almost everything that has happened since has flowed.

In particular, it meant, first, that the bitter divisions of the referendum have intensified to the point of a cultural civil war, the manifestations of which (‘Enemies of the People’, ‘Crush the Saboteurs’ etc.) she never repudiated and often stoked. She made no attempt to create a consensual approach to Brexit. For sure, that would have been incredibly difficult, and might not have succeeded. But she did not even try. It was an epic failure of political leadership at the time when the country most needed it.

Secondly, it meant that she was doomed to be accused of betrayal. For she failed to realise that no matter how much red meat the Brexit Ultras were given it would never be enough. They would always want more. Moreover, they would never accept that – as she eventually found out – Brexit wasn’t as easy as they had claimed. It would, at best, be a long, complex process entailing multiple compromises.

The attempt to turn lies into policy

As soon as she began to even slightly acknowledge that – with the Chequers Proposal in July 2018 – they turned on her and ever since then her job has been in peril. In trying to operationalise all the lies they had told, she gave the lie to them. For it is crucial to understand that what became May’s deal was not a ‘compromise’ between hard and soft Brexit. It was (the first step towards) what hard Brexit looks like when put into practice. The Ultras haven’t been asked to compromise but to accept the practical realities of what hard Brexit means.  But they have refused to do that and, instead, have doubled down on the lies and insisted that she betrayed them, and that her failure was a lack of true belief.

The latter accusation has a kernel of truth. It is indeed remarkable that for all her determination to deliver hard Brexit May has never evinced any enthusiasm for it, except to the extent that it will end freedom of movement. Notably, she has always refused to say whether, were there to be another referendum, she would vote leave. The implication is that she would not. That is truly peculiar: a Prime Minister enacting a complete resetting of national economic and foreign policy apparently believing that doing so is harmful. But that certainly does not mean that had she been a true believer the practical realities of delivering hard Brexit would have disappeared. On the contrary, precisely the same realities await her successor.

That is going to matter hugely in the coming weeks as the contenders to replace her will be making exactly the pitch that, armed with true commitment to the cause, all obstacles to the sunny uplands will disappear. In particular, the pretence will be that the Irish border backstop can be entirely removed, or substantially truncated, in the Withdrawal Agreement. As Rafael Behr noted in a recent article, “it is remarkable that the whole period of government striving to extricate the UK from the EU has left so little imprint on public debate about what Brexit involves”. Certainly, it has left no imprint at all on the Ultras.

The structural flaw in Brexit

So in the end she was left stranded, making a solitary last stand on a hill of her own making. As strident as the most extreme Brexiters about ‘the will of the people’, and implementing precisely what they had called for, she treated remainers with contempt and entrenched their opposition to the destruction that was being wrought on the country. But the Brexiters reviled her as ‘Theresa the Remainer’ even so.

To an extent her travails have been caused by her now well-known personal flaws: rigid, narrow, stubborn, unimaginative, tetchy, lacking all social skills and most intellectual ones. But fundamentally her failure arose from the structural flaw of Brexit. Doing it is claimed to be the will of the people. But it can only be done at economic and geo-political costs that range from high to horrendous, which the people will not accept. Brexiters claim it can be done without any costs and, even, with benefits and persuaded a majority to vote for it on that basis. May tried to prove that true, but it was a lie. Because it was a lie, it couldn’t be delivered.

Her successor will have exactly the same choice: face up to the lie, or face failure. To be elected leader by the Tory Party it will be impossible to do the former. So the consequence will be the latter. The only question is whether that failure will mean abandoning Brexit to avoid its costs, and facing the populist accusation of betrayal. Or agreeing the kind of deal that May came up with in order to somewhat mitigate the worst costs of Brexit, and facing the populist accusation of betrayal. Or proceeding with no-deal Brexit with all its horrendous costs, and facing the populist accusation of betrayal.

If she had tackled head on the structural lie at the heart of Brexit in her early weeks in office, when she was at her strongest and the meaning of Brexit was in flux, May had a chance – admittedly only a small chance - of avoiding that poisonous politics of betrayal. No doubt this was always the most likely consequence of the 2016 Referendum. Her legacy is to have made it inevitable.

The backstop is a symptom, not a cause, of the Brexit crisis

It is apposite that Sky News are now badging all of their Brexit coverage with the label ‘Brexit Crisis’. For the political crisis which has been incipient since, at least, the 2017 General Election is now well underway, and will almost certainly intensify.

At the moment, almost all attention is on the Parliamentary debate and delayed vote on May’s Brexit deal and, within it, much of the focus of complaint is on the Northern Ireland backstop in the Withdrawal Agreement. But this fails to recognize that the backstop is an aspect of, and grows out of, a much deeper set of problems. It also fails to recognize the full significance of the relationship between the Withdrawal Agreement (WA) and the Political Declaration on future terms (PD).

A two-stage process

Brexit was always going to be a two-stage process, because of the nature of Article 50. Thus criticising May’s deal for not including a binding future terms, and especially future trade terms, deal is misguided and, sometimes, opportunistic – although it is legitimate to point out that many Brexiters, and for a time May, said or implied that this would be possible. What can also fairly be said (and, notably, it was the main line of Sir Keir Starmer’s critique in this week’s resumed debate) is that the level of detail and precision of the PD is much lower than it might have been had any substantive phase 2 discussions taken place. And the reason they did not is, entirely, because until the Chequers’ Proposal in July 2018 the UK government advanced no plan for what should be discussed and, when it did, it promptly fell into massive, and still ongoing, infighting.

That reflects what remains the unavoidable, central fact about Brexit. The UK voted for it, and then embarked on enacting it, without having agreed what it meant in terms of a final destination. Even so, it is not the case, as is sometimes suggested (e.g. Starmer, again), that the PD leaves all destination options open. Of course, it is not legally binding. But it should not be dismissed or ignored to the extent that it is being, as if only the WA mattered.

For the PD does set a direction of travel, most significantly in terms of the reference – reportedly at May’s personal insistence – to ‘respecting the result of the 2016 Referendum’ by ending freedom of movement of people and allowing the UK to have an independent trade policy. In other words, it embodies the red lines of no single market membership and no form of customs union.

That this is in the PD is the core reason for the backstop being in the WA. As soon as those red lines were set, the necessary implication was a border around the UK. This is not for some arcane technical reason and still less due to EU or Irish chicanery. It flows from the basic fact that if the UK wishes to set its own tariffs and regulations there has to be a territory within which they apply and so there has to be a border. Indeed, who would want to do a trade deal with the UK if this were not so? This automatically means trade cannot be completely frictionless, and, since no technology exists (yet, and may never do so) to completely remove the need for any new physical infrastructure at the Irish border specifically, the backstop was devised.

However, even if – as the Norway+ advocates* are seeking – the PD were to be written without these red lines being incorporated, that would not make the backstop go away (and they do not claim otherwise). The non-binding nature of the PD is normally talked about as if the issue were simply that it is not a binding agreement between the UK and the EU, and as if the main danger were of the EU refusing to do a deal. More important is the corollary of that, which is that the UK might at any point re-adopt May’s red lines, or new ones; or the UK might continue to fail to agree what it wanted, making the danger that it could not agree to any deal.

Since there is clearly still no stable consensus in the UK about what Brexit should mean, then there is nothing to say that a new government, or a new Prime Minister, or both, would not overturn anything the Norway+ MPs might manage to insert in the PD before the end of March by dint of the crisis. This might have been different had, post-Referendum, a durable consensus around a Norway+ outcome been built, but it wasn’t and there isn’t time to do so before March.

An FTA +++ is an FTA

At all events, as things stand, the PD is as it is, and it reflects the UK red lines for future terms. Yet a bizarre feature of the present debate is that the Ultra Brexiters are in complete agreement these red lines, but they will not accept the consequence of them for the WA, and hence oppose it. It is this which has led to latest iteration of the ‘no deal’ deal fantasy, in a document produced this week by Global Britain and Labour Leave.

Aside from repeating many long-discredited claims or half-truths about trade on WTO terms, its core proposition is that the UK can leave with no WA (going straight to WTO or, as the report meaninglessly puts it, WTO +++ terms) but then seek to negotiate a future terms agreement which they designate as a Canada +++ Free Trade Agreement (FTA).

To call this naïve is to flatter it absurdly, and not just because of the backstop issue; it also embodies the persistent Brexiter misunderstanding that the financial settlement is a down payment for the future, rather than a settling of past accounts. The idea that a viable first step for a new relationship is to renege on what you agreed during the previous relationship doesn’t deserve serious scrutiny, and to present it as if it did is grossly irresponsible. May is right to argue that the WA, in something like the present form, is the necessary gateway to an FTA.

So whereas the Norway+ group try to downplay the two stages of WA and PD by over-claiming what the future terms statement can do, the Brexit Ultras try to circumvent the two stages altogether by imagining there can be future terms with no WA at all.

But, in any case, no amount of ‘+’ signs or ‘super-‘ prefixes can avoid the fact that, even if agreed, this would be a FTA which means a border. If it didn’t, the Brexiters would have nothing to fear from agreeing the backstop and the WA. It is presumably because they know it does mean a border that they object to the backstop as being something that would end up being permanent. But for the same reason, the EU could never agree an FTA without first agreeing the backstop and the WA. In short, the whole idea is ludicrous in every conceivable respect, but that is, or ought to be, well-known and is not really the key point.

The backstop is not the real problem with May’s deal

Rather, the key point is that it’s not the backstop in the WA that is the terrible problem with May’s deal, it is that the backstop is a consequence of the terrible problem of making an FTA the best available form of the future terms. And the main reason why that is a terrible problem is, in one word: services. The clear implication of the PD is that it will prioritise “comprehensive arrangements” for goods trade (although, even there, trade is not the only issue – the internal supply chains of goods manufacturers will still suffer) over services trade, where all that seems to be envisaged are more or less standard third country market access terms.

Indeed, this is an inevitable feature of any FTA end state. The latest Global Britain/ Labour Leave document again naively latches on to a sentence spoken by Donald Tusk – taking it out of context and without understanding its meaning - to the effect that an FTA would, like other FTAs, “address services”. But, of course, the reality is that “other FTAs” barely “address services” beyond the limited liberalisation of WTO terms, and certainly far less than occurs within the single market.

Of course, there are good reasons to argue that the UK economy is over-reliant on services, although that is the consequence of 30 or more years of UK policy, rather than of EU membership. But correcting that by yanking the country out of the most comprehensive services trade bloc in the world, and moreover the one closest to us, is not the way to do it. There are good reasons to argue that I should reduce my waistline, but self-surgery with a hacksaw is not a sensible method of going about it.

What is especially bizarre about the FTA model of Brexit is that pre-referendum all the talk was of the negotiating advantage of a trade deficit. But (even if that is an advantage) that deficit is in goods trade, not services trade where the UK has a surplus with the EU-27, so setting up a situation where the EU has much better access to the UK goods market than the UK has to the EU’s services market is, to say the least, perverse. But that is what the PD suggests.

These and other issues are discussed with great acuity in a recent article by Matt Ross – based in part on an interview with former Cabinet Secretary Sir Gus O’Donnell – on the Global Government Forum website. The key point made in that discussion is that almost none of the current UK political debate is really focussing on what would happen next if May’s deal were to be passed. There is an over-attention to the WA and an under-attention to the PD (or, as I have tried to suggest here, insufficient attention to how these are inextricably linked).

What will follow, the article suggests, are years of one-sided negotiation, with UK politics still in turmoil and – at best – a highly disadvantageous final deal, or even, after all that, no deal at all. In the meantime, inevitably, the existing process of business disinvestment and relocation – which is already dramatic and alarming – will continue.

What is Brexit? The still unanswered question

Of course it seems more likely than not that May’s deal will not pass next week. In that case, the Brexit crisis is going to become full-blown and the increasingly ugly public mood will turn uglier yet. The pro-Brexit demonstrators outside Parliament know what they want to happen. It is encapsulated in their monotonous, aggressive chant of “Out means Out”.

But that tells us nothing and simply begs the question that Brexiters, and the government that tried to implement their referendum victory, have never been able agree an answer to: what does ‘out’ mean? From which failure all that has happened since, and is happening now, has flowed.

So if May’s version of what Brexit means does fail, then, possibly after May has wasted even more time, MPs (and it will likely fall to MPs collectively, since there is scarcely a functioning government any more) are going to have to agree what ‘out’ does mean. That seems unlikely given the failure so far to do so. Or they must find a way of abandoning Brexit altogether. And they’ll have to do it quickly, because in less than 80 days these decisions will be made for them and, of course, for the rest of us.

 

*Norway+ now seems to have morphed – perhaps because people felt there were not enough Brexit models around - into being described as ‘Common Market 2.0’, but the central idea remains single market membership and a customs union, with the immediate route being the WA as currently written but with a “significantly reworked” PD to reflect this idea.

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