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

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

Wes Streeting’s facts of life

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

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

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

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

Backbench pressure?

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

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

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

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

A vanishingly small space?

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

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

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

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

Counting the costs of Brexit: latest news

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

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

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

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

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

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

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

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

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

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

Some other facts of life

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

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

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

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

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

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

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

 

Notes

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

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

Punch-drunk Britain

I don’t purport to provide anything like a comprehensive weekly record of reports of Brexit damage – fortunately the indefatigable Anthony Robinson curates the closest thing there is to that with the Davis Downside Dossier – which some weeks would be almost a full-time job. It would also be a heartbreaking one, partly because behind many of them lie lives disrupted if not devastated, partly because of what this damage means for all of us, and partly because it was all so predictable but the warnings were ignored with the mocking parrot cry of ‘Project Fear’. It is heartbreaking enough to discuss just some of them, which keep coming like punches on a bruise.

The latest punches

In this week’s crop, there is the record level of Foreign Direct Investment (£) – no, not in the UK, in Germany, and partly driven by a surge in UK investment projects as companies seek to maintain a foothold in the single market. It is the latest evidence of what was bound to happen, even if only at the relatively minimal level of UK firms setting up companies and sometimes offices in EU countries to avoid the extra bureaucracy of Brexit – as advised, in a sub fusc governmental recognition of the damaging reality of Brexit, by the Department for International Trade in 2021. So far as the bigger overseas investment projects are concerned, it can only be assumed that these are at the expense of domestic business investment, which was recently estimated to be £29 billion less than it would have been since the referendum result.

To refer to the next story as one this week’s crop of damaging Brexit news would be a bad pun, for it is the report that the value of UK exports of fruit to the EU have dropped by more than half since the end of the transition period. It’s not a coincidence, and it has persisted post-pandemic: it is because of the new regulatory and customs barriers created by Brexit. This, of course, is just one of the many examples of the adverse effects and risks for British farming post-Brexit.

Another newly emerging example affecting food producers and retailers is the one I mentioned last week, namely the requirement for all UK-produced foodstuffs, including vegetables, fish, meat and dairy produce, sold in the UK to be marked ‘not for sale in the EU’. It has since been reported that this may entail four labels (£) (on the individual product, the packing case, the supermarket shelf, and posters). As I explained before, this arises from the requirements of the Windsor Framework, but is being applied UK-wide, rather than just in Northern Ireland, partly to reduce the costs of different labelling as between Great Britain and Northern Ireland, and partly for the political symbolism for unionists.

I noted then that Brexiters are furious about this, but subsequently I’ve seen multiple comments on social media, apparently from non-Brexiters, saying that this labelling obviously means that the produce is not of a high enough standard to meet EU requirements, and that they would therefore be wary of consuming it. This is not necessarily so, and in most cases won’t be so, but it is an interesting misunderstanding as it is the mirror-image of the Brexiters’ complaint that there’s no reason why UK produce should not be sold freely into the EU as it continues to meet the same regulatory standards.

Both misunderstandings go to the heart of what the single market means, and what being outside of it means. The issue isn’t the standard of the product or the product standard, as such, it is about being part of a common system of standard-setting and standard certification to demonstrate compliance, as well as a legal system to enforce it and provide redress for breaches. The UK has chosen to be outside of that system, because it wants the freedom to set its own standards and regulations, and that puts UK products outside of that system even if the actual standards and regulations have not changed. It's true that maintaining the same standards is still advantageous, since, albeit with different labelling in the case of food, the product can then be sold in the UK or sold to the EU, but if sold to the EU it will be as an export into the single market, after going through regulatory and customs checks, rather than sold freely within the single market.

As regards foodstuffs, in order to ease the Northern Ireland situation (though it would have benefitted the whole of the UK), in 2021 the EU actually offered a deal on Sanitary and Phyto-sanitary (SPS) standards whereby UK produce could effectively be treated as if it originated within the single market, but only if the UK agreed to ‘dynamic alignment’ i.e. not just following existing EU SPS standards, but changing in line with them, as they changed. The UK rejected this as not being compatible with ‘sovereignty’, and also as potentially preventing it changing SPS standards, perhaps in order to secure a trade deal with the US.

The latter looks extremely unlikely now and was a bogus reason anyway, as the EU offered a temporary dynamic alignment deal which could have been ended if and when the UK ever did change standards. The former is simply theoretical, unless or until the UK actually does change standards, and one cost of that theory is that food of an identical standard to that required by the EU must be marked ‘not for sale in the EU’. It is the cost not of divergence, but of retaining the right to diverge.

This is the madness* that not just hard Brexit but the Johnson-Frost ‘sovereignty-first’ Brexit has brought us to. It is most visible with food, because it is an everyday product, but in various ways is present in other sectors (e.g. chemicals firms having to register with the UK REACH regulatory system which, in the government’s words, “replicates the EU system as closely as possible”, at an estimated additional cost of £2 billion). And, by the way, the cost of ‘not for sale in the EU’ labelling will be even greater if large numbers of British consumers do, indeed, mistakenly conclude that British food marked in this way is sub-standard, and decide to buy imported alternatives, perhaps from EU producers.

A coming punch: import controls

All of this will begin to be introduced from October 2023, although the exact details have still to be decided, adding uncertainty to all the other problems. That date is also when we will finally see the beginning of the much-delayed imposition of UK controls on imports from the EU. Again, there’s quite a bit of misunderstanding in all quarters about this.

One is that many people are under the impression that this has already happened – hence, for example, the rash of stories about UK customers having to pay import duties on goods delivered from the EU that started immediately after the end of the transition period. But the point is that hard Brexit created (or re-instated) two kinds of ‘border’ (I put it in speech marks, as it doesn’t necessarily refer to a physical border, but also to the processes and formalities of border control). One is a regulatory border, by virtue of leaving the single market, and the other a customs border, by virtue of leaving the customs union. The latter was erected by both the UK and the EU from the outset, and is what gave rise to those stories (it is more complicated than that, as it was also do to with VAT: for more details on this, and the more general issue of what happened immediately after the end of transition, see my post of January 2021).

The former, the regulatory border, was erected by the EU but not the UK (again, it’s more complex than that, as UK checks on certain “high-risk” products did begin in January 2021), and doing so was delayed four times, most recently in April 2022. On that occasion, the minister responsible was Jacob Rees-Mogg who, in a rare moment of candour, admitted that Brexit does indeed involve substantial costs. He estimated that completing import controls would add another £1 billion a year to the costs of British business and, although he didn’t spell it out, this also implicitly admitted that there are costs in the other direction, as a result of EU import controls.

Another persistent misunderstanding (and it is a variant of the one about what ‘not for sale in the EU’ means) is that not having full import controls doesn’t matter because EU goods conform to high standards anyway. That’s a fallacy, for reasons I explained in detail in yet another previous post, in April 2022, of which perhaps the biggest is that, as a result of Brexit, the UK no longer has access to the EU early warning databases, for example for outbreaks of animal diseases or food contamination.

But underlying that fallacy is something much deeper, and it was perhaps the central delusion of Brexit, which is the way that Brexiters seemed to envisage leaving the EU as a kind of ‘symbolic act’ in which nothing needed to change. In this particular context, that is reflected in the common Brexiter comment ‘if the EU want to erect borders that’s up to them’, as if there were no concrete meaning to leaving the institutions that got rid of borders, or needn’t be but for ‘EU protectionism’ (Rees-Mogg, inevitably, furnishes a good example of this fallacy).

This total ignorance (which, by the way, is also an ignorance of the ‘WTO rules’ that so many Brexiters used to get so moist-trousered about) isn’t just a matter of this or that comment by Brexiters trying to score debating points. It went right to the heart of government policy so that, astonishingly, it was not until February 2020 – that is, over three years since Theresa May finally confirmed that Brexit meant the hard Brexit of leaving both the single market and the customs union – that a government minister, Michael Gove, officially confirmed that this meant there would be import controls on EU goods.

Undoubtedly it is this, along with the paranoid rush to get Brexit done as quickly as possible, including the refusal to extend the transition period, which explains why, unlike the EU, the UK wasn’t ready to introduce import controls in January 2021. Even now, their introduction is reported in both the Telegraph (£) and the Mail as being a ‘blockade’, rather than the inevitable consequence of the UK’s own decisions.

However they are described, their introduction is likely to prove as big a shock as the EU’s introduction of controls did. Again, fresh produce, including meat and dairy products, will be most affected, with shortages likely initially and, in the longer-term, higher prices and reduced choice for consumers. So this isn’t some obscure technical change but, to use another unfortunate pun, a literally bread-and-butter issue which will affect daily life. A report this week from the LSE’s Centre for Economic Performance estimates that of the 25 percentage points rise in UK food prices between December 2019 and March 2023, eight percentage points are attributable to Brexit (i.e. about 30% of the total rise). It is an astonishing finding, and, as the authors, explain, it is the result of increased non-tariff barriers (the things which David Frost airily dismissed as “exaggerated”, and which Boris Johnson dishonestly said were abolished by the trade agreement with the EU) meaning, primarily, EU import controls. 

The introduction of full UK import controls will, by definition, further increase those barriers. And, for all the government’s boasts that this will be a high-tech, “world-class” border, the reality, according to Shane Brennan (£), the Chief Executive of the Cold Chain Federation, will be “a step back to the 1950s in terms of the types of supply chains options we have, in terms of getting hold of goods from Europe”. Nor will it just affect what we eat. For example, gardeners have been warned by the Horticultural Trades Association that they, too, will face higher costs and less choice, and that this industry alone will face an added “£42 million a year in red tape … for no economic gain”.

A rabbit punch to watch for: data protection

The introduction of import controls has at least received quite a bit of media coverage. That is less true for something potentially very nasty lurking in the undergrowth: the Data Protection and Digital Information (No. 2) Bill. This again has a long history, made more complicated by the churn of ministers responsible for it. 

Very early on in the Brexit process the UK passed that 2018 Data Protection Act and when it was still in development I discussed it as an example of how, in practice, post-Brexit regulation would follow that of the EU. That proved true, and is the reason why the EU has accepted UK regulation as “adequate”, meaning “essentially equivalent” to EU GDPR. However, this is subject to periodic review and renewal, with the current adequacy rulings due for review in 2024 and possible renewal when the current period for which adequacy is granted expires in June 2025. Moreover, in the interim, the UK’s provisions are monitored by the EU and, if found to lack equivalence, the adequacy decision can be revoked earlier. The implications would be profound, as, without adequacy, sharing of personal data between the EU and UK for commercial and security purposes would be severely curtailed.

Nevertheless, Brexiters have always regarded divergence from GDPR as a ‘prize’ of Brexit, and the new Acting Minister responsible for the latest Bill is John Whittingdale, an arch-Brexiter. Last month, he stated that it would not be “a complete disaster” to lose EU adequacy, referring to various work-arounds that would be possible. It’s a mark of how low Brexit ambitions have been set that ‘not a complete disaster’ apparently now counts as an acceptable benchmark. It is also worth considering what that actually means: industry insiders estimate that losing adequacy would cost between £1 billion and £1.6 billion a year and, beyond that, there would be the cost, perhaps in lives, because of the impact on data sharing in relation to serious crime and terrorism which the adequacy ruling allows.

Punching ourselves in the face: student visas

It remains to be seen what will happen in terms of the detailed provisions of the new Bill, and perhaps Rishi Sunak’s ‘pragmatism’ will prevail. Yet that pragmatism looks increasingly flaky. Last week I alluded to how the expectation of record high net migration figures (now announced) was re-energizing Brexiters’ discontent, and one consequence has been the government’s announcement this week that overseas postgraduate students on taught courses will no longer be allowed to bring their families with them. Inevitably that means that at least some of those who would otherwise have come to the UK will go elsewhere, in what is a highly competitive market for such students. Why, if you want to study abroad without being parted from your family, come to the UK now?

It is a wretched policy, at multiple levels. It is directly economically damaging, in terms of the loss of fee income to what is one of the UK’s few thriving sectors, and the loss of the general expenditure of those students and their families – a loss that will be felt by everyone from taxi drivers to food stores – often in areas where the local economy is fragile. It damages university finances, when universities are held, rightly, to be central to Britain’s economic future. It is a loss of the intellectual and cultural contribution of those students to university life. And it is a loss to UK ‘soft power’ – all those students and their families who might look back on their time in the UK with affection and pride, and act as ambassadors for the UK in their home country, who will now do so for another country. It seems that the Labour Party don’t care about any of this, either, since they support this cretinous policy.

Its architect is Suella Braverman, who has been in the news for other reasons this week, namely her handling of a speeding offence. That wouldn’t be a Brexit story except in the general sense that it is unlikely that, were it not for Brexit and her zealous support for it, someone of such mediocrity would be holding high office. But it has been made so by Brexiters absurdly insisting (£), as they did of Dominic Raab’s resignation, that Braverman is being targeted by the ‘Woke Blob’ for being pro-Brexit (and generally ‘right-wing’). That is now also being run together with attempts to depict (£) the continuing scandals surrounding Boris Johnson as victimization at the hands of those the ever-puerile Rees-Mogg calls “highly-strung remainiacs”.

It is all of a piece with the paranoid victimhood that runs through Brexit, and it would be laughable if it were not so deforming of political discourse, not least in striving to keep politics forever in the toxicity of the post-referendum period. That is damaging in itself, but in turn contributes to the additional damage of making it is so politically difficult to address the realities – the lost investment, the lost trade, the rising prices, and all the other things – of what Brexit is doing to our country.

Punch-drunk Britain

I increasingly wonder and worry about how much more incremental damage can Britain take. Each individual example isn’t necessarily so terrible. Each can be, and is, argued away by Brexiters as overstated or ‘not a complete disaster’. A billion pounds here, ten billion there – big numbers, for sure, but not overwhelming. But it is the cumulative impact which is so alarming, and the way it is ripping through every sector of the economy, from cars to farming, from higher education to financial services, from social care to live music.

Brexit Britain is increasingly like a punch-drunk boxer. Once a world champion, age and booze and drugs have taken their toll. But he decides to enter the ring again. He’s still a big name, of sorts, though not as big a name as he thinks. Once he fought in the big arenas, but now he takes on all-comers at country fairs. Flame-eyed, porcine, puce-cheeked, he brags that he can take any punch thrown at him and, it’s true, he has enough residual strength to absorb a certain amount of punishment, and even to trade the odd counter-punch. But each blow takes its toll, each adding a fresh bruise to a dull bruise to form a livid, purpling mass.

He stumbles and flails, an ugly, humiliating sight even to those who once admired him. Many of those watching never wanted him to come out of retirement, and even more now wish he hadn’t. But others, smaller in number but loud in voice, endlessly re-watch videos of the glory days, and insist that, even now, he is only being brought down by the doubters. The metaphor is wrong, though, in that the boxer isn’t external to us, but is all of us: we are all the Brexit-bruised flesh. And the punches are not those of some antagonistic bully but self-inflicted by our own body politic.

*It actually gets even madder and more absurd than I have presented it here, because although rejecting the offer of ‘dynamic alignment’ the UK did propose a ‘regulatory equivalence’ deal (see my post of May 2021 for more detail). This isn’t just arcane past history, and may yet come back to prominence. The two different approaches are sometimes referred to as ‘Swiss-style’ and ‘New Zealand-style’, respectively. Labour have said that they would seek an SPS agreement with the EU if they come to power, but in doing so have mentioned New Zealand, but not Switzerland (e.g. Shadow Chancellor Rachel Reeves in June 2022). Unless this is just down to not understanding the issue, then it will be a problem, as the EU have already rejected, and will never accept, a New Zealand style regulatory equivalence approach.

Limited realism and the limits to realism

In last week’s post I wrote about the strategic incoherence of post-Brexit politics, despite the more pragmatic approach embodied in the Windsor Framework. The fate of that agreement, specifically, remains somewhat unclear. The DUP continue to make noises that could mean rejecting it, but might not, whilst Brexiter MPs are restless (£) that they will get bounced into the deal, but if so there may not be much they can do.

As things stand, the Joint Committee overseeing the Withdrawal Agreement are due to sign off the Windsor deal by the end of next week, with a vote being held in the Commons on Wednesday. That vote will be, specifically, on the Statutory Instrument (SI) to create the ‘Stormont Brake’, but the government has said it will be treated as the promised vote on the Framework itself (there may be further debates on other related SIs, but it’s not clear there will be votes). That vote will be won, no doubt, but, in my view, the widespread assumption, or implicit assumption, that this issue is going to quietly disappear is not yet justified.

In the meantime, the theme of strategic incoherence can be thought of in a slightly different way, and one which shows why, even if Sunak is minded to create a more coherent and realistic approach, the very nature of Brexit continues to undermine it. Back in 2019, I wrote about the way that a core strategic problem of Brexit is that of a nation existing in a global context but which has eschewed a regional anchoring. If the three levels of national, regional and global are thought of as the legs of a stool, what Brexit has done is to cut off the regional leg, creating a fundamental imbalance.

That imbalance flows from the way that the case to leave the EU relied upon marrying together quite inconsistent ideas about Brexit as a project of national independence and Brexit as a project of global greatness. One way that inconsistency was temporarily glossed over was by ubiquitous references to the UK being ‘the world’s fifth largest economy’, as well as to its membership of various international bodies and organizations. The implication was that Britain was powerful enough to ‘go it alone’ and also to be a global leader. In such an imagination, regionality, in the form of the EU, was irrelevant.

But an imagination was all it was, and the consequences of it being false run through many of the latest Brexit-related events. Some of them show a growing realism, whilst others continue the delusions.

Geo-politics: a degree of realism

As foreshadowed in my previous post, the Franco-British summit and the AUKUS summit, along with the publication of the ‘refreshed’ Integrated Review of Security, Defence, Development and Foreign Policy (IR23), offered Rishi Sunak an opportunity to develop a more realistic and effective post-Brexit geo-political strategy. I think it is fair to say that he has had some success.

The Franco-British summit was effective in soothing the very strained relationship of recent years, strains which aren’t entirely to do with Brexit, though it also served as a reminder that on the high-profile issue of migrant returns there is no bilateral substitute for an agreement with the EU, which is not going to be forthcoming. Nevertheless, the joint declaration that followed the meeting contained not just warm words but some substantive initiatives, including, for example, easing travel formalities for school trips, though again that’s a reminder that the problems were caused by Brexit in the first place, and an agreement with one EU member state is only a small reversal of those problems.

However, whilst recognizing the genuine value of the summit, Professor Richard Whitman of Kent University, an expert in this area, argues that the Paris-London relationship is somewhat less important than it was pre-Brexit and pre-Ukraine War. Still, within that context, the meeting was as effective as it could have been, and certainly an improvement on the legacy Sunak inherited from his predecessors. Certainly only a few of the Brexiter diehards complained about it, and that to little effect.

The refreshed Integrated Review was also an improvement. Whitman, again, notes that its tone was one of “sober realism”, with the hubris of the previous version now largely gone, along with its ‘Global Britain’ tagging. In line with defence analyst Joseph Huminski’s account of US expectations for the review, cited in last week’s post, it put far more emphasis than before on the centrality of European-Atlantic security, manifest in the extent of UK bilateral relationships with EU states, and reflecting, of course, the impact of the Ukraine War.

It’s true that the Indo-Pacific tilt of the 2021 review continued to feature strongly, but I read that as now more being bound up with falling into synch with US hawkishness about China – again in line with Huminski’s explanation of US expectations – rather than being, as it appeared before, a fantasy about the UK as a Pacific power in its own right. That is underscored by the new stress on the AUKUS pact which had not been created at the time of the previous review.

Overall, from a Brexit perspective, there are two observations to be made. One is that there is nothing the UK is doing in defence and foreign policy that required Brexit, unsurprisingly, since, as an EU member, the UK already pursued its own policies in these areas. On the other hand, what has been lost is insider influence over EU decisions in these areas. One immediate practical consequence is that UK firms look set to be locked out of bidding for contracts under the EU’s plans to massively increase arms spending for Ukraine. Moreover, conspicuously missing from an otherwise acute and thorough appraisal of the global scene (about which there is far more to be said than I have done here) is any recognition of the extent to which Brexit was a gift to Russia’s strategic interests.

The second observation is that, given Brexit has happened, post-Brexit defence and foreign policy does now seem to be in the process of being ‘normalized’, in the sense of losing at least some of its Brexity delusions of grandeur, reverting to a position of closely shadowing US definitions of western interests and trying to repair Britain’s regional standing with European neighbours. Of course, some may feel that this traditional posture is problematic, and indeed that the extent of UK ambitions is some way ahead of its ability to afford them. That raises questions which are beyond the scope of this blog, but to the extent that Sunak is engaged in such a normalization, it does undo some of the reputational damage of Brexit.

Trade and regulation: lessons in realism

The refreshed Integrated Review, like its predecessor, makes frequent reference to how defence, security, development and foreign policy are related to trade policy and to economic performance and stability generally. This is clearly true (for any country, not just the UK) and works in both directions, since, for example, the value of pledging to devote 2.5% of GDP to defence spending can’t be separated from the scale of total GDP.

From that point of view, the emphasis on the government is putting on the apparently imminent accession of the UK to the CPTPP, both in IR23 and more generally, is excessive. This was discussed at some length in Alan Beattie’s excellent Trade Secrets column (£) in the Financial Times, which, apart from pointing out that it will only be worth a “pitiful” 0.08% of GDP, identifies the “rough ride” the UK negotiators have had. This is because, in essence and to coin a phrase, ‘we need them more than they need us’ – not so much for economic reasons but for the political one created by “ministers desperate for deals to put in the post-Brexit trophy cupboard”. To that could be added precisely the geo-political emphasis the government is putting on CPTPP membership as an aspect of its Indo-Pacific tilt.

From the other side of the table, this means that individual CPTPP members have few reasons, either economic or political, not to take what advantage they could of this supplicant from the other side of the world, perversely determined to seek a regional place in another continent having discarded the place it had in its own. The consequences, it seems, from both Beattie’s report and other sources, are likely to include significant and potentially controversial concessions for example to Malaysia (by granting zero tariffs on UK palm oil imports) and to Canada (by granting generous tariff-free quotas for beef imports). The latter arises in part because Canada wants the same one-sided benefits already given to Australia and New Zealand by the UK in its ‘desperation for deals’. This is also a reminder of the naivety of those Brexiters who imagine there is a cosy familial bond within ‘the Anglosphere’, and a reminder more generally of the ruthlessness of international trade negotiations.

That ruthlessness is especially evident when a single country, like the UK, is negotiating for itself rather than as part of a regional bloc, and is doing so with a much larger regional bloc. Such asymmetries also apply to regulation, an instructive example this week being the case of regulations about the amount of arsenic allowed in baby foods (I may not be the only person who didn’t know that arsenic in baby food is a thing). New EU rules reduce the amount allowed, which initially raised questions about how, under the Windsor Framework, the difference between EU and UK rules would be managed in Northern Ireland. However, subsequently, the UK trade body for baby food manufacture announced that its members would follow the EU standard, even for products made and sold in Great Britain.

This may seem extremely abstruse or esoteric, but it goes to the heart of the entire question of post-Brexit regulatory independence and, with that, the Brexiter idea of sovereignty. For what it illustrates is that, regardless of what UK regulations may be, businesses will adopt the product standard that suits them. That will generally mean, as in this case, the standard that allows them to sell into both markets, which will be the higher standard, and especially the higher standard of the larger market, making the Brexiters’ idea of regulatory sovereignty facile (the so-called ‘Brussels effect’). In some cases, it may mean simply not serving the smaller market at all.

It’s true that there may be some sectors for which, either because of the size of the UK’s market (e.g. some financial services) or their scientific novelty (e.g. gene editing), the UK* could conceivably be a standard-setter, but as a generality that’s not the case. And even the examples given have much complexity, with many of the ideas for the ‘Edinburgh reforms’ of financial services being controversial, the more so in the wake of the collapse of the Silicon Valley Bank this week, and both may be matched or overtaken by changes in EU regulations.

Science and technology: between hubris and realism

It’s worth looking at science and technology in more detail, because it’s clear from numerous statements, including the refreshed Integrated Review and this week’s Budget statement, that the Sunak government sees this as key to the UK’s post-Brexit strategy. That’s not unreasonable, and nor would it have been without Brexit, but there are problems with the government’s approach, and they are all connected with Brexit.

Firstly, it is very much bound up with the ‘global dominance’ version of Brexit, symbolised by the constant rhetoric of Britain being ‘world-leading’. In fact, as a major new independent review of UK R&D published this month shows, that rhetoric rests heavily on past achievements and on a few small research clusters. Overseen by the Nobel Prize winner Sir Paul Nurse, the review depicts UK science as being good, but not that good, and as on a trajectory of gradual long-term decline (£). Perhaps that can be reversed by the new UK Science and Technology Framework but, at least in its headline aspirations to be a ‘Superpower’ in this domain, a term repeated in the Budget statement, there still seems to be the equivalent of the ‘Global Britain’ hubris of the original Integrated Review, rather than the ‘sober realism’ of IR23 (perhaps tellingly, the ‘Superpower’ theme goes back to Johnson’s time in office, although Sunak has used it assiduously).

Secondly, as the Nurse review clearly acknowledges, but the government is incapable of even mentioning, Brexit has already damaged UK science. A key issue here is participation in Horizon Europe, which, as I discussed in my previous post, the government is now, bizarrely, fighting shy of, despite the path to participation being cleared by the Windsor Framework agreement. The government’s alternative plan is described by Nurse as “utterly inadequate” and, along with the Royal Society, business groups have urged the government to join Horizon (£). Nor is Horizon the only issue – the end of freedom of movement has, for science as for business, made international collaborations more difficult. For whilst it is true that the post-Brexit immigration rules have seen a surge in skilled immigration (£), the costs and bureaucratic processes involved are a far cry from the free-and-easy interchanges within, at least, Europe that have been lost.

Thirdly, as regards regulation specifically, this aspect of the Framework, which is also the subject of the Vallance Review, is again predicated on the hubristic vision that by 2030 “the UK leverages post-Brexit freedoms and is at the frontier of setting technical standards and shaping international regulations”. There is in that some acknowledgement of the role of other countries and of international bodies, but, with it, the ambition to ‘lead’ and ‘convene’ the international standard-setting ecosystem. What’s lacking is recognition of the brutal truth that the rest of the world neither needs, nor desires, nor is likely to accept such a role for the UK. The hard lessons that the UK is slowly being taught about the realities of power asymmetry in trade negotiations have yet to be learned in the equally unforgiving sphere of international standard-setting.

With that said, there was one revealing feature of the Budget statement in the announcement that the government would use “our Brexit autonomy” in relation to regulating medicines to “move to a different model which will allow rapid, often near automatic sign-off for medicines and technologies already approved by trusted regulators in other parts of the world such as the United States, Europe or Japan”. That doesn’t mean the end to independent UK medical regulation, and the statement goes on to say that the MHRA will be able to approve some medicines in advance of those other regulators, but it does seem to be a realistic recognition of the ‘regulatory pull’ of larger jurisdictions. Whether it is sensible in terms of medical safety I am not competent to judge, but it is certainly piquant to think that, in the name of “Brexit autonomy”, EU-licensed medicines will be effectively rubber-stamped for use in the UK.

Overall, it would be wrong to be completely dismissive of the government’s post-Brexit science agenda. Within the documents referred to there are plenty of interesting ideas, and there are a lot of serious, highly competent, people who are going to be involved in delivering it. Yet, if they do so, it will surely be despite the overall framing of the approach. In other words, it may be successful if it acknowledges the realities of the UK is a medium-sized scientific power possessed, no doubt, of certain advantages, but needing to work co-operatively with others and mindful of its regional location adjacent to the EU and the particular relationships that entails.

It's also notable that the science strategy, including the revised Investment Zone plan, is heavily reliant upon and makes frequent reference to Britain’s – yes, of course – ‘world-leading’ universities. For that to work, the government might wish to consider the state of morale in UK Higher Education, riven for years by strikes over pay, pensions and casualisation, and to reconsider its complicity in endless attacks upon ‘woke’ academics as well as the Brexity disdain for ‘experts’. Indeed, there’s a certain irony in universities being so often decried for being bastions of ‘remainerism’, whilst also being charged with a central role in digging the country out of its Brexit hole. Equally, irrespective of Brexit but made harder by the impoverishment caused by Brexit, its success will require significant increases in government spending, without which any strategy, however realistically defined, will be mere rhetoric.

Small boats: scarcely a glimmer of realism

Rhetoric without substance is hardly a new feature of politics, but arguably it has become a particular problem in post-Brexit Britain. That is evident in the performative trade policy that prizes ‘doing trade deals’ above their value, but most grossly illustrated by the latest drive to ‘stop the boats’ with the Illegal Migration Bill, which has dominated recent news headlines recently and engulfed the BBC in a major row.

Rafael Behr identifies the Bill as prime example of this post-Brexit performativity, in the sense that, for all its cruelty, it will not ‘stop the boats’ and this is not its purpose. Rather, its purpose is the grimly populist one of enabling the government to declaim its commitment to ‘the people’s priorities’ whilst demonizing those who oppose it, including Labour and ‘lefty do-gooders’, as out of touch with ‘the people’. Yet, as Nick Tyrone points out in his latest Week in Brexitland substack, if this were genuinely the popular consensus then why make such exaggerated and vitriolic claims about the need for the policy?

Both the performativity and the populism of this are, indeed, hallmarks of Brexit, but there is something else here, too. It is the most extreme example of imagining Brexit as mandating untrammelled national independence. It does so by trying to detach the UK from the global flow of refugees: if all those who have passed through a safe country on their way to the UK are deemed automatically ‘illegal’, and with seeking asylum by direct travel being virtually impossible, then Britain has no responsibilities. That may be somewhat ameliorated by providing for refugees from favoured places, such as Hong Kong and Ukraine, but otherwise uses the accident of an island geography to pursue a policy of national isolationism.

So, suddenly, in this domain, there’s no talk of the UK ‘leading’ or ‘convening’ international standards or responses, still less of ‘Global Britain’. On the contrary, at least for the hardliners, there is outrage that such international standards should apply, most especially those of the European Convention of Human Rights (ECHR) and the ‘meddling foreign judges’ of its associated Court. For them, the Illegal Migration Bill is not, or not simply, performative politics because its anticipated failure is a gateway to the Brexit 2.0 of ECHR derogation. And if that brings with it the termination of the Trade and Cooperation Agreement with the EU, and puts the Good Friday Agreement into crisis, that would not bother many of them, and indeed might be welcomed by some of them.

Yet even in this area there is a glimmer of recognition, from the government if not the hardliners, shown in the discussions with France and, more widely, the ‘Calais Group’, that international cooperation is necessary. And, for all the noise of those who would derogate from the ECHR, it is still difficult to envisage the government actually doing this, or being able to do so in the face of what would undoubtedly be a huge backlash even from within the Tory Party, let alone from other domestic and international actors. Still, Sunak will allow ministers to dangle the prospect, as well as continue his ‘stop the boats’ rhetoric, despite the costs to international reputation, since whatever realism he shows in other respects is trumped by his apparent belief that it is a vote-winner.

The real consequences are clear

It’s easy to identify the many ways, including those discussed here, that Brexit has rendered the UK directionless, confused or destabilized across just about every policy area. And whilst there is no single measure to capture the consequences, one which is highly revealing is business investment, since it implies some degree of confidence in the current and future UK economy and polity. Moreover, it allows a degree of comparison with other countries.

On that metric, the verdict could hardly be more damning, as, for example, expressed this week by BYD, China’s largest electric car manufacturer, which is currently considering where to open its first European car plant. In the words of its European president, “as an investor we want a country to be stable … To open a factory is a decision for decades. Without Brexit, maybe. But after Brexit, we don’t understand what happened … Even on the long list we didn’t have the UK.” It’s an interesting formulation as although, no doubt, the economics of Britain being outside the single market are part of the calculation, issues of stability, presumably both political and regulatory, and, more intangibly, ‘reputation’ are foregrounded.

Overall, the Office for Budgetary Responsibility’s report that accompanied this week’s Budget statement not only confirmed the stagnation of business investment that started immediately after the referendum, but showed a larger and more long-lasting negative impact than it had initially expected**. A briefing published by the Economics Observatory this week shows that a similar picture emerges from a variety of different sources and models and, significantly, that it obtains across multiple business sectors (see Table 1). These sources show the UK’s investment levels since 2016 to be poor by international standards (see especially Figure 3).

It is hardly surprising. “Brexit has cracked Britain’s economic foundations” as CNN’s Hanna Ziady put it at the end of last year. But it has done more than that. It has fractured Britain’s relationship with the world across multiple domains, all of which show the strategic incoherence of Brexit. There are some signs, limited but welcome, that the government recognizes and is trying to repair some of these fractures. But these attempts are patchy, painfully slow and, in the final analysis, inevitably constrained by the ultimate reality that the multiple problems Brexit is causing are inherent in the lies and fantasies of Brexit itself.

 

Notes

*Note that as regards the specific example of gene editing, the proposed new regulatory framework will apply in England only.

**The second link in this sentence shows the investment chart. To put it in context, it is Chart F on p.48 in the overall report (the first link in the sentence) which itself sits inside Box 2.4 (pp. 46-49) which reviews the OBR’s previous and current assumptions and forecasts about Brexit more generally.

The debate about economic forecasts

The statement by the Bank of England that its forecasts of the effects of Brexit have proved wrong has been greeted with glee by Brexiters and led to economic forecasting in general being denounced. There is no doubt that economic forecasting is a problematic activity, but it is important to make several points about the Brexit forecasts.

First, they were an attempt to respond to the Leave campaign’s claims that the UK would flourish or at least come to no harm if people voted to leave. Those were every bit as much forecasts as those of the Remain campaign, even though they were not backed up with any analysis. Similarly, claims about the £350M a week for the NHS if we left, the fall in immigration if we left, and the prospect of Turkey and other countries joining the EU if we didn’t leave were all forecasts, and they have all now been disowned by leading leavers.

Second, like all economic forecasts, those made during the Referendum campaign were based upon assumptions and simplifications. Most importantly, many of them, including that made by the Treasury, assumed what was then believed to be inevitable namely that Article 50 would be triggered immediately after a vote to leave (see paragraph 1.42 of the Treasury short-term forecast). It wasn’t, and instead we have been in a limbo since. So far as the BoE forecast is concerned, it did not (bizarrely, perhaps) factor in the actions that it, itself, would take if the vote was to leave: quantitative easing and a cut in interest rates. Both those things happened, and mitigated the effects of the vote, but they were not cost-free and the price of them is being paid by pension funds and savers. So whilst some of the adverse effects the BoE predicted have not so far occurred, it is because of other adverse effects created by the BoE’s attempts to prevent their predictions coming true: the cost of the vote has been displaced and deferred, not avoided.

Third, it is simply not the case that the vote has passed without very severe economic consequences. The rapid fall of sterling is the most obvious, and would in any other circumstances have been understood as an economic catastrophe. The knock on effects of inflation are beginning to be felt. And there have been significant deferrals or abandonments of investment. Most economists continue to believe that the long-term effects of Brexit will be bad. At the very least, the jury is still out and some things can be said with certainty: whenever the government indicates that a hard Brexit is in prospect, the pound falls; and the government’s fiscal position has deteriorated to the extent of £59 billion over five years as a result of the vote. This isn’t just ‘forecasting’, it means real additional cuts in public services, which will affect real people’s lives, which wouldn’t have occurred if the Brexit vote hadn’t happened. Again, in any other circumstances this huge collapse in public finances would have been seen as a major economic crisis. Post-Brexit it is all but ignored.

Fourth, and it is a version of the first point, although Brexiters are now decrying economic forecasting, they are happy enough to take as gospel those that have recently been provided by lobby group Change Britain saying that hard Brexit would make the UK £450M a year better off and create 400,000 new jobs. If forecasting is so discredited then why should we believe these figures?

Similarly, much Brexiter attention has been given to a report by a group of Cambridge economists saying that the official forecasts were wrong and that there would be little economic effect from Brexit. Seldom can an academic working paper have been accorded such respect! What is striking about that is, first, that we can be sure that had reached different conclusions it would have been derided as the work of the elite (or ignored altogether) and, second, that what is being lauded is the application of a new and as yet unproven model of economic forecasting. In short, there is much confirmation bias in play here.

With all that said, I have always been reluctant to try to quantify the effects of Brexit and in various talks I gave before the Referendum refused to do so. I have adopted the same approach on this blog (for example on last September’s OECD statement, and in the very first post I said that there was no point in following each and every economic indicator whilst we were still in the EU).  Instead, what should command out attention is the logic of different institutional arrangements. What I mean by that is that leaving the EU is a massive institutional change for the UK. That ought be to common ground between Brexiters (or else – why leave?) and Remainers (or else – why care that we are leaving?).

If that is so, then [given that 50% of our trade is with the EU and another 16% via EU trade deals – so – 66% of our trade – and given that some, at least of our foreign direct investment relates to single market membership, and given that many of our industries from agricultural harvesting to the most advanced science are dependent on free movement] how could it be anything other than true that it will have massive economic effects? No country has ever tried to simultaneously detach and re-attach itself to the global economy, with no clear process or timescale or terms for doing so, and that in itself makes predictions all but impossible, except to say that the consequences will be hugely destabilizing. For sure Brexiters might say, as some do, that any price is worth it. For them, no economic forecast matters. Or that in the long run the effects will be positive - and what is that other than an economic forecast, albeit based not on data modelling but on blind faith?

Business investment since the referendum

The Department for International Trade, led by Liam Fox, has announced that it has secured almost £16 billion of extra investment in the UK since the Brexit vote. Unsurprisingly, Fox and other Brexiters have seized on this as a vindication of Brexit with Iain Duncan Smith saying that “this latest announcement is the turning point. You are now either in the camp that fundamentally believes that Britain can do anything, anytime and anywhere, or you are in the doom and gloom camp that doesn't believe in Britain”.

It would be difficult to think of a more asinine claim, and one which reflects what I called in my previous post the “bogus patriotism” with which Brexiters are trying to close down debate and to stigmatize those disagree with them.

I call it asinine because, even if you are the most ardent Brexiter, this announcement cannot possibly be interpreted in this way. There is no suggestion that this investment was the result of the vote for Brexit, and there is no reason why it could not and would not have happened had that vote not occurred. Nor are the deals that have been struck ones that require leaving the EU or the single market; indeed, we have not done so as yet. And the deals Fox is announcing do not arise from his supposed role in making new free trade agreements; no such agreements can be made until the UK leaves not just the EU but also the customs union.

On the other hand, what has happened as a result of the vote is that many investment decisions have been deferred or abandoned. These are so far estimated to amount to £65.5 billion (as at November 2016), a far larger figure, and they involve one-third of UK companies, rising to 42% of medium and large companies (which, of course, make the biggest investments). And note that this is just UK companies, it does not even include any deferred or abandoned foreign direct investment decisions.

Not only does the figure for reduced investment dwarf that of new investment but, to underline the point already made, the reduced investment is ascribed by those who have made the decisions to the referendum vote, whereas the new investment has not been ascribed by those who decided on it to the vote. I am not aware of a single domestic or foreign investor who has publicly stated that they have made a new investment that they would not otherwise have made because of the Brexit vote. That includes such well-publicized cases as the £1 billion investment by Google, which was not a result of the vote, about which its CEO expressed “reservations”, it was just that the plans, that had been developed some years before the vote, weren’t affected by it. And with the decision came with a warning that free movement was crucial to the tech sector.

The most that Brexiters can claim is that the vote has not caused all investment in the UK to cease. But no one ever said that it would. One of the hallmarks of the leave campaign was to respond to the warnings of, in this case, the likely reduction to investment by falsely claiming that these were hyperbolic predictions that it would end, which could then be dismissed as ‘project fear’. Now, they return to those false claims and retort, as Michael Gove did with respect to the £16 billion announcement, that the “prophets of doom have once again been found wanting”. In fact, the evidence so far is clear: the vote for Brexit has led to significantly reduced business investment, exactly as predicted. And that is before Brexit has happened and before Article 50 has even been triggered.

What is true is that since the vote there have been high (though lower than the previous year) levels of merger and acquisition (M&A) activity, with foreign firms buying up UK businesses, the earliest high profile example being the purchase of Cambridge high-tech pioneer ARM by a Japanese firm. This is attributable to the vote because it caused a huge devaluation of sterling (though the ARM sale would have been likely to happen anyway) which has made it cheap for foreign companies to buy UK companies. But this is not (other than for the investment banks and other firms who do the M&A work) good news for ‘UK PLC’. It’s just a cut-price selling off of national assets, with the ARM sale being described by its founder as a “sad day for technology in Britain”. And if one of the motivations for the Brexit vote was anti-globalization sentiment and a desire for protection of jobs then it’s certainly bad news as it puts even larger numbers of British jobs at the mercy of far-away boardrooms. So much for ‘taking back control’.