Extension is the Brexiters’ chance to show they accept that they won

With the last week of talks prior to the end of June cut-off for agreeing an extension finishing today, there is no sign (£) of progress towards a deal and no sign of UK willingness to extend the Transition Period. At the end of the first week of talks, just as coronavirus was beginning to bite in Europe, I speculated that we might see a less bellicose and more flexible approach adopted by the UK, including on transition period extension. I was wrong. Indeed since then, as the rational case for extension has grown because of the deepening coronavirus crisis, the government’s refusal to even acknowledge that case has hardened. Is that likely to change?

Business voices

There is strong public support for an extension. But it probably isn’t the kind of issue that has individual voters writing in huge numbers to their MPs (for whatever effect that would have) and so any pressure to extend will come from elsewhere. I remarked in passing in my last post that it would be easier for Keir Starmer to call for an extension were business and civil society institutions to do so, and a couple of weeks back that businesses might be wary about this given their present dependence on government. That latter analysis was supported by Delphine Strauss writing in the FT this week (£) and Charles Grant, Director of the Centre for European Reform, reports that business leaders aren’t willing to speak out “for fear of punishment by Number 10”.

Such fears are no doubt well justified. Long before Brexit, and before even the decision to hold a referendum, arch-Brexiter John Redwood threatened (£) “to punish businesses that speak out in favour of Britain remaining in the EU”. Subsequent to the referendum, companies bidding for government contracts were asked if they backed Brexit. And at the present time we can see government contracts being awarded to firms which had prior connections to the Vote Leave campaign. In a landscape where fealty to the true cause of Brexit is the sole qualification for political office, it hardly strains credulity that the same criterion might be applied in other contexts.

As the deadline for extension gets closer, there are the beginnings of some rumblings, for example from the CBI, of real alarm. Carolyn Fairbairn, its Director-General, wrote this week that many businesses “are not remotely prepared” for “a chaotic change in EU trading relations in seven months”. She was apparently referring to a no deal scenario but, actually, the chaos would hardly be less in the event of a deal being done, for this would still represent a sea-change from the current situation of single market and customs union membership. And Nissan – whose Sunderland factory plays an iconic role within the Brexit saga – warned in perhaps its starkest public terms yet that if tariffs are introduced the plant will be unsustainable.

Why hasn’t business had more influence?

Such statements may become more common if, as Brendan Donnelly of Federal Trust cogently argued this week, people are belatedly waking up to the strong possibility of there being no deal at the end of transition.  Yet even if the business community becomes more vocal there are doubts as to whether it can make much difference to how the government proceeds. Indeed the lack of influence it has had on Brexit throughout is remarkable, and a marked contrast to its role in the 1975 Referendum. That is all the more extraordinary given the way that, in the intervening decades, the priorities of business have had such political prominence.

There are several, quite complex, strands which explain this relative lack of impact. Perhaps one was that, indeed, people had got fed up with being told for so long that business interests were paramount.  Another is the extent to which British businesses have over those decades been sold off to overseas conglomerates. For them, whilst Brexit may be undesirable because of the disruption, it is not existential. Their opposition is driven, perfectly understandably, by considerations of cost not of principle (though Japanese firms also see Brexit as a betrayal of trust). They can and will decamp or divest if it becomes necessary. It is an irony that some Brexiters imagine that big business does not support Brexit because it does not care about what is good for Britain when the reality is that its lack of such care is one reason why Brexit is bad for Britain.

Not only did such global businesses lack genuine passion in their opposition to Brexit they also, for the same reason, did not place it at the top of their list of priorities. In particular, come 2019, they saw a Corbyn government as more of a threat to them than Brexit. They also saw the possibilities of government contracts – or exclusion from them – as a counterweight to the disruption of Brexit. The alliance between politically committed remainers and big business opponents of Brexit was always one of convenience and, ultimately, transitory.

The same is not neccessarily true of the thousands of small, domestic businesses who are opposed to Brexit – yes, on economic grounds, but with neither the escape hatch of relocation nor the detachment from British society of the big firms. But, by definition, it is harder for smaller businesses to have a loud voice. Representative bodies like the CBI have sought to be that voice, but in the process have become the target of massive hostility from both Conservative Brexiters and their cultural attack dogs in the media. Sometimes the two join hands, as when Priti Patel viciously attacked the award of a Damehood to Fairbairn as rewarding “her role in the Brexit betrayal” (as so often, reading this one might have thought that the Brexiters had lost).

There is a wider story here about how the modern Tory Party has become detached from almost all parts of the business community – except, perhaps, the hedge funds which are one segment that benefits from Brexit and which generously fund the party. The days when the Conservative benches would have plenty of people with intimate knowledge of business are long gone. It’s a similar story with its membership, perhaps because of its ageing profile. I had several conversations with some of them during the Referendum campaign, and they often spoke of their business experience but, invariably, it was decades out of date and showed no understanding of contemporary supply chains or international regulation. It is also strange how confident Brexiters have been in the lobbying power of ‘the German car industry’ at precisely the time they have been so dismissive of the concerns of its British counterpart.

The pernicious success of the ’Project Fear’ rebuttal

Be that as it may, business opposition to Brexit was also blunted by the extraordinary success of the ‘Project Fear’ rebuttal line (which, of course, was not just deployed against business). That success, which endures to this day, is difficult to explain. It seems to rely on the idea that any warning of any danger should be discounted, yet this is hardly how most people approach their daily lives.

It perhaps gained traction partly because the Remain campaign failed to articulate much in the way of a positive case for EU membership. It certainly relied on a constant argument ad absurdum, with warnings of, for example, damage to trade being rendered (and thus dismissed) as claims that all trade would cease. At all events, however successful it may have been as a campaign tactic, it has permanently crippled rational debate about Brexit, with any and every attempt to discuss, let alone address, practical difficulties being blasted away by its ovine repetition.

Additionally, at least during the Referendum campaign itself, and, I think, thereafter, the business voice against Brexit was muffled by media coverage. More than any other area, it suffered from the application of the ‘balance’ formula by the BBC and others. For, invariably, whenever business leaders spoke against Brexit they were then counterposed with a pro-Brexit business person. That may have ‘balanced’ the arguments, but it presented a seriously unbalanced picture of where the business community, overall, stood on Brexit.

Apart from the evidence of numerous surveys, the clue to that being so is that the pro-Brexit business people were always drawn from the same handful or so: Tim Martin, Anthony Bamford, James Dyson, Digby Jones, Rocco Forte and a few others. It happened precisely because there were so few of them.

The paucity of business support for Brexit is underscored by the failure to create a significant pro-Brexit business organization. Despite being boosted as the voice of business by the likes of ERG self-styled ‘hardman’ Steve Baker, the Alliance of British Entrepreneurs – the creation of an intellectual property lawyer and someone invariably just described as ‘a veteran and businessman’ – has never really taken off and does “not offer formal ‘membership’”. There’s something rather telling about the speech marks around membership, as if to imply that lack of members is a principled choice to avoid something disreputable. One might also wonder what ‘informal’ membership entails. These are hardly picky points to raise about an organization that aspires to be representative.

In any case, the Project Fear line was fundamentally dishonest both in itself and in what it became an alibi for. It was dishonest in itself because it ignored or distorted the factual basis of the warnings. It is dishonest in what it became because it morphed into the claim that, by ignoring those warnings, leave voters had chosen economic damage in favour of ‘sovereignty’. Yet, clearly, the entire Project Fear narrative was about discrediting those warnings; that there was nothing to ‘fear’. And why? Because the Vote Leave campaigners knew full well that if voters realized the economic damage Brexit would cause then they would never have voted for it simply on grounds of sovereignty. Otherwise, they would have simply agreed that there would be that damage and invited voters to support the policy anyway.

Whilst Project Fear was a potent way of neutering business opposition to Brexit before the Referendum, afterwards the populist neck-hold of ‘the will of the people’ was the main way of choking the business voice. If the judiciary and civil service could be traduced in that way, how much more difficult would it be for businesses reliant not just, possibly, on government favours but, almost certainly, on customers who might punish them as ‘saboteurs’? Safer to keep quiet. And of course the same situation obtains for other civil society institutions such as trade unions, charities, universities, professional bodies and so on. All are vulnerable to economic punishment, cultural punishment, or both. And all will suspect that speaking out is likely to be in vain as they will automatically be dismissed as ‘the Establishment’. So why take the pain for little or no gain?

That same logic now carries over to voicing concerns about not extending the Transition Period. Since Brexiters have managed – illogically, because Brexit has, in a legal sense, happened – to depict such an extension as ‘thwarting’ Brexit they can also run all their old attack lines about Project Fear and the will of the people.

The post-Brexit landscape

Yet voices are being raised over extension, and not just those of business. This week the Social Market Foundation published a report undertaken for the Best for Britain campaign group showing the economic implications of ending the Transition Period without a deal in the context of the coronavirus crisis. Meanwhile, a House of Lords Committee catalogued the extensive problems in implementing the Northern Ireland Protocol by the end of the year and business groups there are expressing desperation about the lack of clarity about how the sea border is to work.

The Northern Ireland Assembly itself voted this week in favour of an extension until the coronavirus crisis is over, and Nicola Sturgeon has repeated her longstanding demand for extension. Mark Drakeford, the Welsh First Minister, did so several weeks ago and was joined this week by Sadiq Khan, the Mayor of London. The latter is significant in being the first major Labour figure to make this argument and, as discussed in my previous post, there are good reasons why Keir Starmer should follow suit.

These and other bodies and leaders are likely to become more vociferous this month as the window for agreeing an extension closes. If so, I think that despite their fears they might find that the landscape is rather different to that of even a few months ago, especially if they find a way to speak in concert (as the TUC and CBI did when warning of the national emergency of a no-deal Brexit in March 2019) rather than individually.

Of course those familiar Brexiter attack lines will continue to appeal to a significant segment of the public and the media. But the coronavirus crisis, the government’s inept handling of it, and its falling popularity as a result all serve to change the environment. Brexit just doesn’t dominate in the way that it did and it’s all but certain that a vote held today would reverse it. Outside of the minority who will always care about it, it’s yesterday’s issue. The Referendum mandate to leave the EU has been discharged and is now expired. That mandate had nothing to do with the length of the transition period and it most certainly wasn’t a licence not make a deal with the EU – as Michael Gove effectively admitted this week.

Extension isn’t remainers’ last stand, it’s Brexiters’ first challenge

Indeed, for this reason, even had the pandemic not struck we would still be in a new situation. For what Brexiters and, I suspect, some remainers seem not to have grasped is that the debate over extension is not the last, desperate gasp of the battle against Brexit. That battle was lost and is over. Rather, it is the first of what will be many post-Brexit rows about how to implement it.

These will be over all the myriad of issues relating to the future relationship with Europe – not just trade, but education, science, data, security and so on – which will still need to be implemented in detail if there is a deal, and which won’t simply go away if there isn’t. They will be over the impact of whatever trade deals may be negotiated with the US (£) and other countries. And they will be over the big picture issue of what the UK’s place in the world is post-Brexit, which is already being played out as we navigate the complex power-plays between the US, China and the EU, for example over Huawei.

The Brexiters have already found that winning the Referendum was just the beginning of a long and arduous journey – the more so for having no defined destination. They are now about to find that the act of leaving the EU, whilst marking the end of one phase of Brexit, was itself only the easiest part of the process. The first challenge has now arisen in the form of whether they will be pragmatic in finding a way to secure more time given the impact of coronavirus or whether they will remain forever in thrall to paranoid fears of ‘betrayal’.

It is a chance for them to show that, finally, they accept that they have won and that Brexit is happening. In the end it is their ability to do that, rather than any lobbying from business or opposition parties, which will determine what happens on extension. Now comprehensively in charge of government it is a chance for them, and especially Boris Johnson, to show that they have moved on from the culture war slogans that got them this far. But there is very little basis for optimism and, alas, it is far more likely that they will show that those slogans were all they ever had.

Britain in a tailspin

Beneath a lot of sound and fury, the main story of this week is that Britain continues to go round in circles over Brexit.

The ludicrous ‘Malthouse’ group to identify ‘alternative arrangements’ to the Irish backstop met. Ludicrous because we already know that these arrangements don’t exist; that because of this we already know that the EU won’t agree to them; that if the EU did agree then we already know that many of the ERG would find another reason to object to the Withdrawal Agreement; and that, in any case, if they did exist then it is already in the Withdrawal Agreement that they would be used instead of the backstop. Unsurprisingly it was later reported that the group had “descended into acrimony”.

Meanwhile, Theresa May was in Northern Ireland, apparently already having accepted that the backstop will remain but hoping to time-limit it. But we already know that if it continues to exist in any form then the ERG and probably the DUP won’t accept it, whilst if it is time-limited then we already know that the EU won’t accept it. Unsurprisingly, her subsequent trip to Brussels yielded nothing new, not least because she proposed nothing new.

Detached from reality

All of these developments are detached from any kind of reality. What is real is the continuing damage being done to businesses (and individuals) as they contemplate the growing possibility of no deal, as discussed in my previous post. This week’s highest profile example came with Nissan’s announcement that they will not, after all, build the new X-Trail model in Sunderland. Nissan and Sunderland, of course, hold emblematic places in the Brexit saga.

The immediate reaction from some Brexiters was to say, at least, that the Nissan decision was only partly to do with Brexit and, at most, that it was nothing whatsoever to do with Brexit. The latter is plainly nonsense. The former is true, but misses the point. Such decisions will almost always be multi-factorial but Brexit weighs them against the UK and does nothing to weigh them in favour of the UK.

Hence, especially for industries like auto which involve huge long-term investments, the impact of Brexit is going to be a slow-burn of disinvestment, leading to long-run decline. The same looks set to happen with financial services and many other industries, almost regardless of what happens with Brexit now.

But Brexiters have created a hermetically sealed logic. Every warning is dismissed as Project Fear, with the jeer ‘you can’t prove Brexit will make that happen’; every time a warning comes true, it is dismissed as Project Fear Mark 2, with the jeer ‘you can’t prove it was Brexit that made that happen’.

The invariable reference point has become Y2K from which (even leaving aside the huge sums spent by firms and governments to deal with it) the perverse conclusion is that since one warning of something bad happening did not materialise this ‘proves’ that nothing bad can ever happen.  There’s now a sizeable part of the population, egged on by Brexiters in politics and the press, who have simply given up on rationality, evidence and argument.

What the hell does Brexit mean?

Instead, at its core, Brexit is project predicated upon anger, self-pity and victimhood. It was thus inevitable that Donald Tusk’s ‘special place in hell’ comments provoked much manufactured outrage (strangely forgetting the far more vicious comments Brexiters have made about the EU). Thus Brexiters such as Peter Bone dishonestly claimed that leave voters had been insulted. But Tusk’s target was very explicitly those who had led the campaign for Brexit with no plan for how to deliver it, and although the theological language was rather peculiar the underlying point was correct. The Brexit leaders, in some cases with knowing recklessness, in other cases with casual irresponsibility, have inflicted incalculable damage on Britain.

That Tusk made the remark, clearly knowing that, as Leo Varadkar pointed out to him, the British press would have a field day is highly revealing. It is a demonstration of what I wrote in my previous post, that the EU leadership are simply no longer interested in trying to mollify Brexiters or tread carefully around British political sensibilities. On the other hand, Tusk was also clearly sending a message of solidarity to his Irish counterpart on the podium, and it is one which also has relevance for the UK: member states will be looked after, so far as possible; non-members will not be.

But Tusk’s remarks were revealing of something else, far more uncomfortable for remainers for all that they may agree with his diagnosis of Brexiter vandalism. His comment was clearly unhelpful to their cause – for example, if there were to be another referendum it would be quoted endlessly – but as his other remarks made clear, he now regards this cause as a lost one.

The dynamic of the relationship between the EU and the remain campaign has been shifting for a while, and changed decisively once the Withdrawal Agreement was completed. From then on, for the EU polity, Brexit was a done deal. Remainers may be pro-EU, but the EU is no longer pro-remain. I don’t mean, of course, that there are not plenty of individuals, including politicians, in the EU who still hope that Brexit might be reversed. But the institutional logic has now shifted, and Tusk’s remarks are a reflection of this.

Britain can neither leave nor remain

The dispiriting situation is that the UK has now reached a point where, in a sense, it can neither leave the EU nor stay in it. That is to say, there is currently no viable route to get to ‘remain’ but even if there were what kind of EU member would the UK then be? On the other hand, there is no way of delivering Brexit which any but a tiny minority of Brexiters regard as satisfactory. Ironically, a project cloaked in the sacred cloth of the ‘will of the people’ is going to end up being the will of almost no one.

That we have reached this point is, in part, because of the incompetence of May’s government. I have never disguised the fact that I think that Brexit in any form was going to be a disaster for this country, but even so, it needn’t have been the shambolic nation-shredding fiasco that has been enacted.

Yet however enacted, the fundamental flaw in Brexit, as I’ve said repeatedly on this blog, is precisely what Tusk so forthrightly said this week: it invited people to vote for something for which there was no realistic plan and promised things of which there was no realistic prospect. The fall out amongst the Malthouse group is itself indicative: even a small group of Tory MPs cannot agree on how to approach Brexit, let alone the country as a whole.

Tactics or paralysis?

Hence the circles continue, with it being rumoured that May could once again delay the vote on her deal, which is supposed to be held next week. If so, what is she waiting for? Presumably she hopes to extract some kind of document from the EU which she will claim has delivered what the House of Commons asked for in passing the Brady Amendment, and she may well get such  document.

In the meantime, there may well be talk of forming a cross-party consensus based on Labour’s emerging position. I could imagine May going through the motions of that in order to put pressure on the Brexiters, telling them that this somewhat softer Brexit will be the outcome if they don’t fall in line. But it is very hard indeed to envisage her actually following through on something that would involve her in multiple U-turns and, very likely, split the Tory Party permanently.

Some see all this as being a tactic to ‘run down the clock’, leaving MPs with no choice when the very last minute comes other than to accept the deal to avoid no-deal. Personally, I am not sure that May now has any tactic other than to just get through one day at a time and hope things work out. That has long been her modus operandi but now she appears completely out of her depth, and almost paralysed by the enormity of the mess she is in and has partly created.

However, if it is her tactic then I suspect that, yet again, she underestimates the extent to which at least a handful of the Brexit Ultras are simply beyond any kind of sanity when it comes to EU. And a handful is all it will take to ensure, at that last minute, that the deal falls. By then, it will be too late to do what a responsible Prime Minister would be doing now, which is to lay the ground to seek an extension to the Article 50 period which – even if she does get some kind of deal through – it now looks inevitable will be needed. She might be left with so little time that the only choices would be no-deal or rescindment.

For the circles we are going round are not a neat holding pattern, waiting patiently for a safe landing according to known procedures. Rather, Britain is in a vicious tailspin, almost out of fuel, and plummeting to the ground. The pilot is frozen in panic, the second pilot is present but not involved, the cabin crew are bickering and the noisiest of the passengers have convinced themselves that the theory of gravity is elitist fear mongering.

Nissan's investment in Sunderland

I concluded my recent post on the meeting between the Prime Minister and the CEO of Nissan by saying that we would should now watch for Nissan’s investment decision on its Sunderland plant. This has now been made and it is to invest in the production of two new models, following, according to Nissan, written assurances received from the British government.

What those assurances are remains unclear. There are really only three possibilities. One is that when push comes to shove the UK will remain in the single market or, at the very least, the customs union. It seems highly unlikely that the government would put this in writing: certainly they have refused to say any such thing publicly, and it would cause a major rift within the government if it is true. The second is that the government has assured Nissan that they will strike a deal on single market access for the motor industry. But that could not be assured by the government as it would have to be negotiated with the EU. It seems unlikely that Nissan would have been persuaded to invest on such a basis.

The third possibility – and by far the most likely – is that the government have promised to cover any losses Nissan might incur as a result of Brexit. Such a ‘sweetheart deal’ is being widely rumoured in the press, although it has been denied by the government, albeit in terms which have some ambiguity (they are insisting that no ‘cheques have been written’, but that leaves open the possibility of a promise to write such a cheque). Reuters carried an intriguing report yesterday, stating:

“Britain has given Nissan a written commitment of extra support in the event that Brexit reduces the competitiveness of its Sunderland plant, in return for new production investments by the Japanese carmaker, a source with knowledge of the matter told Reuters. In addition to unconditional investment aid, Britain pledged in a letter to offer further relief if the terms of Britain's European Union exit ended up harming the plant's performance, the source said.”

If correct, this amounts to an open-ended underwriting not just of any future tariff costs but of any other costs to Nissan of Brexit. This is a very high potential price to pay, but the political consequences of Nissan not having made the investment, especially at this particular point in time, would have been enormous. It is not difficult, then, to imagine that this is what has happened. It is possible that the letter to Nissan will be revealed, either by a leak or a freedom of information request, and then we will know for sure.

Inevitably the Nissan decision is being touted by Brexiters as proof that Brexit will not harm inward investment, but the (apparent) reality is that this has only been achieved by indemnifying Nissan against the costs of Brexit – hardly a ringing endorsement of its economic wisdom. It also opens up the possibility of further ‘assurances’ being given to other car companies and perhaps other sectors of the economy. Whether payments against these promised need to be made – and if they do, they will run into billions of pounds – will depend entirely on the deal struck with the EU, the terms of which will depend in large part on the EU. So much for taking back control.

It is of course not unusual for foreign investors to be offered inducements by governments to invest. In fact, this has been true of the Nissan investment in Sunderland since its inception. The difference this time is that what has had to be offered is an inducement as a specific insurance against the consequences of Brexit. Thus far from being the triumph claimed, it is best regarded as the latest of the ongoing, rising, costs of the referendum vote.

Nissan CEO meets PM

There is an intriguing article on the front page of today’s Financial Times (paywalled link) concerning yesterday’s meeting between the Prime Minister and the CEO of Nissan, Carlos Ghosn. Nissan are important, practically and symbolically, in terms of foreign investment in Britain. Practically important because they account for about a third of UK car manufacture, and a decision about whether to build the new Qashqai model in its Sunderland plant is due by the end of this year. Symbolically important both as a leading foreign investor but also because Sunderland voted by one of the highest margins to leave the EU. Ghosn has recently said that Nissan would not invest before Brexit terms were known unless the government offered compensation for any future tariffs (in parenthesis, it is by no means clear that this would be legal under WTO rules). This connects with the wider concerns raised by Japan about Brexit.

According to the FT report, rather than making any offer on tariff compensation, Theresa May apparently assured him that there would be no additional tariffs and that trading conditions will not change for Nissan post-Brexit. The FT takes this to imply that specific industrial sectors will remain a part of the single market and customs union, specifically industries, like motor manufacturer, with complex international supply chains.

If this is the case it raises some huge questions which the FT does not ask. First of all, it is not clear to me how May could guarantee this, as it would inevitably require the agreement of the EU in negotiations that have not even started yet. But it seems highly improbable that May would have given such a guarantee (assuming the FT reporting is correct) had she not had good reasons to think it is true – or, if not, and she is wrong, the backlash from Nissan and others will surely be huge. Does that mean that she has received some firm assurances from the EU on this point?

Second, if this is indeed what is envisaged, how would it work? The boundaries around particular industries or sectors are not, after all, clear cut. If a textiles firm, say, supplies fabric for Nissan car seats are they to be deemed to be in the motor sector? And for all of their business or just the segment that produces that particular fabric? Suppose Nissan changes suppliers – does that new supplier get shifted into the single market? More generally, does it mean that, somehow, part of the UK economy will remain inside the single market and part will lie outside it? Whatever the answers to these questions, any idea that Brexit on these terms will mean the reduction of ‘red tape’ promised by the leave campaign is illusory!

Third, and however sectors are bounded, it seems inconceivable that these could be deemed to be inside the single market without corresponding freedom of movement within those sectors. Would this mean that car workers would be able to move in and out of the UK at will but not others? And if those workers do have freedom of movement then how could they be prevented from changing jobs whilst in the UK? What, then, would this mean for May’s red line of ‘control of borders’?

If all that seems inconceivable then surely impossible would it be for May also to honour her pledge at the recent party conference to exempt the UK from the European Court of Justice (ECJ) since by definition at least those sectors within the single market would have to be subject to its jurisdiction.

This was a high profile meeting of key significance. The things said cannot have been casual. And although I haven’t seen any other media outlet reporting it as they do (elsewhere there are just anodyne statements from the two parties) the FT is a highly reputable and reliable source of business news. If their report is correct then it gives an important insight into how the government are approaching Brexit, but one which makes that approach seem, to say the least, deeply perplexing and raising more questions than answers. What Nissan made of it may become clear when the Qashqai investment decision is made.