The failure of Brexit is now widely acknowledged and ever-more openly discussed. But there isn’t going to be some quick, neat or easy epochal change. Brexiters aren’t going to give up quietly, and the process of addressing the failure of Brexit is going to be complex and fraught with difficulties.
Still, there is a gradual shift under way. For a long time after the transition period ended, the damage Brexit was causing lurked in the shadows. It’s not that it wasn’t reported, but those reports were often piecemeal in nature, rather than drawn together, and Brexit often featured in the small print as a factor in whatever damage was being discussed rather than as the headlines. That is increasingly changing, with a good example being the two-part series assessing Brexit in this week’s Times newspaper (here and here). There’s far too much in it for me to summarise but, although striving almost painfully at times to be ‘balanced’, the overall picture was undeniably clear, and undeniably negative.
Even without much media prompting, and despite a barrage of pro-Brexit reporting from some parts of the media, as well as much Tory boosterism, the public view has for many months been settling to the view that Brexit was a mistake and has failed. The latest YouGov polling records its lowest-ever level of people thinking Brexit was the right choice (31%) and the joint highest-ever level of those thinking it was a mistake (56%). It also shows 62% think Brexit has been ‘more of a failure’ and just 9% that it has been ‘more of a success’. Inevitably the responses of leave voters and remain voters are rather different, but even amongst leave voters the figures are 37% saying failure and 20% saying success, with a lot who think ‘neither’ (35% of leaver voters compared with just 6% of remain voters).
It's worth pausing to consider just how damning an indictment of Brexit those figures are, so I’ll repeat them. Just 9% of all electors, and only 20% even of those who voted for it, think Brexit is a success. By comparison, a 2019 survey found that 16% of the UK adult population believe that the moon landing was staged.
Brexit betrayed
However, there’s an important difference between those remain voters who think Brexit is a failure, of whom about three-quarters think it was always going to be, and those leave voters who think it is a failure, of whom about three-quarters think that it could have been a success if it had been implemented differently. That isn’t a surprising finding, but it matters because it shows that disillusionment with Brexit ‘as an idea’ is far from universal, and also that there is quite a deep seam of opinion susceptible to a narrative of Brexit ‘betrayal’.
It's a seam which Brexiters were always going to mine assiduously, and a particularly unhinged example was provided by Mail columnist Richard Littlejohn last Friday. It wasn’t just about Brexit, but slurs about ‘salivating remoaners’ with ‘loyalty to the EU’ permeated a wider attack on the “New Establishment” – an apparent nod towards political scientist Matthew Goodwin’s half-baked ‘new Elite’ theory - and its supposed “coup” against the government. But careful readers, if such the Mail has, would notice, even if Littlejohn is too careless a writer to realise it, that this was all rather let down by the observation that “to describe all this as a conspiracy is not entirely accurate [as] it's not co-ordinated.” So not, in fact, a “coup” at all.
This kind of ‘stab in the back’ myth (the on-line version of Littlejohn’s article was actually illustrated with a bloody dagger) has always been the most dangerous potential outcome of Brexit, and Jonathan Freedland of the Guardian recently and rightly warned that what follows from it “may be very dark indeed”. That said, it’s worth remembering that, with or without Brexit, Littlejohn has been squeezing stuff like this out of his anger-tightened sphincter into the eager maw of the Mail’s lavatory bowl for 30 years, on and off. In fact, the kind of aggressive victimhood of a ‘lost country’ his writing exemplifies is a big part of what drove the leave vote. It’s not even the first time he has posited a “coup staged by remainers” – he did so as recently as October 2022 – despite having assured his readers in January 2021 that Brexit was “all over bar the shouting”. You couldn’t make it up, to coin a phrase.
Whilst Littlejohn fulminates, other members of the Brexiter commentariat have adopted a more listless and resigned attitude to how the glorious possibilities of Brexit have been squandered. For example, Fred de Fossard of the Legatum Institute wearily bemoans (£) the government’s failure to pursue a deregulatory agenda, though that was never the automatic consequence even of hard Brexit, and laments the forthcoming introduction of import controls, which was. The “climbdown” on Retained EU Law is also dolefully recounted (“the less said about [it] the better”, de Fossard sighs), but with no recognition of why that, or any of the other foregone ‘opportunities’, have failed to materialize. Indeed, scratch the surface and the explanation offered is a more urbane version of Littlejohn’s, whereby “our entrenched bureaucracy ensures [that voters always] get the same Left-wing, Europhile outcomes”. As a result, “the whole concept of Brexit” is now imperilled, the sometime special adviser to Jacob Rees-Mogg glumly concludes.
Brexit’s last defences
Whether blamed on betrayal, or just lack of political will, these responses at least acknowledge that Brexit hasn’t been a success. But some Brexiters aren’t ready to accept that (and never will be). Instead, individual pieces of economic good news are still trumpeted as evidence that it has been triumph, a recent example being the thuggish Tory MP Lee Anderson's boast that the reported decision by Tata to build a gigafactory in Britain rather than Spain is “another Brexit bonus”. The obvious problem is that something can only be a Brexit benefit if it couldn’t or wouldn’t have happened without Brexit, which isn’t the case in this example. And, of course, even where there are any such benefits, they need to be set against the many costs to justify Brexit as a success overall.
It’s also typical of such claims to invoke a strawman that ‘remainers said there would be no more investment after Brexit’ or ‘remainers said there’d be no more trade with the EU after Brexit’, or the slightly different one that ‘remainers blame all Britain’s economic problems on Brexit’. Needless to say, no serious analyst has ever suggested such things, but even if they had then the most it would mean is that Brexit hasn’t been as bad as some said it would be, or that it may not have been a success, but at least it hasn’t been a failure.
For example, in a Telegraph article (£) the pro-Brexit economist Julian Jessop discusses the impact of Brexit on the services sector. It’s headlined as a “success story”, but the content is less ebullient. “If one thinks back to all the apocalyptic claims made by Remainers, our services industry should be a smoking ruin by now”, he says, conjuring up “doomsday predictions”. But worry not, for “the overall impact has been far less than feared”. It’s hardly an inspiring defence. To be fair, Jessop recognizes this, saying “it is not enough just to say that Brexit has been less damaging than expected. It was supposed to benefit the City. But this is a process.” However, this is just another of the stock defences: the benefits are always just over the horizon.
Still less compelling is the current fashion for comparing UK economic performance with that of Germany (£), or perhaps a wider selection of EU countries (£), selected over this or that timeframe, to argue that the UK’s is no worse, and perhaps slightly better. That fashion seems to have arisen because the IMF, its forecasts suddenly now in favour with the Brexiters who usually disparage them, upgraded its 2023 forecast for the UK from a 0.3% contraction to a 0.4% expansion, whilst forecasting the German economy to shrink by 0.1%.
Even if it made sense to ascribe these (rather negligible) differences to Brexit, it would not be much of an argument because, again, Brexit wasn’t undertaken on the basis that it wouldn’t be a failure but that it would be positively advantageous. But, in any case, it doesn’t make any sense. Whether in the EU or not, the UK’s economy, like any member state, fluctuates at different times and for sometimes different reasons to that of Germany (or any other individual country). In particular, Germany’s current economic difficulties are very obviously connected to its rapid diversification from over-dependence on Russian energy. So, except as a kind of schoolyard ‘what about you?’ taunt, such comparisons tell us nothing one way or the other about Brexit.
The key comparisons are between Brexit UK and how the UK would have performed without Brexit. That inevitably involves a counterfactual model, and the latest version of the best-known such model, the Springford CER ‘doppelgänger’, shows that by June 2022 the UK GDP was 5.5% lower than it would have been without Brexit. That may overestimate the damage or may underestimate it. But (to the best of my knowledge) neither the government nor any of the pro-Brexit economists have ever produced a comparable counterfactual model showing Brexit to have been economically beneficial to the UK. So on this key test there is, at the very least, no evidence of Brexit being an economic success.
What about Labour?
With Brexiters now engaged in the last stages of their attempt to deny Brexit has failed, and the latest stages of developing fantasies about why it has failed, and with the Sunak government in the throes of a protracted death, attention is increasingly turning to the prospects of a Labour administration. Interestingly, Brexiter fears for what that will bring are diametrically opposite to those of many erstwhile remainers. At least some Brexiters are convinced that Labour has “a secret 10-year plan to take Britain back into the EU” (£), whereas some remainers believe that there is no difference at all between Labour and Tory approaches to Brexit. The reality is more complex than either view allows.
Although by definition it’s unprovable either way, it’s absurd to think that Starmer has a ‘secret plan’ to re-join the EU. There’s literally no evidence for it, so Brexiters are wrong and rejoiners are right about that. However, it’s true that the logic of Labour’s position on Brexit – everything it says about the damage of it – points in the direction of eventually re-joining. So, forgetting any idea of a secret plan, the Brexiters are right to suspect that this would be the direction of travel for Labour (though they may be wrong that it will be the point of arrival), and re-joiners are wrong to dismiss the possibility of it going in that direction (though they may be right that it won’t be the point of arrival).
Remainer or re-joiner scepticism about Labour’s intentions was reinforced this week by Keir Starmer’s Express article, in which he again re-iterated Labour’s policy of no return to the EU, single market or customs union, but of wanting to improve the existing UK-EU Trade and Cooperation Agreement (TCA). Most strikingly, and to many remainers most reprehensibly, he referred to the inadequate nature of that deal as meaning that “our European friends and competitors are not just eating our lunch – they’re nicking our dinner money as well”.
The clue to understanding this article is the polling figures I referred to earlier. It was written for the three-quarters of the 37% of Leave voters who believe Brexit has failed because of the way it has been implemented. More particularly, it was written for the erstwhile and potential Labour voters within that group who may be minded to blame that on the Tories. That is an important segment of voters for Labour to speak to, and the Express is a good place to reach it, with the pitch being based on tapping into, but subverting, the narrative of Brexit betrayal. The language may have been ugly and grating, but politics can be a dirty business, or at least it is for those who value winning above high-mindedness.
Of course, there is a tactical dilemma for Labour: in making its appeal to such voters it may lose support elsewhere (£), and there’s some polling evidence that this is happening. But the delicate calculation is presumably that many who respond to things like the Express article by angrily saying ‘I’ll never vote for Labour now’ will, when it comes to it, do so. Or, if not, that the votes lost will be in constituencies where the outcome isn’t affected, whilst those gained prove decisive in other seats. Again, it’s all grubby stuff for the squeamish, but perhaps they should reflect that after fourteen years in opposition squeamishness isn’t something Labour can afford to indulge.
Beneath Labour’s tactics
Tactics aside, what matters is what lies beneath. In his discussion of Starmer’s article, Ian Dunt, who has been consistently acute in his analysis of Brexit from the start, and often very critical of Labour, argues that “in truth, Labour’s Brexit position is far more nuanced, and much more radical, than it first appears. It has been carefully couched in the language of Brexit defence, but the proposals themselves promise a return to a much closer relationship with the Continent. It is the start of a journey back to Europe.”
The key word here is “journey” or, as I’ve put it, ‘direction of travel’. Starmer is cautiously going with the grain of public opinion, with a poll this week suggesting that 53% of voters favour ‘closer ties’ with the EU, and even in strongly vote-leaving areas a plurality doing so. What they mean by it is undoubtedly varied, but a first-term Labour government can be expected to push its possible meanings to the maximum it could without breaking manifesto commitments or suffering too much electoral kickback.
For an important example of what this would mean, in a footnote to my previous post I suggested that the seemingly arcane difference between Swiss-style ‘dynamic alignment’ and New Zealand-style ‘regulatory equivalence’ in Sanitary and Phyto-Sanitary (SPS) standards might become an issue under a Labour government, since Labour’s apparently preferred policy of a New Zealand-style deal had already been rejected by the EU, whilst a Swiss-style deal had been ruled out by Starmer.
I meant that we might hear more about this in years to come, so it was much to my amusement that, just a few hours later, and presumably coincidentally, the Telegraph carried a report (£) ‘revealing’ this EU rejection of a New Zealand-style deal and, with almost heart-stopping irony, quoting David Frost castigating Starmer for “trying to sell unnegotiable fantasy proposals to voters”. In a mirror-image of that critique, some remainers, too, leapt on this report as evidence that Starmer was just reproducing the impossibilities of “cakeism”.
But it is easy to imagine Labour in power, having pledged in their manifesto to negotiate a ‘veterinary agreement with the EU’, agreeing dynamic alignment with the EU. That isn’t cakeism, as it has already been offered by the EU, and the fact that Starmer has previously said he doesn’t want a Swiss-style deal will be irrelevant as he has also said he wants a ‘bespoke deal’ and, almost by definition, any UK-EU deal will be that. Will electors who support ‘closer ties with the EU’ object? Highly unlikely. And if there is a ‘bespoke UK-EU’ SPS dynamic alignment deal then it means the hard Brexit ECJ red line will have been comprehensively breached, allowing it to be breached in all manner of other ways, in relation to trade, security, and participation in various programmes and agencies.
Beneath Labour’s hints
Much of this has already been hinted at by the public statements of Starmer and other senior Labour politicians, including Rachel Reeves and David Lammy. A much more detailed set of proposals for what it could mean in practice was published this week by the UK Trade and Business Commission, an unofficial but highly professional grouping of cross-party MPs, business people and experts. Their report, which is based on extensive evidence-gathering from a huge range of stakeholders and experts, contains 114 recommendations. So far as I can see, all of them are compatible with Labour’s stated position and so the report amounts to a blueprint of how to operationalize that position.
Some, though by no means all, of this entails EU agreement, and there are obviously important questions about whether that would be forthcoming, and a particularly valid question about the extent to which Labour are putting too much reliance on using the scheduled 2026 TCA review as an occasion for a more substantial re-negotiation. It certainly isn’t automatically entailed by the review. However, in his recent evidence to the European Parliament, Anton Spisak, a Brexit expert at the Tony Blair Institute, urges that both the EU and the UK would be wise to use it in that way, so as to “begin a more strategic discussion”.
It is at least possible that this view will prevail and, of course, it will still entail negotiation, but much that could have been negotiated had it not been for the Frost-Johnson ‘sovereignty’ line will become possible. Nor is the TCA review the only game in town. The European Political Community (EPoC), established last year and which had its second meeting yesterday, offers the UK a new vehicle for dialogue and cooperation with the rest of the European continent. How it develops remains to be seen but, with enthusiastic and effective participation, which would be unlike Sunak’s approach to it but consistent with Labour’s stated policies, the UK could at the least repair some of the relational and reputational damage of Brexit. Potentially, there would be more substantive outcomes.
All of this could be done without violating Labour’s red lines on rejoining the EU, the single market or the customs union. Those red lines don’t prematurely box Labour into a corner because there’s just no way that, simply from an EU perspective, the UK re-joining is viable in the timeframe of the next parliament: we’re in that corner anyway. Equally, going as far as possible within those red lines wouldn’t be ‘re-joining by stealth’ since there would be no re-joining unless there was a referendum. It would all be subsumed within the rubric of ‘closer ties’ and ‘co-operation’, potentially leading to such a referendum, perhaps in Labour’s second term, as Dunt suggests.
This is exactly what Brexiters fear, which is also why the hostility of some remainers/ rejoiners to Labour’s approach is misjudged. At the very least, even if it never gets to that point, the ameliorations Labour are likely to enact will be somewhat better than the current situation, and much better than would be the case if the Tories were re-elected and the Brexit Ultras got their way.
The long road ahead
This isn’t to disown what I said In a recent post, where I argued that the strategic problems posed by the failure of Brexit are not “addressed by Labour’s pledge to make Brexit work, since the solutions don’t exist within the modest tinkering with Brexit that Starmer has committed to. Not until the diagnosis that Brexit is a failure is accompanied by realism and honesty about the causes and solutions can it be addressed”. It’s true that even if what I’ve said about Labour’s position today is right it still fails to meet this test, but the issue is the process and timescale for getting to that point. It is clear that this is going to take some time, so the question is whether a Labour government would take use closer to or further from that point.
On this, to quote Ian Dunt again, “if you put aside the tedious and unconvincing hardline rhetoric, a clear picture emerges. Brexit is collapsing. And Britain is, slowly but surely, drifting back to Europe”. It’s also true that the longer this drift takes, the more damage that will accrue in the meantime. That’s undeniable, even if Labour isn’t able to admit it. But it presumably goes without saying, at least to readers of this blog, that Brexit was a seismic event, so the political road to rebuilding from the earthquake is going to be arduous and slow. Opinion polls showing increasing national regret are vital, but they are a long way from being enough. Like it or not, we’re still barely on the first step of that road but, that being so, the worst thing we can do is refuse to take it because it is only a step. Equally, it’s perfectly right to keep pushing for the next steps, and necessary, too, if they are to be taken.
Showing posts with label Trade and Cooperation Agreement. Show all posts
Showing posts with label Trade and Cooperation Agreement. Show all posts
Friday, 2 June 2023
Friday, 22 January 2021
Get ready for 'Long Brexit'
Another week and more stories of the disruption that Brexit is bringing to UK-EU trade in addition those in my recent posts. Fishing continues to be the most high-profile example in the media coverage, with a major protest in London this week, but increasingly the impact on the meat trade is being reported along with numerous others. Inevitably it is perishable goods which are the most obviously impacted by transport delays, but the problems go much wider. More major logistics groups, as well as a host of smaller companies, are now simply suspending deliveries between the UK and the EU.
As mentioned in the previous post, disruption in the form of queues has been muted by the low volumes of goods traffic over the New Year period – about 25% of normal in the first week of the year and 40% last week on the short Channel – so much greater problems are expected (£). I also referred in the previous post to the fact that at the end of March the grace period on applying full certification rules to shipments from Great Britain to Northern Ireland will end, and this week haulage industry leaders warned that when that happens they will face “an abyss”. According to Richard Burnett, CEO of the Road Haulage Association, “these are not teething problems. These are structural problems”.
It’s an almost impossible task to keep track of everything that is going on but there are two useful resources for doing so. One, mentioned in my previous post, is Yorkshire Bylines Davis Downside Dossier. Another is the ongoing Twitter thread being created by Daniel Kelemen, Professor of Political Science and Law at Rutgers University. However, even these listings show only the tip of the iceberg.
The legacy of lies
The crucial point, unsurprisingly being avoided or misrepresented by the government and by Brexiters more generally, is that this isn’t just a matter of ‘teething problems’ and it isn’t simply because Johnson agreed a ‘bad deal’. It is true that, had there been more time to prepare, some of the problems of conforming with the new situation could have been dealt with. But that would only have made the consequences of Brexit less visible and less newsworthy. It wouldn’t have changed the underlying reality of there being new barriers to trade.
That reality represents the exposure of the lies or misunderstandings, going right back to before the referendum, that a trade deal would more or less replicate the conditions of single market and customs union membership. Associated with that was the monocular focus on the removal of tariffs as being the sole issue. It has not come out of a clear blue sky. It was warned of repeatedly (Dr Matt Bishop of Sheffield University gave an excellent summary with multiple links in February 2020) and those warnings were ridiculed and dismissed. But now we have, precisely, a zero tariffs trade deal and the warnings have been proved right.
The pervasiveness of the lie also (along with lack of time and Covid) explains the lack of preparations because many businesses thought that if there was a trade deal then their terms of trade would continue unaltered. A report in The Times this week (£) – which includes a lot of crunchy detail on the massive problems facing especially smaller exporters – quotes Ruth Corkin, the VAT and indirect tax Director of Hillier Hopkins, reportedly the only British accountancy firm to offer a customs agent service to SMEs dealing with Brexit. As such, it seems a fair assumption that she has extensive contacts with such firms and is right to say that some had assumed that because there’s a trade deal “everything will be hunky dory and like it was before”.
If so, it was an entirely understandable assumption given the last five years of promises and lies. But even firms which did understand and prepare for the new realities have been caught out by the complexities of the new requirements and the inadequacy of the administrative and IT systems they have to deal with. A particular problem (the link in the previous sentence gives an example) is the outdated Customs Handling of Import and Export Freight (CHIEF) system, a legacy system which is still being used because of delays in creating the new Customs Declarations Service (CDS). Another problem now being reported by Joe Mayes of Bloomberg is a desperate shortage of ‘transit guarantees’ and delays in new ones being issued by HMRC, this being due to delays in another IT project, the New Computerised Transit System. (These examples of deficiencies in the systems needed even for a frictive border might also serve to remind us of the hollowness of Brexiters’ claims for technologies which would make borders completely frictionless).
A fundamental shift in the trading economy is underway
There are now daily reports of the damage being wrought, but focussing on each individual one is to miss the point of what is happening. What is underway is a fundamental shift in the ‘tectonic plates’ of the UK trading economy and its supply chains, happening in real time and under our noses, but with little comment on the aggregate picture. And it is going to get worse when all the new rules are stringently applied on the EU side and applied at all on the UK side. It is reaching, or will reach, into every niche of economic life, from business travel to the EU (£) to having to make a declaration if an individual or group takes more than £10,000 out of Great Britain (i.e. including trips to Northern Ireland) to an EU country.
As Shane Brennan, CEO of the Cold Chain Federation puts it “the big worry here is that ‘not trading’ becomes the habit”. My view is that this is an inevitability, partly because some trading firms will simply give up as things are too costly or too complex (for SMEs, in particular), but mainly because of the impact on customers. If they experience even a short period of disruption leading them to go to an alternative supplier then, very likely, they will stick with the new supplier.
This is evident in an example in Joe Mayes’ report where the Managing Director of Sealight, which exports LEDs, explains that “[EU] clients will say: ‘Forget this, it is just too much”. He expects his firm’s annual sales to drop by 25%. In the same report it is suggested that some 20% of SMEs have suspended exports to the EU. Those affected include companies selling via platforms like Amazon and Ebay.
Meanwhile other businesses, both large and small, are struggling to get the imports they need – hair salons being just one example – and they will surely face price rises, if not now then down the line, because EU hauliers are now charging €10/km to carry freight to the UK, up from €1.50/km. That aside, British purchasers of EU goods are finding that they face charges (due to customs, VAT and handling fees). These are not necessarily known in advance and are demanded at point of delivery by couriers. Again, after the initial ‘disruption’, the long-term effect is likely to be that customers cease to order such goods.
Most of the current focus is on the impact on goods trade, because it is this which is affected by new customs formalities and, when falling foul of rules or origin, tariffs. A huge additional, and so far under-reported, problem is the impact of regulatory duplication caused by Brexit, an important example being the £33 billion a year UK chemicals industry. Moreover it shouldn’t be forgotten that new non-tariff barriers are, under the surface, affecting service businesses. An illustration is the report that some 2,500 jobs and £170 billion of assets had moved from the UK financial services sector to France alone up to the end of 2020. That was before (though of course in anticipation of) the end of the transition period and is expected accelerate now. There are also new warnings of significant threats to the UK’s huge fund management industry.
Today’s announcement that Nissan will continue its Sunderland operations is great news for its workers and suppliers there. It’s an important example of why having a trade deal with the EU is better than ‘no deal’ would have been. It’s also an example of the ‘shifting tectonic plates’ in that Nissan will move production of the battery for the Leaf model from Japan to the UK so as to ensure it meets the rules of origin for tariff free export to the EU, including the three year window provided for by the TCA for electric car batteries. But it doesn’t follow that the rest of the auto industry will stay, nor does it negate the fact that other damage is occurring. In terms of assessing Brexit it is ‘not bad news’ rather than being a positive achievement. For despite what Brexiters will be saying loudly today, it is not a demonstration of the success of Brexit to retain companies that were already here, and are staying despite the new trade barriers that Brexit has erected.
Overall, it will take a long time before the full effects of all these new trade barriers are known, but Dr Thomas Sampson of the LSE, writing in a new UK in a Changing Europe report (p.106), suggests that over ten years UK exports to the EU will drop by 36% and imports by 30% compared to EU membership. These are big figures, and it shouldn’t be forgotten – as Brexiters sometimes do – that they will have knock-on effects on firms and individuals who don’t themselves engage in trade with the EU. These may be firms that supply goods and services to traders, individuals employed both by such firms and by trading firms, or customers experiencing higher prices or less choice/ quality in what they can buy. And, as mentioned in my previous post, trade deals with non-EU country are not going to go very far in compensating for all this.
It’s important not to focus solely on economics and trade. Brexit is going to have multiple, short and long-term impacts on almost every area of British life. The UK in a Changing Europe report I just mentioned – by happy coincidence entitled, like this blog, Brexit & Beyond - is a superb new resource assessing just about every conceivable one of these areas, each written by a leading academic expert. It is well worth taking the time to digest it. Equally worthwhile are the (sometimes less high-profile) writings of industry experts. One example this week is a blog this week by Clive Simpson, a journalist specialising in the space industry, on how Brexit it set to affect that (one of the few topics not directly covered by the compendious UK in a Changing Europe report).
Assigning – and evading - responsibility
Simpson also proposes the term “long-Brexit” (analogous to ‘Long Covid’, so perhaps ‘Long Brexit’ would be better) to apply to the ways that short-term Brexit impacts will morph into chronic problems. It is a useful idea because the very elongated timeframes of Brexit should not deter us from linking the effects of Brexit to the decisions (and indeed promises) made going back to 2016.
There may sometimes be problems of causality when looked at over such timeframes, and the Brexiters will use that to try to gaslight us about what is happening and why, as well as about what they originally said. Indeed this week saw a spectacularly egregious example, with Jonathan Saxty in The Telegraph (£) lachrymosely complaining that “Brexiteers” (sic) were wrongly being blamed for the problems they had warned of all along. To those who have been on the end of the ubiquitous ‘Project Fear’ dismissal it had a hollow ring, to say the least.
The main lines of the Brexiter rebuttal of responsibility for the policy they urged are clear enough. Adverse effects will be denied or downplayed; admitted but with a denial that Brexit was the cause; admitted but blamed on the EU for acting unreasonably; or admitted but blamed on Brexit not having been done properly, with this in turn blamed upon ‘the remain establishment’. What can be assured is that they will never take responsibility. It will be important to continue to challenge this, and it continues to be disappointing that the Labour Party is not taking the lead in doing so. That is a great error, as former Labour MEP Richard Corbett has cogently argued this week.
But there is a more insidious problem, which is that many – by no means all of whom will be Brexiters – will slip into saying that the problems caused by Brexit need to be ‘sorted out’ by the government, perhaps by means of discussion with the EU. That won’t always be misplaced. It is certainly for the government to sort out its customs IT systems, for example. And there may be areas where discussion with the EU can clarify features of the Trade and Cooperation Agreement (TCA), or where this or that extension of grace periods on certain measures can be agreed. However, the fundamental architecture of the deal, and therefore its effects, is a direct consequence of the policy of hard Brexit, and we have that policy because the (hard) Brexiters insisted upon it. To use the ‘Long Brexit’ analogy, the cause of the symptoms is the virus.
From this point of view the provisions of government compensation and support, which have been offered in the case of fisheries and are being considered for the music industry (£), are palliative rather than curative. And where does it end? Compensating all businesses for all the costs of Brexit would involve huge sums, especially coming on top of the government support rightly and necessarily being provided because of coronavirus. It’s ironic, too, that after all the promises, including that of extra money for the NHS, Brexit should now be revealed as something requiring compensation.
UK and EU relations
Meanwhile, as the early effects of Brexit play out, the wider context of the EU-UK relationship shouldn’t be forgotten. The TCA set in train a complex set of decisions and deadlines which have been mapped by the Institute for Government. An immediate issue is that the European Parliament has yet to ratify the TCA and the deadline for doing so looks set to be extended to April. Ostensibly this is to allow translation work but what lies behind it seems to be continuing concerns about the robustness of the governance mechanisms, which are also due to be discussed today by EU Ambassadors.
This in turn reflects the now embedded distrust in the UK’s intentions, a distrust that can only be fed by fresh mutterings in the undergrowth (of which I suspect we will hear more) about the possibility of the UK reneging on parts of the Withdrawal Agreement, as well as the rather more high-profile talk of ‘reviewing’ workers’ rights. The latter may, as Mike Buckley argued in a piece in Byline Times this week prove more difficult to enact than the government think, not least because of potential sanctions under the TCA but, as he astutely observes, may prove to be an example of the UK constantly pushing at the boundaries of EU patience in terms of what might or might not be allowable under the TCA. Hence continuing EU concerns.
In any case, although the British Parliament settled for a “farce” in its scrutiny of the TCA, it’s not unreasonable that the European Parliament intends to scrutinise it diligently and seriously. Boris Johnson’s reported “rage” and “warning” that ratification must occur by the end of February is unwarranted but also irrelevant as there’s not much he can do. But it illustrates that neither he nor the Brexiter press are going to allow any good grace to be introduced to how the UK interacts with the EU.
That gracelessness is especially evident in the story that emerged yesterday that the government is refusing to grant the EU’s new (and first) Ambassador to the UK full diplomatic status. It is petty, reflecting how, even having got Brexit, Brexiters are determined to sour and antagonise relations with the EU, and it is foolish in the context of the ongoing negotiations deriving from the TCA.
But beyond that, it reveals an extraordinary irony, because the government’s justification is that full diplomatic status is not warranted as the EU is ‘not a nation state’ but simply an ‘international organization’. Yet for years the Brexiters’ core complaint was that the EU had become a super-state, making the UK’s membership sovereignty-sapping in a way that was quite different to its membership of other international organizations. So as the costs of Brexit rip through our country, revealing all the lies told of there being no costs, it is tacitly admitted that this was another lie. Indeed, it was the foundational lie.
As mentioned in the previous post, disruption in the form of queues has been muted by the low volumes of goods traffic over the New Year period – about 25% of normal in the first week of the year and 40% last week on the short Channel – so much greater problems are expected (£). I also referred in the previous post to the fact that at the end of March the grace period on applying full certification rules to shipments from Great Britain to Northern Ireland will end, and this week haulage industry leaders warned that when that happens they will face “an abyss”. According to Richard Burnett, CEO of the Road Haulage Association, “these are not teething problems. These are structural problems”.
It’s an almost impossible task to keep track of everything that is going on but there are two useful resources for doing so. One, mentioned in my previous post, is Yorkshire Bylines Davis Downside Dossier. Another is the ongoing Twitter thread being created by Daniel Kelemen, Professor of Political Science and Law at Rutgers University. However, even these listings show only the tip of the iceberg.
The legacy of lies
The crucial point, unsurprisingly being avoided or misrepresented by the government and by Brexiters more generally, is that this isn’t just a matter of ‘teething problems’ and it isn’t simply because Johnson agreed a ‘bad deal’. It is true that, had there been more time to prepare, some of the problems of conforming with the new situation could have been dealt with. But that would only have made the consequences of Brexit less visible and less newsworthy. It wouldn’t have changed the underlying reality of there being new barriers to trade.
That reality represents the exposure of the lies or misunderstandings, going right back to before the referendum, that a trade deal would more or less replicate the conditions of single market and customs union membership. Associated with that was the monocular focus on the removal of tariffs as being the sole issue. It has not come out of a clear blue sky. It was warned of repeatedly (Dr Matt Bishop of Sheffield University gave an excellent summary with multiple links in February 2020) and those warnings were ridiculed and dismissed. But now we have, precisely, a zero tariffs trade deal and the warnings have been proved right.
The pervasiveness of the lie also (along with lack of time and Covid) explains the lack of preparations because many businesses thought that if there was a trade deal then their terms of trade would continue unaltered. A report in The Times this week (£) – which includes a lot of crunchy detail on the massive problems facing especially smaller exporters – quotes Ruth Corkin, the VAT and indirect tax Director of Hillier Hopkins, reportedly the only British accountancy firm to offer a customs agent service to SMEs dealing with Brexit. As such, it seems a fair assumption that she has extensive contacts with such firms and is right to say that some had assumed that because there’s a trade deal “everything will be hunky dory and like it was before”.
If so, it was an entirely understandable assumption given the last five years of promises and lies. But even firms which did understand and prepare for the new realities have been caught out by the complexities of the new requirements and the inadequacy of the administrative and IT systems they have to deal with. A particular problem (the link in the previous sentence gives an example) is the outdated Customs Handling of Import and Export Freight (CHIEF) system, a legacy system which is still being used because of delays in creating the new Customs Declarations Service (CDS). Another problem now being reported by Joe Mayes of Bloomberg is a desperate shortage of ‘transit guarantees’ and delays in new ones being issued by HMRC, this being due to delays in another IT project, the New Computerised Transit System. (These examples of deficiencies in the systems needed even for a frictive border might also serve to remind us of the hollowness of Brexiters’ claims for technologies which would make borders completely frictionless).
A fundamental shift in the trading economy is underway
There are now daily reports of the damage being wrought, but focussing on each individual one is to miss the point of what is happening. What is underway is a fundamental shift in the ‘tectonic plates’ of the UK trading economy and its supply chains, happening in real time and under our noses, but with little comment on the aggregate picture. And it is going to get worse when all the new rules are stringently applied on the EU side and applied at all on the UK side. It is reaching, or will reach, into every niche of economic life, from business travel to the EU (£) to having to make a declaration if an individual or group takes more than £10,000 out of Great Britain (i.e. including trips to Northern Ireland) to an EU country.
As Shane Brennan, CEO of the Cold Chain Federation puts it “the big worry here is that ‘not trading’ becomes the habit”. My view is that this is an inevitability, partly because some trading firms will simply give up as things are too costly or too complex (for SMEs, in particular), but mainly because of the impact on customers. If they experience even a short period of disruption leading them to go to an alternative supplier then, very likely, they will stick with the new supplier.
This is evident in an example in Joe Mayes’ report where the Managing Director of Sealight, which exports LEDs, explains that “[EU] clients will say: ‘Forget this, it is just too much”. He expects his firm’s annual sales to drop by 25%. In the same report it is suggested that some 20% of SMEs have suspended exports to the EU. Those affected include companies selling via platforms like Amazon and Ebay.
Meanwhile other businesses, both large and small, are struggling to get the imports they need – hair salons being just one example – and they will surely face price rises, if not now then down the line, because EU hauliers are now charging €10/km to carry freight to the UK, up from €1.50/km. That aside, British purchasers of EU goods are finding that they face charges (due to customs, VAT and handling fees). These are not necessarily known in advance and are demanded at point of delivery by couriers. Again, after the initial ‘disruption’, the long-term effect is likely to be that customers cease to order such goods.
Most of the current focus is on the impact on goods trade, because it is this which is affected by new customs formalities and, when falling foul of rules or origin, tariffs. A huge additional, and so far under-reported, problem is the impact of regulatory duplication caused by Brexit, an important example being the £33 billion a year UK chemicals industry. Moreover it shouldn’t be forgotten that new non-tariff barriers are, under the surface, affecting service businesses. An illustration is the report that some 2,500 jobs and £170 billion of assets had moved from the UK financial services sector to France alone up to the end of 2020. That was before (though of course in anticipation of) the end of the transition period and is expected accelerate now. There are also new warnings of significant threats to the UK’s huge fund management industry.
Today’s announcement that Nissan will continue its Sunderland operations is great news for its workers and suppliers there. It’s an important example of why having a trade deal with the EU is better than ‘no deal’ would have been. It’s also an example of the ‘shifting tectonic plates’ in that Nissan will move production of the battery for the Leaf model from Japan to the UK so as to ensure it meets the rules of origin for tariff free export to the EU, including the three year window provided for by the TCA for electric car batteries. But it doesn’t follow that the rest of the auto industry will stay, nor does it negate the fact that other damage is occurring. In terms of assessing Brexit it is ‘not bad news’ rather than being a positive achievement. For despite what Brexiters will be saying loudly today, it is not a demonstration of the success of Brexit to retain companies that were already here, and are staying despite the new trade barriers that Brexit has erected.
Overall, it will take a long time before the full effects of all these new trade barriers are known, but Dr Thomas Sampson of the LSE, writing in a new UK in a Changing Europe report (p.106), suggests that over ten years UK exports to the EU will drop by 36% and imports by 30% compared to EU membership. These are big figures, and it shouldn’t be forgotten – as Brexiters sometimes do – that they will have knock-on effects on firms and individuals who don’t themselves engage in trade with the EU. These may be firms that supply goods and services to traders, individuals employed both by such firms and by trading firms, or customers experiencing higher prices or less choice/ quality in what they can buy. And, as mentioned in my previous post, trade deals with non-EU country are not going to go very far in compensating for all this.
It’s important not to focus solely on economics and trade. Brexit is going to have multiple, short and long-term impacts on almost every area of British life. The UK in a Changing Europe report I just mentioned – by happy coincidence entitled, like this blog, Brexit & Beyond - is a superb new resource assessing just about every conceivable one of these areas, each written by a leading academic expert. It is well worth taking the time to digest it. Equally worthwhile are the (sometimes less high-profile) writings of industry experts. One example this week is a blog this week by Clive Simpson, a journalist specialising in the space industry, on how Brexit it set to affect that (one of the few topics not directly covered by the compendious UK in a Changing Europe report).
Assigning – and evading - responsibility
Simpson also proposes the term “long-Brexit” (analogous to ‘Long Covid’, so perhaps ‘Long Brexit’ would be better) to apply to the ways that short-term Brexit impacts will morph into chronic problems. It is a useful idea because the very elongated timeframes of Brexit should not deter us from linking the effects of Brexit to the decisions (and indeed promises) made going back to 2016.
There may sometimes be problems of causality when looked at over such timeframes, and the Brexiters will use that to try to gaslight us about what is happening and why, as well as about what they originally said. Indeed this week saw a spectacularly egregious example, with Jonathan Saxty in The Telegraph (£) lachrymosely complaining that “Brexiteers” (sic) were wrongly being blamed for the problems they had warned of all along. To those who have been on the end of the ubiquitous ‘Project Fear’ dismissal it had a hollow ring, to say the least.
The main lines of the Brexiter rebuttal of responsibility for the policy they urged are clear enough. Adverse effects will be denied or downplayed; admitted but with a denial that Brexit was the cause; admitted but blamed on the EU for acting unreasonably; or admitted but blamed on Brexit not having been done properly, with this in turn blamed upon ‘the remain establishment’. What can be assured is that they will never take responsibility. It will be important to continue to challenge this, and it continues to be disappointing that the Labour Party is not taking the lead in doing so. That is a great error, as former Labour MEP Richard Corbett has cogently argued this week.
But there is a more insidious problem, which is that many – by no means all of whom will be Brexiters – will slip into saying that the problems caused by Brexit need to be ‘sorted out’ by the government, perhaps by means of discussion with the EU. That won’t always be misplaced. It is certainly for the government to sort out its customs IT systems, for example. And there may be areas where discussion with the EU can clarify features of the Trade and Cooperation Agreement (TCA), or where this or that extension of grace periods on certain measures can be agreed. However, the fundamental architecture of the deal, and therefore its effects, is a direct consequence of the policy of hard Brexit, and we have that policy because the (hard) Brexiters insisted upon it. To use the ‘Long Brexit’ analogy, the cause of the symptoms is the virus.
From this point of view the provisions of government compensation and support, which have been offered in the case of fisheries and are being considered for the music industry (£), are palliative rather than curative. And where does it end? Compensating all businesses for all the costs of Brexit would involve huge sums, especially coming on top of the government support rightly and necessarily being provided because of coronavirus. It’s ironic, too, that after all the promises, including that of extra money for the NHS, Brexit should now be revealed as something requiring compensation.
UK and EU relations
Meanwhile, as the early effects of Brexit play out, the wider context of the EU-UK relationship shouldn’t be forgotten. The TCA set in train a complex set of decisions and deadlines which have been mapped by the Institute for Government. An immediate issue is that the European Parliament has yet to ratify the TCA and the deadline for doing so looks set to be extended to April. Ostensibly this is to allow translation work but what lies behind it seems to be continuing concerns about the robustness of the governance mechanisms, which are also due to be discussed today by EU Ambassadors.
This in turn reflects the now embedded distrust in the UK’s intentions, a distrust that can only be fed by fresh mutterings in the undergrowth (of which I suspect we will hear more) about the possibility of the UK reneging on parts of the Withdrawal Agreement, as well as the rather more high-profile talk of ‘reviewing’ workers’ rights. The latter may, as Mike Buckley argued in a piece in Byline Times this week prove more difficult to enact than the government think, not least because of potential sanctions under the TCA but, as he astutely observes, may prove to be an example of the UK constantly pushing at the boundaries of EU patience in terms of what might or might not be allowable under the TCA. Hence continuing EU concerns.
In any case, although the British Parliament settled for a “farce” in its scrutiny of the TCA, it’s not unreasonable that the European Parliament intends to scrutinise it diligently and seriously. Boris Johnson’s reported “rage” and “warning” that ratification must occur by the end of February is unwarranted but also irrelevant as there’s not much he can do. But it illustrates that neither he nor the Brexiter press are going to allow any good grace to be introduced to how the UK interacts with the EU.
That gracelessness is especially evident in the story that emerged yesterday that the government is refusing to grant the EU’s new (and first) Ambassador to the UK full diplomatic status. It is petty, reflecting how, even having got Brexit, Brexiters are determined to sour and antagonise relations with the EU, and it is foolish in the context of the ongoing negotiations deriving from the TCA.
But beyond that, it reveals an extraordinary irony, because the government’s justification is that full diplomatic status is not warranted as the EU is ‘not a nation state’ but simply an ‘international organization’. Yet for years the Brexiters’ core complaint was that the EU had become a super-state, making the UK’s membership sovereignty-sapping in a way that was quite different to its membership of other international organizations. So as the costs of Brexit rip through our country, revealing all the lies told of there being no costs, it is tacitly admitted that this was another lie. Indeed, it was the foundational lie.
Friday, 15 January 2021
Dawning realities
Having initially spoken of there being some bumps in the road, Michael Gove last weekend told businesses to prepare for “significant disruption” as a result of Brexit. He was right to do so, because on top of the extensive difficulties traders were already experiencing, outlined in my previous post, this week there have been reports of “a high volume of vehicles being refused and delayed” at ports. Couriers are reporting that “Brexit delays and costs are escalating rapidly” whilst DPD, one of the largest couriers, has temporarily suspended all UK-EU road services.
These distribution problems are now leading to some shortages in shops and they are set to get worse (£). Northern Ireland is the worst affected place, despite there being a three month grace period during which full certification rules on food coming from Great Britain are waived, which may or may not be extended. As regards exporters, one of the worst affected industries seems to be the Brexit icon of fisheries, unsurprisingly since this is a highly perishable product and the EU is its main market. (It shouldn’t be forgotten that EU fishermen are also suffering from Brexit – in which they had no say – especially in Ireland, although there is an EU support fund to help them and the other businesses being damaged.)
It is irrelevant that there are no big queues at ports because the overall volume of traffic is still much lower than normal, not least because part of the damage lies in hauliers simply not undertaking journeys. So even with turn-backs and delays there aren’t, at least for now, queues building. Beyond that, an under-appreciated point, made by Shane Brennan, head of the cold chain trade body, is that there is not simply a single, physical, border. Rather, hauliers, customs agents, vets, and government agencies each, in effect, act as ‘borders’ – making decisions and undertaking processes which determine whether or not a laden truck actually passes or even reaches the physical border.
This in turn is a reminder that customs formalities are only one of the new barriers to trade that Brexit has created (or revived). There are also issues such as product labelling and veterinary checks. To put that another way, we are experiencing the consequences of Great Britain being outside both the customs union and the single market. In this sense, talk from Boris Johnson and others of using Article 16 of the Northern Ireland Protocol is misplaced as the disruptions are the foreseeable result of what was agreed (the idea is flawed for other reasons, too). I’ll return to the Article 16 issue in more detail in a future post if it starts being raised as a serious possibility. For now, the point is that what we are seeing is the start of what Brexit looks like, at least when a very narrow definition of sovereignty is made the overriding priority in its execution.
What will it mean when things ‘settle down’?
This means that even when the immediate disruptions ‘settle down’, as in due course most of them very likely will, there will most definitely not be a return to the pre-Brexit situation. For one thing, some firms may not survive these immediate problems, or will permanently have lost customers. But in any case, any such settling down will merely conceal rather than remove the newly (re)instated barriers. It will consist either of firms simply not doing all or any of the trade that they used to – with knock on effects on jobs and product availability – or doing so with additional costs which will, most likely, be passed on to UK customers in the form of higher prices.
That may mean anything from a few more pence on some vegetables to many hundreds of pounds on a new car, as was announced this week by Ford explicitly as a result of the new post-Brexit terms of trade (in this case, tariffs due to the application of rules of origin). An illustration of the scale of the costs caused just by the new border friction is that “the average cost of transporting a lorryload of goods to Britain from Germany was 26 per cent higher in the first week of 2021 compared with the average for the third quarter of last year” (£).
Whether visible as disruption or hidden by being incorporated into new standard procedures, these new barriers and their consequences do not indicate that the Trade and Cooperation Agreement (TCA) is a ‘bad deal’ in itself. Rather, for the most part they would exist regardless of what was in the TCA precisely because no such agreement could prevent all the effects of leaving the single market and customs union. So they are the result of that decision rather than the TCA which flows from it, as are the even less visible impacts on services trade.
Accordingly, they are not going to be ‘fixed’ by further discussions with the EU about the TCA, or by the operation of the Partnership Council and its sub-bodies. As regards Northern Ireland, specifically, they derive from what is I think the still under-recognized fact, plain since Johnson’s Withdrawal Agreement, that Brexit has put an end to the UK single market.
So as and when the visible disruptions settle down what will emerge will be an underlying and permanent readjustment and downgrade of the UK economy (though Northern Ireland may well benefit from being by far the most attractive part of the UK for investment in manufacturing). This will not, as some Brexiter MPs are claiming, be offset by the government’s recently signed trade deals because these only (at best) replicate agreements the UK had via the EU. In due course there may be trade deals with countries that the EU does not have deals with, but that will take time – during which plenty of damage will have been done - and is highly unlikely to come close to making up for lost trade with the EU.
Beyond the immediate disruption
It would also be wrong to think that all that is at stake is a temporary period of disruption followed by a new (albeit worse) normal. That may describe the situation as regards things like customs formalities for goods trade, but coming down the line are some potentially greater disruptions. One will depend on what the EU decides to grant the UK financial services sector in terms of regulatory equivalence. The TCA only provides a temporary fix, and reaching the permanent outcome is likely to be a long, drawn-out process with, depending on what is decided, a potentially major effect on the British economy given the size of the sector.
Another crucial issue will be the EU decision on UK data protection adequacy, for which the TCA again only provides a temporary bridging mechanism pending that decision. As with the VAT issue discussed in my previous post, it is an area of great technical complexity but with a huge practical significance for a wide variety of businesses of all sectors and sizes, as well as for security cooperation. The outcome will potentially add another swathe of administrative processes and costs. There’s a good discussion of the issues by Dr Karen Mc Cullagh of University of East Anglia on the DCU Brexit Institute blog, including an explanation of the way that, as in so many other areas, Brexiter ideas of ‘sovereignty’ conflict with the practical realities of modern life.
Of course the adverse realities of Brexit are not just about trade, any more than EU membership was just about trade, even though that is how generations of British politicians have represented it. One example is losing access to the Erasmus scheme for student exchange. More generally, the many advantages of freedom of movement have now disappeared, restricting the opportunities and impoverishing the lives of those who might otherwise have made use of them.
For that matter – and it’s the reason why freedom of movement of people is one of the indivisible four freedoms of the single market – losing this freedom itself has an economic aspect, illustrated by the case of touring musicians and other performers. There was a strand of Brexit support which seemed to imagine that it would only affect people coming from the EU to the UK and not vice versa. Even if that had been so it would still have been a wretched thing, but of course it wasn’t. Hence, now, reports of the dissatisfaction of British owners of second homes in Spain.
The causes of the disruption
The main reason why the current and ongoing consequences of Brexit may not be very well-understood is that the Brexiters lied about them, and many still are.
This also partly explains why the visible disruptions are occurring. For years, businesses were told that talk of disruption was just Project Fear or, if it came from the EU, derided as a threat of ‘punishment’, rather than being a simple statement of fact. That slowed government preparations and made some businesses underestimate the scale of what they had to prepare for. And although some government preparation was done earlier, it was not until February of last year that any government minister – Michael Gove – formally admitted that there would be border frictions.
As regards the Irish Sea border, the Prime Minister and other ministers maintained it would not exist, and the Northern Ireland Secretary still is. To do so whilst also asking people to prepare for the coming changes was, to massively understate things, giving a hopelessly mixed message.
In addition to this, the government’s approach to the TCA negotiations, based as it was on taking them to the last minute in anticipation of the EU ‘blinking’, baked in the disruptions that we are now seeing. It meant that businesses had to try to absorb highly complex new processes which were not fully specified until days, or in some cases hours, before they had to be implemented. That this was over the Christmas and New Year holidays and during the deepening coronavirus crisis could only compound the difficulties. It is again an understatement to say that this was grossly irresponsible.
Alongside the lies told about Brexit, there were two other features which have contributed to the current problems which, whilst involving untruths, were not in most cases deliberate lies. One, which I first remarked on several years ago, was a pervasive sense amongst Brexit supporters that, somehow, nothing much would change as a result. That was obviously linked to the lies about how it would be quick, easy and cost-free but was different to them in treating Brexit as a symbolic act (of, perhaps, freedom) that had no connection with the taken-for-granted systems that make modern life work – for example in terms of putting food in shops or planes in the air. So you could leave the EU, and it would be a wonderful liberation, and then carry on as before. As Sally Jones, trade strategy and Brexit lead for the EY consulting firm, speaking of the re-introduction of barriers to trade, put it, “people forget just how difficult things were in the past”.
Related to this was a lack of understanding about how these systems actually worked. That’s not unreasonable – few of us understand the inner workings of our computer or our car. This perhaps explains why we do not hold votes on whether to rip out the motherboard or crankshaft in the name of consumer sovereignty. Similarly, few understand the hidden complexities of trade, customs, supply chains etc. Indeed, Brexit throws up so many technical niche areas that no one person could possibly be conversant with them all.
What is unreasonable is that Brexiters ignored or denied this, and derided those who pointed it out. For example, in March 2017 I wrote about how Brexiters almost invariably talked about trade as if it were a simple once-only movement of goods from country A to country B. We are seeing the results of the naivety now with, for example, the stories of how pan-European distribution hubs in the UK face tariffs when they re-export goods and, more generally, the problems faced by international supply chains of all sorts.
This isn’t a betrayal of Brexit – it’s the reality of Brexit
So decisions about Brexit, lies about Brexit, the way Brexit was undertaken, and misunderstandings about what Brexit meant are now having the consequences we are seeing (for a regularly updated list of them, see Yorkshire Bylines’ ‘Davis Downsides Dossier’). It’s important to keep on saying this for two reasons.
One is the way that, all too predictably, some are now already talking of there having been a Brexit ‘betrayal’, for example over fisheries and Northern Ireland (£), and of the TCA being a ‘disaster’ in particular for its limited services coverage. But these and other consequences were entailed by hard Brexit rather than being a betrayal of it. The criticism should be of the denial that there would be such consequences. It’s a crucial distinction because, without it, Brexiters can and will continue the lies by pretending that, done differently, there was a hard Brexit that avoided the consequences.
Secondly, recalling the underlying reasons matters because another prevailing reaction seems to be a general shrugging off of what is happening as if it were ‘just one of those things’. I don’t think that is just because coronavirus is the main preoccupation as it is very similar to how the collapse of sterling after the referendum vote, which would in other times have been a major crisis, caused barely a political ripple. Similarly, imagine the reaction if in the past there had been the kinds of disruptions described at the start of this post. The explanation, at least in part, is that the Brexiters have so aggressively attacked those who draw attention to such things that the media and some politicians have become cowed.
What is to be done?
As the realities of Brexit continue to emerge, it’s crucial to be honest about what it means and about how we got here. From that point of view the near political silence about what is happening, with the partial exception of fisheries, is both disappointing and – if anything about the Brexit process could be so any more - astounding.
Obviously the pandemic is the dominant issue at the moment but the significance of the Brexit-induced disruption should surely not be ignored. The government won’t, for obvious reasons, want to talk about it but the Labour opposition certainly should. Not only would it be right to do so in its own terms, simply because it is a growing crisis, but it would also be a way of setting in train what Labour’s policy towards EU relations would be if it won the next election. That could be one part of meeting the challenge to Keir Starmer, as posed by Rafael Behr this week, to “narrate a journey to a better Britain”.
So it is neither right, nor electorally prudent, to remain silent for fear of alienating ‘red wall’ voters or of inviting Johnson’s predictable ‘remoaner’ jibes. And whilst parties in Scotland, Northern Ireland and Wales are raising it, Labour as the official opposition has a particular role to play and it isn’t – with some limited exceptions – doing so. In particular, it seems truly extraordinary that Starmer did not use even one of his six questions to the Prime Minister this week to raise the extensive disruptions to trade which are occurring and their longer-term significance.
Starmer’s stance through 2020 was that it was for the government to deliver its promised deal and that Labour would hold Johnson to account for it. So now we have the deal, but where’s the holding to account? Worse, how can there be any holding to account when he has just said (£) Labour would not seek any major changes to the TCA if in power? In consequence, at least as regards the two main political parties, there is now a virtual conspiracy of silence about Brexit, compounded by Jacob Rees-Mogg closing down the cross-party committee that would have scrutinised the deal.
That said, even if it were not for coronavirus and regardless of the immediate political reaction, it is far too early to expect the kind of serious ‘national conversation’ about Brexit that we need to have. The wounds of the last five years are still too raw and the divisions too entrenched. Moreover, it will have to be informed by broader considerations than those of the current disruptions. A Chatham House report this week discussed what kind of global role is now feasible for the UK, and that is one part what needs to be considered. So too are the strategic implications of a regionalised and multi-polar world, and an understanding of the strategic issues which led the UK to join the EU (EEC) in the first place, which – as Professor Robert Saunders argues in an excellent essay - Brexit now re-poses.
Still, an honest account of the immediate disruptions is not irrelevant to that and perhaps the first step towards it. It is probably necessary to experience the realities of what leaving means in order to expose the lies of those who led us so carelessly to abandon our membership.
These distribution problems are now leading to some shortages in shops and they are set to get worse (£). Northern Ireland is the worst affected place, despite there being a three month grace period during which full certification rules on food coming from Great Britain are waived, which may or may not be extended. As regards exporters, one of the worst affected industries seems to be the Brexit icon of fisheries, unsurprisingly since this is a highly perishable product and the EU is its main market. (It shouldn’t be forgotten that EU fishermen are also suffering from Brexit – in which they had no say – especially in Ireland, although there is an EU support fund to help them and the other businesses being damaged.)
It is irrelevant that there are no big queues at ports because the overall volume of traffic is still much lower than normal, not least because part of the damage lies in hauliers simply not undertaking journeys. So even with turn-backs and delays there aren’t, at least for now, queues building. Beyond that, an under-appreciated point, made by Shane Brennan, head of the cold chain trade body, is that there is not simply a single, physical, border. Rather, hauliers, customs agents, vets, and government agencies each, in effect, act as ‘borders’ – making decisions and undertaking processes which determine whether or not a laden truck actually passes or even reaches the physical border.
This in turn is a reminder that customs formalities are only one of the new barriers to trade that Brexit has created (or revived). There are also issues such as product labelling and veterinary checks. To put that another way, we are experiencing the consequences of Great Britain being outside both the customs union and the single market. In this sense, talk from Boris Johnson and others of using Article 16 of the Northern Ireland Protocol is misplaced as the disruptions are the foreseeable result of what was agreed (the idea is flawed for other reasons, too). I’ll return to the Article 16 issue in more detail in a future post if it starts being raised as a serious possibility. For now, the point is that what we are seeing is the start of what Brexit looks like, at least when a very narrow definition of sovereignty is made the overriding priority in its execution.
What will it mean when things ‘settle down’?
This means that even when the immediate disruptions ‘settle down’, as in due course most of them very likely will, there will most definitely not be a return to the pre-Brexit situation. For one thing, some firms may not survive these immediate problems, or will permanently have lost customers. But in any case, any such settling down will merely conceal rather than remove the newly (re)instated barriers. It will consist either of firms simply not doing all or any of the trade that they used to – with knock on effects on jobs and product availability – or doing so with additional costs which will, most likely, be passed on to UK customers in the form of higher prices.
That may mean anything from a few more pence on some vegetables to many hundreds of pounds on a new car, as was announced this week by Ford explicitly as a result of the new post-Brexit terms of trade (in this case, tariffs due to the application of rules of origin). An illustration of the scale of the costs caused just by the new border friction is that “the average cost of transporting a lorryload of goods to Britain from Germany was 26 per cent higher in the first week of 2021 compared with the average for the third quarter of last year” (£).
Whether visible as disruption or hidden by being incorporated into new standard procedures, these new barriers and their consequences do not indicate that the Trade and Cooperation Agreement (TCA) is a ‘bad deal’ in itself. Rather, for the most part they would exist regardless of what was in the TCA precisely because no such agreement could prevent all the effects of leaving the single market and customs union. So they are the result of that decision rather than the TCA which flows from it, as are the even less visible impacts on services trade.
Accordingly, they are not going to be ‘fixed’ by further discussions with the EU about the TCA, or by the operation of the Partnership Council and its sub-bodies. As regards Northern Ireland, specifically, they derive from what is I think the still under-recognized fact, plain since Johnson’s Withdrawal Agreement, that Brexit has put an end to the UK single market.
So as and when the visible disruptions settle down what will emerge will be an underlying and permanent readjustment and downgrade of the UK economy (though Northern Ireland may well benefit from being by far the most attractive part of the UK for investment in manufacturing). This will not, as some Brexiter MPs are claiming, be offset by the government’s recently signed trade deals because these only (at best) replicate agreements the UK had via the EU. In due course there may be trade deals with countries that the EU does not have deals with, but that will take time – during which plenty of damage will have been done - and is highly unlikely to come close to making up for lost trade with the EU.
Beyond the immediate disruption
It would also be wrong to think that all that is at stake is a temporary period of disruption followed by a new (albeit worse) normal. That may describe the situation as regards things like customs formalities for goods trade, but coming down the line are some potentially greater disruptions. One will depend on what the EU decides to grant the UK financial services sector in terms of regulatory equivalence. The TCA only provides a temporary fix, and reaching the permanent outcome is likely to be a long, drawn-out process with, depending on what is decided, a potentially major effect on the British economy given the size of the sector.
Another crucial issue will be the EU decision on UK data protection adequacy, for which the TCA again only provides a temporary bridging mechanism pending that decision. As with the VAT issue discussed in my previous post, it is an area of great technical complexity but with a huge practical significance for a wide variety of businesses of all sectors and sizes, as well as for security cooperation. The outcome will potentially add another swathe of administrative processes and costs. There’s a good discussion of the issues by Dr Karen Mc Cullagh of University of East Anglia on the DCU Brexit Institute blog, including an explanation of the way that, as in so many other areas, Brexiter ideas of ‘sovereignty’ conflict with the practical realities of modern life.
Of course the adverse realities of Brexit are not just about trade, any more than EU membership was just about trade, even though that is how generations of British politicians have represented it. One example is losing access to the Erasmus scheme for student exchange. More generally, the many advantages of freedom of movement have now disappeared, restricting the opportunities and impoverishing the lives of those who might otherwise have made use of them.
For that matter – and it’s the reason why freedom of movement of people is one of the indivisible four freedoms of the single market – losing this freedom itself has an economic aspect, illustrated by the case of touring musicians and other performers. There was a strand of Brexit support which seemed to imagine that it would only affect people coming from the EU to the UK and not vice versa. Even if that had been so it would still have been a wretched thing, but of course it wasn’t. Hence, now, reports of the dissatisfaction of British owners of second homes in Spain.
The causes of the disruption
The main reason why the current and ongoing consequences of Brexit may not be very well-understood is that the Brexiters lied about them, and many still are.
This also partly explains why the visible disruptions are occurring. For years, businesses were told that talk of disruption was just Project Fear or, if it came from the EU, derided as a threat of ‘punishment’, rather than being a simple statement of fact. That slowed government preparations and made some businesses underestimate the scale of what they had to prepare for. And although some government preparation was done earlier, it was not until February of last year that any government minister – Michael Gove – formally admitted that there would be border frictions.
As regards the Irish Sea border, the Prime Minister and other ministers maintained it would not exist, and the Northern Ireland Secretary still is. To do so whilst also asking people to prepare for the coming changes was, to massively understate things, giving a hopelessly mixed message.
In addition to this, the government’s approach to the TCA negotiations, based as it was on taking them to the last minute in anticipation of the EU ‘blinking’, baked in the disruptions that we are now seeing. It meant that businesses had to try to absorb highly complex new processes which were not fully specified until days, or in some cases hours, before they had to be implemented. That this was over the Christmas and New Year holidays and during the deepening coronavirus crisis could only compound the difficulties. It is again an understatement to say that this was grossly irresponsible.
Alongside the lies told about Brexit, there were two other features which have contributed to the current problems which, whilst involving untruths, were not in most cases deliberate lies. One, which I first remarked on several years ago, was a pervasive sense amongst Brexit supporters that, somehow, nothing much would change as a result. That was obviously linked to the lies about how it would be quick, easy and cost-free but was different to them in treating Brexit as a symbolic act (of, perhaps, freedom) that had no connection with the taken-for-granted systems that make modern life work – for example in terms of putting food in shops or planes in the air. So you could leave the EU, and it would be a wonderful liberation, and then carry on as before. As Sally Jones, trade strategy and Brexit lead for the EY consulting firm, speaking of the re-introduction of barriers to trade, put it, “people forget just how difficult things were in the past”.
Related to this was a lack of understanding about how these systems actually worked. That’s not unreasonable – few of us understand the inner workings of our computer or our car. This perhaps explains why we do not hold votes on whether to rip out the motherboard or crankshaft in the name of consumer sovereignty. Similarly, few understand the hidden complexities of trade, customs, supply chains etc. Indeed, Brexit throws up so many technical niche areas that no one person could possibly be conversant with them all.
What is unreasonable is that Brexiters ignored or denied this, and derided those who pointed it out. For example, in March 2017 I wrote about how Brexiters almost invariably talked about trade as if it were a simple once-only movement of goods from country A to country B. We are seeing the results of the naivety now with, for example, the stories of how pan-European distribution hubs in the UK face tariffs when they re-export goods and, more generally, the problems faced by international supply chains of all sorts.
This isn’t a betrayal of Brexit – it’s the reality of Brexit
So decisions about Brexit, lies about Brexit, the way Brexit was undertaken, and misunderstandings about what Brexit meant are now having the consequences we are seeing (for a regularly updated list of them, see Yorkshire Bylines’ ‘Davis Downsides Dossier’). It’s important to keep on saying this for two reasons.
One is the way that, all too predictably, some are now already talking of there having been a Brexit ‘betrayal’, for example over fisheries and Northern Ireland (£), and of the TCA being a ‘disaster’ in particular for its limited services coverage. But these and other consequences were entailed by hard Brexit rather than being a betrayal of it. The criticism should be of the denial that there would be such consequences. It’s a crucial distinction because, without it, Brexiters can and will continue the lies by pretending that, done differently, there was a hard Brexit that avoided the consequences.
Secondly, recalling the underlying reasons matters because another prevailing reaction seems to be a general shrugging off of what is happening as if it were ‘just one of those things’. I don’t think that is just because coronavirus is the main preoccupation as it is very similar to how the collapse of sterling after the referendum vote, which would in other times have been a major crisis, caused barely a political ripple. Similarly, imagine the reaction if in the past there had been the kinds of disruptions described at the start of this post. The explanation, at least in part, is that the Brexiters have so aggressively attacked those who draw attention to such things that the media and some politicians have become cowed.
What is to be done?
As the realities of Brexit continue to emerge, it’s crucial to be honest about what it means and about how we got here. From that point of view the near political silence about what is happening, with the partial exception of fisheries, is both disappointing and – if anything about the Brexit process could be so any more - astounding.
Obviously the pandemic is the dominant issue at the moment but the significance of the Brexit-induced disruption should surely not be ignored. The government won’t, for obvious reasons, want to talk about it but the Labour opposition certainly should. Not only would it be right to do so in its own terms, simply because it is a growing crisis, but it would also be a way of setting in train what Labour’s policy towards EU relations would be if it won the next election. That could be one part of meeting the challenge to Keir Starmer, as posed by Rafael Behr this week, to “narrate a journey to a better Britain”.
So it is neither right, nor electorally prudent, to remain silent for fear of alienating ‘red wall’ voters or of inviting Johnson’s predictable ‘remoaner’ jibes. And whilst parties in Scotland, Northern Ireland and Wales are raising it, Labour as the official opposition has a particular role to play and it isn’t – with some limited exceptions – doing so. In particular, it seems truly extraordinary that Starmer did not use even one of his six questions to the Prime Minister this week to raise the extensive disruptions to trade which are occurring and their longer-term significance.
Starmer’s stance through 2020 was that it was for the government to deliver its promised deal and that Labour would hold Johnson to account for it. So now we have the deal, but where’s the holding to account? Worse, how can there be any holding to account when he has just said (£) Labour would not seek any major changes to the TCA if in power? In consequence, at least as regards the two main political parties, there is now a virtual conspiracy of silence about Brexit, compounded by Jacob Rees-Mogg closing down the cross-party committee that would have scrutinised the deal.
That said, even if it were not for coronavirus and regardless of the immediate political reaction, it is far too early to expect the kind of serious ‘national conversation’ about Brexit that we need to have. The wounds of the last five years are still too raw and the divisions too entrenched. Moreover, it will have to be informed by broader considerations than those of the current disruptions. A Chatham House report this week discussed what kind of global role is now feasible for the UK, and that is one part what needs to be considered. So too are the strategic implications of a regionalised and multi-polar world, and an understanding of the strategic issues which led the UK to join the EU (EEC) in the first place, which – as Professor Robert Saunders argues in an excellent essay - Brexit now re-poses.
Still, an honest account of the immediate disruptions is not irrelevant to that and perhaps the first step towards it. It is probably necessary to experience the realities of what leaving means in order to expose the lies of those who led us so carelessly to abandon our membership.
Friday, 8 January 2021
Brave new world
As trailed in the previous post, this blog is now retitled ‘Brexit & Beyond’ to reflect that we are now in a significantly new stage of the Brexit process, with the UK having left the EU, finished the transition period, and agreed a new arrangement for future trade and cooperation. As it has since 2016, the blog will continue to provide a broad non-technical analysis of the political, economic and cultural events associated with Brexit, normally on a weekly basis, drawing on a wide range of news sources and expert technical commentaries.
It is a new stage, but the new title is meant to suggest that it is also a continuation, not least because of the numerous loose ends left, and reviews created by, the EU-UK Trade and Cooperation Agreement (TCA). These are helpfully summarized in a diagram created by Professor Simon Usherwood of Surrey University. More generally, there will be a whole new institutional architecture, in the Partnership Council and its sub-bodies, within which the UK-EU relationship will unfold.
Moreover, from now on it will be possible to compare the realities of Brexit with what was claimed or promised for it. I don’t think that doing so amounts to “leap[ing] with glee onto every bureaucratic bump in the road out of Europe”, as counselled against by the columnist Clare Foges in a thoughtful article in The Times this week (£), and it most certainly isn’t, and shouldn’t be taken as, what she rightly calls “gruesome” relish in “businesses suffering or Leave-voting areas getting poorer”. Regular readers of this blog will know that I have repeatedly warned against that on grounds of both principle and political tactics.
Rather, it has two purposes, one being the primarily analytical one of making sense of events and the other the political one that it is legitimate and necessary to hold accountable those who made these claims and promises. Truth matters; at least I think it does, or at any rate that it should.
So whilst it would perhaps be churlish - and, anyway, impossible – to record every such “bureaucratic bump” it is likely that many of them will be relevant to those two purposes if, for example, they are in fact instances of the non-tariff barriers to trade that Boris Johnson has told the public do not exist. For as Professor Ian Begg of LSE writes on the Federal Trust blog “the essence of the [TCA] is the re-imposition of non-tariff barriers swept away in the process of creating the EU single market”. In that sense, “bureaucratic bumps” are a feature, not a bug, of Brexit.
Two kinds of claim for Brexit
It is already clear that assessing those Brexit realities is going to be as fraught with difficulty as it was for the original claims and promises. For already there have been a string of misleading and sometimes downright false statements made by Boris Johnson and others about what those realities are. Yorkshire Bylines have begun a useful register compiling and debunking them.
It’s worthwhile to draw a distinction between cases where there is at least some room for different interpretations with those which are plain lies.
In the former category an example might be the abolition of the ‘tampon tax’ (i.e. VAT on women’s sanitary products) in that it is true that the UK was able to do this when it did – on 1 January – because of Brexit, but it was in train to happen anyway and, arguably, might have happened earlier had the UK continued its previous push for a change in EU rules which fell by the wayside once the Brexit process got underway. Still, it’s not entirely bogus to interpret it as a benefit of Brexit (though strange that some of those most vociferously doing so had voted against it).
In the second category is the statement by Northern Ireland Secretary Brandon Lewis that “there is no ‘Irish Sea border’”. This is simply untrue, because that is precisely what was created by the Withdrawal Agreement yet Lewis is quite shameless in denying it, as he also did last February. It was absurd then, but how much more so now when there is direct evidence of companies in Great Britain suspending deliveries to Northern Ireland, and direct evidence of delays at the border? Lewis’s position is all the more ludicrous because, at the same time, he is extolling the unique benefits of Northern Ireland’s dual status. And apart from the fact that the Irish Sea border is part and parcel of that status, it begs the obvious question of why, if it is so advantageous for Northern Ireland to be in the goods single market and customs union, it makes sense for Great Britain not to be?
Slightly less brazen, but almost equally misleading, is Home Secretary Priti Patel’s claim (£) that the UK’s security is enhanced by Brexit. I briefly indicated in my previous post why this is not so, and it has since been explained in more detail (and with more authority) by Julian King, former EU Commissioner for the Security Union. A key issue, as he confirms, is real-time access to EU databases and, more generally, patching administrative solutions to the gaps created by being a third country. There are also still unresolved issues about whether the EU will grant the UK data adequacy equivalence (which also matters hugely for trade) and about how to replace the European Arrest Warrant. Overall, KIng describes what has been agreed as “a damage limitation exercise”. That is worthwhile in itself, of course, but it can hardly be described ‘making Britain safer’.
Borders and business
Brexiters have been quick to point out that there have not been huge lorry queues at channel ports in the first few days since the end of transition (with John Redwood dishonestly contrasting this with the single market by referring to the pre-Christmas chaos caused by Covid). But few with detailed understanding of the issues had anticipated there would be, partly because firms had been stockpiling in advance and partly because of the new year holiday. Now, of course, there is a new lockdown, further suppressing trade flows.
Nevertheless, there have already been some reports of freight being turned away at the borders because of a lack of correct documentation, and these are likely to increase according to significant new industry warnings of much greater disruption in prospect, especially, though not limited to, Northern Ireland. The long warned of shortage of vets to undertake post-Brexit SPS tests has caused some major delays to fish exports. There have been some supply chain disruptions, a high-profile example being shelves empty of ready meals in M&S stores in France, illustrating that even some very large firms were not fully prepared. There is also some evidence that EU-based truck drivers are unwilling to take on trips to the UK.
Some of these effects will be short-term, as businesses get used to the new customs requirements or adjust supply chains, though that in itself is indicative of the foolishness of having made a deal at the last moment, so that there was no genuine transition or implementation period, and the more so in the middle of a pandemic. In any case, it can’t be assumed that they will have no long-term impact because if customers find that a few of their orders do not arrive they may well switch, permanently, to new suppliers.
This is an aspect of the more significant long-term danger, as suggested in my previous post, being not so much of queues at ports but that trade simply reduces because of the increased burden of customs formalities. EU importers of UK goods now have to do extra customs paperwork, which they will not do if they can source the same or similar products from within the EU. Similarly, several UK firms have already announced (£) that they will permanently or temporarily cease to export to the EU because of the additional customs processes as well as, in some cases, the costs of having to duplicate the UKCA and CE safety marks, an especially absurd consequence of Brexit.
Apart from the re-introduction of customs formalities, new UK VAT rules which started on 1 January have put new requirements on EU exporters (and those of all countries) of low value goods to the UK to register for, collect, and pay VAT in the UK. Already, several have announced it is not worth their while doing so: they will simply cease to offer their products in the UK market, either temporarily or permanently. Edwin Hayward, author of Slaying Brexit Unicorns, has produced a listing of some 140 examples of companies which for this or some other Brexit-related reason are not, at least for now, exporting to the UK. This is undoubtedly the tip of a very large iceberg.
The VAT change is a complex one both in itself and in how it relates to Brexit, which illustrates how, from now on, it will often be difficult to disentangle exactly what is caused by Brexit and what would have happened anyway. For these changes are due to happen on an EU-wide basis later this year so would have applied to the UK as well had it still been a member or in transition. However, crucially, firms in member states will be able to use the EU’s ‘one stop shop’ single VAT return, avoiding the need to register in each country, but that will not cover the trade they do with UK customers which will require a separate, UK-only, registration. So, in that sense, this is a new Brexit impediment to EU-UK trade. Moreover, it creates particular complexities for Northern Ireland because of its dual status following Brexit.*
So we are beginning to see the serious limitations of a free trade deal, as compared with membership of the single market and customs union. Fishermen are learning that ‘taking back control of our waters’ brings with it new barriers to their largest market, the EU. The food and drink industry is discovering (£) that ‘zero tariffs, zero quotas’ does not help when goods fall foul of ‘rules of origin’. Thus when goods arrive from the EU to UK distribution hubs and then go back to customers in the EU, they face full tariffs. It is not just food and drinks companies affected, of course, but at least 50 major UK retailers including B&Q, Boots and Dixons.
Meanwhile, there has been an immediate and dramatic flight of trading in EU shares from the City of London (£) to EU financial centres – not a huge market in itself, but a sign that where business has international mobility it will move to wherever it is most advantageous. A senior fund manager has described this as “a stunning own goal for the UK [which] is only the beginning”, and the consensus view is that it is business which will not return to the UK (£). Less dramatic (except perhaps for those directly affected), 80,000 UK-run websites with an EU domain name have been suspended. Anyone concerned that this will affect the Leave.EU site need not worry, though, as our patriotic friends took the precaution of re-registering it in Ireland.
It is a new stage, but the new title is meant to suggest that it is also a continuation, not least because of the numerous loose ends left, and reviews created by, the EU-UK Trade and Cooperation Agreement (TCA). These are helpfully summarized in a diagram created by Professor Simon Usherwood of Surrey University. More generally, there will be a whole new institutional architecture, in the Partnership Council and its sub-bodies, within which the UK-EU relationship will unfold.
Moreover, from now on it will be possible to compare the realities of Brexit with what was claimed or promised for it. I don’t think that doing so amounts to “leap[ing] with glee onto every bureaucratic bump in the road out of Europe”, as counselled against by the columnist Clare Foges in a thoughtful article in The Times this week (£), and it most certainly isn’t, and shouldn’t be taken as, what she rightly calls “gruesome” relish in “businesses suffering or Leave-voting areas getting poorer”. Regular readers of this blog will know that I have repeatedly warned against that on grounds of both principle and political tactics.
Rather, it has two purposes, one being the primarily analytical one of making sense of events and the other the political one that it is legitimate and necessary to hold accountable those who made these claims and promises. Truth matters; at least I think it does, or at any rate that it should.
So whilst it would perhaps be churlish - and, anyway, impossible – to record every such “bureaucratic bump” it is likely that many of them will be relevant to those two purposes if, for example, they are in fact instances of the non-tariff barriers to trade that Boris Johnson has told the public do not exist. For as Professor Ian Begg of LSE writes on the Federal Trust blog “the essence of the [TCA] is the re-imposition of non-tariff barriers swept away in the process of creating the EU single market”. In that sense, “bureaucratic bumps” are a feature, not a bug, of Brexit.
Two kinds of claim for Brexit
It is already clear that assessing those Brexit realities is going to be as fraught with difficulty as it was for the original claims and promises. For already there have been a string of misleading and sometimes downright false statements made by Boris Johnson and others about what those realities are. Yorkshire Bylines have begun a useful register compiling and debunking them.
It’s worthwhile to draw a distinction between cases where there is at least some room for different interpretations with those which are plain lies.
In the former category an example might be the abolition of the ‘tampon tax’ (i.e. VAT on women’s sanitary products) in that it is true that the UK was able to do this when it did – on 1 January – because of Brexit, but it was in train to happen anyway and, arguably, might have happened earlier had the UK continued its previous push for a change in EU rules which fell by the wayside once the Brexit process got underway. Still, it’s not entirely bogus to interpret it as a benefit of Brexit (though strange that some of those most vociferously doing so had voted against it).
In the second category is the statement by Northern Ireland Secretary Brandon Lewis that “there is no ‘Irish Sea border’”. This is simply untrue, because that is precisely what was created by the Withdrawal Agreement yet Lewis is quite shameless in denying it, as he also did last February. It was absurd then, but how much more so now when there is direct evidence of companies in Great Britain suspending deliveries to Northern Ireland, and direct evidence of delays at the border? Lewis’s position is all the more ludicrous because, at the same time, he is extolling the unique benefits of Northern Ireland’s dual status. And apart from the fact that the Irish Sea border is part and parcel of that status, it begs the obvious question of why, if it is so advantageous for Northern Ireland to be in the goods single market and customs union, it makes sense for Great Britain not to be?
Slightly less brazen, but almost equally misleading, is Home Secretary Priti Patel’s claim (£) that the UK’s security is enhanced by Brexit. I briefly indicated in my previous post why this is not so, and it has since been explained in more detail (and with more authority) by Julian King, former EU Commissioner for the Security Union. A key issue, as he confirms, is real-time access to EU databases and, more generally, patching administrative solutions to the gaps created by being a third country. There are also still unresolved issues about whether the EU will grant the UK data adequacy equivalence (which also matters hugely for trade) and about how to replace the European Arrest Warrant. Overall, KIng describes what has been agreed as “a damage limitation exercise”. That is worthwhile in itself, of course, but it can hardly be described ‘making Britain safer’.
Borders and business
Brexiters have been quick to point out that there have not been huge lorry queues at channel ports in the first few days since the end of transition (with John Redwood dishonestly contrasting this with the single market by referring to the pre-Christmas chaos caused by Covid). But few with detailed understanding of the issues had anticipated there would be, partly because firms had been stockpiling in advance and partly because of the new year holiday. Now, of course, there is a new lockdown, further suppressing trade flows.
Nevertheless, there have already been some reports of freight being turned away at the borders because of a lack of correct documentation, and these are likely to increase according to significant new industry warnings of much greater disruption in prospect, especially, though not limited to, Northern Ireland. The long warned of shortage of vets to undertake post-Brexit SPS tests has caused some major delays to fish exports. There have been some supply chain disruptions, a high-profile example being shelves empty of ready meals in M&S stores in France, illustrating that even some very large firms were not fully prepared. There is also some evidence that EU-based truck drivers are unwilling to take on trips to the UK.
Some of these effects will be short-term, as businesses get used to the new customs requirements or adjust supply chains, though that in itself is indicative of the foolishness of having made a deal at the last moment, so that there was no genuine transition or implementation period, and the more so in the middle of a pandemic. In any case, it can’t be assumed that they will have no long-term impact because if customers find that a few of their orders do not arrive they may well switch, permanently, to new suppliers.
This is an aspect of the more significant long-term danger, as suggested in my previous post, being not so much of queues at ports but that trade simply reduces because of the increased burden of customs formalities. EU importers of UK goods now have to do extra customs paperwork, which they will not do if they can source the same or similar products from within the EU. Similarly, several UK firms have already announced (£) that they will permanently or temporarily cease to export to the EU because of the additional customs processes as well as, in some cases, the costs of having to duplicate the UKCA and CE safety marks, an especially absurd consequence of Brexit.
Apart from the re-introduction of customs formalities, new UK VAT rules which started on 1 January have put new requirements on EU exporters (and those of all countries) of low value goods to the UK to register for, collect, and pay VAT in the UK. Already, several have announced it is not worth their while doing so: they will simply cease to offer their products in the UK market, either temporarily or permanently. Edwin Hayward, author of Slaying Brexit Unicorns, has produced a listing of some 140 examples of companies which for this or some other Brexit-related reason are not, at least for now, exporting to the UK. This is undoubtedly the tip of a very large iceberg.
The VAT change is a complex one both in itself and in how it relates to Brexit, which illustrates how, from now on, it will often be difficult to disentangle exactly what is caused by Brexit and what would have happened anyway. For these changes are due to happen on an EU-wide basis later this year so would have applied to the UK as well had it still been a member or in transition. However, crucially, firms in member states will be able to use the EU’s ‘one stop shop’ single VAT return, avoiding the need to register in each country, but that will not cover the trade they do with UK customers which will require a separate, UK-only, registration. So, in that sense, this is a new Brexit impediment to EU-UK trade. Moreover, it creates particular complexities for Northern Ireland because of its dual status following Brexit.*
So we are beginning to see the serious limitations of a free trade deal, as compared with membership of the single market and customs union. Fishermen are learning that ‘taking back control of our waters’ brings with it new barriers to their largest market, the EU. The food and drink industry is discovering (£) that ‘zero tariffs, zero quotas’ does not help when goods fall foul of ‘rules of origin’. Thus when goods arrive from the EU to UK distribution hubs and then go back to customers in the EU, they face full tariffs. It is not just food and drinks companies affected, of course, but at least 50 major UK retailers including B&Q, Boots and Dixons.
Meanwhile, there has been an immediate and dramatic flight of trading in EU shares from the City of London (£) to EU financial centres – not a huge market in itself, but a sign that where business has international mobility it will move to wherever it is most advantageous. A senior fund manager has described this as “a stunning own goal for the UK [which] is only the beginning”, and the consensus view is that it is business which will not return to the UK (£). Less dramatic (except perhaps for those directly affected), 80,000 UK-run websites with an EU domain name have been suspended. Anyone concerned that this will affect the Leave.EU site need not worry, though, as our patriotic friends took the precaution of re-registering it in Ireland.
The deep roots of these problems
These kinds of problems arise in the first instance from the nature of TCA, but their roots lie very deep within the entire Brexit project. What was concealed, during the Referendum and thereafter, under the meaningless phrase ‘access to the single market’ was a complete misunderstanding of what the single market is, allied with a highly dated understanding of free trade being mainly about removing tariffs rather than non-tariff barriers, and a total ignorance of the nature of modern supply chains. This in turn is reflected in the relative absence of provision for services in the TCA.
It is of course much too early to know how all this is going to affect the British economy (or, to be less abstract, jobs, prices and tax revenues). Whilst many of the effects already seen were predicted (and dismissed as Project Fear), as were many others which will become evident soon given the inevitable consequence of creating new barriers to trade with the UK’s largest trading partner, others will be unanticipated and will take many months, if not years, to emerge. Often, they will involve highly technical things – VAT rules and rules of origin, for example – that few will understand and which will seem far removed, both conceptually and temporally, from the Referendum vote. Brexit is akin to an economic depth charge, with the effects only slowly rippling out over a wide area.
How do Brexiters respond?
Brexiters have three inadequate and also contradictory responses to all of this. The first is to say that it is entirely irrelevant and simply an example of ‘remainers’ failing to understand that Brexit is about taking back control and the reassertion of sovereignty. Their sovereignty argument does not stack up even in its own terms, as was once demonstrated once again this week in an elegant essay by Public Law Professor Mark Elliott of Cambridge University. But even supposing that it did, this isn’t at all how they are ‘selling’ Brexit. If it were, they would not be making all the bogus claims about how much Brexit is, or will, improve things. They would honestly acknowledge the costs, economic and non-economic, but say they were worth paying.
The second response is an extension of the first, which is to deny the problems that Brexit is creating, or to downplay or trivialise them. In effect, this is to reprise the Project Fear narrative, but with the added dishonesty of denying demonstrable facts and not just well-informed predictions. Almost inevitably, such denials are accompanied by irrelevant (and usually inaccurate) reference to some of the macroeconomic forecasts of 2016.
The third response is to make claims about how, in the future, any immediate negative effects will be overcome (what we might call ‘Project Hope for the best’). Domestic production will increase to substitute for imports from the EU (which it may, but to what extent and with what implications for cost and/or quality is questionable) and/or new global markets will be developed (which they may, but the gravity model of trade, which applies almost as much for services as for goods, suggests limits to the extent of that). Not only are such claims dubious but, again, they give the lie to the line that the case for Brexit is one of sovereignty, regardless of the economic cost. Brexiters still can’t decide whether their project is one of political principle or economic pragmatism or, more accurately, they flip opportunistically to the one whenever the other is discredited.
The demand to accept Brexit, or to move on
But I think there is a much deeper aspect to such arguments and counter-arguments, deriving from the complex political psychology of Brexit. Ever since the Referendum it seems as if Brexiters have both expected and needed those who disagreed with them to recant and to acknowledge that, after all, Brexiters had been right. Of course, it can be said that remainers have also sought to convince their opponents that they made a mistake. But I don’t think that, had remain won, anyone would have expected Brexiters to suddenly say that staying in the EU was the right decision or even tried to get them to do so. In any case, asking people to accept an unwanted status quo is very different from asking them to support an unwanted radical change.
Several factors lie behind this Brexiter need for affirmation. It is in part an insecurity, based perhaps on a lurking knowledge that what they have brought about is so damaging. Related to that, for some it is ‘remainer negativity’ which is the cause of any damage or, at least, which has soured what was supposed to be a moment of triumph. A stronger version of that is, to the extent that Brexiters believe themselves to have been a ‘resistance’ movement that has enacted a national liberation, they expected the whole of the country to welcome it, and are genuinely bemused that at least half the country does no such thing. And at least for some of the most vociferous Brexiters that links to a populist authoritarianism, in which opponents are derided as traitors and saboteurs.
So the early jibes that remainers should ‘suck it up’ and accept ‘the will of the people’ morphed into the expectation that they bestow ‘losers’ consent’ and now into the demand that they at least ‘put Brexit behind them’ or at most ‘get behind Brexit’ so as to, as ERG leader Steve Baker suggests, ‘move forward together’. Lurking behind these escalating demands lies an implicit and much darker accusation than that of being ‘bad losers’. It was evident this week when numerous Brexiters, including public figures, equated those who had campaigned peacefully for a second referendum with the insurrectionist mob which stormed the US Capitol building on Wednesday.
Apart from being a morally contemptible and intellectually vacuous false equivalence, it is hardly likely to engender ‘togetherness’ and is ironic given that it was Nigel Farage who once threatened to “pick up a rifle” if a “proper Brexit” was not delivered, and that numerous Brexiters talked of riots and civil disorder in the event of another referendum. And, in case anyone has forgotten, the only example of lethal violence in relation to Brexit was the murder of Labour MP Jo Cox by a far-right terrorist.
Even apparently reasonable calls for unity are all too often couched in divisive ways. For example, as a letter to The Times (£) put it this week, “we should all of us be looking forward to the future and how we can now help our country succeed. This includes ‘remoaners’ who wish to wallow in the past.” It hardly needs to be pointed out that to express that aspiration in such heavily loaded and pejorative terms makes it unlikely to be realised.
Even so, it is the force of such demands which, I think, explains why Keir Starmer has been and still is so reluctant to even talk about Brexit and its effects. I don’t think that is a viable stance, politically, for how can so central a policy be treated by the official opposition as taboo? It has only been just about feasible because of the urgency of the coronavirus crisis. Certainly for society more widely it is unrealistic because, like it or not, the referendum result – partly because of its closeness, partly because of the way it was achieved – could never be enough in itself to create a widespread endorsement of Brexit. That was compounded by the failure to create any process to develop such an endorsement and, on the contrary, to pursue Brexit in a way which maximized alienation amongst its opponents.
In that sense, too, this new phase of Brexit is not a radical break with what has happened over the last five years, but grows organically out of it. Of course everyone must ‘accept’ Brexit and the TCA in the specific sense that these are established facts, but that doesn’t preclude people from actively working to deepen the TCA or, for that matter, to rejoin the EU. Nor does it stop people passively resenting what has been done and deploring its consequences for themselves and others, or mean that they will refrain from pointing these out. And this will not be assuaged, but rather exacerbated, if the Brexiters continue to lie about what those consequences are and even further inflamed if, as Daniel Hannan proposes, they now proceed to use Brexit to enact the deregulatory agenda that, undoubtedly, has always been the motivation of some of them.
Far from Brexit being over, we are at the beginning of the very long and hard road that lies beyond.
*I am extremely grateful to Richard Asquith, VP for Global Indirect Tax at Avalara, for patiently answering my questions about the new UK VAT rules. He is not, of course, in any way responsible for what I have said about them, nor for any errors I have made in what I have said.
These kinds of problems arise in the first instance from the nature of TCA, but their roots lie very deep within the entire Brexit project. What was concealed, during the Referendum and thereafter, under the meaningless phrase ‘access to the single market’ was a complete misunderstanding of what the single market is, allied with a highly dated understanding of free trade being mainly about removing tariffs rather than non-tariff barriers, and a total ignorance of the nature of modern supply chains. This in turn is reflected in the relative absence of provision for services in the TCA.
It is of course much too early to know how all this is going to affect the British economy (or, to be less abstract, jobs, prices and tax revenues). Whilst many of the effects already seen were predicted (and dismissed as Project Fear), as were many others which will become evident soon given the inevitable consequence of creating new barriers to trade with the UK’s largest trading partner, others will be unanticipated and will take many months, if not years, to emerge. Often, they will involve highly technical things – VAT rules and rules of origin, for example – that few will understand and which will seem far removed, both conceptually and temporally, from the Referendum vote. Brexit is akin to an economic depth charge, with the effects only slowly rippling out over a wide area.
How do Brexiters respond?
Brexiters have three inadequate and also contradictory responses to all of this. The first is to say that it is entirely irrelevant and simply an example of ‘remainers’ failing to understand that Brexit is about taking back control and the reassertion of sovereignty. Their sovereignty argument does not stack up even in its own terms, as was once demonstrated once again this week in an elegant essay by Public Law Professor Mark Elliott of Cambridge University. But even supposing that it did, this isn’t at all how they are ‘selling’ Brexit. If it were, they would not be making all the bogus claims about how much Brexit is, or will, improve things. They would honestly acknowledge the costs, economic and non-economic, but say they were worth paying.
The second response is an extension of the first, which is to deny the problems that Brexit is creating, or to downplay or trivialise them. In effect, this is to reprise the Project Fear narrative, but with the added dishonesty of denying demonstrable facts and not just well-informed predictions. Almost inevitably, such denials are accompanied by irrelevant (and usually inaccurate) reference to some of the macroeconomic forecasts of 2016.
The third response is to make claims about how, in the future, any immediate negative effects will be overcome (what we might call ‘Project Hope for the best’). Domestic production will increase to substitute for imports from the EU (which it may, but to what extent and with what implications for cost and/or quality is questionable) and/or new global markets will be developed (which they may, but the gravity model of trade, which applies almost as much for services as for goods, suggests limits to the extent of that). Not only are such claims dubious but, again, they give the lie to the line that the case for Brexit is one of sovereignty, regardless of the economic cost. Brexiters still can’t decide whether their project is one of political principle or economic pragmatism or, more accurately, they flip opportunistically to the one whenever the other is discredited.
The demand to accept Brexit, or to move on
But I think there is a much deeper aspect to such arguments and counter-arguments, deriving from the complex political psychology of Brexit. Ever since the Referendum it seems as if Brexiters have both expected and needed those who disagreed with them to recant and to acknowledge that, after all, Brexiters had been right. Of course, it can be said that remainers have also sought to convince their opponents that they made a mistake. But I don’t think that, had remain won, anyone would have expected Brexiters to suddenly say that staying in the EU was the right decision or even tried to get them to do so. In any case, asking people to accept an unwanted status quo is very different from asking them to support an unwanted radical change.
Several factors lie behind this Brexiter need for affirmation. It is in part an insecurity, based perhaps on a lurking knowledge that what they have brought about is so damaging. Related to that, for some it is ‘remainer negativity’ which is the cause of any damage or, at least, which has soured what was supposed to be a moment of triumph. A stronger version of that is, to the extent that Brexiters believe themselves to have been a ‘resistance’ movement that has enacted a national liberation, they expected the whole of the country to welcome it, and are genuinely bemused that at least half the country does no such thing. And at least for some of the most vociferous Brexiters that links to a populist authoritarianism, in which opponents are derided as traitors and saboteurs.
So the early jibes that remainers should ‘suck it up’ and accept ‘the will of the people’ morphed into the expectation that they bestow ‘losers’ consent’ and now into the demand that they at least ‘put Brexit behind them’ or at most ‘get behind Brexit’ so as to, as ERG leader Steve Baker suggests, ‘move forward together’. Lurking behind these escalating demands lies an implicit and much darker accusation than that of being ‘bad losers’. It was evident this week when numerous Brexiters, including public figures, equated those who had campaigned peacefully for a second referendum with the insurrectionist mob which stormed the US Capitol building on Wednesday.
Apart from being a morally contemptible and intellectually vacuous false equivalence, it is hardly likely to engender ‘togetherness’ and is ironic given that it was Nigel Farage who once threatened to “pick up a rifle” if a “proper Brexit” was not delivered, and that numerous Brexiters talked of riots and civil disorder in the event of another referendum. And, in case anyone has forgotten, the only example of lethal violence in relation to Brexit was the murder of Labour MP Jo Cox by a far-right terrorist.
Even apparently reasonable calls for unity are all too often couched in divisive ways. For example, as a letter to The Times (£) put it this week, “we should all of us be looking forward to the future and how we can now help our country succeed. This includes ‘remoaners’ who wish to wallow in the past.” It hardly needs to be pointed out that to express that aspiration in such heavily loaded and pejorative terms makes it unlikely to be realised.
Even so, it is the force of such demands which, I think, explains why Keir Starmer has been and still is so reluctant to even talk about Brexit and its effects. I don’t think that is a viable stance, politically, for how can so central a policy be treated by the official opposition as taboo? It has only been just about feasible because of the urgency of the coronavirus crisis. Certainly for society more widely it is unrealistic because, like it or not, the referendum result – partly because of its closeness, partly because of the way it was achieved – could never be enough in itself to create a widespread endorsement of Brexit. That was compounded by the failure to create any process to develop such an endorsement and, on the contrary, to pursue Brexit in a way which maximized alienation amongst its opponents.
In that sense, too, this new phase of Brexit is not a radical break with what has happened over the last five years, but grows organically out of it. Of course everyone must ‘accept’ Brexit and the TCA in the specific sense that these are established facts, but that doesn’t preclude people from actively working to deepen the TCA or, for that matter, to rejoin the EU. Nor does it stop people passively resenting what has been done and deploring its consequences for themselves and others, or mean that they will refrain from pointing these out. And this will not be assuaged, but rather exacerbated, if the Brexiters continue to lie about what those consequences are and even further inflamed if, as Daniel Hannan proposes, they now proceed to use Brexit to enact the deregulatory agenda that, undoubtedly, has always been the motivation of some of them.
Far from Brexit being over, we are at the beginning of the very long and hard road that lies beyond.
*I am extremely grateful to Richard Asquith, VP for Global Indirect Tax at Avalara, for patiently answering my questions about the new UK VAT rules. He is not, of course, in any way responsible for what I have said about them, nor for any errors I have made in what I have said.
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