BRITAIN: BLUSTERING & BLUNDERING TOWARDS THE CLIFF EDGE
Eight years ago the magazine Rolling Stone, in an article on the power and reach of Goldman Sachs, warned its readers that the bank was everywhere. It described the world's most powerful and ubiquitous investment bank as ‘a great vampire squid wrapped around the face of humanity.’
In Britain today, Brexit is the vampire squid wrapped around the face of the body politic. It has sucked time, energy and resources out of pressing policy issues like health, housing, social provision and, above all, growing wealth inequality. Already neglected and ignored, such matters are consigned to the back burner awaiting the uncertain Brexit outcome upon which everything else depends.
Britain has a bright future outside the EU, the Brexiteers explain. As former UKIP politician, Douglas Carswell put it: ‘Far from joining an economic powerhouse we’ve shackled ourselves to a corpse. Being part of the EU hinders rather than helps us to prosper’. Since this portentous announcement, the EU corpse is showing signs of life while, after a decade of austerity and an uncertain future ahead, the UK is looking frail.
The pound has fallen by 12% against the euro and 5% against the US dollar since the EU referendum in 2016. Latest figures from the EU statistics office, Eurostat, show the eurozone's economy has outgrown Britain’s for the first time since 2010. Its economic growth was 2.7% in 2017, according to preliminary estimates, compared to just 1.5% growth in the UK, where the economy remains under pressure from Brexit uncertainties.
Almost a year has passed since the UK government in March 2017 triggered its intended withdrawal from the EU by invoking Article 50 of the Lisbon Treaty. This gave the UK two years to negotiate a deal on its future relationship with the EU. At the time, the Prime Minister headed a Conservative government with a small overall majority in the House of Commons. The Conservative party was itself divided in its attitude to Europe as it has been for decades. The referendum it called in June 2016 has provoked equally acrimonious divisions in the country between those who wish to remain within the EU and those who do not.
In May last year Theresa May decided to call a general election to secure her democratic mandate to negotiate Brexit. Instead of increasing her small majority, she lost it entirely, her fate, even the nation’s, now lies in the hands of a ‘theocon’ ultra-conservative Protestant group. May’s diminished authority means that the collective responsibility of her divided cabinet – the convention that requires its members to speak publicly with one voice - has broken down. She dares not remove senior ministers without increasing divisions in the party and further jeopardizing her own position.
The conflicting signals emanating from government on Brexit highlight its weakness, disunity and incoherence. They give no confidence that the government can negotiate effectively with the EU. The Brexiteers in the Conservative parliamentary party are in a minority but, emboldened by the referendum result, their support and acquiescence are needed for Theresa May’s survival as leader. Inconsistent and self-contradictory policy pronouncements have exacerbated the uncertainty and anxiety felt in Britain and across Europe. It is hardly surprising that historian, Timothy Garton Ash, has written that withdrawal from the EU is ‘the most gratuitous and most consequential act of self-harm in Britain’s post-war
Recent statements made by the UK government have exasperated EU negotiator, Michel Barnier. The government appears to want the benefits of membership of the EU without incurring its obligations. Prime Minister Theresa May intends to end free movement of people into the UK and she doesn't want the UK to be told what to do by the European Court of Justice (ECJ). Yet she does want businesses to retain the benefits of EU membership by being able to trade without tariffs across the EU as they do now. She still wants to leave the customs union – the biggest in the world - so as to make trade deals elsewhere. From an EU perspective this is not on offer and looks to Barnier like ‘cherry picking’ and ‘wanting your cake and eating it’.
No EU member state believes that leaving the club should bestow better benefits and fewer burdens than membership.
After the British government invoked Article 50 in March last year, its negotiators, in the first phase of the talks, spent the rest of the year negotiating with the EU Commission over the agreed preliminary issues. These were the rights of the 4.2 million British expatriates living in the EU and European citizens living in Britain, the divorce bill and how to avoid a hard border with Ireland once the UK leaves the EU. In mid-December the parties agreed that ‘sufficient progress’ had been made to allow them to move into the second phase in March this year. ‘Progress’ did not mean that the issues had been resolved. They had only been deferred. Nevertheless, the EU allowed hope and aspiration to prevail, fearing that failure could see the end of Theresa May and her replacement by someone even worse.
The parties’ joint statement referred to ‘reciprocal protection’ for the rights of EU citizens living in the UK and UK citizens and family members living in the EU when the UK withdraws. Future free movement of people between Britain and EU countries was not resolved. Nor was the intractable problem of the Irish border. The statement says that there will be further discussions on the ‘unique circumstances’ of the border between the UK and the Republic of Ireland. The issue of the Irish border has been described as a roadblock that the Brexiteers cannot drive around. It is a subject on which they shamefully remain silent, despite the dangers to the peace process. Meanwhile the UK government commits to maintaining ‘full alignment’ with relevant EU internal market and customs rules in Northern Ireland ‘in the absence of agreed solutions’. The problem remains that Theresa May, in defiance of all logic, has reiterated that Brexit means that Britain will leave the free market and customs union while simultaneously preserving a ‘frictionless’ border with the Irish Republic. Further magical thinking will be required by May and the Brexiteers to reconcile control over immigration and with the free movement of goods and people crossing an invisible land border from an EU member state. Perhaps, like Schrödinger's cat, the border will exist and not exist simultaneously.
In December both the UK and EU agreed in December a ‘methodology’ for the final financial settlement. No figures were revealed. The methodology consists of a list of components and a set of principles for calculating the value of the settlement. It sets out how this will be paid, and the arrangements for the UK's continued participation in certain EU financial programmes. The bill, thought to be around £40 to £45 billion, will have to be put into legislative form.
Parliamentary approval will not be a foregone conclusion.
Leaving the jurisdiction of the European Court of Justice (ECJ) has long been an obsession of Brexit ideologues who want nothing less than a complete break. The joint statement confirms the ECJ as the ‘ultimate arbiter of the interpretation of EU law.’ The UK courts will no longer be under ECJ jurisdiction after Brexit, but in the interim they will be required to ‘have due regard to relevant decisions’ where these relate to the application or interpretation of rights granted under EU law.
The end of this ‘first phase of Brexit negotiations’ has brought neither clarity nor certainty. Britain’s future direction before withdrawal, during transition and after it leaves the EU remains shrouded in fog. Meanwhile, the Prime Minister and the unruly rabble that constitute her cabinet contradict themselves and each other on a daily basis while the rest of the world looks on baffled and bewildered.
The Labour party, the main opposition, has so far proved incapable of capitalising on the Conservatives’ divisions over Brexit. This is because it has divisions of its own. Its leader, Jeremy Corbyn, a lifelong Eurosceptic, and other senior figures have been nervous of alienating many of the party’s traditional working class supporters in the Midlands and North who voted to leave the EU in the 2016 referendum. But overall 65% of Labour voters wished to remain. The party has therefore adopted a policy of ‘calculated ambiguity,’ otherwise known as ‘sitting on the fence’. It seems to favour some sort of customs union with the EU and free market access but with further controls on immigration. However, events are beginning to force a change of approach.
A poll by YouGov of people planning to vote Labour found that 24% would change their minds if Labour says it will proceed with Brexit. Two thirds of those who voted to remain within the EU said they would be disappointed or angry. A recent Opinium poll found that potential Labour supporters now back permanent membership of the single market and customs union by a margin of more than four to one. Also the EU withdrawal bill is going to the House of Lords, where it is expected to be taken apart by pro-Remain peers of all parties as well as by ‘crossbenchers’ i.e. those with no party affiliation. Other Brexit bills will also force a Labour policy shift. For example, a Brexit bill on trade will shortly return to the House of Commons and is expected to attract amendments from pro-Remain Conservatives and Liberal Democrats in support of customs union and single market membership. According to the Observer newspaper, at least 60 Labour MPs will back the amendments.
Changing circumstances may also persuade Jeremy Corbyn to join a cross-party alliance against Theresa May’s version of Brexit. The leaders of four opposition parties have written to him urging him to work with them to keep the UK in the EU single market and customs union. The Scottish National Party (SNP), Liberal Democrat, Green Party and Plaid Cymru leaders have called on Corbyn to join forces with them ‘in opposing the Tories’ damaging plans’. He has hitherto refused to engage with other parties that are campaigning against Tory plans for a hard Brexit. Labour MP, Chris Leslie, writing in London’s Evening Standard newspaper on 12th February asserted that Parliament has a chance to force the Government to change course and that Labour should play it’s part. ‘Now is the time for clarity, and deliberate ambiguity in the hope we won’t offend anyone’ is not the principled stance that the vast majority of Labour’s membership expect from this leadership team. A sheepish silence in the hope that Brexit will ‘just pass us by’, also will not work any longer’.
The next phase of the talks on the transition to Britain’s withdrawal from the EU and on its future trading relationship is already beset by uncertainty and lack of clarity. What Theresa May means by a ‘deep and special partnership’ with Europe, continues to remains a mystery. May’s ‘red lines’ - no single market, no customs union, no ECJ – leaves Europeans and others wondering how deep and special the partnership could possibly be. In the USA Washington is baffled by a lack of detail about what kind of country the U.K. wants to be once it leaves the EU. Julianne Smith, former adviser to Joe Biden is quoted by the Politico website as saying: ‘Most of us wonder what the real outcome will look like and we can’t find anyone in London who really knows’. Angela Merkel declared at the World Economic Forum in Davos: ‘“It is in the hands of the United Kingdom to tell us how close a partnership it wants to have. We are open to any form of partnership.”
In the latest spat between the two sides, Michel Barnier outlined the continuing differences between the EU and Downing Street and added: ‘To be quite frank, if these disagreements persist, the transition is not a given’. On February 9th he declared that major differences remain over whether Britain should be obliged to respect all EU rules and obligations during the transition period aimed at easing the country out of the bloc next year. He also said that Britain has still not outlined its vision of future EU-UK relations at virtually the half-way mark of the Brexit negotiations.
In response to increasingly desperate cries for clarity, Theresa May chaired a cabinet subcommittee of ten Ministers who have been attempting to thrash out an overall direction or ‘end state’ for Brexit beyond transition. It comprises pro- and anti-Brexit Ministers and it has so far failed to reach a joint position. It was announced on February 11th that senior cabinet ministers would be sent out over the coming weeks to make a series of keynote speeches – both clarifying and conciliatory - on ‘Britain's road map to Brexit’.
First into the ring on February 14th was Boris Johnson, Britain’s blustering and blundering foreign secretary and ‘Brexit’s leading snake oil salesman’. As instructed, he briefly spoke of ‘hope not fear’ and for Brexiteers to ‘reach out’ to opponents. However, the reaching out did not extend to supporting the soft Brexit his opponents want. On the contrary, they were treated to the hard version of leaving the single market and customs union, and abandoning the regulations and standards that go with it. Like all Johnson’s performances there was much verbal waffle, little detail and even less credibility, except perhaps to members of his diminishing fan club. Denis Staunton, London editor of the Irish Times, wrote that he was reminded of a retired entertainer on a comeback tour: ‘‘… Johnson struggled to recapture the old magic as the gags fell flat and he stood sweating and his audience stayed silent. As with most flops, the problem lay in the material – Johnson had nothing to say about Brexit that anyone needed to hear’. An unnamed Minister told Politico website that there was 'nothing' in the speech: 'Absolutely no detail. He is completely in denial about the complexity of the exit and the negative economic and political consequences. It is bluster, which will cost the country dear. The tragedy is that by the time anybody realises it and he has been proved wrong, the real cost will have set in and we will have left the
In five years’ time he will be dead meat.'
That Britain should sever connection with the world’s largest trade bloc of 300 million with whom it does 50% of its trade seems bizarre to its friends and trading partners around the world. There are Tory Leavers who, along with Remainers, want to have a continuing and close trading relationship with Europe. Of particular concern are the ‘ultras’ on the right of the party who do not. Behind their rhetoric of Britain recovering sovereignty, independence and re-living former imperial glories, lurks a more troubling agenda. As Rafael Behr of the Guardian put it: ‘The ultras will not be satisfied with Brexit at the moment when the UK legally ceases to be an EU member. They long for the day when Britain’s relationship with the EU is so completely transformed, the bridges so charred and ruined, that the very memory of membership feels remote. That is why they are so very incensed by suggestions that the UK might form any kind of customs union with the EU’. One of the ultras who doesn’t want a ‘deep and lasting partnership’ with the EU is Liam Fox, Secretary of State for International Trade. On 2nd February he told Bloomberg TV: ‘It is very difficult to see how being in a customs union is compatible with having an independent trade policy because we would therefore be dependent on what the EU negotiated in terms of its trading policies and we’d be following behind that. We have to be outside of that to take advantage of those (unspecified) growing markets. One of the reasons we are leaving the European Union is to take control and that’s not possible with a common external tariff’. Fox and fellow cabinet members, like Boris Johnson and Michael Gove – with their close links to the neocons and the American right - envisage a deregulated, low tax, big business-friendly ‘Global Britain’, liberated from EU regulation and free to negotiate profitable trade deals with China, the USA, Canada, India, Australia, New Zealand etc.
They fail to mention that Germany, still ‘shackled to the EU, is China’s biggest trading partner and exports to it five times more than Britain’. The EU is already negotiating free trade arrangements with countries like Japan, India, Australia, New Zealand and Mercosur, the South American trading bloc.
There is little public support for the dystopian vision of a deregulated British economy held by Fox and friends. This is borne out by a recent Institute for Public Policy Research (IPPR)/Opinium poll which found that more than 60% of the public want to retain or tighten the rules on vehicle fuel emissions, more than 70% support renewable energy targets, the working time directive and a cap on bankers’ bonuses and more than 80% favour consumer cancellation rights. Tom Kibasi, the director of the IPPR, said: ‘Our research shows there is no appetite for deregulation post-Brexit. Regulatory divergence is both anti-worker and anti-business, so it should be no surprise that the public don’t want it. Our proposal for the “shared market”, where Britain and the single market would be aligned and in a customs union, remains the best way to secure our economic interests while honouring the vote to leave.’ Brexit Secretary, David Davis, in a speech on 20th February, declared that the UK wanted to lead a ‘global race to the top’ in rights and standards not, as some feared, a ‘competitive race to the bottom’. He added that British business could ‘never be cheaper than China’ and must focus instead on product and service quality. Does this signal a return to regulatory alignment so as to retain access to the EU market? Not if the Tory ‘Brextremists’ have their way. More than 60 backbench Conservative MPs informed Theresa May on 21st February they expect Britain to have ‘full regulatory autonomy’ after Brexit.
Back in the real world, BSI, Britain's standards body, in December called on ministers to commit to staying in the European regime that sets industry-wide business standards after Brexit. It said that if Britain did not act, it could lose its say on how rules are set in areas such as packaging and safety. Some manufacturers fear rules could be changed to make it harder for UK firms to compete when they export to Europe.
Brexiteers and the government know – but prefer not to admit – that when Britain leaves the EU, it will lose not only tariff-free trade with member states but the benefits of the 50 different trading agreements concluded by the EU with countries such as Mexico, Canada, Switzerland and South Korea. The agreements are comprehensive and include services. The UK government, despite its Brexit posturing, is anxious to be covered by these agreements during the transition period to Brexit. It furtively issued a technical note on 8th February declaring it wished to be treated as a member state during that period. But once Brexit takes effect, the UK will not be a party to any of these agreements. The newly liberated ‘Global Britain’ will then have to negotiate afresh with each of these countries to replace the previous agreements from which it benefited. Because of their complex detail, trade agreements take years to conclude. With its diminished negotiating power, compared with that of the EU, and its eagerness to secure new trade agreements to fill the void, Britain may well find the terms could be less favourable second time around. Such is the futility and expense of the Brexit enterprise.
Will individual trade deals secured by ‘global Britain’ post-Brexit compensate for the loss of open access to the EU? Bearing in mind 43% of British exports go to the EU it seems unlikely. Britain, as a medium size economy, can only maximise its trading benefits by aligning to a larger bloc. Robert Chote of the Office for Budget Responsibility told the New Statesman magazine that most of the work that trade economists have done is showing that the costs of leaving the single market and the customs union are greater than the benefits. ‘The reduction in openness likely with the EU is likely to outweigh any increase elsewhere.’
Buzzfeed News published in January a leaked government Brexit impact assessment that says leaving the EU will adversely hit almost every sector and every UK region. Needless to say, the government tried to keep this embarrassing document secret. Even though the analysis assumes that (1) the UK will agree a trade deal with the US (2); roll over dozens of the EU’s current trade agreements; and (3) consider loosening regulations after Brexit; there is no scenario that does not leave the country worse off. It findings were that almost every sector of the economy would be negatively impacted in all three scenarios, with chemicals, clothing, manufacturing, food and drink, and cars and retail the hardest hit. Every UK region would also be affected negatively in all the modelled scenarios, with the North East, the West Midlands, and Northern Ireland (before even considering the possibility of a hard border) facing the biggest falls in economic performance. There is also a risk that London’s status as a financial centre could be severely eroded. On the plus side, the analysis assumes in all scenarios that a trade deal with the US will be concluded, and that it would benefit GDP by about 0.2% in the long term. Trade deals with other non-EU countries and blocs, such as China, India, Australia, the Gulf countries, and the nations of Southeast Asia would add, in total, a further 0.1% to 0.4% to GDP over the long term.
The analysis acknowledges that Britain could agree trade deals outside the EU and could jettison regulation on the environment, product standards, and employment protection law. However, it doubts that the resulting ‘benefits’ would be enough to mitigate the losses to the economy caused by leaving the single market and customs union. Deregulation would also make it harder to trade with the EU in the future. Not surprisingly, gloomy analyses like these are open to attack by the Brexit camp as ‘fake news’ produced by ‘experts’, in their vocabulary pejorative terms.
In January, the International Monetary Fund (IMF) downgraded its outlook for UK growth for 2019, the year of Brexit. In contrast, the rest of the G7 have been upgraded as the global economy strengthens. It projects growth for Britain of 1.5%, down from 1.6% previously. A more optimistic forecast for the UK economy comes from the National Institute of Economic and Social Research which states that it will expand by 1.9 per cent both this year and next, but only on the assumption that ministers secure a soft Brexit, i.e. Britain retains ‘full access’ to the EU market in 2019 in return for continued payments into the EU budget and for net migration from the Continent to remain unchanged.
Economist Ezra Solomon famously said that the only function of economists is to make astrology respectable. They are certainly easy targets for Brexiteers especially when they fail to predict a glorious post-Brexit future. The utopian optimism of the Brexiteers about a future global Britain has not yet proved infectious. A majority of voters think that Brexit will harm the UK economy in the coming years, a new poll has found. A survey, carried out by BMG for The Independent newspaper on February 12th, found 52% of people think the economy will weaken in the next five years as Britain leaves the EU compared to just 26% who think it will grow stronger. 24% believe the economy will get ‘significantly weaker’ as a result of Brexit, while only 7% think it will grow ‘significantly stronger’.
A recent survey of small and medium sized businesses in Britain by Harvard Kennedy School found that most businesses fear Brexit will result in more regulation, not less. Almost all British businesses want to maintain flexible access to EU labour. Its key conclusion is ‘that most British business leaders are concerned that the current path of Brexit could well cause significant damage to business, both because the end-point will inevitably mean more barriers to trade, most likely more regulation, and almost certainly less influence; and because the process of leaving the EU is creating huge uncertainties and diverting management efforts’. The survey finds: ‘confusion and uncertainty about the Government’s current approach to Brexit is exacerbating the negative impact on British business. It added: ‘The businesses we spoke to repeatedly emphasised their need for clarity about “the rules of the game to enable them to make investment decisions, hire employees and strike deals. Yet British businesses are now faced with the double uncertainty of not knowing what the end-point is likely to be, or how it will be reached’.
The uncertainty is reflected in different sectors of the UK economy. For example, the number of cars bought in 2017 dropped nearly 10% last year as buyers put off big spending decisions because of Brexit uncertainty. Confusion over the government’s policy on diesel cars was also a factor. Meanwhile investment by car manufacturers was down by 34%. Many Japanese companies use the UK as their European base because EU membership provides tariff-free trade and regulatory alignment with Britain’s largest market. Many chemicals companies are moving operations to other EU countries. They do not know what regime the industry will be under after Brexit. Because of a drop in the number of EU migrant agricultural workers, farmers have been forced to leave thousands of pounds worth of vegetables to rot in their fields. Many workers are unsure of their welcome after Brexit and the fall in the pound has reduced the value of their wages.
The prospect of Brexit is driving away National Health Service (NHS) workers from EU countries. Nearly 10% are doctors, more than 7% are nurses and 5% are scientific, therapeutic and technical staff. As numbers of incoming medical staff from EU countries have dropped, NHS Digital released its 2017 data last autumn showing that almost 10,000 had already left the NHS. Retailers are also feeling the pinch. Consumer spending in January fell for the first time in five years, down 1.2% on 2017. The previous eight months have also seen a year-on-year fall in spending because of rising living costs and low wage growth.
As well as trade and jobs, the issue of security and defence co-operation post-Brexit are of great importance. Speaking at the Munich Security Conference, Theresa May said Britain and the EU should move quickly to ensure continued common extradition and arrest arrangements, as well as intelligence sharing and, most importantly, data exchanges. She called for such an agreement to be embodied in a future security treaty between the U.K. and the EU. However, no other country outside the EU has the arrangements May wants. For that reason she knew that she had to row back on the ‘red line’ of ECJ jurisdiction. She did so under cover of gobbledygook: ‘when participating in EU agencies the UK will respect the remit of the European Court of Justice’ and that “a principled but pragmatic solution to close legal co-operation will be needed to respect our unique status as a third country with our own sovereign legal order’.
Theresa May is preparing to set out her vision for Brexit trade in a key speech next week. However, she must first secure agreement from her cabinet and party. Given the open dissension, it would be inadvisable to hold one’s breath. For example, David Davis’s pragmatic speech on 20th February supporting ‘regulatory alignment’ with the EU after Brexit was followed by 60 backbench Conservative MPs writing to Theresa May with a list of hard Brexit demands. Nicky Morgan, a Tory MP, advocate of a soft Brexit, and chair of the Treasury select committee, accused the MPs of holding the Prime Minister hostage and declared ‘This isn’t a letter, it is a ransom note’.
If Theresa May manages to stitch together some kind of cabinet accord , officials will try to lobby their European counterparts to take Britain’s demands into account when considering their own negotiating stance on the future relationship. On 22nd February Theresa May and her senior ministers met for eight hours at the PM's country retreat in another attempt to settle the government's approach to Brexit. The issue remains how closely the EU and UK should align after Brexit day in March 2019. The prime minister is to set out the way forward in a speech after a discussion by the full cabinet. EU leaders are due to sign off on their negotiating position at a summit on March 22 by which time there should be agreement on transition, although there may not be. Negotiations then move to the future trade terms after that summit, with both sides aiming to map out a framework for the trade deal by October.
EU chief Brexit coordinator, Guy Verhofstadt in a BBC interview on 18th February, said: ‘We want more than a free trade deal.’ He said the EU was ‘not against’ a transition period and it was "even necessary" to discuss and negotiate a future relationship. However, Mr Verhofstadt said it was not acceptable to alter free movement of people rules, during any Brexit transition, warning it would be ‘penalising citizens’. He added it would be possible by March 2019 to agree a withdrawal agreement, a transition period and a political declaration describing a future relationship between Britain and the EU. Mr. Verhofstadt said the EU understood Britain wanted to diverge in a number of fields and regain its sovereignty, but added it would have to take the "consequences" of it. He said: ‘Everything is depending on ‘the red lines’ of the British side. I say, single market is the best solution for the British industry and the British economy, but the British Government doesn't want that because the red line is no freedom of movement of people.’
When expediency demands ‘red lines’ –as Theresa May has shown – are no more carved in stone, than any other politician’s promises when expediency demands. But such are the continuing divisions and delusions among Tory politicians at Westminster that it is impossible to predict whether Verhofstadt’s reasonable hopes are achievable. As Winston Churchill himself said: ‘A politician needs the ability to foretell what is going to happen tomorrow, next week, next month, and next year. And to have the ability afterwards to explain why it didn't happen’!
Theresa May does not have the first ability and may not last long enough to show she has the second.