This has been an interesting week, rich in Brexit-related news, which marked the first 107 days since the end of the transition period. The week brought a continuous flow of stories about trade disruptions, job losses that employers blame partly on Brexit, and worries about the long-term impact of Brexit on trade.
There were also many – mostly worrying – news stories about Northern Ireland (most notably that the British NI secretary rejecting calls for a meeting with the Irish government) and slightly more positive news on Lord Frost’s continuing negotiations with the EU over the Irish Sea border (which seem take us back to proposals that had been discussed and rejected during the pre-Trade and Cooperation Agreement negotiations).
There have also been news about delays on the UK side with establishing the necessary governance structure under the TCA in particular the dispute resolution bodies; and the EU Parliament in turn refusing to set a date for ratifying the TCA (which is still only provisionally applied) over concerns of a lack of proper implementation by the UK side.
On the other hand, on Tuesday, the Office for National Statistics (ONS) released data that showed that trade between the UK and the EU had bounce back by 46.6% between January and February 2021. These figures led to comments and interpretations in the press that perfectly illustrate the populist discourse that is still dominating the debate five years after the referendum. Indeed, the public sphere in Britain is currently dominated by a deep divide that seems to make a reasonable approach to the issues at hand impossible. These discursive strategies are important to understand and challenge, because they may very well undermine the functioning of British democracy for decades to come.
The ‘teething problems hypothesis’
This week, the Brexiteers latched on to the ONS figures and declared that Brexit is over (and has been a success)! Indeed Brexiteers saw in the ONS trade figures for February confirmation of the ‘teething problems hypothesis’ which states that the unprecedented drop in trade between the UK and the EU in January was due to stockpiling ahead of Brexit and companies and border posts not being ready for the new rules. The most optimistic Brexiteers announced that “the Brexit ‘chaos’ is already over“
This statement must feel like a slap in the face for businesses and people whose livelihoods are still threatened by the impact of Brexit, including seed potato producers, producers of shellfish, and people in Northern Ireland. Hannah Essex co-executive director at the British Chamber of Commerce (BCC) is quoted as saying “difficulties exporters are facing are not just 'teething problems’.”
Meanwhile, Brexiters confidently use the ONS figures to trumpet the UK is now back to a ‘normal’ level of trade with the EU proving all Remainers and the so-called ‘project fear’ wrong. The Spectator’s Matthew Lynn commented that “the UK’s exports to the EU rose to £11.6bn in February, up from £7.9 billion in January. Overall, they were only slightly below last year’s £12 billion monthly average.”
This argument is flawed in several respects. One issue is that by January 2021 trade in goods in advanced economies was largely back to pre-pandemic levels. So, the relevant comparison should not be the monthly average for 2020, which was of course much lower than in a normal year due to Covid. A better comparison is therefore February 2020, which was the last month not impacted by Covid19. As EY’s Sally James pointed out on BBC 4’s Today Programme (14 of April 2021 @24:37), compared to February 2020, exports in goods to the EU were down nearly £2bn (£1.64bn to be precise), or 12%. On the monthly average for 2019, which was £14.3bn, they were down 18%.
More generally, while Covid of course still impacts the UK economy, it is possible to estimate the effect of Brexit net of Covid. Thus, the Centre for European Reform (CER) has devised a sophisticated method to estimate the impact of Brexit on UK trade net of Covid. Based on this method, the CER estimates that UK’s goods trade in February was 5% lower than it would be had the UK remained in the EU.
Of course, even a 5% decline (rather than the trumpeted 46.6% increase) is definitely an improvement on the January figures, which were the worst on record. Yet, we should not forget that monthly trade figures are sensitive to one off events and special factors. Thus, the February figures may look better than expected, partly because the ‘volatile trade in precious metals’ rose sharply. If precious metals go down this month or in the future, the picture may change again.
Regardless of the economic and statistical realities, the ONS figures seem to have unleashed pent-up optimism amongst Brexiters, which spilt over into the papers and media outlets. Another piece in the Spectator went on to bust ‘five Remainer predictions’ that supposedly have turned out to be wrong. Let’s look at the arguments behind this claim.
Myth busting busting
The first one of these ‘wrong doomsayer predictions’ was Osborne’s declaration that by 2030 each household would be £4,300 worse of. To be sure, then Chancellor Osborne used and interpreted this figure in a way that was indeed questionable and perhaps even dishonest. But the figure came out of a serious analysis from April 2016 called The long-term economic impact of EU membership and the alternatives, which econometrically modelled the potential impact of Brexit. The report found that under a bilateral agreement with the EU, UK GDP would decline by an amount equivalent to £4,3000 per household (note: this was not worst-case scenario the report predicted: for a no deal Brexit the report predicted a £5,200 decline). While predictions are of course almost always wrong to some extent – i.e. they do not correspond 100% with reality – and there are assumptions and methodological choices in such analyses that can be questioned, the basic figure was based on sound analysis (albeit admittedly not interpreted in the proper way by Osborne).
Yet, what is more interesting still is how the Spectator uses this figure in 2021 to prove that Remainers were wrong. The author refers to ONS statistics to declare that ‘in the five years since that real disposable income per head has risen from £5,177 in the second quarter of 2016 to £5,354 at the end of 2020.’
This is another frivolous use of statistics by Brexiteers, which seems as disingenuous as Osborne’s use of the £4,300 figure during the Brexit referendum campaign. In fact, it shows an astonishing confusion between the Brexit referendum vote and the actual action of Brexit, i.e. the coming into force of new trading rules between the EU and the UK, which or course only happened in January 2021. In the five-year period up to January 1st, 2021, the anticipation of Brexit of course affected businesses’ and households’ choices and hence the economy. But the government’s modelling was based on ‘actual Brexit,’ i.e. the impact of different scenarios for possible new trading arrangements with the EU – including EEA membership, a loser FTA, and a no-deal scenario. The Spectator also ignores the fact that the figure that Osborne (mis)used was a much longer-term prediction (2016-2030) than the five-year window the spectator compares it to, which makes the comparison entirely baseless.
But let’s stick with the figures about disposable household income for a minute and assume that a rise in disposable household income between the point Brexit actually happened (i.e. end of transition period on 1st of January 2021) and a future point in time would prove Remainers wrong. Even that is a false argument, as the Spectator’s own Nelson Fraser pointed out in response to Osborne’s figures back in 2016: whether or not disposable income rises/declines is not the issue. The question is whether it would have risen more inside than outside the EU. Remainers will probably argue it would have risen more inside the EU, Brexiteers will insist it would have risen less or declined. As Fraser calculated at the time, the government’s April 2016 report would have predicted a rise in disposable household income of £5,400 by 2030 outside the EU and of £6,880 inside the EU, which would amount to a ‘Brexit cost’ of £1,480 (instead of £4,300). Whether that would be a cost worth incurring for regained ‘sovereignty’ and could be off-set by a ‘modest tax cut’ is another question, but the point here is that any assessment of whether or not Remainers were right has to be made against assumptions about the counterfactual: what would have been had the UK not left the UK? Estimating such counterfactuals are difficult exercise, especially when applied post hoc to complex political processes. But the impact of Brexit can only ever be meaningfully compared to such hypothetical scenarios. Thankfully some sophisticated methods exist – like the CER approach for instance. Yet, the Spectator confidently ignores this basic truth and makes huge claims based on flawed logic.
It is not worth going into the busting of the four other ‘doomsday predictions’ mentioned in that piece. They are essentially all based on the same flawed logic of comparing Remainers predictions to figures taken over a period when Brexit had not actually happened yet and when it was anyone’s guess whether we would end up closer to an EEA-style arrangement or be trading under WTO rules after Brexit. That’s the case of the discussion of GDP growth predictions, job losses (both compared between 2016 and 2020) and the budget implications.
The fifth and final prediction that turned out to be wrong according to that piece was the ‘collapse of the West’, which the columnist attributes to both Donald Tusk and David Cameroon. The fact that Western civilisation still exists four months after Brexit is taken as evidence that Remainers were wrong. Similarly, the columnist takes the fact that Scottland still is a member of the UK four months after the end of the transition period as prove that Remainers’ warnings about the future of the Union were wrong. I think it would be an insult to readers’ intelligence to seriously engage with such naïve arguments, given the upcoming Holyrood elections and whatever they may mean for Indyref 2. But it should be obvious to any reader that the long term impact of Brexit on geopolitical power balances will be subtle, complex, and intricate and will take time to be visible (which Donald Tusk of course acknowledge by saying he was talking with a historian’s hat on).
Readers may think it’s not worth getting all worked up about two silly opinion pieces. However, this type of disingenuous right-wing populist discourse is also evident in more serious fora. This can have very real implications on public opinion and hence politics.
Another news item this week seems to indicate that Brexiteers’ disingenuous discursive strategies are working, and journalists and economic actors start buying into it.
Financial Services: The focus on the size of the self-inflicted wound
The New Financial Think Tank has published a report on the impact of Brexit on the UK financial sector with three key findings: Firstly, at least 440 firms have relocated from the City of London to destinations inside the EU; secondly, £900bn in assets have been moved out of London; thirdly, 7,500 jobs have been lost in London.
The extraordinary thing about the report, however, is how various media outlets reported about it. Some outlets did consider the findings to be worse than expected, but for many it was turned into a good news story. This happened in the following way: In an interview with William Wright, CEO of the New Financial think tank, a journalist at BBC’s Today programme (16.4.2021 at 6:20am) pointed out that 7,500 lost jobs was actually not as bad as predicted before the referendum (referring to an oft-quoted PWC report which predicted up to 100,000 job losses). Wright had to acknowledge that, but pointed out that – only 100 days after Brexit – over 440 firms had left the city and £900bn worth of assets moved out of London. But even that ended up being presented as good news: The firms that have moved activities out of London now have access to the EU’s single market and they do not depend on any (still to be concluded) trade agreements on services. This is how the loss of 7,500 jobs and the move of 10% of the assets of the banking system out of the UK, becomes a good news story in Brexitland.
A consequence of this sort of reporting is that Remainers end up having to defend their predictions rather than Brexiteers having to defend the reality of 7,500 jobs losses. Which can be done of course: There are various problems with using the 7,500 lost jobs as an argument that Remainers were wrong about the impact of Brexit: For one, the PWC report predicted that figure to be reached by 2020, but was investigating the impact of actually exiting the EU rather than the impact of being stuck in a five-year limbo where none knew which way Brexit would go. It is therefore important to remember that we are only four and a half months into ‘real existing Brexit’ and 7,5000 jobs have been lost (albeit starting in 2016 of course). For the other, the relationship with the EU around financial services is still up in the air and some firms may still wait and see what agreement might be reached before they decide what to do.
It is important to deconstruct the false arguments made by Brexiteers. Yet, the really shocking thing is that in Brexitland a loss of 7,500 jobs and the move of £900bn in bank assets out of the country is considered good news, because it is not as bad as some – arguably not without political motives – said it might be. We are hence debating the size of the self-inflicted wound rather than who wounded us in the first place. indeed, it is not clear why the benchmark for judging whether Brexit is a success or a disaster should be the Remainers’ predictions about how bad it could get, rather than the many promises Brexiteers have been quietly dropped, abandoned, or turned out to be wrong at various stages of the process. Had Brexit really been an incontestably ‘good thing’ as promised, of course Brexiteers would not have to use this type of discursive strategies. Yet, in Brexitland the onus has been reversed so that now Remainers were wrong because things are not as bad as they thought they would be. Worse still, that assessment is made a mere 100 days after Brexit, based on one single data point (‘See, exports bounced back in February!’), on exceedingly low expectations (‘See, only 7500 jobs were lost in the City!’), or completely neglect any realistic timeline within which some of Brexits’ worst consequences might materialise (‘See, Scotland is still part of the UK!’). The reversal of the onus allows Brexiteers to celebrate a monthly loss of around £1.7bn of exports, a 5% decline in trade, or the loss of 7,5000 jobs like a victory.
The blame game
A further weapon in the Brexiteers’ arsenal is blame apportioning, whereby any Brexit-related figures that cannot be turned into a good news story, are blamed on the EU. A striking example of this mechanism at work came this morning on Radio 4’s Farming Today (17.4.2021) programme. The (pro-Brexit) Institute for Economic Affairs’ Shanker Singham was interviewed and asked what he thought about the anger expressed by shellfish- and seed potato producers who – despite Brexiteers’ optimistic proclamation that ‘the Brexit chaos is over’ – have essentially lost EU market access and continue suffering from Brexit (one shellfish producer from Northumbria called the past 100 days of real existing Brexit ‘easily […] the most difficult quarter in any period in my working life.’)
Singham’s response is a perfect example of the above-mentioned ‘blame game.’ ‘I share their anger,’ he said, but insisted that the anger was misdirected: Rather than the Brexiteers’ broken promise of frictionless trade, the farmers and producers of shellfish should be angry at the EU. The suggestion was that the Trade and Cooperation Agreement (TCA) obliges the EU to consider accepting UK regulations as equivalent to EU standards and hence granting market access. For Singham, by banning class B molluscs and UK seed potatoes from the EU market, the EU is falling short of that commitment and hence in breach of the TCA. This seems like a far-fetched claim. While the TCA leaves the option open for unilateral granting regulatory equivalence status and market access, it does by no means follow that withholding equivalence status implies a breach of the TCA. All the EU does in these specific cases is applying its existing regulations to the UK the same way it applies them to any other third country. That we are treated like a third country, of course, is not the EU’s fault, but rather the result of Johnson’s preference for a hard Brexit. So, Brexiteers ask farmers and producers to direct their anger at the EU for exercising their ‘sovereignty’ in the name of which we UK decided to leave the EU.
Global Britain: Le doux commerce is turning bitter
In this context, Boris Johnson is preparing his visit to India in order to negotiate a free trade agreement (FTA) with New Delhi, which would be the first FTA agreement that India signs since the 1990s. While the government is hoping to double trade with India to £50bn a year – notably by lowering tariffs on cars and whiskey –, it is expected that India will in return ask for easier access for Indian nationals – including students – to UK visas. This of course, will put in peril another Brexiteer promise: To bring immigration figures down from pre-Brexit levels to the ‘tens of thousands.’ Given India’s track record of failed free trade negotiations over the past decade (with the EU, Australia and New Zealand among others), makes it unlikely that the Government’s envisage ‘early wins’ of cutting tariffs on whiskey and cars will materialise unless substantive concessions on migration are made.
Ahead of the talks, UK companies like Vodafone to Cairn Energy, who have been embroiled in legal disputes with the Indian government for a number of years, insist that the UK government should support their interests. However, the need to conclude FTAs makes it unlikely that the government can afford such a position. Thus, in a reversal of the May government’s position, the government has withdrawn its support for Cairn Energy in tis long-running dispute with the Indian government. These may be early signs that the Global Britain strategy may push the government to become more accepting of breaches of international rules by its most coveted trading partners – turning Montesquieu’s ‘doux commerce’ into a bitter pill for many.
In sum then, this week has provided ample evidence that – contrary to Brexiteers’ claims - Brexit is far from over (or as Chris Grey put it ‘we are still Brexiting’). Yet, Brexiteers are keen on closing down any debate and on declaring victory by staunchly defying reality. In the process, they use populist rhetorical devices, which may very well damage the British democracy further by undermining any basic norms of reasonable and honest argumentation. This in turn makes it more difficult for scientific evidence-based argumentation to have any impact on public opinion. Instead, in the Brexiteer universe, events and figures are twisted and distorted and the onus for the failure of Brexit is placed on the Remainers. These sort of bad faith arguments do not bother Brexiteers of course. But while these strategies may lead to electoral success, they do not bode well for the political culture in this country after Brexit.