This week’s Brexit news was a roller coaster ride around the possibility of the UK government triggering Art. 16 to suspend parts of the Northern Ireland Protocol (NIP). At the start of the week the triggering of the article seemed all but certain. The Irish government reportedly started preparations for a trade war between the EU and the UK. But then the EU started taking a tougher stance on the consequences of triggering Art. 16, von der Leyen met with Biden who gave a rather lukewarm support to the EU, but the US House Foreign Affairs Committee issued a stronger warning to the UK. Probably as a result, Frosts’ tone became more measured mid-week, telling the EU – in a signature act of gaslighting – to ‘calm down.’ The meeting with EU Commissioner Maroš Šefčovič on Friday, then led to a statement by Frost that sounded rather more conciliatory. The statement was remarkable in that it referred to continuing talks on the technicalities of the NIP, but did not mention the more important sticking point of European Court of Justice (ECJ) oversight over parts of the protocol. The latter clearly is a non-negotiable deal-breaker for the EU. The UK government’s de-emphasising of the issue and the more conciliatory tone has therefore been seen by some observers as a sign that the government had blinked. The change in ‘tone’ was widely reported on and lauded by Šefčovič.
While the climb down may or may not be explained by the increasing pressure and threat from the EU and the US, it is not clear what the government’s plans are now. Some observers speculate that that this may just a temporary reprieve allowing the government to focus on other things before triggering Art. 16. It is probably still more likely that the UK government will trigger Art. 16 rather than not. Yet, as Philip Rycroft argued on the Encompass web page this week, there simply is no alternative to the NIP or an arrangement very close to it if the UK wants its ‘hard Brexit’ that implies leaving the Single Market and customs union. So, it is difficult to see what a triggering of Art. 16, the possibility of the EU suspending the Trade and Cooperation Agreement (TCA), and then a new prolonged period of political negotiations could possibly achieve. It is therefore to be hoped that the momentary de-escalation, does mean that it will not come to the nuclear option of Art. 16 and the two sides focus instead on solving the existing issues with the implementation of the NIP.
More broadly, some sort of agreement between the EU and the UK that the NIP simply has to be made to work could then also mean that the UK and EU could focus on making their post-Brexit relationship work more broadly. Whether or not that is what the UK government wants is still unclear. Some think Johnson desperately needs ‘Brexit undone’ – ideally by the EU – in order to avoid criticism from the general public or Brexit ultras about the shambles that actually existing Brexit has been so far. With Johnson’s priority being to consolidate his own power, he will always be tempted to use the relationship with the EU simply as another tool to increase his popularity when he needs it. If increasing tensions with the EU allows him to get a temporary popularity boost from a rallying around the flag, he will probably choose to do that.
Yet, with every passing week, the PM’s strategy of building his popularity around Brexit and nationalist anti-EU sentiments becomes more difficult. Eleven months into actually existing Brexit, there are still no signs of any Brexit dividends and the Covid19 pandemic, labour shortages, and rising living costs are starting to wear people down. The growing fall out of the Owen Paterson scandal and the accusation of ‘Tory sleaze’ does not help the PM either – at least not in the short run. In this context, reigniting the Brexit battles of 2016-2019 may not have the same positive impact on Johnson’s popularity than during the first run. For one, the PM would have to explain why the ‘have your cake and eat it’ Brexit deal he boasted about in December 2020 was so bad that less than a year later he himself wants to tear it up. For the other, eventually people will want to see solutions to the problems that are plaguing the country, which is not helped by precipitating it back into the uncertainty of another long period of fraught negotiations with the EU during which much of the government’s attention is diverted away from the pressing domestic issues and at the end of which a ‘no deal’ outcome is looming.
‘Making Brexit work’
Worse still, for the government, since last week, it has become clear that Labour will not be an easy target in a General Election as Johnson may have hoped for. Many Remainers were upset about Keir Starmer’s surprise statement on the Andrew Marr show that his focus would be on ‘making Brexit work’ not overturning it or ripping up the TCA.
One could argue, of course, that public opinion is already shifting towards a ‘re-join’ majority with recent polls indicating a 53% majority in favour of re-joining the EU and therefore considerable political benefit could be gained from adopting a bold-re-join strategy. But if the Brexit referendum has taught us anything, it is that what ‘the people’ want does not always make for realistic or wise policy. The fact is that re-joining the EU remains a faint possibility in the current context, not only for domestic reasons, but also because the EU has a say in the matter. So, the choice really is just between continuing the Johnson government’s approach of making Brexit a permanent conflict with the EU and looking for a way of making the new relationship with the EU work for both sides.
Starmer’s indecisiveness – or strategic ambiguity – about labour’s stance on Brexit may have cost him a lot of sympathy from remain-voting labour supporters without helping him regain support in the ‘Red Wall’ constituencies of the North of England and Midlands. However, as Anthea Simmons observed in an insightful article in the Westcountry Bylines, the fact that Starmer does not advocate to overturn Brexit increasingly becomes a problem for Johnson. Johnson won the 2019 GE on the promise to get Brexit done. Yet, Brexit has turned into a mess. Starmer can now point at the shambles that Johnson has made of Brexit and campaign on the promise of simply doing better. It makes good political sense to not strongly advocate for re-joining the customs union, the Single Market, or even the EU at this stage. Rather, it is enough to promise to do better than Johnson, because that is what the majority of people certainly will want regardless of their attitude towards Brexit.
Doing better than Johnson would most certainly imply establishing a more cooperative and closer relationship with the EU and could well lead, in time, to re-joining the customs union, the single market, the EEA. But right now, neither of these are realistic political goals, nor is promising either of them necessary in terms of political strategy. Simply pointing out that Johnson has made a mess of Brexit, will put the government in a more difficult position than promising to overturn it. Rather than campaigning on a promise to save Brexit from a Labour party that promises to overturn it, Johnson will have to campaign on defending his own record. That would finally force the government to move from symbolism and jingoistic grandstanding onto the territory of delivering real policy outcomes, which is something the government is always struggling with as other Brexit news this week illustrate once again.
Getting ‘levelling up’ done
BBC’s Alex Forsyth reported this week on Michael Gove’s push to turn ‘levelling up’ from a slogan into an actual policy. This involves changes to the way in which different funds connected to the levelling up project are administered – possibly merging them into one – and the way departments coordinate their efforts in this area. Beyond that, however, the government is still struggling to go beyond the level of slogans. The government has promised a ‘White Paper’ on levelling up policies by the end of this year. What exactly it will contain is unclear. For now, all Gove has don is turn the two words slogan of ‘levelling up’ into a nine word one, promising that the levelling up strategy will include ‘local leadership, living standards, public services and "pride of place."’ Reportedly, part of the plan will be to give more power to local leaders and to build 300,000 new homes a year. What we do not know is how the government plans on meeting these targets.
Indeed, while the government continuous to use grandiose language and sets out ambitious goals across policy areas like infrastructure investment, housing, skills and education, the bits of the ‘levelling up’ agenda that the government has started to implement speak a different language. Thus, Cornish news outlets reported this week that the Community Renewal Fund – seen as a pilot for the Shared Prosperity Fund which will replace EU funding next year – is expected to pay out just £1m for two project in Cornwall compared to the £100m funding a year the region used to get from the EU. Cornish sources suggest that the money from the fund is instead spent on the electorally important Red Wall constituencies in the North of England. Indeed, Tory MPs of the 2019 intake in the Midlands and North of England see government spending on local projects as a key element to their successful re-election campaign in 2024. No doubt the latter will be the government’s priority and therefore levelling up will turn into a very selective policy driven by political rather than socio-economic needs.
Brexit impact on trade: Project fear
That ‘making Brexit work’ should be a priority – regardless of whether one favours eventually re-joining of the EU or not – also becomes clear when looking at new evidence on the economic damage that the non-working type of Brexit is inflicting on the UK economy.
An interesting new study on the impact of Brexit on trade shows just how sensitive trade is to political uncertainty. The study carried out by Mustapha Douch of the University of Edinburgh and Terence Huw Edwards of Loughborough University covers the period 2015 to March 2018. It uses a so-called synthetic control method (SCM), which compares Britain to a ‘doppelganger’ that captures – based on trade between comparable countries – what the trade patterns most likely would have been without the external shock of Brexit. The study suggests that Brexit started hitting UK exports long before any formal trade barriers had been imposed and in fact even before the Referendum was held and its outcome known. Indeed, exports to the EU started declining below trend as early as Cameron’s surprise 2015 General Election victory. By March 2018, way before the shape of Brexit was known, UK exports to the EU “were already 20% to 25% below trend” for goods and 8% below trend for services. The very early impact of just the possibility of Brexit on UK exports can be explained by the fact that importers in other countries anticipated supply chain difficulties or extra costs early on and started adapting their supply chains just in case.
Politically, the sensitivity of trade to political uncertainty plays into the hands of Brexiters, because the effect of Brexit is ‘spread out’ more thinly across a longer period of time. Consequently, the effect of Brexit on the economy when it eventually did happen appears much smaller than it actually was, simply because it happened gradually long before the actual exit from the EU took place. This makes it easier to downplay the impact of Brexit and decry ‘project fear’ as pure hysteria.
Another implication of this study is that Lord Frost’s threats are no doubt already affecting trade and investments into the UK. Businesses do not sit around and wait for the worst-case scenario to materialise. Rather, they will already factor into their decisions and planning the possibility of another no-deal cliff-edge. A very obvious sign of this effect was the Irish government’s announcement this week to allocate EUR 70m to help Irish food producers to reduce their dependence on the UK market for exports and thus actively encouraging a reduction of trade with the UK.
The anticipation effect may also provide an explanation for why financial analysts at ING anticipate that the impact of a new no-deal scenario on the UK economic “may not be gigantic.” I doubt ING economists’ argument that the reason for a limited impact of a no deal scenario would be due to the fact that it would not add many additional costs above and beyond the costs ‘already accrued in terms of form-filling and custom processes’ since the end of the transition period. A no deal scenario would potentially add a lot more costs, not just in terms of admin hours spent on forms, but in terms of actual tariffs being imposed on goods. In one sense, however, the ING economists may be right: A new ‘no deal’ threat looming over the UK-EU relationships due to Frosts NI strategy is certainly already factored into business decisions, meaning that if ‘no deal’ situation does materialise, the impact will look much less bad than it actually is. In this sense – and only in this one – the term ‘project fear’ is actually a quite accurate description here: The fear of what may be coming is as important – and indeed perhaps more important – than the actual occurrence of an event not just for Remainers, but also to explain businesses’ decisions.
With every passing day that uncertainty over the NIP and the TCA lingers on, the UK economy is being damaged even if Frost and Johnson do not make good on their threats. The economic consequences of Brexit have always been an afterthought for the Brexit ultras. The fact that the election victory of the traditionally pro-business Tory party in 2015 had a negative impact on UK exports, is a very striking illustration of how the party has increasingly become a party of the takers not of the makers. This change clearly happened long before ‘f**k business’ Johnson took over the party leadership. Refocussing the debate on impact of Brexit on the economy is crucial. In the short term, that necessarily means that we try and make Brexit work.