The good news first. On Tuesday the Office for National Statistics (ONS) published trade data for the second quarter of 2021 (April-June) and the figures show that trade with the EU is up on Q1 and now above pre-Brexit Q4 of 2020. The quarter-on-quarter increase in imports was 12.4%, the increase in exports 12.5%, the later almost entirely driven by increasing exports to the EU. So, was the Q1 slump in trade with the EU down to teething problems after all – as Brexiteers inevitably suggest every time post-Brexit economic figures show a positive trend (e.g. the Telegraph back in June)?
Comparing trade figures during a pandemic with ever changing rules about full and partial lockdowns and international travel restrictions is tricky and may mask Brexit effects. If we compare June 2021 figures to June 2018 for instance, the picture is less rosy than the quarter on quarter comparison: compared to June 2018 exports are 7.4% down, imports 2% (see table 2 here). So, the ‘good news’ about trade and the GDP growth rate of 4.8% will still be largely due to the bounce back following the easing of Covid19 restrictions, rather than to companies having adapted to Brexit and trading with EU countries like before. Indeed, the ‘teething problems hypothesis’ cannot explain away the fact that however much you invest into adapting to the post-Brexit trade world, the bottom line is that trade with the EU after Brexit is not frictionless anymore. That means higher costs for firms that some of them will not be able to afford. Despite the seemingly positive trade figures, there is mounting evidence that this situation starts hitting UK companies hard.
A stark reminder of this fact came from a widely-reported letter by James Ramsbotham, Chief Executive of the North East England Chamber of Commerce, which was sent to the Prime Minister in July, but picked up in the press this week. The letter draws a very bleak picture of the impact of Brexit on trade by companies in the North East of England: 75% of the nearly 2,500 member firms stated that the UK-EU Trade and Cooperation Agreement (TCA) had negatively impacted their business and 37.5% of respondents reported a drop in their UK-EU trade. Ramsbotham puts it bluntly:
“Many of these challenges are not ‘teething problems’ but are fundamental and permanent changes to the way that our businesses trade with Europe. Businesses have reported to us that they are struggling to absorb new costs that Brexit has presented to them and, for many, this is not possible. The result of this is that their prices will be forced upwards, making them fundamentally less competitive than their European competitors.”
There is indeed increasing evidence that the new trade barriers will lead to permanent shifts in companies’ supply chains, with negative consequences for various UK-based businesses. For instance, the FT reports a 29% post-Brexit decline in roll-on-roll off freight flows between the Republic of Ireland and the UK as Irish exporters increasingly choose to export directly to the EU rather than transiting through the UK by road. It is also worth remembering, that in terms of trade barriers, more is still to come with the end of various ‘grace periods’ on trade in certain goods looming in a bit more than a month’s time as well as more red tape awaiting firms selling in Britain from January 2022 when the UK’s own Conformity Assessment regime comes into force. Moreover, the UK is not currently performing import checks on goods from the EU, as the necessary infrastructure was not ready in time and therefore had to be postponed to January 2022 as well. So, for importers and exporters, Brexit reality has not deployed its full force yet.
So, the ONS figures on trade can hardly been taken as a sign that the teething problems hypothesis has been proven right.
Preparing for worse
The government does seems to acknowledge – implicitly of course – the fact that things may get worse still by making the emergency traffic management powers in Kent permanent. The so-called ‘Operation Brock’ was put in place to prepare for possible congestions resulting from longer waiting times for lorries at the port of Dover. The fact that the government feels the measures should be made permanent provides a clue as to what the government really thinks of the ‘teething problems hypothesis.’
It does seem to me that ‘Brexit dividends stories’ have become rarer in past weeks. One exception was the widely-reported news that Gower Salt Marsh Lamb has received protected status – whatever the practical importance of that move may be. In the meantime, a continuous flow of stories about empty shelves, labour shortages (e.g. on pig farms), food shortages (e.g. KFC’s warning in that respect), small businesses struggling with the new trade barriers, as well as news in the category of what Tom Hayes calls ‘Brexit of small things’ (e.g. another mobile phone operator reintroducing roaming charges) reach us daily now. A particularly striking example was the announcement of a garden centre company in Devon that it would give away £100,000 worth of plants for free, because it could not look after them due to Brexit-induced staff shortages.
Such media reports are often dismissed on social media as one-sided fearmongering. But the increasing chorus of industry voices warning about the negative impact Brexit can be less easily dismissed. Ramsbotham’s letter is only one example. Others include Richard Burnette of the Road Haulage Association warning of an imminent collapse of UK supply chains and manufacturing industry body Make UK stating that ‘it is currently hard for manufacturers to see any advantages from leaving the EU.’
With evidence of the negative impact Brexit is having on the UK mounting, will we soon see a realisation in government and the wider population that Brexit needs to be handled differently?
Like I argued last week, for Brexiteers Brexit is not about reality, but about narratives of sovereignty and superiority. Therefore, whether or not any significant changes in the Johnson government’s handling of Brexit will take place will depend a great deal on its ability to continue placating its electoral base with nationalistic, anti-urban-elite rhetoric. This in turn will also depend on whether the pro-Brexit press manages to convince its readers that Brexit is going well, as it has tried to do so far. Here, a closer look at the uninterrupted flow of purported good news stories about Brexit dividends can shed some light on the likelihood of that happening.
All news is good (Brexit) news – the Express
Regular readers of the Express will probably agree with me that over the past five years the paper has perfectioned the art of relating anything that happens anywhere on the globe to Brexit and turning it into good news story. Indeed, the paper has become so proficient and prolific at it, that its articles can be divided into several categories of good news stories – each revealing a different tactic of turning facts into false claims about Brexit.
The first category is pointless good news stories. Regarding the above mentioned Gower Salt Marsh Lambs, the Express proclaimed: ‘Finally free from the EU! Brexit Britain takes landmark leap as new power used for first time’ It is unclear what exactly this ‘landmark leap’ is achieving. The article does not say who the Gower Salt Marsh Lamb brand needed protection from and does not mention any concrete positive consequences for producers. Indeed, the ‘landmark leap’ seems to solely consist of the UK government exercising this new power for the sake of it – regardless of the fact that it seems like a pretty pointless power to have in this instance.
Under the category of one-sided good news stories falls the Express’s report on how the City of London will leave the EU in the dust now that it is freed of ‘EU red tape.’ Besides the fact that the whole paper is based on the opinion of just one ‘City analyst,’ what the paper does not tell you of course, is that EU red tape is being replaced with new ‘Brexit red tape.’ This generates considerable additional workloads at least during the transition when new UK regulations are introduced to replace the EU ones.
Another, more sinister category, I would simply call fake good news stories. For instance, following the government’s announcement that an agreement on visa free travel for UK musicians in 19 EU countries had been reached, the Expressed – quoting a Tory peer – proclaimed that Brexit had been ‘a success from day one’. To be fair with the Express, this fake good news story was fabricated by the government itself. As Chris Grey pointed out last week, the Government simply released an announcement that restated what was already agreed and celebrated it as a new breakthrough. This dishonest stunt unsurprisingly triggered a backlash amongst musicians. Besides the false claim that this announcement was ‘news,’ it is also interesting because it reveals how Brexiteers now measure Brexit success: UK musicians can now tour 19 EU member states visa free. Before Brexit it was 27. So, a net decline in visa free travel by eight countries is being fed to the public as a success.
Next are distorted good news stories. On Wednesday the Express announced ‘Brexit victory! Swiss boast about how easy it is to deal with UK after EU exit.’ The article was largely the translation of an article in the Swiss German-speaking newspaper Aargauer Zeitung, which commented on the new social insurance agreement that Switzerland and the UK have reached. The Brexit victory the Express declared referred to the Aargauer Zeitung stating that the agreement closes gaps in the insurance coverage and avoids over insurance, which facilitates the posting of workers across the two countries and thus makes life easier for insured people and companies. The Aargauer Zeitung’s article, in turn, is largely based on the press release by the Swiss Federal Social Insurance Office. That press release makes it clear, however, that the gaps the new agreement is covering are gaps created by Brexit not gaps existing before Brexit. Similarly, the statements about making life easier for companies and citizens is not as compared to the situation when the UK was an EU member, but compared to the situation created by its exit in January this year. So, contrary to the implication in the Express headline, there has not been any improvement compared to the situation when the UK was in the EU.
Last, but probably most importantly, are relatively good news stories. Here Nissan’s recent announcement to build a battery giga-factory in Sunderland was used by the express to declare ‘Project fear dismantled.’ While the facts underlying this story are correct and the investment is indeed good news for the UK economy, here the distortion of reality consists of the interpretation of that investment in relation with Brexit. I have blogged about earlier news stories about Nissan’s commitment to Sunderland and how they relate to Brexit before. The most recent announcement has to be qualified in three respects. Firstly, the shift from internal combustion engines (ICEs) to electric vehicles (EVs), is an epochal, world-wide technological revolution that requires massive investments over the next decades. This is not specific to Britain, but happens all over the world. The fact that car manufacturers decided to produce batteries in the UK is not really surprising. As a country with currently a population of around 77m people, it is a reasonably sized market for selling cars. Batteries for EVs – due to their size and weight costly to source from far away – will always be produce close to the market where you want to sell them. That’s not a Brexit dividend or proof that Brexit has worked, but simply the result of a technological revolution.
Secondly, it is important to remember that one of the reasons why the UK is still relatively attractive for car manufacturers is not thanks to Brexit, but thanks to the EU negotiating with the UK a ‘rules of origin’ regime in exchange for tariff free access to the single market. The rules of origin make tariff free export of goods from the UK to the EU conditional on a certain percentage of the value of the good having to be added in an EU country or the UK. This of course creates incentives for companies from third countries other than the UK to invest in Britain or the EU. Again, this is not a Brexit dividend, because the same incentive existed when the UK was part of the single market. Instead, the rules of origin can be seen as a concession to the EU (in exchange for tariff free access to the single market) and now proves to have unintended positive consequences.
More fundamentally, though, the relatively good news stories are an important category because they reveal a fundamental flaw in Brexiteers argument that is nevertheless repeated ad nauseam: The real measure of Brexit success cannot be the simple fact that a company continues to invest in the UK, but how much it invests compared to what it would have invested without Brexit. This is important, because much of the impact of Brexit on the economy, will be insidious and difficult to clearly track and attribute, because it is not things that are happening, but things that could have, but did not happen because of Brexit. Such counterfactuals and non-events do not make for good paper headlines. Yet, they may be the most extensive type of Brexit damage. A good example was provided by James Ramsbotham in an interview with the Guardian where he stated: “Hitachi bought a site in the north-east with a view to building trains for the whole of Europe. The place was big enough for three factories, but they have only built one and the rest of the land is vacant. If you want to see where the trains are going to be made for the EU, you’ll need to visit Hitachi’s new factory in Italy.”
In the case of the Nissan announcement, one way of investigating the counterfactual is to look at investments in battery plants in other countries. The comparison suggests that Nissan’s investment in Sunderland, is relatively small beer compared to the investment in battery giga-factories inside the EU. Indeed, Prof. David Bailey shows that investment in battery plants inside the EU are considerably larger than Nissan’s planned plant in the UK. This is not surprising given systematic evidence that membership of the single market tends to increase foreign direct investment by nearly 40%. So, quite possibly without Brexit, Nissan’s investment would have been considerably larger than what has been announced.
This will all sound terribly negative and ‘sour grapes’ to readers. I will admit that there still are also unmitigatedly good news stories. One of them was Sunset Studio’s choice of Broxbourne in Hertfordshire as the site for one of Europe’s largest TV and film production hub. The thing, of course, with this unmitigatedly good news story is that it has little to nothing to do with Brexit. Indeed, quite surprisingly, not even the Express tried to claim that it did.
The advance of reality
In spite of all the distorting and twisting of reality, this week also brought further signs that reality starts sinking in even at the Express. For instance, the paper reported on Jeremey Clarkson’s doubts about the impact of Brexit on farming. More strikingly, still, in a remarkably strongly worded news update referring to James Ramsbotham letter, the paper wrote: “Boris Johnson has sparked fury over claims he ignored an ultimatum to save Northeastern businesses as post-Brexit trading chaos grows.” Faced with the growing weight of reality, the Express’s multifarious techniques to distort reality into Brexit victory stories seems to reach its limits.
Signs also continue appearing that the government is aware that Brexit is not going particularly well. I have already mentioned the extension of Operation Brock. Another one was a desperate move this week by the Prime Minster and the Chancellor to ‘challenge’ UK institutional investors to facilitate an investment big bang in UK assets. The letter was sent to institutional investors around the country. One institutional investor friend of mine commented after receiving it: ‘actually thinking this must be a parody / joke.’ Similarly desperate seems the move the government is reportedly contemplating to bring in the army to help with the shortages of HGV drivers as well as with NHS ambulances.
Johnson’s waning popularity and the politics of lies
The discontent with various aspects of Brexit now seems to be spreading among the British population. A survey found that 71% of British people were ‘furious’ about reintroduction of roaming charges. Another survey found that two thirds of the population are unhappy about the lack of transparency about the content of the new Free Trade Agreements the government has signed. The latter development could be significant, because FTAs have been one of the government’s main strategic tools to claim highly visible ‘Brexit victories.’
Still, so far impact of Brexit on the economy resembles a slow puncture rather than a radical decline as Chris Grey aptly put it. This allows Brexiteers to cast doubt on the causes of Brexit-inflicted damages to the UK economy and find alternative explanations for them. For instance, so far the government very skilfully uses the pandemic as scapegoat for what almost certainly are Brexit effects. As long as food shortages – to date probably the most conspicuous Brexit effect – can be blamed on the ‘pingdemic’ rather than Brexit, people will not change their minds about Brexit. In this respect, it is very telling that Johnson’s recent slump in popularity seems to be attributable not so much to any broken Brexit promises, but rather to the mishandling of the pandemic and in particular the perception of Johnson and his government having ‘one rule for them and another for everyone else.’
Regardless, with cracks appearing in the Johnson government’s popularity, its future – and thus the UK’s relationship with the EU – will depend on how effectively Johnson’s strategy of dividing Brexit promises from Brexit reality will continue to work. The sovereignty discourse may run its course if reality starts hitting people where it hurts. This could happen more quickly than some may expect if the Express and similar papers stop selling real existing Brexit to the people independently of its reality.
But some politicians seem confident that the strategy of lying to the people can work indefinitely. Jonathan Lis quotes former Labour MP Kate Hoey as defending the Brexit campaign by saying that the public “knew that there were lots of things, probably, that the Leave campaign said, that maybe were not, actually, exactly going to work out or be right… […] They knew that it wasn’t going to be all roses and wonderful things.” From this perspective, dissociating discourse from reality – in other words lying - is a legitimate political strategy and voters will not punish politicians for it. Others of course disagree. Peter Foster’s latest Brexit Briefing quotes Heather Mills as saying that “[t]he government needs to be less arrogant. People I know voted for Brexit and Johnson because he told them it would bring better jobs and more of them. And they believed him. Now I hear a lot of them say they feel duped.”
If people were indeed to become fed up with the PM’s now well-documented and publicised continuous lying, that might open up a much needed window of opportunity for a return to rationality in British politics. Perhaps Labour has a role to play in this shift, as both Peter Foster and LBC’s James O’Brien suggested this week.
Stopping the sky from falling in
Brexit is an unnecessary self-inflicted wound. The question now is whether it will continue to fester or whether it can be healed. Re-joining remains for now a very faint possibility indeed. This week’s news of Roland Rudd resigning from the People’s Vote group may indicate that the pro-EU camp may be losing further momentum despite the Brexit disaster. So, Brexit is a fact we will have to learn to live with for now. But the country cannot afford that it continues to be the unmitigated disaster it has turned into under Johnson’s – or rather Lord Frost’s – leadership. So, the best we can hope for for now is a government that pursues a more cooperative and productive relationship with the EU. If that were to happen, perhaps Brexit could offer some real dividends?
Anand Meno argued this week that Brexit and the pandemic may have one important positive effect, which is that they exposed the deep regional and other inequalities that divide this country. There is now an emerging consensus across party lines that these divides are indeed a problem that needs solving. That may sound like an evidence to many readers. However, recently former Labour leader Ed Miliband pointed out on the Talking Politics podcast that back in 2015, David Cameron would not have accepted this analysis of the situation. Rather, to Miliband the Brexit campaign saw Cameron telling people to vote remain, because ‘things were good.’ The vote saw a large number of people answering him: ‘No, they are not!’. Brexit is a massive price to pay for that miscalculation and misreading of the situation in parts of the country – but now that it has happened, politicians from all parties need to draw the lessons and start seeking real solutions for the inequalities that afflict the country.
In an excellent article, Jonathan Lis castigated Brexiters for using the fact that the ‘sky hasn’t fallen in’ as a sign of Brexit success. As he aptly points out ‘[b]ut ‘the sky won’t fall in’ wasn’t plastered on the side of a bus and did not form any metric of success. Brexit was marketed as a national rejuvenation, not something to be survived.’ I would wholeheartedly agree with that. But at some level, perhaps the ‘sky falling in’ is a relevant benchmark. Not as a measure for Brexit’s success, of course, but rather as a reminder that things could indeed still get a lot worse. Historical comparisons are always dangerous, but we should not forget that due to deep socio-economic divisions, a seemingly stable European continent descended into violence and chaos before. The Brexit vote was merely a symptom of a society riven by deep economic and cultural divides. Brexit will not solve any of the underlying problems that have torn these rifts open over the past forty years. As Brexit is turning into the disaster many of us feared it would be, perhaps a space will open for a more reasonable debate about what really caused the ills that afflict the UK and divide its population. No doubt Brexit was an unnecessary and too high price to pay for the chance of focusing on solving the deep-seated problems the UK is facing. But if it ultimately allows us to stop the sky from falling in, at least something good will have come out of it.