This week’s Brexit-related news seemed a bit different from previous weeks. Various stories from various outlets suggest that things are not all bad in Brexitland. Perhaps people are so fed up with bad news, that they start clinging on to whatever possible good news there could be? Or perhaps, as it becomes increasingly clear that Brexit most likely will not be the success we were promised, the quintessential British reflex of keeping a stiff upper lip in face of adversity is kicking in? Regardless, there are reasons to doubt that too much optimism about the UK’s post-Brexit situation is warranted at this stage.
Silver linings?
It is of course not surprising that the usual suspects among the pro-Brexit press continue to claim ‘Brexit victories’ at every turn to convince themselves and their readers that Brexit was the right thing to do. (Conversely, they also continue to blame the EU for absolutely everything Brexit has caused. This week’s announcement by O2 and Virgin that they will not reintroduce EU roaming charges led Nadine Dorries to – falsely – blame the EU for a failure to include roaming charges in the Brexit negotiations). However, this week, even serious journalists and experts, like the FT’s Peter Foster, seem to have started to try and look for the silver lining of the Brexit cloud. Foster rightly points out that feeding pro-Brexit newspapers with stories about frankly ludicrous Brexit dividends – like the pint-size champagne bottles or the crown stamp on pint glasses – will not keep people who voted to leave happy for much longer. Instead, the government will need to get serious about the actual opportunities that regulatory divergence from the EU can offer. Here, Foster mentions the new National Artificial Intelligence strategy as an area that may actually provide the UK with a competitive advantage over the EU whose emerging regulatory framework in the area may very well turn out to be more restrictive than the UK’s.
Similarly, a strangely up-beat sounding article on the BBC web page noted that firms were ‘still exporting into EU despite new costs.’ The article quotes various UK exporting companies, one as saying that they ‘coped well with the new rules’ and that Brexit was nothing to fear, but something to prepare for. On its Radio 4 Today programme (@ 25:00) the BBC also reported on a new survey by Make UK, which suggests that nearly three quarters of British manufacturing businesses were optimistic that conditions would improve in 2022. Dharshini David did acknowledge that border delays and additional costs are continuing issues caused by Brexit rather than ‘teething problems.’ However, the report on the survey mainly focusses on the positives, namely the fact that the UK still is considered a highly competitive place to do business from and the expected 10% increase in business investment in plant and machinery in 2022. The latter is good news indeed. Lack of business investment in the UK is at least partially responsible for low productivity, which is one of the key issues the UK needs to address to support living standards. However, the reason for the uptick in investment is mainly a very generous government tax incentive for such investments, which will expire in 2023. It is likely that what we are seeing here is spending being brought forward to benefit from this ‘super-deduction’ tax break, rather than a permanent uplift in much needed business investment.
Regarding financial services, a ‘Big-Read’ piece in the FT entitled ‘The EU vs the City of London’ provides a nuanced assessment of the impact of Brexit on the City of London and EU financial centres. The article notes that no ‘wide-ranging regulatory bonfire’ has taken place in the UK that would attract large amounts of financial activity to London. However, it also underscores the limited success of the EU to ‘a financial sector commensurate with its economy.’ Overall, like other pieces this week, the picture is one of limited damage and possibly some hope for the UK, although the long-term effects of Brexit on the city of London are still to come.
There is nothing wrong with reporting positive news about Brexit, of course. However, there is a risk that such stories – however nuanced they are – lead us to draw the wrong conclusions about Brexit and what is needed to get the UK economy back on track post-Brexit and post-pandemic. Therefore, it is important to note that the vast majority of good news are describing situations where the Brexit damage is more limited than expected, not about any actual positive effects. As such, these news items are part of a tendency that I have written about since April at least, whereby Brexiters have managed to reverse the onus when assessing the impact of Brexit: Increasingly, those who opposed Brexit have to justify why the self-inflicted wound is not as bad as expected, rather than Brexiters having to explain why there are no benefits. The above reports all show that journalists seem to have bought into that reversal of onus and are now – at least implicitly – reporting cases of damage limitation as successes.
This is not only politically important, but also economically. Misunderstanding possible ‘silver linings’ of Brexit is problematic because it leads us to underestimate the economic dangers associated with Brexit. For instance, even where good news stories point to genuine Brexit opportunities, such as (possibly) divergence on AI regulation, such dividends – as Peter Foster puts it ‘will have to be netted off against the costs of leaving the EU single market, estimated as a 4 per cent long-run hit to UK gross domestic product.’ In other words, any gains Brexit generates have to be seen in relation to the losses it has also caused. We should not confuse being less worse off with being better off.
A second issue is the one of the ‘shifting baseline.’ Brexit and Covid have hit the UK particularly hard in terms of basic macroeconomic measures. Any bounce back that the media are reporting on needs to be seen in this context. Percentage increases in GDP, investments, etc. will always look greater when starting from a smaller base. The example of business investments is a case in point: The FT remarks that “the rebound [in business capital expenditure] comes from historically low levels and some economists said it would still leave the UK lagging behind other advanced economies.’
This is not Remainer pedantry or me not being willing to concede that Brexit may have some positive effects. Rather, it is a plea for honesty in the analysis of the UK’s economic situation, so that the right diagnosis is made, and the right remedies are chosen. Brexit is to an important extend the result of people worrying about a continuous worsening of their perspectives and a fall living standards and things will get worse post pandemic. Being satisfied by the fact that things could have been worse than they currently are will do nothing to start addressing these long-lasting and socially corrosive problems.
Northern Ireland Protocol (NIP)
This week also brought us news of a potential silver lining to the dark cloud over Northern Ireland. A rather encouraging statement was released after Foreign Secretary Liz Truss’s first meeting with EU Commission vice-president Maroš Šefčovič about the Northern Ireland Protocol (NIP). Truss sounded fairly optimistic, stating that "[t]here is a deal to be done that protects peace in Northern Ireland, defends our Union, and maintains the integrity of the United Kingdom and EU.“ The two sides have agreed to intensify talks over the next weeks. Irish Foreign Minister Simon Coveney saw the meeting between Šefčovič and Truss as the reset some were hoping for and urged the two sides to try and reach a deal by the end of February.
Whether Coveney’s statement is political strategy or wishful thinking rather than a realistic assessment of the situation remains to be seen. While the atmosphere between the negotiation teams may have improved after Frost’s departure, substantively the key divergences remain. Liz Truss has not taken the triggering of Article 16 off the table and continues to insist that it is the EU side needed to show more pragmatism. On the other side of the Irish Sea, Democratic Unionist Party leader Donaldson reiterated the unionists’ opposition to any Irish Sea border stating that “whilst the Irish Sea border exists, Brexit has not been delivered.” These statements suggest that there remains plenty of potential for further conflict and disagreement which may make a solution impossible. And of course, there is Truss’s domestic political strategy to contend with.
Deal or no deal for Truss’s leadership bid?
For Truss to realise her apparent political ambition to succeed Johnson as party leader and PM, she has a balancing act to perform. Truss’s steep political rise is in large part explained by the perception that she gets deals done. That myth has been pushed by the pro-Brexit press when she was Trade Secretary in charge of rolling over a large number of Free Trade Agreements (FTAs) the UK had with countries around the world as an EU member. Getting a deal done on the NIP would strengthen that image of a ‘deal maker’ and presumably earn her a lot of respect in the general public.
However, there is simply no solution to the NIP issues that could possibly satisfy either the hard-line European Research Group (ERG) or the DUP. Any deal she could reasonably reach with the EU will necessarily make her a traitor to the hard Brexit cause, seriously limiting her chances of succeeding Johnson as party leader. From that perspective continuing Frost’s hard-line approach and possibly triggering Article 16 would be a better strategy for her career progression. This path, of course, would most likely lead to a major fallout (and a trade war) with the EU, which some observers think may not be what Johnson currently wants given his weakened position. But it would also make Truss’s life more difficult. An escalation of the conflict may be the only thing that will satisfy the Brexit ultras – and even that probably only for a short while, since the Brexit ultras can never be satisfied. However, contrary to Frost, as Foreign Secretary Truss has to take a broad view on how the NIP impacts not only our relationship with the EU, but also the UK’s other foreign and security interests. So, Truss finds herself faced with a dilemma: If she gets a deal, she will most likely be branded a traitor by the Brexit ultras and her leadership bid may be compromised. If she does not get one or even triggers article 16, the relationship with the EU and the situation in NI will degrade further possibly to the point of a trade war or, worse still, a flaring up of sectarian violence in NI. That would in turn lead to a reaction not just from the EU, but the US, and mean Truss would not be able to deliver on the Global Britain strategy, which relies on a strong partnership with the US.
Between a ‘reset’ leading to a genuine solution and a fully-fledged ‘fall out,’ various commentators believe that a third option may be a sort of ‘muddling through.’ This third scenario, which Chris Grey considers the most likely and worst of the three, would consist of ‘a partial climbdown’ by the British government that would make a deal possible, but not solve anything or satisfy the Brexit ultras; leading to a continuation of the situation in 2021 characterised by a state of permanent low-level conflict with occasional flare ups and new negotiations. Given that no solution seems to be politically viable at the moment, commentators like RTE’s Tom Connelly see a potential for paralysis resulting from the talks. For Brexiters, of course, that muddling through strategy may be the whole point. Many of them have made their career based on stirring up anger against the EU. In this context, the NIP may seem like a perpetuum mobile – a perpetual motion machine – that will keep the wheels on the machine that brought them to power spinning forever. Yet, just like the perpetuum mobile, that belief makes sense only as long as one ignores fundamental laws of (human) nature.
Symbols and Reality
Tellingly, the prominence of the NIP on the political agenda in the UK and the EU contrasts somewhat with the economic reality on the ground. Indeed, another ‘damage limitation’ story this week comes from a new survey by Manufacturing NI, which found that “less than 25 per cent of 163 manufacturers surveyed were still struggling with border controls between Britain and Northern Ireland, down from 40 per cent six months earlier.” The same caveat applies to this story as to the ones above: That’s only relatively good news compared to a worse situation a few months ago, not compared to a much better one when the whole of the UK was in the single market. Still, the contrast between the actual economic effect of the NIP on businesses and the politicians’ rhetoric about its alleged devastating impact reminds us of what is becoming another permanent feature of Brexit rhetoric, namely the constant disconnect between symbolism and reality. Nothing illustrates this disconnect better than Article 16. Few Brexiters probably know – or care – what triggering Art. 16 would really do. But that does not matter, as Art. 16 has simply become the latest symbol of our regained sovereignty on which Brexiters pin their hopes while denying reality. Art. 16 is being treated like the legal incorporation of the mystical Excalibur that can be swung at the EU if we do not get what we want. Funnily enough, the same Brexiters (Truss in particular) who adhere to such magical thinking, continue to accuse the EU of lacking common sense, pragmatism, and realism when it comes to the NIP negotiations. Until Brexiters themselves start to show the common sense, realism, and pragmatism that they want from the EU, we are condemned to relive the same pattern of reaching and then reneging our agreements with the EU, which will lead the country absolutely nowhere. It is not easy to see a way out of the current cul-de-sac. Contrary to what some observers seem to believe, replacing Johnson as the PM will not solve anything, as the Tory party will most likely remain in the hands of extremists after he is gone. On the NIP as on other issues, that means that the current thaw period due to Truss’s different personality and political style to Frost’s is most likely only a temporary reprieve. The British people are condemned to watch the dark clouds gathering and to anxiously wait for either real domestic political change or for external pressures (from the US or the EU) to mount to the point where someone will step up and cut the Gordian knot of the NIP.