Brexit Impact Tracker – 25 September 2022 – The Brexit of the Rich

This week saw Brexit a turn in the Brexit project that I had feared for a long time. Indeed, it has become clear that the extremist libertarian right wing of the Brexiter coalition finally has amassed enough influence over the government to take the country down the route of an uncompromising and ruthless deregulation strategy. The announcement of the Retained EU Laws Bill this week, constitutes another step in the creeping extension of executive power at the expense of Parliament, thus further breaking the Brexit promise of Parliamentary sovereignty and undermining the separation of power. Indeed, if passed, the law will allow ministers to amend retained EU law by secondary legislation, thus circumventing Parliament. It can be expected that as long as Truss is in charge, this power will be used extensively, as it is likely to keep the extremists in the European Research Group (ERG) happy. The Bill also includes a “sunset clause,” which means that unless explicitly persevered, all EU law that was transferred into UK law before Brexit will expire on 31st December 2023. This is likely to lead to a great deal of uncertainty about possible legal and regulatory changes in the year to come, and most likely to deregulation by default or inactivity.

As always, deregulation will benefit one group only, namely the richest of the rich. Indeed, this week was the week when the Brexiters in charge finally decided to openly throw their Red Wall supporters under the bus. This became crystal clear this week with the announcement by Chancellor Kwarteng of what was officially a mini-Budget, but in fact amounts to a major break with conventional economic policy making.

Mini-budget, major consequences

In a move, that shows that the Britannia Unchained government clearly is sick of experts, Kwarteng refused to allow the Office for Budget Responsibility (OBR) to assess the fiscal and economic impact of his mini-budget. Yet, the government could not prevent other organisations, like the Institute for Fiscal Studies and the Resolution Foundation, to do it instead. The findings of the Resolution Foundation’s analysis of the budget can be summarised in the following way:

Income

The more extensive than expected tax cuts very largely benefit taxpayers in the highest income bracket. Due to the scrapping of the 45p rate of Income Tax, people earning more than £200,000 a year benefit most. As a result, the top 5% of households will get 47% of the estimated £45bn gains, while the bottom 50% of the income distribution gets a mere 12%. Consequently, despite the rhetoric of putting money back into people’s pockets, most of the population will continue to see a decline in their real incomes. Indeed, “non-pensioner incomes are projected to fall by 8 per cent over the course of this year and next, significantly more than during the financial crisis (5 per cent between 2009-10 and 2011-12).” As a result, by the time of the next General Election (GE) in 2024, 2.3m more people and 700,000 more children are expected to live in absolute poverty. That means, one in five Britons will be poor and 28% of children will live in absolute poverty in one of the richest countries in the world. At the other end of the income distribution, thanks to Truss’s tax cuts, the top 5% of households are expected to see their income rise by 2% over the same period.

Debt

The tax cuts together with the cost of the energy bill cap means that public debt will increase further at a time when borrowing becomes more expensive due to interest rate rises. The Resolution Foundation estimates that “energy support and the weaker economic outlook will increase borrowing by £265 billion over the next five years compared to the OBR’s March forecast. Tax cuts of £146 billion over the same period increase that to £411 billion.”

Kwarteng maintains that his objective remains to see public debt fall as a percentage of GDP. Yet, to achieve that, the government would have to make spending cuts equivalent to those imposed by George Osborne in 2010. For those who have forgotten, Osborne’s austerity was a key contributor to the declining living standards in the poorest parts of the country that then voted to leave the EU.

Growth: Corporation tax and energy bill cap

The goal to balance the books in the mid- to long-term could be made easier if the government’s plan of boosting economic growth worked. However, here too the Resolution Foundation does not find much cause for optimism.

The scrapping to the increase in corporation tax (CT) is not predicted to have any effect on growth. Indeed, reversing the planned increase from 19% to 25%, does not constitute a decrease in the CT rate, but merely keeping it at the level where it was for the past ten years – during which growth was sluggish. Even if the government did cut the CT, the empirical evidence shows that short of very radical cuts, CT cuts generally do not lead to increased growth. Indeed, according to the Resolution Foundation, both, countries with lower (USA) and higher (Germany) corporation tax rates than the UK have outperformed the UK in terms of GDP growth over the past decade, indicating that CT levels are not the key factor here. Therefore, the £18bn cost of this measure is highly unlikely to be offset by increased growth.

The one measure that is expected to contribute to a GDP growth boost in the short term is the cap on energy bills announced by the PM the previous week. Here, the Resolution Foundation projects the measure to increase GDP by 1.5% in the short run. The irony, of course, is that this is precisely the measure that does not fit Truss’s libertarian ‘no-hand-outs’ ideology but was adopted in spite of promises made during the leadership campaign.

The reactions

Given the impact the budget is already having on the cost of public debt, Sterling, and the UK’s international reputation, Kwarteng’s budget may easily become the worst piece of economic policy by any UK government in living memory.  Indeed, former US Treasury Secretary Larry Summers took to Twitter to lambast the UK government’s economic strategy in no uncertain terms, comparing it to that of a developing country. Whatever one thinks of Summers and his own views on the economy (or of the economic policy of developing countries for that matter), the fact that a senior American economist and public figure like him openly and in no uncertain terms criticises the UK government for its economic strategy is not normal. It is an extraordinary thing to happen that shows just how far the UK is down the path of becoming a country run by a group of fanatic ideologues who are completely cut off from reality.

This was confirmed by the markets’ reactions to the budget, which saw the pound Sterling drop to new lows against the US dollar, making the prospect of a historic first-time parity with the greenback a distinct possibility. The market reactions shows that the Brexit fanatics controlling the UK government may well be the only ones believing in the soundness of their economic theories. Moreover, the further depreciation of sterling will make the government’s goal of boosting economic growth more difficult still: A weaker pound means more imported inflation, which in turn will put more pressure on the Bank of England to increase interest rates further, thus dampening any positive effect on growth that increased demand due to tax cuts and energy bill caps may have.

Wealth trickling down south

The tax cuts together with the reduction of the stamp duty will also disproportionately benefit London and the South East of England, compared to the rest of the country. Indeed, given the income disparities between North and South, the Resolution Foundation estimates that the South East or London will see over three-times (on average, £1,600) the gains of those in the North East, Wales and Yorkshire (an average of £500). The tax bill on the sale of the average first-time buyer home in London will fall by £6,300, compared to no gain for the average first-time buyer in the North East.

This shows that the only sense in which Trussonomics is leading to a trickledown effect, is in the sense that any wealth created in the country continues to trickle down from north to south. This constitutes a flagrant violation of the Brexiters’ promise to ‘level up’ the country. In a sense, it constitutes the boldest and most surprising bit of Truss’s economic approach. As Chris Grey writes, the Truss government “acts as if it were a new government and has presented an entirely different manifesto to that of 2019” even though “it is reliant upon the voting coalition it inherited from 2019.“ The fact that Truss seems to be forgetting that is the strongest sign that she may actually believe her economic strategy will work. Only if it does and GDP rises by Chinese levels so that perhaps a bit of wealth does indeed start to trickle down, will she stand any chance of keeping the Red Wall Tory voters on board. This is even more the case given that she has already been forced to abandon several other promises Brexit voters were given during the campaign and since.

Migration

It has transpired that due to the ongoing labour market shortages and their negative impact on sectors like agriculture and hospitality, the PM is considering extending some of exceptions to the strict migration rules to allow UK businesses to more easily fill vacancies. While the precise nature of the changes is not known yet and may be only temporary (at least until they have to be extended again), they will almost certainly mean an increase in immigration. That of course is not what Brexit voters were promised and not something that a Tory government will find easy to justify in an election campaign. Either Truss is very desperate, or her trust in the miraculous effect of economic growth is so strong that she believes right-wing voters will forgive her throwing over board the possibly most important Brexit promise in exchange for increased prosperity.

Trade

The Truss government’s desperate attempt to generate growth and ‘Brexit benefits’ at any long-term cost is understandable given what the real world is doing. CityAM recently reported figures from HRMC that show a decline in the number of UK firms that export to the EU fell 33 per cent to 18,357 in 2021, from 27,321 in 2020. HRMC rejects this interpretation of its figures, pointing to changes made to the methodology of data collection since the end of the transition period on January 1st, 2021. I did not manage to find out where CityAM’s figures come from exactly. The latest numbers of UK exports published by the HRMC seem to be from April, 2022 and no new figures are expected until 2023.  Nevertheless, CityAM’s one-third decline in UK exporters, does correspond quite closely with what academics at the London School of Economics (LSE) have found in terms of trade relationships. In a recent report – which I have critically discussed here –, Rebecca Freeman and colleagues found a 30% fall in export relationships between UK and EU firms.

Regardless of the dispute about this particular set of figures, what is patently clear is that the UK is a far shot from becoming the export power that some Brexiters had envisaged post Brexit. ONS figures released on Monday last week, show that the UK trade deficit has reach a near all-time high (£27bn) in the three months to July. While this is to a large extent owed to the massive increase in the price of energy imports, the weakness of exports aggravates the problem. Indeed, while UK exports to the EU have reached a record level, that is due to the fact that the UK imports large amounts of liquified gas from non-EU countries and exports them to the EU after regasification. The surge in UK to EU exports is hence merely a result of increasing energy prices, not any UK export prowess.

The prospect of the UK generating growth through an increase in trade intensity has been dealt a further blow this week, when PM Truss openly admitted that a US-UK trade deal is not on the cards after all. Chris Grey has righty called this a “huge admission of failure.” Not only are Free Trade Agreements (FTA) trade deals in general a symbol of ‘sovereignty’ in Brexit mythology, but also does the failure once again cast doubt on the existence of alternatives to a close integration of the UK economy into the European trading block. The admission is also embarrassing given how confidently leading Brexiters talked about the prospects of such a deal.

Northern Ireland Protocol

One potential positive effect of the government’s open admission that a US trade deal is not on the cards, may be that it could facilitate progress with the Northern Ireland Protocol (NIP). The EU Commission has recently reiterated its willingness to reduce the need for paperwork for exports from Britain to Northern Ireland, if the UK agreed to providing the EU with official real-time data on trade flows. Commissioner Šefčovič also promised that the issue of a 25 per cent EU duty charged on British steel sent to Northern Ireland could be easily solved, if the UK cooperated in terms of trade data.

The fact that the US-UK FTA is now off the table, may create further room for compromises. Solving the trade issues with Northern Ireland would be greatly facilitated if the UK aligned its sanitary and phyto-sanitary (SPS) rules on EU rules. So, far Brexiters have refused to do that; alleging that it would jeopardise a trade deal with the US. With the latter option now being off the table and economic desperation increasing, perhaps there is a window of opportunity opening up to throw overboard the obsession with sovereignty and divergence for the sake of divergence.

Political pressure and economic desperation may contribute to softening Truss’s stance on Northern Ireland. According to Šefčovič, the Commission is working with the US to bring potential investors to Northern Ireland next year to show the benefits of the protocol, while Biden has warned Truss over the NIP.

The mounting political pressures and increasing economic desperation may explain why we are back in a phase where the UK government adopts a more reconciliatory tone over the NIP and the EU side publicly proclaims its optimism about the possibility of a negotiated solution. However, the Commission only just received the UK’s reply to the EU’s relaunched legal action against the UK over the non-compliance with the NIP and may very well pursue the legal case if – as expected – the reply falls short.

Punching down: The environment

The focus in the media has very largely been on the effect of the mini-budget on people’s living standards, but there is another – equally important – area where the Truss government is punching down, namely our natural environment. In the shadow of the tax cuts the government’s plans for investment zones in combination with the Retained EU Laws Bill, which most likely will get rid of the EU Habitats Regulations and many other laws protecting biodiversity and the environment, the last remaining areas of the country where wildlife thrives are now under threat from construction projects.

Worse still, the only positive policy coming out of Brexit so far – namely the replacement of the EU’s Common Agricultural Policy with the Environment Land Management Scheme that rewards farmers for protecting the environment – is reported to be axed in favour of a simplistic system that subsidies farmers based on the size of their farms regardless of ecological sustainability.

Stuck in its ideological commitment to a hard Brexit – which is the greatest drag on the UK’s economic development – and faced with the unravelling of yet another Brexiter fantasy about alternative ways of generating growth (the US-UK trade deal) – the government needs to generate growth in other ways. The way it is currently attempting to achieve this is by ignoring any of the existential challenges humanity is facing and pouring kerosene on an already too hot fire of unsustainable economic growth. The result will be not only an economic fallout – as I wrote last week – but also a lot of precious time wasted in the race to design a different kind of economic system that does not destroy the basis of our and existence and that of other species who are sharing the planet with us.

What’s the point?

Truss’s approach of pursuing an economic strategy that is clearly not sustainable, internationally derided, and informed by the theories of a few marginal economists who have been proven to be so horribly wrong in their optimism about Brexit may seem completely irrational. Yet, from her perspective, it is clear that it may achieve certain important goals. Most importantly, those who matter to the PM and her party – namely the rich class of rentiers who donate to the Tory party – will like it both for symbolic and material reasons. Symbolically, it is in line with their anti-state libertarian leanings; materially, they are the ones who will benefit from it. They will face fewer restrictions, scrutiny, and barriers when it comes to their business activities, and they will see their income taxes fall and real income increase. Moreover, their wealth and mobility mean they can easily opt out of the country and do not have to rely on its public services if things really do go pear-shaped. For them, deregulatory Brexit truly does have a lot of upsides, and few downsides. With Truss’s appointment as PM, Brexit has well and truly become the Brexit of the rich. They will thank her with their continuing support and donations.

What is puzzling, however, is how the PM thinks a strategy focused on such a small fraction of the population will help her win the 2024 GE. As her lifting of the fracking ban, her shamelessly pro-rich tax reforms, and her softening stance on immigration shows, she does not seem to care about what the people in the Red Wall think. It is possible that she does genuinely believe in what she and her co-authors wrote in Britannia Unchained and therefore expects her policies to pay off. But with the 2024 GE fast approaching, she may soon start to get very nervous when reality teaches another Brexiter a lesson in economics. At that point she will either need desperate and extreme measures to make good on her promises of trickling down prosperity, or she will need a big event – like a war – to distract the population from the undeniable fact that 14 years of conservative rule have ruined the country for everyone, but the richest of the rich.

BIT – 18 September 2022 – Good Fires and Bad Fires: Kwarteng the arsonist and Big Bang 2.0

There are good fires and bad fires. The good ones are those that burn where you want them to burn – in the fireplace for instance – keep you warm and cosy. And there are bad fires. Those that generate a massive flame and a lot of sparks very quickly, spread to the carpet and curtains, and set the house on fire. Chancellor Kwasi Kwarteng thinks his economic strategy will provide the former. In reality, he is about to ignite the latter.

In a sign of how desperate the new government is to finally deliver to the British public some of the Brexit benefits we were promised but the Johnson government repeatedly failed to find (after various unsuccessful attempts, see e.g. this post), has announced a post-Brexit shake up of the UK’s financial sector – dubbed Big Bang 2.0 in reference to Thatcher’s deregulation of the city in 1986. Not much is known about that reform plan at the moment. Yet, it has transpired that Big Bang 2.0 may include the scrapping of a cap on banker bonuses introduced by the EU in the wake of the 2007 Global Financial Crisis (GFC), which limited the amount of bonus payments to twice the annual salary.

To those who object that such a move would be politically controversial at a time when most other professions face real-term wage cuts, people close to the Chancellor reply that he is being unashamedly pro-growth. Indeed, removing the cap, Kwarteng hopes will boost the City of London and the UK financial sector in general, leading to a new boom in financial services - and that is the fire he hopes will keep us warm.

That is where arson comes in. To Kwarteng and others in the Truss government, being ‘unashamedly’ pro-growth seems to mean unlearning the lessons learned from past crises and renewing the blind and naïve belief in the efficiency of markets and the evil of regulation. In other words, unashamedly pro-growth is equated with ‘unchaining’ businesses in the UK from any constraints the state or society may impose on them. Indeed, Kwarteng is clearly in line with the PM herself who is expected to announce a series of radical deregulatory measures in the coming weeks to show that she is serious about ‘unchaining’ businesses. It seems safe to predict that this approach to the economy will set fire to the house.

Bonus caps: symbolism or substance?

Some bankers – especially US investment bankers –  have welcomed the news about the removal of the bonus cap; but others in the industry voice their scepticism, questioning whether the change makes any substantial difference to the sector. One banker reportedly called the planned move tokenism compared to the long-term damage done to the City of London by Brexit.

The Bank of England and its Prudential Regulation Authority, in turn, are in favour of the change, as they consider the banker bonus cap a ‘blunt instrument’ that does not achieve its goal of reducing bankers’ willingness to take excessive risks.

There is certainly some truth in claims that the bonus cap was introduced in 2013 as a populist measure to show the public that European governments were doing something (although the UK government was opposed at the time and even sued the EU over the bonus cap). As such, the cap was a symbolic measure that may not have made a massive difference in terms of overall pay in the sector.

Systematic evidence is hard to come by, but it would seem that the bonus cap may have had an important effect on the very top end of the pay scale in banks. Indeed, this year has seen the highest banker bonuses being agreed since before the GFC of 2007, but it would appear that pay practices in the City have significantly changed among other things due to EU regulation. Thus an article by an industry insider on the eFinancialCareers platform recounts a story of top bankers complaining about the fact that very few in the industry now earn eight digit salaries and estimates that top pay may have halved since the GFC. Similarly, further down in the banking hierarchy, expectations also seem to have changed according to the same source who states that: “the regulation of compensation in Europe has affected norms across the industry, with a multiple of 100% of salary now being seen as an aspirational goal for top performers at most levels, rather than the baseline expectation for a competent year’s work.” Luke Hildyard, director of the High Pay Centre told the Guardian the cap has probably slowed down the rise of banker pay somewhat.

Yet, despite the dampening impact on the very top of the scale, overall bankers pay does not seem to have declined after 2007. Thus, a report by the European Banking Authority from 2016 – three years after the introduction of the cap – showed that the number of high earners (bankers earing EUR 1m or more a year) in Europe increased by 22% between 2013 – the last year before the cap came into effect – and 2014. What had changed was the composition of pay packages: The fixed pay bankers took home every month in cash had increased, while that variable pay – including bonusses – had decreased. While that may not satisfy concerns about absolute pay levels, it may have changed the incentives bankers have to take excessive risks to maximise bonuses at the end of the year.

Those who are in favour of the scrapping of bonuses consider, however, that there are more effective instruments to curb such undesirable behaviours. They point to other regulatory changes that have taken place since the GFC and are said to be more effective in curbing unreasonable risk-taking. Here, the malus and clawback clauses in the Corporate Governance Code (CGC), which allow it employers to respectively reduce a bonus before it is paid-out or to recover a bonus after it was paid out, are often mentioned. These are legitimate arguments that deserve thorough consideration, although it has to be noted that the CGC only applies to listed companies and operates on a ‘comply or explain’ basis, i.e. companies can choose not to comply with the rules, but have to explain in their annual report why. So, more evidence would be needed to understand whether malus and clawback clauses really work.

Beyond these legitimate arguments, Kwarteng’s announcement has also given rise to a great deal of very questionable arguments, which are concerning in terms of what conclusions regulators, politicians, and the general public may draw from them if they remain unchallenged. A few of these arguments require particular attention.

Flexibility

The most basic argument why bonuses should be uncapped is that it would allow banks to reduce the fixed part of the pay package and thus reduce the banks’ fixed costs, making it easier to navigate difficult periods. The Financial Times seems to accept this argument writing that “[i]t is harder or impossible to reduce an employee’s salary compared with a discretionary bonus, which can be entirely withdrawn.” That may be broadly true. At the same time, with or without clawback clauses, withholding a discretionary bonus may not be as easy as those arguing against the cap may suggest. As one legal expert writes, an “employer may find it difficult to withhold a bonus if it has by custom and practice, regularly paid previous bonuses to employees who have performed to a similar standard each year.” In several cases, bankers have successfully sued their employer over withheld bonuses, the most high-profile case perhaps being former Lloyds CEO Eric Daniels.

Moreover, some in the industry are warning that it will be difficult to reduce fixed salaries now that bankers have gotten used to them. Uncapped bonuses may simply be added on top of them. This would lead to further pay inflation in the financial industry. Perhaps, if we were serious about fixing the problem, it would be important to discuss the possibility of a cap not just on different parts of pay packages, but on overall pay?

Regardless, even if we accepted the argument that paying higher bonuses but lower fixed salaries reduces banks fixed costs and increases their flexibility, it is doubtful how much that matters materially. The European Banking Authority, for instance, estimates that the costs of fixe salaries are less than 1% of banks’ own funds and hence negligible in terms of the banks financial stability or profitability. Limiting that flexibility should not matter much in reality.

Peanuts & Monkeys

Another often-made argument not just against the bonus cap, but more generally in favour of high banker salaries, is summarised in the famous saying ‘if you pay peanuts, you get monkeys.’ This argument was made most clearly this week by ‘acid capitalist’ Hugh Hendry. On the News Agents post cast he crudely argued that the lack of talent in politics was due to low pay in politics.

At the face of it, this may seem like a plausible argument: The smartest people with the best skills have options and will work for whoever pays the most. However, it is based on a fundamentally flawed basic assumption about human behaviour, namely that the only thing that determines people’s career choice is money. That assumption is of course untenable. Talented people may prefer jobs that allow them to use their talent in a way that they consider meaningful, that allows them to achieve a good work-life-balance, or simply that provides them joy. Therefore, taltented people may not be running after the best-paid jobs. Consequently, ‘talent’ is not the main reason why people make a lot of money; greed is. Indeed, if the past forty years have taught us anything, it is that paying absurd amounts of money does not generate a work environment teeming with talent, but rather one packed with greedy psychopaths like Jordan Belfort – depicted (some say glorified) in the Scorsese film the Wolf of Wall Street – or former Lehman Brothers’ CEO and chairman Dick Fuld. The latter has been filmed explaining what he would like to do with ‘short sellers.’ The explanation contains the sentence “I’m soft. I’m loveable. But what I really wanna do is I wanna reach in, rip out their hearts, and eat it, before they die.” That’s the sort of people that paying absurd amounts of money gets you. Not talent.

Related to that, an interesting unintended consequence of Kwarteng’s plan might be to create a real divergence between UK banks and European ones, which may lead to a self-selection bias in terms of recruitment. An industry insider suggests that even if removing the bonus cap may lead to overall higher pay – possibly a return to the excesses of the pro-2007 era – some people working in the industry prefer the certainty of a higher (monthly) fixed salary over an uncertainty, but possibly exorbitant end-of-year bonus. This may mean then rather than struggling to attract ‘talent,’ European banks – who remain subject to the EU cap – will be more appealing to the sort of bankers who prioritize stability and predictability over volatility and risk. In other words, they will get more risk-averse people, but fewer Fulds and Belforts.

This also relates to another argument made against the cap, namely that the cap “skews the performance elements of pay as it means you have to pay a high basic salary that doesn’t have incentives attached.” This seems like an odd argument, given that the cap was introduced precisely because bonuses – especially cash bonuses – were considered to create the wrong kind of incentives, namely, to take excessive risks. Given the complexity of human psychology, getting incentives right is notoriously difficult as a huge literature on so-called long-term incentive plans (LTIP) shows. It is much more likely that bonuses incentivise greed, short-termism, and risk taking, rather than good long-term performance in the interest of the company and society.

Regulatory fatalism

A final argument against the cap I want to discuss is what I would call regulatory fatalism. Here, the argument is that bankers will always outsmart the regulator and find ways to pay themselves and their colleagues the salaries they want. On the News Agents podcast, Emily Maitlis summarised that argument in the words of one banker: ‘Money is like water – it always finds away.’

There is definitely some truth in the notion that regulating the economy is like an arms’ race, with new undesirable practices emerging as regulation makes old ones impossible. Yet, the implied conclusion that there is no point regulating in the first place is flawed and dangerous. Even if no regulation will ever be perfect, or anticipate all the ways the regulatees have to circumvent it, regulation is still crucial to avoid economic disasters. This can be illustrated for instance by pre-GFC financial regulations in different countries. Even among the Anglo-Saxon countries Australia, Canada, the UK, and the US, which traditionally all adopt relatively liberal economic policies, considerable difference in their regulatory approaches existed. And this mattered. While none of these regulatory regimes were perfect, the more prudential regimes of Australia and Canada meant that these countries fared a lot better during the crisis than the US and the UK who had adopted more ‘soft touch’ regulations. So, regulations certainly do have blind spots and create unintended consequences, but we certainly should not buy into the fairy tale that regulations are powerless and therefore should be scrapped.  

The bigger picture: economic structure and inequality

The most important shortcoming of the debate about banker bonuses, however, is that it is mostly about how bonuses affect banks’ ability to perform or recruit talent and about the competitiveness of the UK banking sector compared to New York, Paris, Frankfurt, or Singapore. What is being completely ignored is the role that the financial sector plays in the UK economy. This is where Kwarteng’s plan is most concerning.

Last year, the UK financial services industry contributed 8.3% to the total economic output of the UK economy. That may not sound like all that much, but it means the UK’s financial sector is the fourth largest amongst OECD countries (p.11), behind Luxemburg, Switzerland, and the US. Taken in isolation that may be seen as good news, given that financial services companies create a lot of jobs and tax revenue. Thus, HRMC estimates that the banking sector contributes 4.1% to the total tax receipts, although the City claims it is much higher than that (10%).

Yet, the question is what impact does such a large financial services sector have on the UK’s society and the rest of the UK economy.

Regarding the former, research into income inequality in the UK clearly shows that banker bonuses are part of the problem. It is no secrete anymore that the UK – together with the US – are the most unequal countries of amongst the advanced nations. In a striking article, the Financial Times’ John Burn-Murdoch writes that “last year the lowest-earning bracket of British households had a standard of living that was 20 per cent weaker than their counterparts in Slovenia.” Furthermore, “[i]n 2007, the average UK household was 8 per cent worse off than its peers in north-western Europe, but the deficit has since ballooned to a record 20 per cent.” At the other end of the income distribution, however, Britons are among the world’s top earners. Burn-Murdoch writes that the top-earning 3% “took home about £84,000 after tax” putting “Britain’s highest earners narrowly behind the wealthiest Germans and Norwegians and comfortably among the global elite.” The UK has hence amongst the world’s wealthiest people but also amongst the advanced countries’ poorest ones and as such can be classified as a poor society with pockets of rich people.

Banker bonuses contribute to this problem. In their academic research, Brian Bell and John van Reenen found that “[r]ising bankers’ bonuses accounted for two-thirds of the increase in the share of the top 1% after 1999” and that “[s]urprisingly, bankers’ share of earnings showed no decline between the peak of the financial boom in 2007 and 2011, three years after the global crisis began.” 

In this respect, it seems clear that what Kwarteng’s plan will do is to aggravate a serious problem that is increasingly dividing UK society.

Too large a financial sector is not just bad for inequality, but also for the rest of the economy. Indeed, an often-cited argument in favour of an expanding financial sector is that it will have positive effects on other sectors too due to the availability of financial capital for businesses. Again, there can be no doubt that a developed financial system is an important pre-condition for economic growth. That does not mean, however, that the larger and less constrained the financial sector the better for growth in other parts of the economy.

For two reasons, that idea seems particularly unwarranted in the British case. Historically British banks have been notoriously bad at lending to British non-financial firms. Contrary to countries like Germany and Japan where banks have played a crucial role in financing the industrialisation of the country, UK banks have always focussed on financing trade and more speculative activities (see for instance my paper with Philipp Kern in Business History). This has led to several official investigations going back as far as the 1920s, (unsuccessful) attempts by the government to make banks to lend more to UK business (most recently the so-called Project Merlin), and the launch of the British Businesses Bank by Vince Cable as an alternative source of finance for SMEs. This is not to deny that UK banks do provide vital services to British business in other forms – including issues stocks and bonds – , but their impact on financing companies directly is limited.

This has gotten worse with financial liberalisation of the 1980s. Since then, the nature of financial services has changed radically and fundamentally. Rather than a support service for productive companies, financial service companies use the new leeway to invent ever new products – such as financial derivatives – which they then market and sell like any company in any other industry would do. The focus, therefore is no longer on the crucial service of providing finance to companies, but on acquiring new customers, innovating, and growing. Jan Toporowski calls this epochal shift ‘the end of finance,’. The problem is that the competition in the liberalised market place leads to the innovation of financial products that is not always functionally justified, but rather driven by the logics of competition and marketing. This has detached banks from their crucial fundamental function in the economy, and made them ever more risky and speculative entities. Their value for the ‘real economy’ has decline correspondingly, and the case for “un-ashamedly” promoting its growth seems very weak indeed. Truss recently called City “the jewel in the crown” of the British economy. That is quite accurate in the sense that like a jewel it sparkles and shines, but it is pretty much useless.

Kwarteng’s Big Bang 2.0 and the removal of the bonus cap may very well lead to spurt of growth in that sector, possibly providing some positive headlines, but it will hardly be more than a straw fire that generates a lot of heat but will not provide much light for most of the country. Rather deregulation will once again risk burning down the house in a next financial crisis.

It is somewhat puzzling that the government would risk a popular and political backlash against what is likely to be a rather unpopular policy when the economic gains are very doubtful. Part of it may simply be ideological blindness. The “Britannia Unchained government” simply believes that deregulation is the best economic policy and divergence from the EU is intrinsically good for the UK. The other part of the explanation may be that the Truss government is distinctly less ‘populist’ than the Johnson government. Kwarteng’s and Truss’ approach may be aimed at showing resolve and an un-compromising deregulatory approach which will please the libertarians in the European Research Group (ERG) and the rentiers who have become the main source of donations to the Tory party. The flip side of this attitude is that remedying the huge geographical disparities that increasingly divide the country economically, culturally, and politically are not high up on Truss’ priority list – at least not until the 2024 General Election campaign draws closer. Once again, Brexit seems to be taking a Saturnian turn: Those who voted for Brexit in the hope that it will rid them of the economic policies that undermined their living standards, will have to realise that the Brexiters in charge use their grip on governmental power to double down on those very same policies. This political strategy is nothing short of pouring Kerosene on the fire they lit.

BIT – 11 September 2022 – Trussonomics: Dangerous optimism and trickle-down pain

It has been a truly historic week in the UK. The passing of Queen Elizabeth II after an extraordinary reign of 70 years and the accession of her son to the throne as Charles III eclipsed in (symbolic) importance the third change in conservative Prime Minister since the Brexit Referendum. Whatever one thinks of the Monarchy, the passing of the Queen literally means the end of an era – namely the second Elizabethan one. One of the bridges that connected the 20th century Britain with 21st century Britain has disappeared. Given the tumultuous years the UK is going through, the Queen’s passing means another pillar of stability and familiarity is gone, making what lies ahead for the country a bit more uncertain and unnerving still.

In the meantime, life goes on and the week also brought us the first glimpses of what the new PM’s post-Brexit economic policy would actually look like now that it has to be stripped of the vitriolic rhetoric of the Tory leadership contest.

There are some signs that in some respects realism will trump rhetoric. Importantly, her attack on the independence of the Bank of England (BoE) has given way to more conventional reassurance about the independence of the BoE’s monetary policy mandate. Similarly, on the Northern Ireland Protocol (NIP), Truss had threatened during the leadership contest to trigger art. 16 immediately after taking office, it now seems like she will not do such a thing.

In most other respects, however, Truss and her new Chancellor Kwasi Kwarteng seem to continue the Brexiter tradition of being thoroughly grounded in fantasies. Indeed, it seems highly unlikely that their strategy of squaring the circle of tax cuts, spending increases, public borrowing, and inflation control will work.

Trussonomics: Dropping the conservatism from fiscal conservatism

Like I briefly wrote last week, at the heart of Trussonomics is a promised of deficit-financed tax cuts. These tax cuts include reversing the planned corporation tax increase from 19% to 25%, reversing the increase in National Insurance, freezing the energy levy, and possibly a 5% cut in value-added tax (VAT). Tax cuts are of course pretty orthodox Tory economic policy. Indeed, former Chancellor George Osborne – interviewed on the News Agents podcast – stated that it was Theresa May and Boris Johnson who were the ‘odd ones out’ in terms of Tory economic policies, while Truss consists a return to more traditional Thatcherite economics.

That may be true for the tax cuts bit of her economic plan, but here is the unorthodox – i.e. unconservative – bit of Truss’s economics: Contrary to the fiscally conservative stance of so many Tory PMs and chancellors before her, she is less concerned with balanced budget and reducing public debt in the short run. Instead, she suggests financing the tax cuts through increased borrowing, while maintaining (or even increasing) public spending. Indeed, she seems to consider that austerity after the financial crash was a mistake. That is perhaps one of the few remnants of Johnsonite populism in Truss’s economic plan.

Indeed, this mixed policy makes political sense. While tax cuts may assure Truss the support of the traditional Tory base, the 80 seat majority Johnson won in the 2019 GE was the result of a combination of votes from traditional Tory voters in affluent areas of the country, and the votes of pro-Brexit working class voters in the ‘red wall’ constituencies. Tax cuts alone will not achieve the goal of keeping those strange electoral bedfellows on board. Therefore, fiscal expansion and promises of public spending are key in electoral terms.

That insight also explains while another bit of leadership contest rhetoric has now given way to realism, namely her initial opposition to energy price caps, which has now turned into an expensive energy plan.

Energy Plan

Trusses energy plan, revealed on Thursday, consists of a two year freeze of unit energy price - more than most expected. Businesses will receive similar support, but only for six months after which point only still to be defined ‘vulnerable industries’ will be supported.  The plan also comprises the idea of giving nuclear and renewable energy companies long-term contracts at fixed prices that are decoupled from the gas price, thus reducing prices compared to the current gas price (but possibly paying more over the long-term).

Keeping average household bills at an estimated £2,500 a year, compared to the projected £3,500 in October and £6,000 next year will make a huge difference to UK households. Yet, some critiques, like Green MP Caroline Lucas, say even those prices will be unaffordable for poorer households. Moreover, the estimated cost of £150bn* will not be financed through a windfall tax on energy companies’ excess profits – which polls suggest has wide support in the public even amongst conservative voters. Instead, Truss will ultimately have to ask taxpayers to foot the bill.

Most importantly though, in Truss’s energy plan there is absolutely no mention of any attempts to reduce energy consumption – the most important policy target one should think given the climate crisis we are facing. Rather than addressing that most urgent issue, Truss ditches the green energy levy, promises to increase oil and gas production and restart fracking, thus encouraging the burning of fossil fuels as if it were the 1950s. That part of her energy plan reveals the fundamentally ideological nature of Truss’s politics. Lifting the fracking ban is not only environmentally absurd, but also illogical from a purely pragmatic point of view. Indeed, experts consider that the UK simply does not have any good shale gas to make fracking viable. Furthermore, fracking is extremely unpopular in the UK (only 17% of the people support it). So, Truss’s lifting of the fracking ban is neither economically rational, nor justified by her populist leanings, but simply a two-finger salute to environmentalists by someone who has put a climate change denier in charge of energy policy.

In comparison, the EU’s plans, to be finalised next week is expected to combine price caps, with windfall tax on energy producers, and measure to reduce energy consumption.

Regardless, the announcement of the plan did cause a short term recovery of sterling, although that was short lived, as on Tuesday sterling hit a 40 year low against the dollar (Project Fear anyone?)

Dangerous optimism

Like I wrote last week, challenging some of the economic dogmas of the past decades is most definitely important. Even fiscally conservative economists acknowledge that short-term spikes in debt are not necessarily a problem if it remains sustainable in the long run. Yet, suggesting a borrowing-financed spending spree at a time when interests are set to rise from historically low levels to 3% or so by the end of the year makes one wonder whether Trussonomics will turn out to be sustainable.

The reason why Truss and her advisors think their plan will add up is down to the typical blind optimism and boosterism that has become the hallmark of the Brexit ideology. Indeed, Truss puts all her eggs into the basked of pro-growth economic reforms. Yet, what shape these reforms will take is currently still unclear. Indeed, here Trussonomics seems to rely on a two-pronged strategy, although the two prongs do not necessarily seem compatible.

The first on is an industrial strategy. Here the remarkable news this week was the appointment of Jacob Rees-Mogg as Secretary of State for business, energy and industrial strategy. What is remarkable is not so much his appointment to that post, which had been expected for some time. Rather, what is remarkable are two things: firstly, the fact that Rees-Mogg’s previous position as Brexit Opportunities and Government Efficiency Minister (BOGEMin) has disappeared. The clearest sign yet that not even Truss’s hardcore Brexiter government puts much hope in finding any benefits from Brexit. Secondly, despite Truss’s libertarian leanings, Rees-Mogg’s new jog title does seem to suggest that developing an industrial strategy, which the now Chancellor Kwarteng had ditched not so long ago, remains part of Truss’s economic strategy. This may not go down well with the hard-right of the Tory party, which has become Truss’s main source of internal support. For instance, Rand-fan Sajid Javid when he was business secretary warned that the words ‘industrial strategy’ should never come out of Tory mouths.

Yet, Trussonomics seems to combine an industrial strategy with another blindly optimistic policy, namely deregulation. That is clearly indicated by her proximity to the free market extremists of the Institute for Economic Affairs (IEA) and the role extremist economists play amongst her advisers. Politically controversial projects like radically deregulation the planning system to stimulate construction or privatising the NHS will not be possible without a democratic mandate and may hence have to wait until the next GE.  Yet, there are already signs that a wave of deregulations will hit the country. Thus, Kwarteng has announced a Big Bang 2.0 for the City of London. Together with tax cuts for the rich, that may provide the intended economic sugar rush in the short run. In the long run, however, it will further spur asset price bubbles, the further financialisation of the UK economy, and – as economic history teaches us – most likely another financial crisis at the end of it.

The Truss government’s optimism is also dangerous in another respect, namely in its naïve view of the relationship between economic growth and the distribution of income and wealth in society. As I wrote last week, here all Truss and her team have to offer is the old idea of trickle-down economics, which we know will not work. The theory is that by taxing wealthy people and corporations less, they will invest more, thus stimulating economic growth, which in turn will benefit everyone in society. That sounds like a fairly compelling theory. Except, of course, that we have known for a long time that it does not work. In some sense, trickle-down economics is a theory about inequality, which states that increasing inequality in the short term (by reducing taxes mainly on the wealthier strata of society), will lead to absolute increase in welfare in the society even though relative inequality may remain high or even increase. The International Monetary Fund has moved away from that theory around seven years ago. An IMF report from 2015 has the following to say about the link between income inequality and growth:

“Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth”

The poorest 20% clearly are not the main target of Truss’s plan, which is based on an aversion for government ‘handouts’ and tax cuts that benefit the wealthier more than the poorer in society. In particular, cuts to VAT and income tax do not necessarily make the poorest 20% better of, because items that they spend a disproportionate proportion of household income on (food and children’s clothing for instance) are not subject to VAT and income tax does not help pensioners and the unemployed. Similarly, capping energy prices at a level where many poorer households will still be struggling will not do anything to increase the income share of the those who would contribute most to generate economic growth.

So, even with Brexit government number 3, the pattern in terms of economic policies is the same as under May and Johnson, namely the economic policies that are being adopted will continue to aggravate rather than solve any of the economic problems that caused Brexit. Indeed, the history of the past forty years teaches us the following: Libertarian, market fundamentalist economic policies make the rich richer. Yet, rather than investing in productive activities, they spend their money on luxury goods like yachts and invest in asset markets, while the rest of us are waiting for the trickling down to happen. Combined with the opening of global markets and the off-shoring of blue-collar jobs, these policies translate into deindustrialisation and job losses in formerly industrialised areas, followed by declining living standards (also cauasing wide-spread drug abuse) and then votes for nationalist populists like Trump and Johnson. The tragedy is of course that those alleged populists then adopt right-wing economic policies that make things worse for the working classes.

Inflation and the battle between Treasury and BoE

A key question regarding just how bad Trussonomics will be for working class people concerns its impact on inflation. The downside of Trusses tax cuts and expansive fiscal policy will almost certainly be higher inflation in the long-run. Truss claims her £150bn energy price package will help tackle inflation. Indeed, forecasts suggest that the two-year energy bill freeze will reduce peak inflation by about 5%, meaning we are facing 10% rather than 15% inflation in January . However economists expect that in the longer run the increase in government borrowing and spending will add to inflationary pressures, which will make further interest rate rises necessary.

Inflationary pressures will in turn increase pressure on the Bank of England, which will find itself in a tough spot having to choose between resolutely fighting inflation that might reach 20% next year according to some forecasts and a recession. If interest rates do increase, as most observers expect, the effects on mortgage and credit card-payments fore already stretched households may be severe. They will also affect the costs of government debt. Truss will certainly blame the BoE for it. Indeed, Trussonomics seems a recipe for increasing tensions between the Treasury and the Bank of England. While her aggressive rhetoric against the BoE has already been tuned down since her appointment, the expansive fiscal policy that the Treasury is expected to follow will clash with the BoE’s priorities and monetary policy, making tensions inevitable. Indeed, it would seem that the BoE considers the UK economy going into recession to be inevitable to bring down inflation. That is not something a PM facing criticism for costs of living and an election in two years’ time will easily accept.

Towards 2024

The country is now governed by the most ethnically diverse cabinet in its history. Yet the visible diversity hides the homogeneity of the government in terms of socio-economic class. In fact, what unites the members of the Truss government is the fact that the vast majority of them attended private schools and went through the same educational institutions as so many politicians before them. Despite its seemingly progressive composition, this is the most right-wing government Britain has had in decades, which combines a lack in competence with an oversupply of ideological zeal.

Yet, some in the British public still do not seem to take the warnings about the direction we are going into (e.g. by Anette Dittert or myself) seriously. The otherwise very good The News Agent podcast for instance concluded on the cheerful note, that the Truss government was going to be ‘entertaining.’ There is nothing entertaining for the people in this country who are facing fuel poverty or massive debts to get through the winter. There is nothing entertaining either about this government for those running companies that IEA-backed extremists in government call ‘Zombie Companies’ – which are in reality nothing else than companies that employ millions of people up and down the country but are struggling with debt after two years of pandemic, Brexit, and now massive inflation and rises in energy prices. Oxford Professors and successful journalists will face entertaining two years…the rest of us will face a trickling down of pain from an elite who is making constantly the wrong economic policy decisions.

In two years’ time when the next GE is due, the country will look back on 16 years of economic disasters – including a massive financial crisis, austerity, declining living standards, and inflation. If Trussonomics do not work, Truss, more than Thatcher back in 1983, will then need a serious rally around the flag to get people to vote for her. That will encourage her to rake up English nationalism and jingoism, which in the hands of someone known to love provocation and clearly reckless enough to put her career above the good of the country and its people is nothing short of scary. Indeed, her inclination to not do the readings she was meant to do as a student and her provocations may see quirky in a 20-year-old student, they are a whole different matter in a PM running the country in a context of the most febrile international situation in at least a quarter century. What saved Thatcher in 1983 was a war – let’s hope the same is not true for Truss in 2024.

*Depending on wholesale energy prices, the cost could be higher than this. on the other hand, the short-term impact on reducing inflation will save the government money on its inflation-linked debt payments.

Brexit Impact Tracker 5 September 2022 – Brexiter Government No. 3: Last chance saloon and the eternal blame game

It is official: From tomorrow, Liz Truss will be our new Prime Minister (PM) and will form the third conservative government since the Referendum in June 2016, which is expected to be dominated by Brexiters. 0.43% of the British electorate have decided she gets to run the country for the next two years.* Actually, it may not even be 0.43% of the British electorate, because the Conservative party allows people who are not on the electoral register to become members and enjoy full member benefits – including voting in the party leadership contest. So, we do not really know who and how many people decided about the top job in British politics.

Given these – and other – concerns, Tortoise Media wrote a letter to Darren Mott, the CEO of the conservative party asking nine questions about the Tory Party membership and the election of its leader. Mott’s response, which can be found here, states that “[t]he [conservative] Party is not a public body and it does not carry out public functions” and that therefore he is “declining to answer [Tortoise’s] questions in detail.” This in turn led Tortoise to threaten the party with a request for judicial review to obtain the information sought. While, according to David Allen Green, that request has little chance of success, the questions Tortoise is asking are disturbing. They include an explanation why non-UK citizens are allowed to vote in the leadership contest, whether people under the legal voting age can vote, and why taxpayer-funded GCHQ was involved in organising the distribution ballots for the leadership contest. So much for ‘the will of the people.’

Of course, conservatives – but even some commentators and journalists – will claim that this is perfectly normal, as it is how our ‘parliamentary-’ – as opposed to ‘presidential democracy’ – works. For instance, Gus O’Donnell on the excellent new News Agent podcast argued that the direct election of the PM by the people was not part of British politics, and that while that may have drawbacks, other political systems too have their shortcomings. Indeed, as the FullFact web page shows, it is the norm that British PMs take office without there being a GE. That is often justified by the fact that what people vote for in a GE is not a PM but a party with a given manifesto, which indirectly confers democratic legitimacy to whoever leads that party. As Prof. Alison Young points out, the rub, of course, is this: It is hard to make that argument about the democratic mandate of the party – as opposed to the PM themselves – when the policies the party stands for change compared to what was promised during the previous GE. In the present case, since the last GE in December 2019 the world has changed considerably and conservative manifesto pledges have been broken left, right, and centre. The policy agenda Johnson got elected on (essentially ‘get Brexit done’), is not the same as Truss’s agenda. As far as we can tell, the policies Truss promises are essentially tax cuts, ‘unashamedly’ pro-growth deregulatory policies at the expense of environmental and social protections, and confrontational international policies towards Russia, but also the EU and China.

This agenda may be what the people want, but there is no way of knowing as voters will not be asked to approve the new government’s agenda. As noted above, this may not be particularly shocking to British citizens who are used to the country’s peculiar form of democracy. Yet, given the fake-populist leanings of Brexiters and their constant reference to the ‘will of the people’ when it comes to Brexit, the fact that only a tiny fraction of the electorate gets to decide who will run the country for the next two years and take it into a distinctly different direction from the 2019 manifesto promises seems somewhat odd. So, next time Brexiters insist on the will of the people, let us remember how we got the government that we have.

Brexiter government 3 – ‘Weak and wobbly’ from the start?

The policy challenges PM Truss is facing are nothing short of extraordinary. Academics estimate that if nothing is done, more than half (!!) of UK households will be in fuel poverty by January 2023; Europe is in the middle of its greatest security crisis since World War 2 including the threat of an impending nuclear calamity greater than Chernobyl; and the UK’s relationship with the EU is extremely precarious notably because of the issues around the Northern Ireland Protocol (NIP). Over the weekend, the Telegraph’s Janet Daley argued that this may actually mean Truss will be in a stronger position that we all think. According to her, Brits do not expect their politicians to be superheroes and forgive failure in the best of times due to their natural ‘fairmindedness.’

So, due to the very low expectations, will Truss actually be a more solid PM than we think. Somehow, the party-internal dynamics and power relations make me doubt that. We know that Truss has become PM while only being the first choice of roughly one third of the Tory MPs. Indeed, the last round of voting by MPs, before the two remaining candidates were put to the members vote, split the Tory MPs into three roughly equal groups supporting Truss, Sunak, and Mordaunt; Truss with 113 votes was actually significantly trailing Sunak with 137 votes. So, she clearly will not have particularly strong and enthusiastic support from within the Conservative party. Similarly, even before taking office Truss is lacking the support of the British electorate. In the absence of broad public and party internal support, Truss will have to particularly rely on the support of those within the party who brought her to power, i.e. the far right in the party gathered in the European Research Group (ERG) to whom she has been pandering throughout the leadership contest. This exposes Truss to an important dilemma regarding Brexit: She needs to show to her Brexiter base that she will not ‘undo’ the hard Brexit Johnson has imposed on the country, while at the same time finding ways in which Brexit can be made to work, given that a majority of voters currently think it is not. The two goals seem inherently incompatible, which means she will have to disappoint one side or the other, making her authority wobbly from the start.

Mounting Brexiter anxiety

This situation has led to considerable anxiety amongst Brexiters who consider Brexit to be at risk of being cancelled. Thus, Allister Heath recently penned a remarkable piece in the Telegraph, which illustrates how Brexiter discursive strategy continues to evolve now that they realise there is no real-world evidence supporting their case and the window of opportunity to convince voters of the contrary is slowly closing. The strategy revealed in Heath’s article hinges on rejecting ‘Remainers’ arguments simply based on a statement that they are ‘dishonest,’ or made in ‘bad faith,’ without providing a shred of evidence for those claims. Thus, Heath is upset about ‘Remainers’ pointing out that we were promised falling prices and real wage increases but are getting unparalleled inflation and a squeeze on disposable income that will push millions into poverty. To him, it is unfair to point out the discrepancy between Brexiters’ confident predictions and reality, because the argument is made in ‘bad faith’ and ‘out of context.’ Except that when we were promised a ‘no-downsides Brexit’ we were not told that depending on the context it might turn into a disaster. Similarly, when Johnson decided to turn Brexit-related labour shortages into a promise of wage rises, we were not told that depending on context that plan may change. It was Brexit that was oversold, not the warnings against it.

Heath goes on to defend Brexit by listing all the things that are going badly but should not be blamed on Brexit. The list includes the NHS crisis, Channel crossings, and water pollution. On each one of them we can – indeed should – have a debate about the extent to which Brexit has contributed to the problem. But even if we accepted Heath’s premise that Brexit is not to blame, the point is this: If all these bad things should not be blamed on Brexit, where are all the good things that Brexiters can take credit for? Brexiters will immediately jump out of their seats and shout in unison: ‘Vaccine roll out!’ That claim of a faster vaccine roll out thanks to the Brexit vote has been debunked many times (e.g. here and here). Even Heath – although claiming it as a Brexit benefit – acknowledges that we could have adopted the exact same vaccine strategy as an EU member. In fact, for all intents and purposes we still were an EU member when the vaccine purchase, approval and initial roll out took place, given that the transition period only ended in January 2021. So, his argument has to take another twisted turn, claiming that ‘psychologically’ the UK government would not have chosen that path without the Brexit vote. That argument is not convincing either given that successive UK governments never hesitated to ask for and get special treatment as an EU member (e.g. the UK rebate and the many opt-outs). Indeed, as my colleague Prof Helen Drake puts it “[t]he UK was for 46 years a semi-detached, awkward partner with a special deal.”

Still, for Heath, attacks on Brexit are unfair, downsides not Brexit’s fault, and upsides ignored by Remainers. So, clearly once all these ‘Remoaner’ falsehoods rejected, it becomes clear that Brexit is a success? That’s where the pile of falsehoods Heath has constructed falls apart and reveals the truth: By his own admission, it is not. How else do we explain that he is forced to talk about the “staggering implementation failures” that have prevented Brexit from developing positive effects? This is where the second part of the strategy kicks in: blaming everyone else for the failure Brexit is turning out to be. Here, he refers to “vindictive European protectionists” while other Brexiters have started blaming Theresa May now that the blame cannot be laid at the feet of a ‘Remainer Parliament.’

The problem is not that Heath is questioning whether some of the ills afflicting the country are due to Brexit – these are important debates to have. The problem is that he rejects arguments that say they are based on the claim that people making them are equally dishonest, ideologically motivated, and driven by sinister private motives. Brexiters see any criticism of Brexit as a conspiracy that hides some sinister motives. That reveals probably more about his own worldview than about people who are critical of Brexit.

For a Brexiter like Heath, no good can ever come from the EU and Euroscepticism must therefore remain the lodestar for British governments even after Brexit. That in turn leads to some very unorthodox policy views. He claims we need to focus on free trade with non-hostile countries, implying – just like Truss did last week – that EU member states are hostile countries. He also reiterates the imbecility that they UK should follow a “Singapore-style” model (although on one aspect of that plan the Tories are making good progress, namely turning the UK’s democracy into an autocracy just like Singapore). Another folly Heath suggests is to reduce our reliance on French ports. The question here, of course is: how? By moving the UK further into the Atlantic to bring it closer to the Americas? To maintain his baseless claims, he also has to resort to virulent anti-intellectualism, decrying the most sophisticated econometric methods we have to assess the impact of Brexit as “absurd forecasts or dodgy model-based ‘counterfactuals’” (presumably referring to the excellent econometric work done by Douch, Edwards, and Soegaard), or claiming that “[i]t makes little sense to compare energy price rises, as some countries are fixing prices (and subsidising firms) and others are not (and subsidising consumers, as we have so far).” Of course, it makes a whole lot of sense to compare them precisely because it informs us about how different policies work in the current context.

Heath sees Brexiter government no. 3 as the last chance saloon for his preferred kind of Brexit. Based on what we know about Truss’s policies and economics, he may not be disappointed.

Trussonomics: A new economic plan

Truss’s economics are particularly intriguing. She proposes a peculiar mix of tax cuts and increased spending, financed through increase borrowing in the short run, with the aim of generating enough economic growth to be able to rebalance debt-to-GDP in the long-run. This economic strategy makes many economists nervous as it breaks with some of the neoclassical dogmas of the past decades, most importantly the need to balance the public budget and reduce public debt. In an excellent article the Spectator’s economic editor Kate Andrews shows that Trussonomics is inspired by three rather controversial pro-Brexit economists, Patrick Minford, Julian Jessop, and Gerard Lyons, all of whom defend rather unorthodox libertarian views of the economy.

Breaking with past dogmas is of course not necessarily a bad thing. The obsession with balanced budgets while neglecting the impact of cuts to public spending to get there certainly should not be beyond doubt. Similarly, central bank independence has come to be seen as an unquestionable element of modern economic policy making. There certainly is room to consider whether that dogma should be challenged.

Yet, in terms of economics too Brexiters seem to lack a sense of realism and substance. Indeed, one get the feeling that Trussonomics currently is more of a campaign slogan than a well-thought through economic strategy. She seems to be trying to square the circle by promising big spending on infrastructure projects, pensions, etc., while cutting taxes, spurring growth, and getting a grip on inflation. This seems like wishful thinking and the Truss camp seems aware that there may be some nervousness about the unusual policy mix. Business secretary Kwasi Kwarteng – a Truss supported tipped to become Chancellor –  took to the pages of the Financial Times to evidently try and reassure investors and markets of the soundness of Trussonomics.

Yet, under all the talk about ‘dogma busting’ and ‘unorthodox’ new ways of running the economy, Trussonomics seems to boil down to old, discredited laissez faire ideas. Thus, the heart of Truss’s economic strategy is tax cuts, which she justifies in ways reminiscent of 1980s Thatcherism and Reaganomics. When asked by Laura Kuenssberg whether her planned tax cuts – which are expected to benefit the poorer strata of society much less than the richer ones –  were fair, she answered without hesitation that they were. That libertarian argument is usually based on a meritocratic myth that if someone is rich it has got to be because they deserve it. Beyond that myth, the rationale informing that tax strategy is the old idea that wealth will eventually ‘trickle down’ to poorer people thanks to investments made by the rich and resulting in economic growth. That approach is not a new unorthodox one, but good old-fashioned trickle-down economics. The approach has been rejected already back in 2015 by no other than the International Monetary Fund – previously one of its staunchest advocates – observing that rather than producing generalised wealth, it invariably led to increased inequality.

Unperturbed by that reality, our likely new Chancellor tries to sell those recipes from the 1980s as a new, bold approach to the economy which tackles head on ‘old managerialism’ that allegedly brought us low growth and productivity. What exactly ‘old managerialism’ in the context of macroeconomic policies is, remains entirely unclear. Equally remarkable and parochial is the fact that the plan seems to be growth at any price, with the environment and climate change not even earning a single mention. In economic terms, Brexit government no. 3 seems to be doubling down on the objective of behaving as if it still was the 1950s.

Reality

Despite all the wishful thinking and Brexiters’ inability to be truthful, reality is not going away. Regarding the most contentious issue opposing Brexit Britain and the EU – the Northern Ireland Protocol and especially the new NIP bill (NIPB) which Truss is expected to try and push through Parliament – for instance, what Brexiters see as vindicative EU punishment is from the EU perspective a reaction to a provocation undermining the EU’s prestige and credibility. That perception by the EU is a reality. Yet, Truss – and her Brexiter backers – do not seem able to accept it. They continue to see the NIPB as a tool to force the EU into negotiating a new deal, possibly combined with triggering Art. 16. Yet, for EU observers it seems clear that from the EU’s perspective a pre-condition for any negotiations is that the threat of the NIPB be removed. Here, the weakness of Brexit government no. 3 makes the UK’s negotiating position weaker still. Given the weak support Truss has in her own party and in the general population and given that a GE needs to take place by 2024, the EU may consider that waiting for the Truss government to implode and then establish a more productive relationship with the successor government may be a preferable option to dealing with the hard-core Brexiter Truss government.

Johnson’s legacy – The Partygate inquiry

Johnson himself has spent his last days in office touring the country trying to convince people that he is leaving a ‘legacy’ to be proud of. The obvious reason for this seems to be his wish to return to power sooner rather than later (e.g. in case the Tories lose the next GE and will look for a leader who can win elections). One stumbling block on the way back to Downing Street is the ongoing inquiry by the House Committee of Privileges into the Partygate scandal. Specifically, the committee is investigating whether the PM has committed a contempt of Parliament by – knowingly or unknowingly – providing false information about the Downing Street lockdown parties to the House of Commons. If Johnson were to be found in contempt of Parliament and censured, a return to front-bench politics would be difficult even in the eyes of the Telegraph. Therefore, the stakes are high for the outgoing PM, which certainly explains why he has sought legal advice and used the official government web page to publish the legal opinion of his lawyers as if it had some official status.

There have been several useful analyses and comments by legal experts on the form and substance of the opinion (e.g. here, here, and here). In terms of its political meaning, it constitutes another example of how the post-truth turn of the Tory party since the Brexit referendum leads to ever new strategies aimed at undermining British democracy.

One question the opinion raises is whether there can be contempt if the misleading of Parliament was unintentional. Here, the lawyers’ claim that for contempt to be present requires that the misleading of parliament was intentional, distracts from the fact that even if Johnson’s misleading of Parliament was not intentional, the Ministerial Code demands that ministers must correct at the earliest convenience any ‘inadvertent error’. In the case of Partygate Johnson has not done that. So, the discussion about intent is a red herring.

The opinion also questions the fairness of the procedure used by the Committee of Privileges, suggesting that Johnson is not getting a fair trial. According to Prof. Mark Elliott this claim is based on Johnson’s lawyers comparing the procedure adopted by the Committee to the procedure expected from a public body subject to judicial review. Yet, what the lawyers ignore is that it is a fundamental constitutional principle in the UK – related to the separation of powers and parliamentary sovereignty – that parliamentary committees are precisely not subject to judicial review by courts. That is what David Allen Green sees as the key weakness of the opinion: the ‘but for’ argument. But for the fact that we are dealing with a matter of Parliamentary privilege, a court would rule the procedure leading to the report unlawful. That is of course an absurd argument that negates the basic constitutional principle of parliamentary sovereignty, that Brexiters claim to hold so high.  Indeed, Prof. Elliott notes the irony in Johnson starting his Premiership rejecting the Supreme Court’s competence to rule on his proroguing of Parliament, while now hiring lawyers to argue that Parliament should behave as if being subject to legal review.

Regardless of its baselessness, what the opinion does achieve, is creating another myth of a Remainer plot against Brexit, like the theories around the Benn Act for instance. By questioning the legitimacy of the Committee’s procedure and hence any findings it will publish, the scene is set for claiming that a conspiracy has robbed Johnson from running again for Tory leadership and hence possibly PM. No doubt, Remainers will be blamed for it, even though the House of course still is firmly in conservative hands. This is not unlike the Trumpian propaganda against the legitimacy of the 2020 election in the US. The overall effect is to push the country further down the post-truth route, onto territory where it becomes increasingly difficult for citizens to tell reality from fiction.

Post-Truth Brexit and the eternal blame game

Brexit has always been fundamentally and inherently a post-truth project. It is based on promises that simply cannot be fulfilled. It is based on an analysis of issues that is deeply flawed to begin with and therefore relies on remedies that will not work. Therefore, the Brexit movement is stuck in its tangled web of lies – as Chris Grey noted a few months ago – and it cannot be extracted from them. In fact, Brexit is not entangled in lies, it is made of lies.

As the promises fall by the wayside one by one, what is there left for Brexiters to do? As people start asking questions about Brexit and start thinking it may have been a bad idea, what Brexiters have started doing is engaging in a post-truth blame game. On the one hand they argue that the problem is not Brexit but its ‘implementation.’ Or a slight variant of that argument: what we voted for was Brexit, what we got was Brexit in name only, a ‘Remainers Brexit’ etc. The latter regardless of the fact that the hard pro-Brexit right has been in charge of the Tory party at least since December 2019 and Johnson’s Brexit is more or less as hard as it can get. On the other hand, the reason that Brexit has not yielded any benefits is attributed to the vindicative EU who punishes Britain for leaving.

Both are excellent rhetorical devices and discursive strategies, which are so fundamentally post-truth that they cannot be falsified. The former measures ‘actually existing Brexit’ against an ideal counterfactual that will never exist and hence that we will never be able to judge based on any real-world evidence. The latter strategy allows any observe to construes any behaviour by European politicians as driven by a desire to punish the UK, which – of course – is equally unfalsifiable, as it is simply based on an assumption of bad faith while rejecting other countries right to make sovereign decisions about what they deem to be their own best interest.

Those who are still waiting for Brexiters to hold up their hands and admit that they may have been wrong are waiting in vain. Brexiters are psychologically, ideologically, and politically too committed to the project to ever take any responsibility for its consequences. They cannot be honest about Brexit, because it would undermine the basis most of them built their career on. Therefore, the next stage of the Brexit movement is entering into an eternal blame game where everyone else is responsible for the negative consequences of Brexit.

The way in which the country will finally move out of the Brexit mess it is currently stuck in is necessarily through a generational change. Only once political actors emerge on the scene who did not build their career on Euroscepticism or stake their reputation on the success of Brexit will we be able to talk about Brexit as a policy problem, rather than a question of quasi-religious faith. Only then will pragmatism re-enter UK politics and will it become possible to discuss real solutions to the many problems we are facing – many of them caused (NIP) or aggravated (inflation, labour shortages) by Brexit. For now, we will be stuck with another – even more extreme – Brexiter government whose main goal will be to deny reality. The best we can hope for is that it will not last for too long.

* I came up with the figure of 0.43% in the following way: The number of people on the electoral register for Parliamentary elections as of December 2021 was 46,560,452. It is estimated that conservative party membership stands around 200,000, although no exact figures are publicly available. This corresponds with 0.43% of the electorate. Since my initial post, however, the Tory party has announced that Liz Truss received 81,236 votes and Rishi Sunak 60,399. That corresponds with 0.17% of the electorate who voted for the current PM.

Brexit Impact Tracker 29 August 2022 – Brexit Britain’s Age Regression

At least since the 2016 Referendum campaign, we have been confronted with a lot of actions most of us would have thought unthinkable coming from people in government or close to it. Johnson unlawfully proroguing Parliament; or his Peppa Pig speech for instance; or Dominic Cummings ‘eye test drive’ to Barnard Castle. This week’s Brexit-related news brought us another shocker of that sort: Namely, Liz Truss publicly stating that the jury was still out on whether France’s President Emmanuel Macron was a friend or a foe.

Partly, I am relieved that I can still be shocked about what is going on in British politics. At least that shows that I have not started to normalise what is going on yet; and – as Emily Maitlis very forcefully and brilliantly showed in her MacTaggart Lecturer at the Edinburgh International TV Festival –  normalisation is what populists want you to do, because that is how we accept engaging in politics on their terms. So, a very personal ‘Brexit benefit’ for me has become the fact that now I am almost pleased when I am shocked about our politicians!

The reason why Liz Truss’s statement shocked me so much was that it encapsulates to perfection a process that UK politics seems to have undergone ever since the populist Eurosceptic far-right gained the upper hand inside the Tory party. That process increasingly seems akin to the psychological phenomenon of ‘age regression,’ i.e. the process whereby a person “revert[s] to childlike behaviour as a means to cope with anxiety or fear.” That process can be seen in Nigel Farage’s most famous moments when he sounds more like a teenager in the local pub than a nationally known party leader, or Boris Johnson’s above-mentioned infamous Peppa Pig speech; but none incorporates that regression better than Liz Truss. Perhaps because she was a Remainer and came to the populist game relatively late in her political career, she does not seem to take to the role of populist leader as naturally as Farage or Johnson for whom puerile bravado and boosterism seems to be the default mode. Truss’s attempts to imitate that, on the other hand, sometimes seem like an act rather than a natural reflex. But what she lacks in natural populist disposition, she makes up for with the zeal of a converted. That zeal probably explains why she does not hesitate to insult the head of a neighbouring country at a public event if it scores her some points with those people she has to convince of her nationalist-populist credentials.

More specially, her comment on Macron shocked me for two reasons: Firstly, it shocked me because it shows a complete and utter lack of awareness of one of the basic principles of politics (and life in general). Namely that with great power comes great responsibility. Truss seems unaware of – or unconcerned with – the fact that given her position her words carry weight and have real world effects. In the footage of the interview, she seemed so extremely pleased with herself for having landed what she probably sees as another great joke – just like the cheese quip a few months earlier. She seems completely oblivious of the fact that she currently still is our Foreign Secretary who, incidentally, leads the Foreign Office in the middle of the worst European security crisis since World War 2. Yet, the only thing Truss seems to care about is selling her right-wing populist and nationalist credentials to the Tory base who clearly – judging by the footage of the interview – frantically egg her on down the road of reckless jingoism. Truss has no sense of gravitas and displays shocking recklessness, like when she announces she was ready to push the button that annihilates the world if she had to. She is clearly willing to say anything to gain power, the worrying question for the world is will she be willing to do anything to keep it once elected?

Secondly, equally shocking, to me, was President Macron’s response to the comment. Everything in his response from the obvious exasperation that he had to engage with this sort of things to his understanding, but slightly patronising tone reminds one of someone scolding a child rather than responding to an equal. Six years of Brexit drama seem to have led Tory politicians into a pre-adult state where they ignore not just economic reality but also the basic rules of behaviour of their profession.

Age regression and the international order

Populism and Euroscepticism have always been part of the Tory DNA. Indeed, Prof. Time Bale argues that historically the Tories were leading rather than following UKIP in terms of populist Euroscepticism. But somehow populism seems to have changed from an electoral strategy mobilised when it seemed politically opportune into an out-of-control spell that afflicts all of Tory politics and increasingly escapes the control of any one Tory politician. As a result, UK’s governing party seems increasingly unleadable as Chris Grey puts it. This populist spell seems to drive the process of age regression inside the Tory party. Rather than serious discussions amongst adults about the key political issues of our times, Tory internal party politics of recent times remind one of a gang of rowdy teenagers that try to outdo each other by saying or doing increasingly crass and crude things to attract the most attention from the intended audience.

After Frost, Gove, and Johnson, Truss is getting ready to join the gang. This will also affect our standing in the world. While politicians like Tony Abbott and Donald Trump would have been supportive – or at least forgiving – towards Truss’s style of politics, conservative governments have been ousted recently in Australia, Germany, and the US, which will make Truss stand out even more on the international stage.

Indeed, part of the regression of British politics into a juvenile phase implies the rejection of the international rules-based system (IRBS). Just like a teenager struggling to accept the rules of the adult world, rebelling and revolting against them, Brexiter-led Britain has proven in the past years its utter disregard for the rules-based world order. To some – not just Tory voters – that may be a welcome development given that the current world order is associated with the contemporary problems of environmental destruction, unfettered capitalism, national and global inequalities that drive massive migration flows, and a host of other problems societies around the world are facing. But rejecting the idea of a rules-based liberal democratic international order due to the massive problems the world is facing is throwing out the baby with the bathwater. The liberal rules-based international order – while not normatively neutral – is what brings a bit of civilisation to an otherwise anarchic international order, reigning in countries’ worst might-is-right reflexes. What the alternative to a rules-based international order – however imperfect – is, is most clearly illustrated by Putin’s aggression on Ukraine.

Currently, it looks like, that as PM Truss would turn further away from cooperation with those allies that remain committed to the rules-based order. The issues around the Northern Ireland Protocol (NIP) illustrate this.

NIP

Some bad news related to the NIP reached us this week via HM Revenues & Customs who announced mid-week that British steel producers had to pay a 25% tariff on sales of some products to Northern Ireland. This is the result of a change to the EU’s tariff system in July, which saw the EU abolish the specific UK Tariff Rate Quota (TRQ) and instead lump GB exports to NI together with all third country quotas into the ‘global imports’ category. In other words, UK steel product exports to NI are now counted towards the same quota as imports into the EU from the rest of the world.

This week, the EU’s global quota was exhausted (earlier than anticipated), which explains the new tariff. While the fundamental reason for the EU’s decision were the sanctions on steel imports from Russia, no doubt Brexiters will see it as EU punishment. Yet, it is simply a reminder that once you leave a club, the remaining members of that club are free to treat you like the non-member that you are. That is called ‘sovereignty.’ The only way to get better treatment is to rely on the members’ goodwill. Yet, goodwill must be earned. Trade expert Sam Lowe told the FT that the issue of the UK-specific steel quota could have been easily solved had the UK’s relationship with the EU been better. It seems obvious that publicly stating that you are not sure who your friends and your enemies is not conducive to such a good relationship. This is the sort of real-world impact of one’s actions and words that any politician should be aware of when playing to the domestic gallery. The fact that Truss is not or perhaps simply does not care is concerning.

Indeed, everything Truss has said so far about NIP suggest that she will not hesitate to escalate the tensions, making a negotiated solution to the issues surrounding the NIP very unlikely under her premiership. Thus, following strong words from the US House Speaker Nancy Pelosi regarding the NIP, she recently reiterated – in rather undiplomatic terms – her determination to go ahead with the Northern Ireland Protocol Bill (NIPB), the legislation Peter Foster calls the nuclear option, regardless of Washington’s view on the matter. Again, proving her hard-line Brexiter credentials to the domestic gallery seemed more important to the PM in waiting than re-establishing a good relationship not just with the EU, but also with the US.

This week, she did change course somewhat, when it emerged that she may trigger Art. 16 of the NIP as soon as she becomes PM. Triggering Art. 16 could constitute an alternative to the NIPB to solving the issues surrounding the NIP. Indeed, legal expert David Allen Green, argues that triggering Art. 16 would actually be a preferable option. Contrary to Brexiter rhetoric, triggering Art. 16 would not imply ‘ripping up’ the NIP. Rather it would start a ‘structured negotiation process’ following the mutually agreed rules under the Withdrawal Agreement (WA) and the NIP. That is more in line with the UK’s obligations under international law than the unilateral approach that the NIPB represents.

Yet, hoping that that is what talk about triggering Art. 16 is meant as an alternative may be an overly optimistic interpretation. In fact, allies of Truss seem to consider Art. 16 as a complement – or temporary stop gap – to the NIPB, not an alternative to it. Indeed, whether pushing the NIPB through Parliament or triggering Art. 16, it seems obvious that Trusses now almost inevitable premiership will be marked by heightened tensions with the EU, although some still seem to see her as possibility more amenable to negotiations than Johnson was. Similar hopes had quickly been dashed when she took over from Lord Frost the post-Brexit relationship with the EU. In recent weeks, relationships with the EU have continued to worsen even compared to a few months ago when the two sides had at least managed to agree on a ‘stand still’ regarding the NIP. Indeed, the relaunch of legal action by the EU against the UK following the tabling of the NIPB in June and the launch of legal action by the UK over the exclusion from the science programmes both constitute steps down the road of conflict rather than cooperation. To leave that path, the UK government would need to start accepting that every snub, every provocation has an effect in the real world of international politics. Clearly neither Truss nor Rishi Sunak – who repeated the absurd claim that the NIPB would make it possible to have completely open borders between GB, NI, and the EU – are willing to do that.

The contagious effect of age regression

The age regression of UK politics into a state of childish sulking, throwing tantrums, and insulting the people you most depend on, starts having an impact on an increasing number of policy areas. As mentioned above, due to the UK’s refusal to fully implement the NIP, the EU recently decided to exclude the UK from various science programmes, which has led the UK to start formal legal action over the matter. Similarly, both Tory leadership hopefuls threatened that they would take the UK out of the European Convention on Human Rights if the ECHR court opposed the UK government’s plans to send asylum seekers to Rwanda. This is another strong signal that the UK is rebelling against the rules-based international order and is willing to seek confrontation, even when such a move could have serious knock-on effects on important international agreements in other areas, as Peter Foster argues.

The other contagious effect of the ‘age regression’ of our political leaders is that it leads to a selection bias in terms of people in charge of key posts. In other words, an ‘age regressed’ PM will most likely seek out like-minded people for key positions in the government. This explains why there is now worrying talk about people like Suella Braverman and David Frost getting key positions in a likely Truss Cabinet. This will further reduce the UK’s ability to address the massive issues the country – and the world – are facing. Most importantly, perhaps, the SNP has warned that Frost getting a role in the Cabinet following his comments in a Telegraph column that the SNP ‘needs to be defeated not appeased,’ would be considered an affront.*

It seems hardly thinkable that a figure like Frost would have made it to the hights of British politics, were it not for the process of age regression, which makes him an unrivalled master of his trade rather than the mediocrity he really is. Frost, drunk on hubris possibly stemming from his own unexpected ascent, is the person who said that we must realise that this great country would be successful ‘whatever we do.’ No statement encapsulates the British ‘supremacism’ that underlies Brexit better than this one. It is also a massively treacherous ideology, which is entirely based on childish fantasies akin to believing in superheroes with superpowers rather than an understanding of the realities of the modern world and its politics.

Brexiter puerility was also on display on the ‘Facts4EU’ web page this week, which purports to provide evidence for the soundness of the economic case for Brexit. Ahead of a ‘Rejoin March’ planned in London for 10 September 2022, the web page reiterate its claims that Brexit was the right decision, because among all member states the UK benefitted least from Single Market membership. I have sought to debunk the way in which the post mispresents, misinterprets, and distorts the EU figures almost to the day a year ago (here). Here, I would just like to point out how the basic argument of the article reveals the same age regression as the other examples discussed in this post. The adult thing to do would be to consider that as long as the UK did benefit from SM membership (which is what the post suggests), membership is worth it, regardless of whether Luxemburg, Slovenia, or Sweden benefitted (proportionately) more. But that is not the Brexiter worldview. Brexiters are not satisfied with making the UK a better place, they will not be satisfied unless the whole world acknowledges that the UK is the ‘greatest country in the world.’ So, to a Brexiter, a win-win situation is not enough, unless the UK wins more than everyone else. Once that mindset is adopted by the governing elite, it makes for a very immature way of running a country.

The waiting continues

On a somewhat more positive note, while age regression can be a sign of a personality disorder, some psychologists do consider that age regression can be a therapeutic tool. Here the one silver lining may be that Truss’s juvenile craving for popularity may mean that at least regarding the war in Ukraine she may adopt a sensible policy. Indeed, Truss is currently popular in the Baltics and Eastern Europe due to her role as Foreign Secretary in Johnson’s Cabinet. In my view, his support for Ukraine is probably the one policy that Johnson did get right, and Truss is likely to continue that approach, if anything because it makes her popular both at home and overseas. So, there may be an unintended positive effect.

Ultimately, however, the attempt to retreat into a different time when people in Britain felt ‘loved, cared for, and secure’ will do the country a disservice. Indeed, it is hard to imagine a more unpatriotic thing to do than behaving in the way leading Brexiters in the Tory party have done in recent years. As Chris Grey noted in this week’s Brexit & Beyond blog “[f]or all that talk of love of country, [Brexiters] profoundly dislike the country as it actually is and want the government to provide them with another one, preferably located a long way from Europe […].” Yet, there is no way around reality. Eventually, Brexiters will have to start acting like grown-ups. Sadly, this week’s events inspire little confidence that Liz Truss is the right person to stop the process of age regression of British politics. So, the waiting for a return to reason and sanity continues.

*As an aside, in his anti-independence piece, Frost also indirectly and in passing and certainly without understanding it, argues that Brexit was immoral. Indeed, he argues Scottish independence “[…] is morally wrong. Supporters of the Union in Scotland, people who have built their lives and families on the assumption of its permanence, should not be abandoned.” If that is the case, then how about the people who have built their lives and families on the assumption that the UK’s membership of the European Union was permanent?

Sewage pollution – how did we get into this mess? - a Brexit Impact Tracker addendum by Susannah Rae

Following my latest post on the BIT covering among other things the issue of sewage discharges, Susannah Rae - a former water industry employee and ex-environmental regulator - has put together a most helpful Q&A document answering some of the key questions around the issue - including what it has to do with Brexit. It adds very useful further information and nuance to my discussion of ‘sewagegate’ in my blog post.
Note that Susannah’s take is that Brexit did not change the situation on the ground, as the problems existed before and remain the same after Brexit. I do not think that necessarily contradicts my claim that in terms of legislation Brexit has removed one constraint that could have increased pressure on the UK government to address the issue - namely EU directives and the threat of ECJ action. Susannah’s view is that perhaps the current crisis creates enough popular discontent to spark the government into action even in the absence of any pressure from the EU.

Here is the full text of her document:

We have all been horrified by images of sewage pouring into the sea around the coast of England. So how did we end up in this situation?

Most of the rainfall that runs off roofs, gardens, streets etc goes into the same pipes as sewage. If the pipes get too full, either through rainfall or blockage they spill from Combined Sewer Overflows (CSOs), releasing untreated sewage into the environment. Further information is available on the Environment Agency website. The Environment Agency’s plan for improvement can be found here.

Didn’t the EU tackle this kind of thing?

The European Commission Directive about managing sewage pollution was issued in 1991, requiring sewage to be treated and not spilled. The exception to this rule is that spills are allowed during heavy rainfall so as to avoid sewage backing up into people’s houses and gardens.

Due to the cost of infrastructure which would have been required to avoid sewage spills in a generally wet country, the UK interpreted the Directive so that sewage could be spilled during light rain if it did not cause harm. Investment was therefore targeted to areas where spills were found to be causing most harm. Other areas were left to spill.

Are spills increasing?

The picture on spills is mixed. In some areas spills are now worse due to a combination of:  lack of investment and maintenance, increasing urbanisation (eg driveways being paved over), widespread flushing of wet wipes down the toilet and putting oils down the drain. More intense storms due to climate change are also expected to increase sewer spills. Increased monitoring also means that more spills are being reported. Surfers Against Sewage provide a comprehensive summary of results in this report.

Has Brexit lead to an increase in sewage spills?

CSO spills are not Brexit related.

Brexit and Covid did create supply chain risks for the water industry. In 2021, a shortage of lorry drivers led to a risk that there would be insufficient chemicals to treat sewage. This resulted in a temporary regulatory position statement from the Environment Agency saying that the EA would not take enforcement action against companies unable to obtain necessary chemicals. This was a temporary measure and a separate problem from the main source of sewage pollution caused by CSO spills which happen before sewage is treated and which predate Brexit.

What about the UK parliamentary vote on sewage spills?

In 2021 the Duke of Wellington proposed an amendment to the Environment Act that would have put a duty on sewerage undertakers to take all reasonable steps to ensure untreated sewage is not discharged from storm overflows. This was voted down by Conservative MPs who continue to argue that it was impractical, despite the amendment receiving support from the Water Industry. Following an outcry, the UK government put forward its own amendment to make water companies “secure a progressive reduction in the adverse harm caused by sewage dumps”

Are the spills a result of privatisation?

CSO spills predate privatisation. Clearly privatisation has led to payouts to share holders at a time when progress in reducing CSO spills has been incredibly slow. However Scotland, where water is still in public hands, also has a CSO spill problem. The Scottish Environment Protection Agency has outlined its position highlighting the need for investment and Scottish Water has published a routemap for improvement.

So what next?

The good thing about the recent outcry, despite the many misunderstandings, is that water providers are well aware of public anger and politicians feel under pressure. However, improvement will take a lot of investment. The most basic form of improvement is screens, which take out the biggest lumps but don’t prevent polluted water from being discharged. Separating out sewage from rainfall runoff would involve new pipes, digging up streets and a lot of disruption. The only practical way to significantly reduce sewage spills is to redesign our towns and cities so that they absorb rainwater before it reaches the drains. Local authorities need to do this as water companies do not have any control over urban land use. It will need significant investment and cooperation between national and local government and water providers.

Useful websites on campaigns and for looking at progress include Surfers Against Sewage and the Rivers Trust.

 Susannah Rae

Susannah worked in the water industry for 30 years. Her Twitter handle is @susannah4europe

Brexit Impact Tracker – 23 August 2022 – Sewage, Immigration, and Charter Cities: Brexit’s multifarious impacts and mundane purpose

The past week brought us news about the UK government formally starting a dispute with the EU over the UK’s exclusion from the EU’s science programmes – Horizon, Euratom, and Copernicus. This does not bode well for the resolution of another key Brexit issue, namely the Northern Ireland Protocol. This week, NI businesses have made a strong appeal to the EU and UK to finally make progress on the protocol, especially given the looming cost of living crisis.

But these big Brexit issues have been somewhat side-lined in the British public discourse by more mundane concerns, most importantly water pollution by Britain’s private water companies. Interestingly, one question people are asking is whether Brexit is to blame for the problem. The fact that the answer is less easy to come by then one may think presents an opportunity to reflect on the multifarious ways in which Brexit impacts the UK. Together with other persistent post-Brexit issues, it illustrates that causality is complex and the impact is often indirect, which makes it at times tempting to fall into conspiracy thinking, as has happened in past weeks with the discussion of Charter Cities. To be better able to resist this temptation, it is important to try and get to the bottom of just how complex the impact of Brexit is on various areas of the UK economy and society.

Brexit or not Brexit? Raw sewage on Britain’s beaches

One hotly debated topic these past few weeks was the dumping of raw sewage into rivers and the sea up and down the country, which has led to various pollution alerts to beach goers. Some commentators see this issue as an unambiguous and direct result of Brexit. The reason for this claim is that last September, when the government granted water companies a legal waiver allowing them to discharge untreated wastewater into the environment, the main reason given for the decision was the shortage of treatment chemicals. This shortage resulted from a shortage of lorry drivers, which in turn is partly a Brexit effect.

However, that waiver expired in January 2022. Therefore, the current issues are not a result of Brexit in that direct sense, i.e. the current discharges are not justified by chemical shortages, but rather fall under an exemption in the Environment Act that allows water companies to discharge untreated wastewater after certain weather events. The strong rains two weeks ago may qualify as such (although it would probably be a case for lawyers to decide).

The case against the sewage issue being a direct result of Brexit is reinforced when considering that even during EU membership UK water companies regularly released raw sewage into the environment in breach of EU legislation. In fact, in 2012, the commission took legal action against the UK over the issue. The ECJ found that the practice was illegal under EU law.  However, despite the ruling, the UK government has struggled to enforce these rules, as environmental campaigner Feargal Sharkey argued on Twitter.

Since Brexit, the difficulties the UK government has had to make water companies comply with their obligations under UK environmental legislation may have been made worse by Parliament. The government published a new Environment Bill in January 2020, which lead to heated debates about the issue of raw sewage in Parliament last year. The conservative majority in the Commons initially rejected an amendment proposed by the Duke of Wellington in the Lords, which would have created a legal duty for water companies to reduce raw sewage discharges. However, due to the public backlash, the government ultimately did introduce its own amendment imposing an obligation on Water companies to ‘secure a progressive reduction in the adverse harm’ resulting from discharges. Critiques last year criticised the amendment in the new (‘world-leading’) Environment Act as toothless and vague. The current issues seem to confirm that view.

So, is Brexit to blame for ‘sewagegate’? The fact is that the new Environmental Act, which risked removing any legal obligation to reduce raw sewage discharges and then introduced a toothless clause, can be seen as a result of Brexit. Indeed, when the Environment Bill was published, the government state that the bill “sets a new and ambitious domestic framework for environmental governance as we maximise the opportunities created by leaving the European Union.” So, Brexit seems to have been the impetus for the legal initiative. Importantly, due to Brexit, the government was not bound by EU legislation or the threat of ECJ legal action in this area anymore. And this is where the case of water pollution is very much related to Brexit. In fact, its seems to be another emerging pattern from the first couple of years outside the EU: wherever there is real leeway to do things differently after the exit from the EU, the current government consistently uses that leeway – in line with the unofficial Tory party economic doctrine – to favour the interests of shareholders and rentiers at the expense of everyone else. In this instance, rather than forcing water companies to make the necessary investments in infrastructure – which was the justification of the full privatisation of the UK water back in the 1980s and still is the main line of defence of some conservatives defending private monopolies –, legislation and enforcement remain lax, so that water companies can continue to pay out excessive profits to shareholders, while customers have faced a 70% increase in bills since privatisation. The water industry is hence the perfect illustration of a a broken economic system that redistributes from the bottom to the top. That system is not the result of Brexit per se, but in many cases Brexit has made it easier for UK governments to reinforce that logic, because some external constraints on government action have been removed.

Immigration and labour shortages

An area where Brexit has had a clear, immediate, and undeniable impact is migration. Ditching the free movement of people and introducing a new points-based immigration system has arguably been a Brexit promise that Johnson’s government actually kept. Now that the effects of the new system start to become more and more visible, a debate has started over whether what we are seeing is what Brexiters had promised or not. Conservative MP Neil O’Brien in an article on the Conservative Home web page (and a Twitter thread) argues that the new post-Brexit immigration system is not doing what was promised, namely reduce net migration. Rather, the system is changing immigration patterns, by shifting the inflows from the EU and richer non-EU countries, to poorer ones in particular South-East Asia. In O’Brien’s interpretation, that shift is not what was promised and will have negative fiscal implications, because “the fiscal impact of European immigration is more positive (or less negative) than from the rest of the world.” Migration expert Johnathan Portes, provides evidence that clearly contradicts O’Brien’s claims, both in terms of what was promised and the negative assessment of the economic and fiscal impact of immigration. Importantly, immigration is crucial for the NHS and expected to have a positive impact on productivity. Moreover, immigration has shifted not only geographically from low skills to higher-paid, higher skill jobs – such as doctors, nurses, IT professionals, which implies immigrants – wherever they are from – contribute more to the public purse. So, according to Portes, the economics of immigration speak a clear language, namely that immigration is having a positive effect on the UK economy.

Interestingly, and perhaps this is the one positive effect of Brexit, a clear majority of people in the UK seem to start realising that too. The FT ran an article reporting that British people’s view on immigration has changed towards a much more positive view in the past ten years or so. While the Referendum campaign was dominated by barely veiled – and indeed sometimes openly (e.g. Farage’s Turkey poster) – xenophobic arguments, the labour shortages and supply chain disruptions caused by Brexit and the Pandemic have illustrated just how much Britain depends on immigrant workers. Conservative MPs may try and continue politicising immigration, but for now public opinion seems to slowly become more realistic about the issue. Some observers suggest politicians may have to follow suit.

But of course, the shift in post-Brexit migration patterns described by Johnathan Portes also hint at the other well-known impact of Free movement of people: While Brexit mainly meant an end to a flow of low-skilled workers from EU countries and an increase in high-skilled ones from further afield, the obvious implication is that there is a gap opening up in the low-skilled workers segment. This has been a well-known fact for months and at one stage Johnson tried to construe it as a planned Brexit benefit. Since then, of course, inflation has hit, belying the idea that fewer low-skilled immigrants meant more job opportunities and higher wages for British workers. To be sure, the Oxford Migration Observatory’s most recent report refers to some qualitative evidence that wages have increased in some low-wage roles. But with inflation projected to hit 18% next year, it seems very doubtful that this trend will be sustained in real terms, nor is it benefitting all low wage workers. So, what remains after the ad hoc high wage Brexit promises have been eroded by inflation, are very real impacts of continuing labour shortages on UK producers and consumers. This was confirmed again this week by news from the National Farmers Union who estimate the waste of food rotting on fields due to labour shortages at £60m.

Another, unintended consequence of Brexit is that the new migration regime seems to create new opportunities for exploitation, as the Oxford Migration Observatory also notes. Indeed, in a worry investigation into the conditions of Indonesian migrant workers who come to Britain as fruit pickers, the Guardian investigation revealed that some of these workers are pushed into debt bondage by brokers who (illegally under UK law) charge fees for finding them jobs in the UK. This may be a temporary and fixable problem, but the point is that in this area too Brexit has not delivered any perceptible benefit, but rather create new problems without solving any of the old ones.

The common thread: A flawed economic system

The underlying issue that is common to all these problems is the UK’s broken economic system. For forty years now, successive UK governments have relentlessly worked towards putting in place an economic system that supposedly maximises efficiency by relegating the state to the role of a rule-maker, while putting ‘markets’ in charge of much of the economy and what used to be the public services. That system justifies the prioritising of shareholder interests over the interests of any other stakeholder in the economy and as such constitutes the root cause of many of our troubles.

A perfect illustration of that flawed economic system came last week from P&O Ferries. DP World, the Dubai-based owner of P&O Ferries, which made headlines earlier this year for illegally sacking 800 UK-based crew, announced record profits this week, illustrating once again – if there was need for further illustration of that – that sacking workers often is driven by shareholder greed not economic necessity. The news comes during the same week that UK prosecutors announced that P&O will not face any criminal charges over the unlawful sackings. This episode may only be indirectly related to Brexit, but again it illustrates the tragic irony that the root causes of the discontent that led many people to vote for Brexit, namely the declining living standards and working people’s fears over their future, are not solved by Brexit. So, P&O Ferries is not a product of Brexit, but rather both are the result of the same underlying economic system. Worse still, in spite of all the promises, the government clearly has no intention to use any new-found ‘Brexit freedoms’ to do anything to address the issues working people worry about. The leaked recording of our most likely next PM slagging off British workers provides some explanation of why workers’ grievances are not taken seriously. That sort of attitude from our most senior politicians may also go some in explaining while in some parts of the population there is a genuine Brexit paranoia spreading.

Brexit impact paranoia: Freeports & charter cities

Another interesting Brexit-related ‘event’ in the past weeks was an at times heated debate among ‘Remainers’ or ‘anti-Brexiters’ about Freeports and Charter Cities. Chris Grey and Sam Lowe both have written excellent articles (here and here) explaining why the UK government’s plan to establish Free Ports can by no means be seen as part of a plan to turn the UK into a libertarian Nirvana where entire urban areas are run by private corporations as some have claimed.

That said, what the concern about Charter Cities shows, as George Monbiot’s article implies, is that given serious questions about foreign interference in the EU Referendum and the well-established links between the UK’s ruling elite and all sorts of murky donors and US right-wing libertarians, parts of the population have completely lost any trust in the government. People may be forgiven for not putting anything past this government, and especially the most likely incoming PM Liz Truss who seems easily seduced by libertarian ideas. It is understandable that this can lead to a sentiment that there is a large-scale conspiracy going on.

Yet, in this instance, the worries do not seem justified; not just because, there is no evidence for the plans some people fear Brexiters are pursuing, but more fundamentally because that is simply not how Brexit works. Indeed, the key point is the one Sam Lowe makes in his blog post: the purpose of Freeports was not so much to start a more radical deregulation and depoliticization movement that will end with charter cities; rather, the purpose of announcing Freeports was announcing Freeports. In other words, it was another act of mainly symbolic policy making. Indeed, like many times before, in the absence of any real-world Brexit benefits, the UK government increasingly resorts to fabricating Brexit benefits for the attention of the British population. That is the case, as I have argued many times before, with Free Trade Agreements, whose content is often massively underwhelming and sometimes outright disastrous for parts of the UK economy, but whose only purpose it is for the government to be able to announce alleged Brexit benefits. It is also the case of regulatory divergence from EU law, which – just like FTAs – has become a goal in itself, independently of any real-world impact. Thus, Jacob Rees Mogg, the BOGEMin, has created a dashboard of retained EU law in British law that will allow it to regularly announce Brexit benefits in terms of getting rid of EU laws. It does not matter whether repealing these laws actually has any positive impact on the UK economy and society. Rather, getting rid of them has become a goal in itself, which means every time such a law is deleted from the statute book – whatever the real-world impact – Brexiters have a reason to celebrate. Repealing retained EU laws – contrary to economic growth, jobs, inflation, etc. – is something the government has complete control over, thus making them a tremendously useful tool for the government to distract the Brexit voting half of the population from the real-world negative effects of Brexit. Freeports are most likely just another piece of symbolic policy-making. They are something the government has complete control over and can claim as a benefit of Brexit, even though their impact on the UK’s economy will most likely be negligible (relocating economic activity rather than stimulating new one) and their impact on society, the environment most likely negative. So, like with FTAs, regulatory divergence, the most likely explanation is that we are once again firmly in the area of symbolic policy making, rather than in the realm of a grand plan.

More generally, having followed Brexit for over six years and studied the actors involved quite closely, Brexit is much more likely to be a botch job, rather than a carefully planned grand conspiracy (even though some sinister influences are very likely to have taken place). Anyone who has ever attended a faculty meeting at a University Department for instance will be suspicious of claims that people with oversized egos will easily come together and successfully plan the takeover of the world. That’s unlikely in the best of cases, but it is even more unlikely when involving Ayn Rand-reading egotistic careerists whose only reason for being in politics is their own narrow self-interest. No coalition of such people could last very long as is illustrated by Michael Gove backstabbing of Johnson or Sunak and Truss’s tearing into each other during the Tory leadership contest. Therefore, while we should not underestimate the harm Brexit still can do to the UK – including through deregulation – the fundamental driver of post-Brexit politics is more likely to be egocracy rather than grand conspiracies.

The signs of an onset of Brexit impact paranoia amongst Remainers is an important reminder that critical thinking needs to remain firmly grounded in reality and committed to applying the same standards of scientific scepticism to its own arguments than to the arguments of those we criticise. If that is not the case, we are quickly surrendering ground to conspiracy theories and as such give in to Brexiters’ long-standing strategy of moving away from reality into a world of fantasy. Needless to say, Brexiters have a lot more experience with fantasies, and therefore this is hardly a terrain on which we can beat them.

Brexit Impact Tracker – 14 August 2022 – The Tory Leadership Contest: The Wrong Kind of Economics for a New Age

After a long break from blogging due to annual leave and academic conferences, with the Tory leadership contest still in full swing, I was expecting to have to digest a large amount of new Brexit-relevant information…Turns out, nothing much has happened. That is to say, of course there has been a large amount of media coverage of the leadership contest. But when it comes to substantive policies, everything I have read sounds distinctly ‘old news.’

Despite all the heat the Leadership contest is producing, very little light has been shed on which path the remaining contenders in the Tory leadership race – former Chancellor Rishi Sunak and Foreign Secretary Liz Truss – would take post-Brexit Britain down. Indeed, the pressing issues the world and the UK are facing – such as levelling up – are being side-lined by an obsession with the new cultural wars that keep voters entertained and thoroughly focussed on non-issues, while the grand challenges go unaddressed.

I was expecting to analyse the economic programmes put forward by the two contenders. To my surprise, neither of the remaining candidates seem to have one. Rather, they seem stuck in economic thinking that resembles a zombie ideology from a bygone age. Inspired, no doubt, by some vague reference to neo-classical economic ideas, there is a lot of talk about aggregate macro-economic measures such as national debt, tax burden etc. and about very micro-level things such as how tax cuts create incentives for individual entrepreneurs and investors. As a result, the economic side of the debate focuses on the simplistic question of tax cuts v. reducing national debt.

Other crucial elements of economic policy making remain entirely unaddressed. Thus, at the sectoral level, where an industrial policy would be required – as Prof Michael Jacobs also argues in an excellent blog post – and the firm level, where important questions concern what sort of skills are available to firms and how can we increase productivity, are not being discussed. Unless I am missing something (I almost hope I am), none of these crucial economic issues have been addressed by any of the candidates. That is concerning to the highest degree given the bleak economic outlook the UK is currently facing.

A bleak future

When it comes to economic forecasts, even the usually most level-headed institutions - such as the Bank of England (BoE) – increasingly sound like straight out of a dystopian novel. No doubt, the BoE would be accused of ‘Remainerism’ were it still run by the outspoken Mike Carney, rather than by the more conciliant Andrew Bailey who seems to try and avoid talking about the impact of Brexit. Regardless, the forecasts are bleak: Not only is inflation expected to go up to 13%, but also the BoE expects a 15 month recession with GDP shrinking by 2%, while US is forecast to grow by 1.5 per cent and the eurozone by 1.7 per cent in 2023. Similarly, half of the businesses surveyed by the Institute of Directors now plan to cut investment, among other things due to Brexit.

Worse still, the UK combines the ‘worst of both worlds’ as the FT’s Delphine Strauss and George Parker note: Not only is the growth rates forecast in the UK lower than either in the US or the EU, but also are people in the UK “more exposed to the energy price shock than in the US, and less protected by government measures than in the eurozone, while the UK economy has also been damaged by the effects of leaving the EU.”

This situation is the result of an economic policy – if we can call it that – by successive Tory governments that combines a staunch belief in the superiority of free markets and free trade with an obsession with minimal government. This economic ideology ignores the fact that the preference for a minimal state may actually undermine the achievement of the two former policy goals in the sense that for free markets to be sustainable in a social sense, the ‘losers’ of free market capitalism need compensation via welfare state policies and establishing free trade requires collaboration (not confrontation) with other states as well as state-sponsored institutions (such as common standards on product quality etc.).

Some Tories acknowledge that. Tim Pitt, for instance, a former senior adviser to UK chancellors Philip Hammond and Sajid Javid points out that “Conservatives have always looked warily at over-mighty government — but this should not be confused with small state libertarianism. The Conservative approach has been to see the state as an enabler, rather than controller, of economic activity.”

It has indeed long been acknowledged that Thatcherite rhetoric against the state is oftentimes not matched in reality, as Andrew Gamble has shown years ago. Even the staunchest defenders of free markets will eventually have to understand that markets are created by states. Therefore, implementing freemarket capitalism in reality requires a strong state. Despite all the rhetoric, to some extent even Thatcher may have understood that, as public spending grew on average by 1% a year during her premiership.

None of these basic facts seem to be part of the leadership candidates’ economic thinking. Instead, the debate feels like a rehash of old ideas and old recipes, which seem to completely mismatch the problems the economy is facing in the 21st century. This may be for good reasons from the candidates perspective: As Chris Grey notes, rehashing pseudo-Thatcherite rhetoric may be determined by “the age and political reference points of the selectorate that will choose the next Prime Minister,” namely the Tory party membership.

Truss’s pseudo-Thatcherite economics: Can you tax cut your way to growth?

Liz Truss remains the frontrunner in the contest. Her economic policy seems to be summarised in the emerging slogan that “you can’t tax your way to growth.” Indeed, in most interventions she promises to start by reducing taxes, most importantly reversing the National Insurance rise brought in by her competitor Rishi Sunak, keeping corporation tax low, and putting a temporary moratorium on green energy levy.

Conversely, she strongly rejects what she calls ‘Gordon Brown economics,’ by which she means taxing people and them giving them back the money in handouts. The dig at the former labour leader is presumably meant as a broader rejection of socio-democratic economic policies, although the statement reveals either bad faith or a very limited understanding of redistribution (taxing to give back can make a lot of sense if the state taxes the rich to give to the poor, or to invest for instance). Regardless, the attack on ‘Gordonomics’ certainly is not meant to set out any substantive policy plan, but rather to also attack Rishi Sunak who has signalled support for government grants to people to help with the cost-of-living crisis.

It probably also serves as another attempt to show that Truss is Thatcherite. Yet, in that respect too the comment reveals a lack of understanding or a case of deliberate misconstruing Thatcherite policies. In fact, as Prof. Jacobs shows, Thatcher did not cut tax, but changed the tax system so that the rich would pay less (cutting the top rate for income tax from 83% to 40%), while the less well-off would pay proportionally more by increasing VAT from 8% to 15% (as well as NI). VAT disproportionality hits poorer people, because they spend comparatively more of their available income on consumption of goods and services subject to VAT. So, Thatcherite economics is not one of cutting taxes, but one of redistribution to the top.

Regardless, Truss’s proposed policy of taxing less in the hope growth with follow is still based on the same fundamentally flawed economic theory underpinning it. Indeed, the rationale for such a policy is that in conservative circles, rich people are seen as the ones who create economic growth by establishing businesses and investing, while the less well-off will benefit from economic growth thus created through a trickle-down effect. That sort of trickledown economics has long been debunked (as even the World Bank – one of its main promoters in the 1980s and 90s – now admits). But its benefits seem particularly questionable in a country like the UK, which heavily relies on consumer demand for growth. Taxing consumption rather than taxing income progressively (higher incomes paying more than lower ones) seems like a particularly questionable choice in such a context (which is also why austerity is a particularly harmful policy in the UK. More harmful, say, then in Germany, where the dominant export sector can compensate for lack in domestic demand).

Truss also objects to Sunak’s planned increase in corporation tax. Here the rationale is that reducing corporation tax will encourage investment. While radical cuts to corporation tax may in some cases attract substantive amounts of foreign direct investment (e.g. Ireland’s move from a 32% to a 12.5% corporation tax in 1999), that will only happen if other factors are reunited that guarantee that companies make additional profits as a result. In the Irish case, a key attraction of Ireland as destination for FDI was the fact that Ireland is an English-speaking country from which companies can service the EU market. An attraction that the UK has voluntarily abandoned with Brexit.

Foreign companies may still be attracted to the UK, e.g. to transfer profits made elsewhere here in order to save on the tax bill. But such ‘investments’ mostly constitute just in establishing headquarters or an office in the UK without leading to any productive investment or large-scale creation of jobs.

Similarly, existing UK businesses will hardly decide to invest any savings they would make due to a reduction in corporation tax, unless such investment were expected to increase their profits. For that to happen, evidence of increased demand for the firm’s products or services would have to be expected, something that is hardly the case in morose post-Brexit Britain as the above-cited IoD survey shows. In sum, the link between the level of business investment and of corporation tax is tenuous. Again, Prof. Jacobs points out that “Germany has a higher level of business investment than the UK despite a corporation tax rate of 30%, compared to the UK’s 19%.”

Even if we were to accept that tax cuts spur economic growth (and there are reasons to believe that they do not), there is still a question mark over whether an increase in aggregate GDP growth resulting from such cuts benefit all parts of society. Importantly, if tax cuts are to be squared with a relatively balanced budget, public spending will have to go down, which implies cuts in welfare spending and other public services that – once again – benefit the poorer strata of society most. Of course, the government could simply borrow more to finance make up for the gap left by tax cuts (something Sunak accuses Truss of), higher debt would mean more money spend on servicing the debt – especially as interest rates are increasing –, which again may affect public spending on welfare services in the long term. In other words, while a wealthy taxpayer in – say – Guilford may benefit from trading off a cut in public spending against an income tax cut, a taxpayer in – say – Ashfield may lose out given that wage income tends to constitute relatively lower and welfare payments relatively higher share of their overall income. In still other words, crude arguments about aggregate macro-economic figures will not level up the country and thus reduce the discontent that led to the divisive political culture we now have.

Be that as it may, evidence and past experience does not seem to matter for either of the Tory leadership candidates. Truss’s strategy seems to be to stay away from any concrete policy-making and instead dabble in vague but ideologically-loaded calls to arms. Thus, rather than agreeing to meet with her competitor Sunak and the CBI to discuss concrete solutions to the cost of living crisis, she promises to crack down on protests, unions, and measure to favour renewable energies. One can see how such a tough stance would please the European Research Group (ERG), but given the pressing issues the country and the world are facing the priorities are shockingly wrong. (Equally shocking is her lazy explanation for refusing the meeting, stating that Boris Johnson – currently on his second holiday of the summer – is the one still responsible for fixing the cost of living crisis).

Beyond taxation, Truss’s least Thatcherite economic policy is perhaps her alleged attack on central bank independence (CBI) considered by many a key feature of conservative economic policy making. CBI is meant to guarantee that monetary policy is shielded from political interference and from instrumentalisation of the economy for political gain. Truss announcement that she wants to change the BoE’s mandate. Some have seen that as a direct attack on central bank independence. However, Truss’s team seems to suggest that independence would be untouched by a changed mandate. According to the Spectator’s Ashworth-Hayes, what she may have in mind instead is either of two things: Either reducing the nominal target of keeping inflation at 2% to push the BoE to do more to fight it (which would inevitably mean further interest rate increases); or a shift from inflation targeting to nominal GDP targeting following the Japanese model. The latter shift would build into the BoE’s mandate an explicit mandate to consider the trade-off between inflation and unemployment. While economists debate the pros and cons of CBI as well as the benefits of inflation v. nominal GDP targeting, what is astonishing is the fact that which one of the two options the candidate to be the next PM has in mind remains subject to speculation by journalists.

Sunak’s pseudo-Thatcherite economics: Compassionate conservatism 2.0

Sunak’s claim to Thatcherite economics is somewhat different from Truss’s, focusing more on the social problems. Reheating the ‘compassionate conservatism’ idea, in one debate he warned against the impact Truss’s proposed policies would have on the poor. His economic approach focusses on two key pillars of conservative economics, namely ‘sound money’ and ‘balancing the books.’ Conversely, he is sceptical of tax cuts – at least at this stage of the economic cycle. He supports direct support to households rather than tax cuts as a way of dealing with the cost-of-living crisis, rightly pointing out that tax cuts are not much good if you are pensioner for instance.

Conversely Sunak pins his Thatcherite credentials on the monetarist idea that ‘sound money’ is key for economic growth, arguing – wrongly – that the ‘root cause [of the looming recession] is inflation.’ To be sure, inflation is a problem that needs to be taken seriously, but it is not the root cause of the recession, but a result of a supply shock caused by the War in Ukraine, the Covid pandemic, and in the UK case, Brexit. Therefore, the spike in inflation we are witnessing is clearly not primarily a monetary or a demand-driven phenomenon – as conservative economists usually see it – and addressing it will require other policy tools than interest rate increases.

To be fair, Sunak does not suggest addressing soaring inflation through interest rate increases. Indeed, he rejects the latter due to their negative impact on home owners with mortgages. In this respect, Sunak’s economic plan is even vaguer than Truss’s. His ‘plan to tackle inflation’ is a purely ‘negative’ one in the sense of saying what he would not do, rather than saying what he would do. Indeed, what exactly the policy tools are he would use to address inflation is unclear. It seems hardly thinkable that what he has in mind instead of increasing interest rates would be state-imposed price controls, which is the alternative treatment to interest hikes, but usually associated with interventionist left-wing economic policies.

Doubling down on the culture war

As always, when economic reality bites and solutions are few due to the commitment to Brexit and to (what even conservatives must admit are) pseudo-Thatcherite economics, conservatives turn to culture war to distract the public from the real issues. In recent weeks the ‘woke blob’ is once again frequently mentioned in a discourse that is nothing short of a conspiracy theory (see Chris Grey’s blog for a fuller account). Even the downfall of Johnson himself – obviously and evidently the result of the votes of conservative MPs and in no small measure only possible due to the actions of far-right European Research Group – is being blamed on a mysterious ‘woke blob.’

The woke blob conspiracy has also infected the leadership race. Truss seems to position her self as the anti-woke PM pushing Sunak down a similar path. Sunak reportedly promised to extend the meaning of extremism to include ‘vilifying the country’ a formulation that sets of alarm bells amongst some observers, and seems like a move worthy of autocracies like Thailand.

The fact that despite the pressing issues we are facing, the candidates for the leadership of the UK’s governing party rely on a conspiracy theory as their main programmatic point tells you something about the state of British politics.

However, in the context of the next General Election, the focus on the culture war may be a risky strategy. Some observers believe seeing signs that the British public – outside of a smallish group of vocal activists on both sides – has started tiring of the ‘culture wars.’ Hurling insults at alleged enemies may provide some relief from the frustrations of everyday life; long-term however, they will not fix the very real problems people are facing. Contrary to politicians, most people will not see any material benefit resulting from fighting the culture war and will turn to more concrete issues. The Tory leadership hopefuls would do well doing the same.

The long shadow of the Age of Empire

The lack of any serious debate about the economic issues the country is facing is extremely concerning in itself. What makes it even more concerning is that our media have been full for weeks and weeks with reporting about the Tory leadership race, which in fact is determined by a tiny minority of the population. The Tory membership is estimated at around 150,000 mostly male (63% - compared to under 50% in the entire voting population), mostly white (95% - compared to 83%), and older than average (57 years – compared to 40 years) British citizens. It is this group of people, amounting to roughly 0.3% of the population, that will decide who will call all the shots for at least the next two years. The rest of us are condemned to the status of bystanders.

It is tempting to blame this state of affairs on the archaic political system the UK has inherited from the ‘Age of Empire.’  After the ‘age of extremes’ (20th century), the world has entered the ‘age of crises’ – dominated by recurring economic, health, and above all ecological (climate change, biodiversity loss) crises. Yet, Britain’s archaic voting and party system disenfranchises the vast majority of the people and allows a narrow conservative political elite to continue entrenching old ideologies of national sovereignty and imposing the wrong kind of economics for a new era.

Those supporting Tory policies and values may rejoice in the almost complete control over who runs the country. Yet, the rise of UKIP and then the Brexit vote have shown what a destabilising impact this system has on the UK’s society. In the instance of Brexit, the blow to the cohesion of the UK has benefitted a new type of conservatives who grabbed control of the party. Another two years of economic recklessness may generate a blow to the cohesion of UK society so hard that even they may be among the losers. They will only have themselves to blame. The rest of us - who continue to be bystanders in the unfolding drama - will only have the consolation that the next blow may also finally wipe out the wrong kind of conservative economics.

Brexit Impact Tracker 16 July 2022 – Post-Brexit Labour Markets: Towards a high Wages, high Skills, high Productivity Equilibrium?

In lieu of the usual Brexit-related news roundup, this week’s Brexit Impact Tracker takes the form of an article I wrote together with my colleague Chiara Benassi from King’s College London for the Encompass Europe Ezine.

We discuss the government rhetoric about a post-Brexit high wage, high skills, high productivity economic model and what it would take to achieve this if the next government were serious about it. Read the article here.

This is the last BIT post for about a month, as I will be on holidays and then travelling for a conference. Happy summer everyone and thanks for reading my blog!

Brexit Impact Tracker 5 July 2022 – Has the Brexit Countermovement Begun?

Last week in Brexit Britain started with the second reading of the Northern Ireland Protocol Bill (NIPB), which by most accounts – including perhaps unsurprisingly but importantly the EU’s Ambassador to the UK – constitutes a clear violation of the UK government’s obligations under international law (‘most accounts,’ but significantly not the one of the Foreign Secretary Liz Truss who replied to a question by John Redwood about the NIPB’s legality that she could ‘absolutely confirm that this Bill is both necessary and legal’). As such, the strong support among Tory MPs for Bill (the bill passed with 295 votes to 221) and the limited outcry about a bill that is widely considered illegal and demonstrating that the UK government is acting in bad faith seemed to confirm a Brexit effect I have been blogging about for a while now: Namely, that Johnson’s government is successfully using Brexit to fundamentally push the boundaries of what is acceptable in British politics.

NIPB: Wither the liberal international order

The political dynamics internal to the Tory party governing the NIPB are complex (authoritatively summarised by Chris Grey on the Brexit and Beyond blog); But at a general level, the fact is that breaking international law does not generate enough opposition inside the parliamentary Tory party anymore to stop the government from pressing ahead.

The UK Parliament acquiescing to the fact that the UK government breaks its commitments made under international law is a stark reminder that with Brexit the UK has left the realm of ‘normal times’ and entered into a permanent state of exception where the government puts itself above the law referring to the ‘doctrine of necessity’(See BIT from a couple of weeks ago).

That is a very significant and worrying development. The modern world relies on a post-classical concept of international law that emerged as a reaction to the horrors of World War 1 and replaced the ius publicum Europaeum which governed the international order since the birth of the nation state in the 17th century. The latter was still based on a fairly absolute notion of sovereignty in the international realm, including a right to wage wars on other nations without ‘just cause.’ The post-WW1 international legal order sought to define sovereignty more narrowly and to increasingly subject national governments to the self-limiting force of the Rule of Law not just domestically but also in the international realm. This order is far from perfect. It has not prevented neo-colonial exploitation, proxy wars, and the like. Yet, at the very least, the rules-based international order imposed on governments the civilising force of hypocrisy by holding them publicly to account for the respect for certain basic norms – including the European Convention of Human Rights.

For post-WW2 generations the importance of that change in the conception of sovereignty has perhaps become fully evident with Russia’s imperialist war of aggression on Ukraine. Russia’s behaviour on the world stage is based on the concept of ‘might over right,’ which the liberal order was precisely seeking to reign in. The UK under Johnson very clearly adheres to a Russian understanding of sovereignty in international politics, where force and power not law and right dominate.

Last week started hence with a shocking example of how, under the mantel of nationalism, Britain is betraying what can be considered one of its most fundamental values, namely the respect of the Rule of Law, which – as Thomas Aubrey argued in an article on the Encompass Europe web page –  set apart 18th century Britain from literally all other European countries. On Monday, the majority of the British Parliament happily supported the government in rejecting the principle of a self-limiting force of international law and instead adhered to what increasingly seems like a self-righteous form of British imperialist unilateralism.

Yet, the week ended with a piece of Brexit news that starkly contrasts with this episode and suggests that more than a year of devastating Brexit news has started setting in motion a countermovement to Brexit. On Sunday, the FT reported that Kier Starmer would announce that Labour was ‘ready to fight Boris Johnson over effects of Brexit.’ While the 5-point plant to ‘make Brexit work’ was strongly criticised by some for ruling out a return to the Free Movement of People and Single Market membership, the plan still constitutes a very clear break with Labour’s previous strategy of treating Brexit like a taboo. Labour’s strategic volte-face illustrates just how badly Brexit is going. Indeed, the economic damage is so massive and obvious now that the fear of losing the support of the estimated 30% of leave voting labour supporters may be receding. Indeed, a countermovement seems to be happening not just in the realm of politics, but also in the public discourse on the impact of Brexit on the UK economy.

The end of the Brexit Omertà

A key evolution in recent weeks has been the increasingly broad range of commentators, politicians, and journalists who openly and vociferously acknowledge that Brexit is turning into an economic disaster. These voices are no longer limited to Remainers, but include some high-profile Brexiters. For the first time since the 2016 Referendum and especially since Johnson became PM in 2019, politicians of all colours feel able to break the ‘don’t mention Brexit’ conspiracy of silence. Indeed, some of these voices now sound outright terrified. Thus, the Telegraph’s Jeremy Warner used stark language to warn of an impending ‘currency crisis’ and even Britain defaulting on its foreign debt for the first time in history. Importantly, he attributes Britain’s economic woes to a deteriorating current account balance, driven by a decrease in exports and a ‘big leap’ in imports, which in turn he considers ‘is at least in part a Brexit effect’ and a result of ‘the flaws in Boris Johnson’s “ovenready” trade deal with the EU.’

Another more and more often mentioned very concerning Brexit effect is the continuing devaluation of the British pound sterling against other currencies most notably the US dollar (with the first six months of 2022 marking the worst run against the dollar since 2008 [@17’00”]]). This evolution has been squarely blamed on Brexit by financial professionals interviewed on BBC radio 4’s Today Programme. Indeed, even though the Euro performed badly against the dollar too, there can be little doubt that Brexit uncertainty is the main culprit for the extraordinary weakness of the pound since the Referendum. A few weeks ago, Bank of American argued Sterling was moving into emerging market territory in terms of volatility.

Superficially, the weak pound could be seen as good news for the government’s plan to turn the UK into an export economy. Yet, Chris McDonald, Chair of the UK Metals Council, explained on BBC’s Radio 4 Today programme [@17’08] the ambiguous effect of the weak pound on UK industries such as steel: While there may be a short-term beneficial effect on exports, which become cheaper for foreign buyers who pay in dollars, raw materials such as iron ore and imported energy on which the UK steel industry relies heavily become more expensive, potentially off-setting any positive effect.*

The weak pound also contributes to the UK’s soaring inflation. Laura Foll at Janus Hendersons Investors, interviewed on the same programme [@20:30], left no doubt that the fall of Sterling against Dollar falling from a long-term average of 1.50 to 1.20 is the result of Brexit. Since Brexit the UK economy has lower growth prospects, higher trade frictions, and lower labour market flexibility, which leads to higher imported inflation.

More important perhaps than the substance of these economic analyses is the fact that the BBC spent most of its economic section on Today talking about the negative impact of Brexit. In fact, the UK’s economic outlook now looks so dire that even the Murdoch press can no longer deny it, as former Conservative deputy PM Michael Heseltine argued in the Guardian.

The start of the political countermovement: Labour’s volte-face

The past week ended with a piece of Brexit news that starkly contrasts with this episode and suggests that more than a year of devastating Brexit news has started setting in motion a political countermovement to Brexit. On Sunday, the FT reported that Kier Starmer would announce that Labour was ‘ready to fight Boris Johnson over effects of Brexit.’ While the 5-point plant to ‘make Brexit work’ was strongly criticised by some for ruling out a return to the Free Movement of People (FMP) and Single Market membership, the plan still constitutes a very clear break with Labour’s previous strategy of treating Brexit like a taboo. Labour’s strategic volte-face illustrates just how badly Brexit is going. Indeed, the economic damage is so obvious now that the fear of losing the support of the estimated 30% of leave voting labour supporters may be receding.

Indeed, in light of the emerging consensus that Brexit is not working, it may come as no surprise that Labour finally decided to come off the fence and present its strategy for Brexit. In a context where around 49% of the population think Brexit was a mistake, starting to attack the government on its delivery of Brexit makes good political sense. What is perhaps more surprising – and disappointing to many – is that the five-point plan does not include re-joining the Single Market – let alone the EU  – as part of the plan.

Clearly, Starmer and the Labour strategist still seem to prioritise regaining the heavily leave-voting ‘Red Wall’ constituencies in the North and Midlands of England over appealing to more urban and younger voters. That strategy comes with some risks, most importantly that on the Brexit issue, Labour will be outflanked by the LibDems who have adopted a much clearer ‘re-join’ strategy. Starmer’s key concern seems to be that his past stance on a second referendum may make him an easy target for the Conservatives in the next General Election to portray him as a crypto-rejoiner. That may certainly explain the very strong and clear language Starmer chose to exclude any re-joining the EU under a potential Starmer Premiership: “With Labour, Britain will not go back into the EU. We will not be joining the single market. We will not be joining a customs union. We will not return to freedom of movement to create short-term fixes.”

To be sure, many Remainers will be disappointed by this cautious and lukewarm attitude and will object to the slogan ‘make Brexit work’ as a matter of principle. Yet, like I argued back in November, it may it still make political sense for Labour to not explicitly campaigning on re-joining, but rather on improving the current Brexit arrangements. For anyone competing against what will most likely be a Brexit Ultra as Conservative candidate for PM it will be enough to insist that hard Brexit is not working and alternative solutions are needed. Whether, when, and how that does or does involve rejoining is certainly not a question that the next government will have to answer during its first term. Some strategic ambiguity on the issue is hence appropriate here. Whether Starmer had to be just as explicit about rejecting the possibility of SM membership and FMP is another question. While this may attract some Red Wall working class votes, it may push younger, urban Labour voters in the arms of the LibDems. From a non-partisan perspective, however, Labour not campaigning for rejoining may make the next GE more difficult for the Tories who will not be able to portray themselves as the only ‘anti-rejoin party.’ Instead, they may face the same dilemma they faced in the last two byelections where anti-Brexit Blue Wall voters turned to the LibDems while pro-Brexit Red Wall voters returned to voting Labour.

The rats are leaving the sinking ship

All these political strategies may become more than academic reflections soon. As I am typing these lines, news reach us about the fallout from the latest scandal involving the PM – Pinchergate. This time Tory MP Chris Pincher stepped down from his role as deputy chief whip – although refusing to resign as MP – over what sounds like an alcohol-fuelled sexual misconduct mid-week last week. Once again Johnson’s good judgement is in question for having appointed Pincher to a position of overseeing the behaviour of other MPs despite his chequered track record of inappropriate behaviours in the past. Once again Johnson has tried to wiggle his way out of the scandal by first telling what looks like a lie about how much he knew about previous allegation of sexual misconduct against Chris Pincher, and then retracting and instead saying that he had forgotten about being informed about them.

Within the last couple of hours, both Health Secretary Sajid Javid and Chancellor Rishi Sunak as well as vice-chair of the Conservative Party Bim Afolami – together with several aids and junior ministers – have resigned from their positions. Most observers seem to agree that it will be extremely difficult for the PM to recover from this blow. The BBC cites one ‘close ally’ to the PM as saying ‘it will all be over by this time tomorrow.’

The looming end of PM Johnson reinforces the feeling that we are about to enter a new phase of Brexit. The developments over the past week – Labour finding the courage to take a stance on Brexit (albeit a rather cautious one), more and more right-wing outlets and politicians acknowledging the failure of Brexit – make one hopeful that this new phase will see a more honest debate about Brexit emerge. One that is concerned with reality rather than fantasies.

A key open question, of course, is who will replace Johnson as PM. The bookies’ favourites seem to be Rishi Sunak, Penny Mordaunt, and Liz Truss with Jeremy Hunt also considered by some as a potential candidate. While Mordaunt has a track record of pro-Brexit campaigning – including lying about a UK veto on a potential membership of Turkey –, Truss – an erstwhile Remainer – has spent the past weeks desperately trying to proof her Brexiteer credentials by becoming more and more intransigent on the issue. Sunak would certainly be more pragmatic – not to say opportunistic – on the issue, but would possibly push hard on the de-regulatory aspect of the Brexit project, which may make solutions to current Brexit issues (such as an agreement on Sanitary and Phytosanitary Rules, as Labour promises) more difficult, because most of them will require some regulatory alignment. Hunt, also a Remainer before the 2016 Referendum, would probably be the softest Brexiter of those seen possible candidates to succeeding Johnson, which would potentially make Starmer’s new Brexit plan less distinct and effective electorally speaking.

If a more extremist Brexiter succeeds Johnson, Brexit as a fantasy may persist for some more time. Indeed, while The Mail and other pro-Brexit outlets have started reporting more critically about Johnson’s Brexit, The Sun is reigniting the culture war aspect of it. Last week, the paper launched a ‘Remoaner Watch’ web page where anyone who is suspected of ‘Remoanery’ – i.e. any activity seeking to mend our relationship with the EU and addressing the pressing issues created by the UK’s departure from the bloc – is listed and denounced. If a Brexit Ultra becomes the next PM, they would most likely double down on such strategies, because the economic case for Brexit has become practically impossible to make.

That would only delay the inevitable, however, which is that eventually Brexiters will have to say goodbye to their fantasies of ‘sovereign,’ ‘Global Britain’ and start working towards a different (closer) post-Brexit arrangement with the EU. Whether or not that necessarily has to mean Single Market membership as some argue or even re-joining, is not the most important question at this stage. The most important one is whether the developments we have witnessed in the past week are transient or signs that a genuine, broadly-based countermovement against the pernicious movement that brought us Brexit has finally set in. If it has and if it gathers pace, there may be an opportunity for the UK to get back on track after more than a decade on a road to nowhere.

* The steel industry illustrates another Brexit government misunderstanding of the modern global economy: the government’s decision to maintain Trump-era tariffs of 25% on steel imports, may protect some British steel exporters, yet, as people from the industry pointed out on Today [@6’20”] last week, many downstream companies in the UK  depend on steel imports from the EU. For them, the import tariffs make production more expensive and constitute a competitive disadvantage. The simplistic understanding of international business underlying Brexiter thinking does not take into account such nuances.

BIT 28 June 2022 - Anti-Rights Brexit

Boris Pilgrim celebrated the sixth anniversary of the Brexit Referendum last Thursday 4,000 miles away in Kigali, where – incidentally – his government wants to send asylum seekers. There was of course not much to celebrate for the Prime Minister on that day, as the very same morning it become clear that his Conservative party had just lost two byelections to two different opposition parties in two different areas of the country. In the North of England in Wakefield, Labour’s Simon Lightwood managed to overturn the symbolically important Tory majority from the 2019 General Election, giving Labour hope that the “Red Wall” may not be lost for ever. On the same day, further south in Mid Devon, Liberal Democrat Richard Foord achieve a truly historic result by overturning the largest Conservative percentage majority in the previously ‘true blue’ seat of Tiverton and Honiton.

These results have to be seen in context of course. Both byelections were triggered by different forms of (sexual) misconduct by the previous Conservative MPs and in both cases, turnout was relatively low (52% in Tiverton and Honiton and a mere 39% in Wakefield). So, the results should perhaps not be overestimated. Still, coming on the symbolically important date of 23 June, they carry at least symbolic weight by illustrating that the coalition that brought Johnson to power and allowed him to take the UK out of the EU is crumbling on both ends, i.e. in the Red Wall that Brexit has turned blue for the first time in the 2019 GE and in the ‘Blue Wall’ that is supposedly unconditionally Conservative. That will come as no surprise to all but the staunchest reality deniers, as it is difficult to see what good Brexit has done to anyone in the six years since it has become official government policy. But then, the reality deniers are still many.

Brexiter economics

In terms of its economic impact Brexiters are wavering between claiming that the impact of Brexit is easy to assess and obviously positive, as Robert Tombs has recently done, and saying it will never be possible to tell due to the multiple confounding factors at work, as David Frost has done at the UK in a Changing Europe annual conference. Both views reveal the deep economic ignorance – or deliberate obscurantism – of Brexiter economics.

That economic obscurantism was also illustrated in parts of a new report by the Centre for Brexit Policy, which Chris Grey in this week’s Brexit & Beyond blog has done a very fine job deciphering and debunking. Suffice here to just underscore that flawed economic thinking underlying Brexiter views on trade, which are incarnated in the person of economics professor Patrick Minford whose extravagant views on trade policy continue to defy the state of the art in the discipline (I have written about his views before).

Another piece of evidence about Brexiter economic obscurantism comes from Robert Tombs – an emeritus professor of history -  who confidently ‘debunks’ ‘Remainer’ arguments about the negative impact of Brexit on the UK economy. His counter arguments against the evidence of a damaging Brexit effect on the UK economy are the usual flawed ones. Most fundamentally, Brexiter economics continue to ignore (or misunderstand) that the relevant benchmark to assess whether Brexit is having a positive or a negative impact on the UK economy is not to cite percentage changes from one period to the other but comparing the UK’s current trends to the counterfactual of a UK that has remained a member of the EU. Thus, Tombs’ argument against the claim Brexit has impacted UK exports is based on the fact that “from January 2020 to May 2022, eurostar freight volumes rose by 5%.” We can discuss the relevance of that single data point more generally, but the fundamental flaw is that however much freight volumes have changed from one period to the other, that does not tell us anything about whether or not Brexit was a success or a failure. The only measure that can tell us that is the counterfactual about what the freight volume (or any other measure of economic activity) would have been without Brexit. Whether or not Eurostar freight volume belie Remainer concerns as ‘project fear’ depends on whether these volumes would have been higher or lower had Brexit not happened.

Comparing actual figures to counterfactuals is of course tricky. Here, Frost is closer to reality when arguing that du to all the confounding factors – such as the pandemic and the war in Ukraine –  “it is hard to be confident what if any changes in UK trade are due to Brexit.” Yes, establishing causality based on macro-economic figures is tricky in the best of times. It is even trickier when several other major shocks happen at the same time. It is tricky, but not impossible. The Centre for European Reform has started publishing Brexit impact studies that uses the so-called “Doppelgänger approach” – or by its scientific name the Synthetic Control Method – to solve the issue of counterfactual by comparing UK trends to those observed in most similar cases that are distinguished from the UK by the fact that their relationship with the EU Single Market has not changed.

In his UK in a Changing Europe speech, Frost explicitly rejects that methodology referring to Graham Gudgin’s article on the pro-Brexit Policy Exchange platform. Gudgin in turn presents a series of intuitive objections to the SCM approach related to the way in which the synthetic control case is constructed. Gudgin’s alternative to the SCM, however, seems to be to simply compare the aggregate GDP growth trends across G7 countries by literally eyeballing the yearly percentage change on charts.

Rejecting the attempt to develop a sophisticated method to compare current trends to counterfactuals seems like a great leap backwards in terms of econometric sophistication. Indeed, the SCM is arguably at the cutting edge of empirically investigating causality with econometric methods, for which David Card has received the Nobel Prize in Economics in 2021. While the way the CER implements the SCM approach in its analysis of Brexit may not be beyond reproach, academic studies applying the method to the case of Brexit clearly are without a doubt the most solid empirical studies of the impact of Brexit on UK trade and the economy that we have. For instance the work by Huw Edwards and Mustapha Douch (usefully summarised in their written evidence to the Parliament) shows at least two important things: Firstly, due to an anticipation effect, Brexit started impacting the UK’s trade patterns long before Brexit and indeed the Referendum actually happened; and secondly, that the impact has been underestimated due to the fact that it started earlier than most econometricians expected and because it also affect the trade intensity of EU countries.

In short Frost’s and Gudgin’s attack on the CER studies, while certainly politically motivated and hence independent of the actual methodology they use, is not only insulting to anyone who has spent much time learning statistics and econometrics to improve the ways in which social scientists investigate causal linkages in complex social phenomena, such as trade, but it is also a dangerous form of obscurantism. Gudgin’s suggestion that all we need is some headline figures and excel graphs to compare different countries is the economic equivalent to claiming that all it takes to run a modern society is ‘common sense’ and that any form of expertise is just an attempt by some elite to cloak the pursuit of their selfish interests into scientific-sounding language.

“Funny Numbers”

Despite the continuous denial, the fact that Brexit has failed to deliver was made crystal clear this week by the man whose job it is to hunt for Brexit benefits, namely our Brexit Opportunities and Government Efficiency Minister (BOGEMin) Jacob Rees-Mogg.

Only in a country deeply riven by ideological divides and where public opinion is dominated by a reality-denying right-wing tabloid press can his frankly ludicrous attempts to justify Brexit seen as anything else than an admission of abject failure of the project. In an astonishing interview with LBC’s Rachael Venables he tried to give examples of how EU regulation has had devastating effects on the UK. The example he managed to come up with were the ‘funny numbers’ that we were obliged to have in tunnels due to the translation of distance measures in meters used in EU regulations into yards as applied on UK roads. In terms of economic Brexit benefits, the newest addition to the list of things that have made it worth it is a discount on imported fish fingers (or rather, the alleged avoidance of a 2% increase in their price). Again, only in Brexit Britain can a figure like Rees-Mogg and an official role like that of the BOGEMin be taken seriously rather than something taken straight out of some wired Monty Python sketch.

Other than 2% cheaper fish fingers and tackling ‘funny numbers’ head on, after six years and a lot of searching, the BOGEMin himself has nothing to offer by way of Brexit benefits. While he launched a fierce attack on the Resolution Foundation’s damning new The Economy 2030 Inquiry, he simultaneously refused to commit to his office providing any evidence for the benefits of Brexit, stating that all reports of Brexit damages so far had been ‘bilge.’ Economic reality and statistical evidence are not kind on Brexit and the BOGEMin knows it. But he won’t let that get in the way of his mission of claiming the opposite and therefore has now formalised his previous attempts to get people involved in the Brexit process by telling him which retained EU law they would like to see repealed. This week he launched a shiny new web page called the Retained EU Law Dashboard. On that web page, anyone can click through the various departments and identify which EU directives still are incorporated in UK law. That makes it easy for anyone to tell our BOGEMin which parts of UK law we would like to take back control of as a priority.

This is the clearest sign yet that regulatory divergence from EU rules is increasingly becoming an end in itself rather than a means to an end. Indeed, with economic reality stubbornly resisting Brexiters’ economic strategy of creating economic growth and prosperity by sheer force of will and unbending nationalist optimism, Brexiters seem to start creating measure of Brexit success that they can control directly. The dashboard provides that measurement: There are currently 2,400 pieces of EU legislation still incorporated in UK law. The BOGEMin promises to publish data every three months to show how many changes have been made to these pieces of legislation. Contrary to unemployment figures, real wages, business investments, etc. this is a figure that the government can control as it sees fit. So, we should brace ourselves for regular reports extolling the government’s resolute action in repealing everything European from UK law and claiming that it is working hard on implementing Brexit. But of course, for that resolute action to impact our lives we need to be patient; and while we wait for the UK to recover from EU regulations, we should continue voting for the Tories.

The most worrying bit of the BOGEMin’s approach to regulation is that this week he has shown how very deeply ignorant he is about why any civilised country needs laws and regulations. Thus, he asked rhetorically: “If the equipment is safe and works, why does it need a product specific regulation?” It is not entirely clear whether that statement reflects his own cognitive abilities, or merely how stupid he thinks voters are. Regardless, what it does clearly reveal is that Brexiters deregulation zeal is based on an extremely naïve conception of how modern economies and societies functions (as I have argued many times before, e.g. here). The government’s wilful ignorance of the role of regulations in modern economies also means that the government is setting up the UK civil service for failure. It’s strategy to starve the civil service of funding – in the name of shrinking the state – may very well backfire when it comes to trying and realising any Brexit benefits from regulatory divergence in areas where these may be possible. In other words, it’s hatred of regulations may rob the government of the ability to capture the few Brexit benefits that are up for grabs through reasonable regulatory divergence.

Despite all the silly and at times almost cutely naïve arguments, Brexiters are dead serious when it comes to resolutely pursuing their goal, which increasingly obviously encompasses restraining the most basic rights of British citizens.

Brexit is bad for democracy

As a result of the elusive nature of economic benefits, Brexiters increasingly turn towards other justification for Brexit. Top of the list of non-economic Brexit benefits is its alleged beneficial impact on UK democracy. The gist of that argument is this: Yes, Brexit may not have delivered economically speaking, but it never was about economics anyways, but about freedom, democracy, and sovereignty. This argument has been reiterated again by Rees-Mogg and Frost this week. In his UK in a Changing Europe keynote, Frost stated that: “Brexit is about democracy.  That is a crucial test.  The few reliable polls about the drivers of the referendum result show that the most important was ‘to ensure that decisions about Britain are taken in Britain’.” Similarly, according the HuffPost UK, the BOGEMin “always thought [Brexit is] all about democracy. Can you change your government, can you make decisions about how you are governed? That is the big and overwhelming advantage of Brexit.” Even Business Secretary Kwasi Kwarteng had to resort to alleged political benefits – in his case the UK’s role in Ukraine – rather than economic benefits to justify Brexit. Other ministers too were struggling to come up with any economic benefits and refer to the repeal of EU law and the new UK ‘Bill of Rights’ that the justice minister introduced this week in Parliament.

Yet, the latter is precisely a prime example that Brexit is not just bad for our economy, but also our democracy. It is the latest and perhaps most symbolic step in how Brexiters are undermining our basic rights. While the UK Bill of Rights is being spun as legislation promoting human rights, in effect it constitutes a repeal – or at least weakening – of the Human Rights Act (HRA) of 1998, which for the first time made the rights enshrined in the European Convention of Human Rights (ECHR) enforceable in UK courts (detailed analysis of the history of the EHRC, the HRA and the proposed Bill of Rights can be found on David Allen Green’s and Mark Elliott’s excellent blogs). The Bill of Rights reverses the achievements of the HRA, making it more difficult and costly for individuals to seek redress for alleged violations of their rights. This continuous a worrying trend that I have written about before and includes the new Police, Crime, Sentencing and Courts Act, which has now become law and was used by Police as one of the first acts under the new powers to seize anti-Brexit protestor Steve Bray’s loud-speaker.

Workers’ rights

Our rights are under attack on another front as well, namely workers right to collective action. Indeed, the past weeks have been marked by what some have started to call the beginning of a summer of discontent. Last week, railway staff walked out for three days of strike and London transport staff for one. This week, barristers – not exactly typical representatives of ‘left agitators’ – went on strike as well. In all cases, working conditions, pay, and job security are at the heart of the dispute. Barristers for instance claim that their real term salaries have declined by 28% since 2006. According to the Resolution Foundation, due to Brexit, things are going to get worse still for UK workers. The next professions to consider industrial action are medics, who also claim real term pay cuts of 30% since 2008 and Royal Mail staff.

Despite the widespread discontent and the evident worsening of working conditions in various sectors that also lead to problems of retaining staff and recruiting to these key positions, the British media have largely used the strikes to bash the unions. A BBC journalist, for instance, challenged the legitimacy of the strike by accusing Kirsty Brimelow QC, deputy chair of the Criminal Bar Association, to make the already stretched criminal justice system ‘function much less well’ (@51’33”) with the industrial action. Conversely, the journalist did not mention consecutive government cuts to the funding of the criminal justice system, which have brought it to the brink of collapse and caused the strikes to begin with. Instead, the focus is squarely on the industrial action and the blame is shoved onto the professionals fighting for their livelihoods.

This is a now familiar pattern. The same discourse of the illegitimacy of people fighting for their living standards and working conditions was widespread during the railway strike – most prominently of course in the right-wing press. The government spent much of the past week calling on Labour to condemn unions and strikes. Shamefully, it succeeded into pushing Labour leader Kier Starmer to ask Labour MPs to stay away from the picket lines and shadow cabinet member David Lammy announced that he would not support British Airways workers going on strike. (Union leaders and some journalists on the other hand did a fine job defending unionism, some of them hitting it out of the park e.g. here and here).

Given the rampant anti-unionism, it is little wonder that the government felt empowered to start an attack on union rights rather than trying to address the very real issue working people are facing. Thus, its response to the rail strikes was a law that allows it to replace striking workers with agency workers, thus considerably undercutting union power.

The government’s appalling hypocrisy – or economic illiteracy – was made worse when Dominic Raab at the same time goes onto BBC4’s Today programme (@8:20:19) to proclaim that the government’s goal is creating a “high wage, low employment economy.” Given that historically high wages virtually always go together with strong unions, the UK government’s anti-unionism seems in direct opposition to its stated goal.* in that context, perhaps the government considering relaxing an EU-era cap on banker bonuses is  part of the strategy to make average wages increase (although even the BOGEMin understood that such a move in the middle of a cost-of-living crisis might be ‘insensitive’).

So, six years after the referendum we are facing a situation where Brexit is doing real damage to the British economy, instead of acknowledging that and trying to find solutions, the UK government makes extravagant claims about the positive impact of Brexit on UK democracy, which fly in the face of everything it does regarding our basic rights. The negative economic effects of Brexit are more and more obvious, but as Brexit is increasingly turning into anti-rights Brexit, it is also becoming clear that they may not be the worst effect that Brexit is having on the country.

* Indeed even with reduced power, unions lead to wage premiums for their members, contribute to limiting wage inequality, even though the aggregate effect is positive only if wage increases are in line with increased productivity (see here)

Brexit Impact Tracker - 19 June 2022 - Boris Pilgrim v. the World. Towards an Extremists’ Brexit?

According to the Irish Taoiseach Micheal Martin, this week Brexit has reached a new low. The Government published its Northern Ireland Protocol Bill (NIPB), which is considered – outside the fantasy world created by Brexiters – a terrible piece of legislation which triggered a further worsening of UK-EU relationships after Brexit. Indeed, the EU’s reaction was immediate – including resuming legal action against the UK over the unilateral extension of ‘grace periods’ on border checks last year. Domestically, the NIPB is the latest sign that the Brexit extremists have regained full control of a project that increasingly goes beyond the narrow goal of exiting the EU and is morphing into a fully-fledged attack on the rules-based international order as a whole.

The NIP Bill

While most Tory MPs seem to back the NIPB, outside the Brexiter bubble it is mostly considered a reckless act undermining an important piece in the institutional post-Brexit arrangements. For instance, in a letter to the PM Pro-Protocol Members of Legislative Assembly of Northern Ireland acerbically stated that the Protocol ‘[…] offers clear economic advantages to our region, and the opportunity for unique access to two major markets. The fact that you have removed this advantage from businesses in Great Britain, at a clear economic cost, does not justify doing the same to businesses in Northern Ireland.’ The letter also decries the grotesque political contortion that consist in complaining about the lack of cross-community support for the NIP, when Brexit was imposed on the region without even having majority support.

However, all the implorations will of course be in vain, because the latest escalation around the NIP issues have very little to do with any attempt to solve the real-world problems caused by Brexit. Rather, Northern Ireland and its people are increasingly becoming pawns in the Tories’ sinister political schemes.

Chris Grey’s excellent summary of the developments around NIPB in this weeks Brexit & Beyond blog identifies two ways in which to understand the legislation. The first one is to see it simply as an expression of ‘Tory factionalism’ and the return of the fanatics of the European Research Group to centre stage of internal Tory party politics. This is the result of Johnson’s weakness and the view amongst his potential successors – chief amongst which Liz Truss – that ERG support will be key in the next Tory leadership race.

The second one is to see the NIPB as the expression of how Brexiters see the post-Brexit relationship between the UK and the EU. Brexiters may genuinely believe that unilateral grandstanding that shows that the UK government will stop at nothing to get what it wants is the way to achieve the best possible outcome for the UK. This is akin to the so-called ‘madman theory’ of foreign policy which consists of making people believe you are crazy enough to do the unthinkable to make sure they give you what you demand. None is better placed to incorporate this foreign policy approach than PM Boris Johnson.

To these two immediate purposes of the government’s NIP approach, I would add the overarching and longer-term purpose. While the pursuit of one’s personal interest at any cost and without regard for its impact on the country and its citizens is a hallmark of Johnson-style ‘Egocracy’ and while a ‘madman’ world-view clearly underpins Brexiter thinking about how the world works, both imply more fundamentally that any constraint on British politicians exercising their powers are by definition illegitimate. This in turn is grounded in a deep-seated belief in British superiority, which in turn results in a strong opposition to and contempt for the current rules-based world order amongst British and English nationalists. As such, Britain – in the hands as it is of fanatic Brexiters – is increasingly becoming part of the problems the world is facing rather than a solution to them. Everything hints at the fact that as long as the Brexit fanatics play such a crucial role in the governing party, things will only get worse. This is illustrated by the continuing democratic backsliding Brexit has initiated and by the fact that Brexiters are now looking for new international treaties to renege.

The ‘Re-Tudorisation’ of British democracy

I am not going into the content of the NIPB, because there has been a lot of analysis and comments by lawyers that cover all the important aspects in detail (e.g. Prof. Elliot’s excellent blog or David Allen Green’s analysis). What I want to focus on here is the contribution of the NIPB – if passed into law – to what I perceive as a continuing democratic backsliding of the UK akin to what is happening in countries further to the East. In this process, the NIPB constitutes another step into the direction of concentration of power in the hands of the executive branch of government and an undermining of Parliament’s power to oversee executive action. Thus, the Hansard Society has noted the extensive use in the NIPB of Henry VIII clauses, ‘that enable ministers to amend or repeal provisions in an Act of Parliament using secondary legislation, which is subject to varying degrees of parliamentary scrutiny.’ In fact, clause 22(1) of the NIPB converts ‘every regulation-making power in the Bill’ into such a Henry VIII power, stating that ‘Regulations under this Act may make any provision that could be made by an Act of Parliament (including provision modifying this Act).’ The Hansard Society also notes that the terms that are used for giving ministers powers to regulate under the NIP are vague and set a low bar for ministers to exercise discretion. Thus the bill gives ministers the power to make ‘any provision the Minister considers appropriate in relation with’ the NIP, rather than requiring that the provision be considered necessary.

The thesis of democratic backsliding is further confirmed by an interesting difference between the EU Withdrawal Act (EUWA) and the NIBP: The Hansard Society notes that in the former, powers equivalent to the ones in the NIBP were still subject to some Parliamentary scrutiny safeguards, while the NIBP does not have any such safeguards. Indeed, the bill also implies that if the Protocol were to be negotiated with the EU, such a renegotiated version could be implemented through regulation without Parliamentary scrutiny.

The impression of another power grab by the government is reinforced by clause 18(1), which states that ‘A Minister of the Crown may engage in conduct in relation to any matter dealt with in the Northern Ireland Protocol (where that conduct is not otherwise authorised by this Act) if the Minister of the Crown considers it appropriate to do so in connection with one or more of the purposes of this Act.’ Hansard Society considers this clause another case of the extension of sub-legislative ministerial activity that the House of Lords has criticised in its Democracy Denied report.

As such, the increasing use of Henry VIII powers and other subtle (or not so subtle) ways of liberating the government from parliamentary oversight and accountability means we are witnessing little by little the ‘re-tudorisation’ of British law and politics, i.e. a shift towards a system where power is centralised and absolute (albeit this time in the hands of the PM not the Monarch).

Of course, I am exaggerating somewhat. The additional powers given to ministers under the NIPB in themselves may not constitute a revolution; but seen in the context of what Johnson’s government has done since 2019, they constitute a few additional stabs that may contribute to British democracy’s death by a thousand cuts.

Beyond Brexit and the NIP: Britain’s attack on the rules-based world order

The dissatisfaction of Brexit fanatics like David Frost and David Davis, who see Johnson’s hard Brexit as Brexit in name only (or as Davis put it this week ‘a Remainers Brexit’) rather than the hardest possible version of Brexit short of a no-deal scenario, has been evident for some time. Having successfully completed the takeover of the UK’s NIP policy (as Tony Connelly puts it), the Brexit fanatics in the Tory party seem to be setting their sights on the next target. Here, the saga around the Home Office’s Rwanda policy and the European Court of Human Rights’ (ECHR) ruling to block the first deportation flight of asylum seekers from the UK to Rwanda provides interesting insights.

Unsurprisingly to Brexiters – like journalist Douglas Murray – the fact that the ECHR could overrule a policy adopted by the UK government is a sign that the UK has ‘only half Brexit-ed.’ Given that the ECHR is completely independent from the EU and that the UK is still part of the European Convention of Human Rights (the Convention), that Tweet shows either an astonishing level of ignorance or of bad faith. Either way, it also shows that what Brexiters are struggling to accept is not so much the EU per se, but any instance that prevents the UK government from doing as it wishes. The commonality between the EU and the ECHR is of course that they both impose the judgement by international or supranational courts on members states (the European Court of Justice in the former case, the ECHR in the latter). However, let us not forget that Brexiters’ reactions to rulings by domestic judges are no different from the hostility they show towards international ones. The only difference is that in the former case the judges opinions are rejected because they are foreigners (as one Express reader – evidently parroting Farage’s narrative – put it: “I don't think we need a unelected Russian or Estonian or French lefty overruling UK law”),* while in the latter case they are rejected because they are ‘lefty lawyers’ and enemies of the people.

Given this level of animosity, Brexiters jumped at the opportunity provided by the row over the Rwanda policy to reignite the flame of jingoism and nationalism. Thus, Farage used his GB News platform to call for the UK quit the ECHR and Johnson suggested that the UK government might indeed consider such a move.

As various commentators have pointed out, an unexpected indirect result of such a move would be that it would violate the Good Friday Agreement (GFA), which contains a direct reference to the importance of the ECHR for the region. Since the UK Government pretends that the main purpose of the NIPB is to protect the GFA, quitting the ECHR would seem in direct contradiction with government policy. The duplicity around the ECHR illustrates once again that what the UK Government – driven by its fanatic Brexiter fringe – is not interested in solving any real-world issues, but rather in pursuing its own agenda no matter at what cost to the country, its citizens, let alone other people like asylum seekers.

That agenda, as it becomes increasingly clear, does not stop at Brexit or ‘ECHR-exit’ – it is a much more ambitious project of undermining the rules-based international order. Indeed, not only do Brexiters reject any subjection of British people and politicians to international rules and the law, they go as far as denying that international law exists at all. What the ultra-Brexiter fringe of the Tory party wants is a world order where the British government has not got to answer for any of its actions; where no instance – domestic or international – has the power to hold those in power in the UK to account.

This is illustrated by the invocation of the ‘doctrine of necessity’ – which according to the UN’s International Law Commission can be used by a state facing “grave and imminent peril” - to justify the legality of the NIBP. Invoking the ‘doctrine of necessity’ has parallels to invoking a ‘state of exception’ – albeit only in the narrow area covered by the NIP. Claiming that we are in an emergency is meant to justify any extra-legal action by the government.** This is precisely how German Nazi-lawyer and philosopher Carl Schmitt defined sovereignty: Sovereign is s/he who decides on the state of exception. Given the Brexiter obsession with sovereignty, it is no surprise that their preferred legal doctrines are increasingly similar to those promoted by some of the most sinister legal figures in history. That this may constitute a dangerous precedent was aptly shown by the Blair Institute’s Anton Spisak who tweeted: ‘Wait until Moscow or Beijing invokes "the doctrine of necessity" to override its international obligations.’

Kyiv not Doncaster

Amongst all the turmoil around the UK’s international obligations and the backlash against its government’s actions this week, Boris Johnson mostly focused on his main priority: saving his premiership.

The latter took another hit this week with Lord Geidt’s resignation as the Government’s ethics adviser. In his resignation letter, Lord Geidt stated that ‘the idea that a Prime Minister might to any degree be in the business of deliberately breaching his own Code is an affront.’ The immediate cause for the resignation seems to have been the Government’s intention to further extent Trump-era tariffs on the import of Chinese steel against the advice of the Trade Remedies Authority who did not find a legal basis for doing so.

Under pressure from both the One Tory and the hard right wing of his own Party, Johnson continues his double-faced game of talking tough and escalating the conflict with the EU whenever it seems political opportune, while at the same time trying to keep the options for more conciliatory path open. Thus, this week, he introduced in Parliament a radical unilateral legislation all but abolishing the NIP, while at the same time calling for ‘de-escalation.’ Some may see this as a shrewd negotiation tactic (carry a big stick while dangling a carrot), but the fact is that the reckless unilateral action while officially negotiations with the EU are still ongoing will undermine any remaining trust rather than put pressure on the EU to concede more. As such, his tactics remind one more of the actions of a schizophrenic than those of a seasoned negotiator. These are the actions of a man who wants his cake and eat it and who is unable to take responsibility for anything he does.

He also cancelled his scheduled appearance at a Northern Research Group (NRG) conference in Doncaster and decided to fly to Kyiv instead to pay a visit to Ukrainian president Volodymyr Zelenskyy. Instead of facing questions from Red Wall Tory MPs about his ‘levelling up’ policy (which increasingly turns into a levelling down policy by starving the South East of funding rather than investing massively in the North), he enjoyed photo ops as wartime leader and making purely symbolic announcements. Pilgrimages to Kyiv when things are not going well at home seems to become the go-to tactic for the embattled PM. Yet, the cancellation at short notice of the NRG conference appearance was perceived by Northern business leaders as a snub, which may not help the Tories chances of winning the upcoming Wakefield by-election next week.

There is still hope for the PM and the Tories of course to win the upcoming by-elections and turn around their fortunes. Especially, because questions about Kier Starmer’s leadership of the Labour party continue to be raised given that the Labour lead in the polls remains relatively limited. The Tories, in turn, seem increasingly innovative and resourceful when it comes to tricking people into voting for them. Thus, there was a tweet this week about the case of the Tiverton and Honiton Tory candidate’s election booklet that only mentions the Conservative Party in the small print.

This is a telling tactic, illustrating that the Tory Party has become a political grouping that does not stand for anything other than an insatiable appetite to extend its power. Controlled by extremists, Johnson’s party seems willing to take on the world. In the process, hard Brexit may turn into an extremists’ Brexit.

*Incidentally, in reality EHRC judges are of course elected: “The judges are elected by the Parliamentary Assembly of the Council of Europe from lists of three candidates proposed by each State.”

**Although that claim seems to be contradicted by the fact that the UK Government still has not triggered article 16 of the NIP, which was precisely meant for such cases – again see Chris Grey’s discussion.

Brexit Impact Tracker 12 June 2022 – After the Confidence Vote: Johnson’s ‘desperate policies’ and the re-radicalisation of the Brexit project

It has been another momentous week in post-Brexit British politics. On Monday, Prime Minster Boris Johnson survived a no confidence vote with 211 Tory MPs expressing their confidence in him, against 148 who cast their vote against him. Despite the failure of the no confidence motion, the result constitutes a considerable setback for the PM. Indeed, the result is worse than Theresa May’s in 2018 when she survived a non-confidence vote thanks to the backing of 63% of Tory MPs, while only 59% backed Johnson on Monday.

The no confidence vote leaves the PM weakened. Graham Brady, chair of the 1922 Committee, did not rule out a change in party rules that could allow another no confidence vote in less than a year. With 41% of Tory MPs opposed to the PM and two by-elections taking place later this month – which are predicted to be difficult for the Conservatives to win with Labour leading the Conservatives by 20 points in the Northern constituency of Wakefield, Johnson is desperate to shore up support.

The weakened Prime Minister seems to seek that support amongst the most extreme right-wing fringe of the Conservative party, namely the European Research Group (ERG). Indeed, besides Partygate, one of the reasons for decreasing confidence in the PM arguably was that Johnson had started to adopt somewhat more conciliatory rhetoric towards the EU on key Brexit issues, most notably the Northern Ireland Protocol (NIP). Monday’s vote means the Prime Minister will sway back towards the far-right of the Brexit path and will seek to re-radicalise the Brexit project so as to re-ignite the Brexit fire that saw him gain an 80 seat majority in the 2019 General Election. Yet, the re-radicalisation of Brexit threatens not only to spark off a major crisis with the EU over Northern Ireland, but also undoing some of the more reasonable policies the Johnson government has adopted in the past 3 years to make them palatable to the Tory hard-right.

Weakened, under pressure, and at the mercy of the extremist ERG, Johnson is about to become a real danger for the UK, its economy, and international reputation. His unwavering and unlimited sense of entitlement, combined with his dark personality, and hunger for power (illustrated by his lifelong ambition to become ‘world king’) are such that he will not stop from anything to retain power. While living in hard-Brexit Britain has felt like living in a burning house for some time, after Monday’s no confidence vote, it now feels like the PM is willing to burn down the whole village - indeed the whole world if need be - to remain in power. His attempt to turn purely symbolic policies into desperate, but substantive ones and the issue of the NIP legislation illustrate this.

Desperate policies

Brexit is largely about symbolism and slogans, very little about substance. Yet, as the economic damage of Brexit becomes ever clearer and distinguishable from the impact of Covid, it would seem that some sense of reality has started to penetrate the Tory party. Most dramatically, the Tory MP Tobias Ellwood recently suggested the UK should re-join the EU Single Market. That suggestion drew a lot of criticism even from relatively moderate Tories (most importantly perhaps Tom Tugendhat’s rejection of that suggestion). Yet, it clearly shows that some in the Tory party do seem to realise that the problems caused by Brexit are becoming too big to be simply ignored. Thus, the Organisation for Economic Cooperation and Development (OECD), forecasts that UK GDP growth will slow down to 0% in 2023 – the slowest of the G7 and only above Russia among the G20 countries. The Bank of America, in turn, considers that the “failure to discuss and acknowledge that Brexit has been a significant headwind to the supply side and sense that the BoE is losing control over its mandate” means that the British Pound Sterling is facing an ‘existential crisis’ similar to emerging market economies! Brexiters’ denial of reality starts putting the country’s economy into serious danger.

Given these undeniable facts, it seems astonishing that ahead of the non-confidence vote, 22 Conservative donors called on Conservative MPs to support the PM during the non-confidence vote stating that “Business needs certainty and stability. […] so we need Boris Johnson to remain as our Prime Minister, and he has our unwavering support”. Where exactly they detected ‘certainty and stability’ remains their secret.

Yet, while denial, omerta, and taboos still prevail when it comes to Brexit in the Tory party, this weeks developments do indicate some change may be coming.

Thus, the Northern Research Group (NRG) warned the PM that the Tory party would face political annihilation in the so-called Red Wall seats in Northern England if no substance was given to the levelling up policy programme, prompting the PM reportedly to promise large northern areas as ‘right to devolution’ and a ‘levelling up formula’ akin to the Barnett formula that is used to allocate budgets to devolved nations. It would seem that even the PM has understood the need to turn some of his symbolic policies into more substantive ones.

Yet, the combination of concern about the cost-of-living crisis and the PM seeking support from the right-wing of the Tory party, means policies that are considered ‘unconservative’ or anti-business are being dropped. This in turn means in most cases, that some of the more reasonable policies proposed by the Johnson government may be undone. Thus, it is expected that the recommendations of the Dimbleby report on food strategy – including a sugar and salt reformulation tax, guarantee farm subsidies until 2029 or invest £1bn in innovation in the food system – will be ignored, because they are expected to add costs. Similarly, possibly the only genuine benefit of Brexit – a more ecological agricultural policy – is now considered ‘green crap’ and will be sacrificed on the altar of ‘food security.’

Needless to say, Johnson’s symbolic policies turning into desperate policies is not going to solve any of the issues they are meant to address (which incidentally become bigger and more difficult every day that passes and the government remains in denial of reality – such as the continuing rise in regional inequalities in the country despite all the talk about levelling up). Indeed, given the desperation Johnson’s policies become even more half-baked (like the extension of the right-to-buy scheme) and reckless (like accepting the increasingly likely exclusion of the UK from the EU’s Horizon programme). However, possibly the worst result of the non-confidence vote is its impact on Northern Ireland.

The NIP: Tinder sticks and matches

The PM facing the possibility of losing his grip on power has meant that he now desperately needs the legislation on the Northern Ireland Protocol that would allow the UK parliament to unilaterally disapply parts of the protocol, rather than finding a negotiated solution with the EU. The Bill is expected to be published on Monday. It is not clear yet whether it will simply give the UK government enabling powers to unilaterally suspend parts of the NIP in the future, or whether it will actually disapply them directly (what Tony Connelly calls the ‘hard’ and ‘soft’ versions of the legislation). What does seem clear is that the Bill will make unilateral changes to four key areas of the agreement: Customs, VAT and government subsidies, regulatory divergence, and governance (European Court of Justice oversight). As such, the Bill may go further than the Internal Market Bill discussed in 2020 and is extremely controversial even inside the Tory party and indeed government, as is illustrated by the saga about the legal advice preceding its publication, analysed by David Allen Green.

While in September 2020, the government was still confident (delusional?) enough to openly admit that its ‘Internal Market Bill’ would break international law, it now understands that it needs to at least pretend what it is doing is legal. As a result, ahead of the publication of the bill, the government was keen on getting the right kind of legal opinion that would confirm its legality. The government found the right person to deliver that in Attorney General Suella Braverman. Yet, due to leaked correspondence, it has now become clear that some within the government clearly did not trust that advice and appear to have pressed the government to get an additional opinion from the First Treasury Counsel Sir James Eadie. The government obliged, but asked the Counsel to give his opinion based on the assumption that there is indeed a ‘respectable legal basis’ on which other lawyers have given their opinion. In other words, the government did not seem confident that the First Treasury Counsel would reach the same verdict as the Attorney General and therefore asked Eadie to not question that verdict (indeed, between the lines Eadie does seem to make it clear that he does not share the Attorney General’s views).

The whole episode illustrates two things: the government has learned from its previous experience that it cannot simply openly ignore its commitments under international law and is now making efforts to dress up its actions as legal, although those efforts seem like little more than a robber declaring that robbery is no longer illegal. Secondly, it is obvious that the issue of Northern Ireland and the way in which the government is handling it is hugely contentious even within the Tory party and possibly the cabinet. It is indeed expected that the Bill’s reading in Parliament will be a bumpy ride with the House of Lords expected to try and amend it. Even in the House of Commons, despite Johnson’s 80 seat majority, the bill may see considerable opposition. The Huffington Post reported on a document shared amongst Tory backbenchers that asks Tory MPs to vote against the bill, reportedly stating that the bill is “the exact opposite of focusing on the cost of living and pursuing the people’s priorities, as we have been promised” and should be scrapped. The upcoming parliamentary debate and votes about NIP legislation almost inevitably will mean more humbling for Johnson and his government by the forces of reality.

Yet, if he does manage to get the bill through Parliament – which is expected to take a year – it may indeed save his neck. At least that is what he may hope. If the bill does become law, the EU is expected to react strongly, but in a gradual way. The reaction will most likely consist in first launching legal action against the UK government, and then possibly introducing punitive tariffs on British goods exported to the EU. Scrapping the Trade and Cooperation Agreement (TCA) is a possible, albeit unlikely, extreme measure if the previous measures do not force the UK government back to the negotiating table. Punitive tariffs or even the end of the TCA would be awful news for the faltering UK economy and businesses, but it would be good news for Johnson personally. A trade war with the EU would allow him to squarely blame the EU for any further economic damage stemming from Brexit and would replace Covid19 as a new confounding factor that makes it impossible to assess the impact of Johnson’s hard Brexit on UK trade and economic performance. Indeed, any punitive action by the UK would make it very difficult to judge Johnson’s ‘world-class’ Brexit deal on its own (de)merits, focussing all the blame instead on the EU’s reaction. The PM therefore now has strong incentives to escalate the row over the NIP to prolong the possibility to remain dishonest about Brexit’s real impact. Evidence that the government attributes high importance to the NIP Bill is provided by the fact that the government to even seek “to mislead its very own backbenchers over the legality of the proposals for the Northern Irish Protocol.” After the non-confidence vote, the legislation may turn into the match in the PM’s hand that finally sets fire to the tinder sticks of Northern Ireland.

Eternal limbo or hellfire?

Some of the most often heard terms descriptors of the current Brexit situation are limbo or aporia, i.e. “a place you can't go back or forward from”. The problem, of course, is that limbo or aporia are the necessary result that have been hardwired into the Brexit project because of its inbuilt dishonestly. Indeed, as Matt Carr succinctly puts it “[t]o acknowledge post-Brexit problems now would risk exposing the dishonesty and delusion at the heart of the Brexit project in the first place.” Moreover, recent polls shows that the nationalistic jingoism and vague promises around Brexit before it became a reality are the only things that Tory MPs have in common with their electorate, while they are hopelessly out of touch with their voter base when it comes to their economic values as a recent poll suggests. Therefore, Tories simply cannot afford to admit that Brexit is not going well. Brexit must not be named in connection with any problems emerging from it (although, when it comes to rejecting criticism of government policies, Brexiters quickly allege the critics ‘anti-Brexit’ leaning to as explain any challenge).

In this context, it would seem obvious that the opposition may have a crucial role to play to move us out of the limbo. Indeed, Chris Grey sees an opportunity for the Labour party to lead the country out of the impasse. Yet, this week’s performance by Yvette Cooper when questioned by Andrew Marr about re-joining the Single Market does not instil much confidence that this is going to happen any time soon. Ms Cooper clearly was unwilling or unable to take a clear position on what Labour’s plan for a better post-Brexit trading arrangement with the EU would look like, only referring to the negotiation of a ‘veterinary agreement’ with the EU to smooth trade frictions. (Her exact words in the interview were ‘veterinary agreement and so on…’ While the veterinary agreement with the EU is an obvious necessary step in fixing some of the post-Brexit trade issues, what the ‘and so on’ was referring to did not become clear). Indeed, it seems obvious that – contrary to the Lib Dems – Labour does not have a clear plan on post-Brexit trade.

Yet, with Johnson re-radicalising the Brexit project to please the ERG, there is a possibility that Brexit will become unstuck in another way. Given the EU’s and US’s strength of feeling about Northern Ireland, the strategy to seek an escalation of the Northern Ireland issue to save his neck, may very well backfire not just on Johnson but on the radical Brexit fringe as a whole. This may usher in the change in Tory leadership the country so desperately needs. Yet, this way of Brexit coming unstuck would mean the necessary return to reason and to policy-making in the national interest will pass through a phase of unleashing hellfire. Indeed, as Sky News’ Sam Coates warns, it could all end in flames. Six years after the ill-advised Brexit Referendum, Britain is facing another critical moment in its Brexit journey.

Brexit Impact Tracker - 2 June 2022 – Jubilant about Brexit Benefits

The past week has been marked by what clearly was a government push to provide some – any! – good news around Brexit ahead of the Queen’s Platinum Jubilee. Predictably, we observed the re-emergence of news about what seems to become the most often-mentioned Brexit benefit (sorry, ‘Brexit triumph’!) – namely the return of the ‘crown stamp’ on pint glasses! Tellingly, the flagship Brexit benefit – as so many alleged Brexit benefits – is based on the provenly false claim that the EU prohibited the use of the crown stamp (The reality is that it was perfectly possible to have glasses with both the crown stamp and the EU’s CE stamp).

Equally remarkable is the fact that while Brexit’s (alleged and false) impact on ‘EU red tape’ is omnipresent in the media, Brexit’s negative impact on things that actually matter is not. Indeed, while journalists have been busy in the past week dispelling the false claim about crown stamps (e.g. here and here), the link between Brexit and the never-ending news about flight cancellations and massive queues at airports (and train stations) does not get much attention. There was one rare sighting of a BBC news item where the relationship between Brexit and the travel chaos was made clear. Most others focus on the pandemic as sole explanation of UK companies’ problems hiring sufficient staff. That is a genuinely disingenuous way of reporting on the issue, that shows that a year and a half after actually existing Brexit, there is still no honest discussion in the British public sphere about how Brexit is impacting the economy and what could be done to make it more resilient to the shock.

The shocking fact is that while pro-Brexit newspapers sell crown stamps on pint glasses as a ‘triumph,’ while more neutral and anti-Brexit outlets attempt to fact check these claims, none seems to focus on the real problem here. Namely, that it is simply silly to focus anyone’s attention and energy on such a trivial matter. To be sure rules on accurate measurement are important for consumer protection and should be part of any modern society, but whether or not we have a crown stamp, or a CE mark on our pint glasses simply does not matter – especially not compared to all the other pressing problems the country is facing!

The crown stamp saga is further proof that the Tories are successfully dragging the country down the path into fantasy land, clearly banking on the fact that voters are stupid.

The BOGEMin’s Brexit opportunities list

This was illustrated this week by our Brexit Opportunities and Government Efficiency Minister (aka BOGEMin) Jacob Rees-Mogg’s list of anti-EU-red-tape actions to be taken following the direct input from the public into which EU rules they would want to see scrapped. If you showed this list to a British voter – say – ten years ago, they would probably have thought this was a satirical take on Brexit promises from the Private Eye or another humorous outlet. Sadly, Brexit Britain has slid into a parallel universe where our Brexiter in Chief seems to genuinely think the list of things he came up with is something to be proud of, or at least something people will take seriously.  

For those readers who have not seen it yet, according to the Express the BOGEMin’s list of the top ideas consists of the following nine items:

“1. Encourage fracking, shortcut rules on planning consultation via emergency act.
2. Abolish the EU regulations that restrict vacuum cleaner power to 1400 watts.
3. Remove precautionary principle restrictions (for instance) on early use of experimental treatments for seriously ill patients and GM crops.
4. Abolish rules around the size of vans that need an operator's licence.
5. Abolish EU limits on electrical power levels of electrically assisted pedal cycles.
6. Allow certain medical professionals, such as pharmacists and paramedics, to qualify in three years.
7. Remove requirements for agency workers to have all the attributes of a permanent employee.
8. Simplify the calculation of holiday pay (e.g. 12.07 percent of pay) to make it easier for businesses to operate.
9. Reduce requirements for businesses to conduct fixed wire testing and portable application testing.”

What’s wrong with this list? Three things at least: Firstly, there is the usual dishonesty about the fact that it is very uncertain whether we really had to leave the EU to make the proposed changes to UK laws and regulations (e.g. fracking is not banned in the EU and indeed the UK – when still a EU member – played a key role in making sure it would not be regulated).

Secondly, most of the measures on the list concern so obviously ridiculously unimportant issues that it really is an insult to anyone’s intelligence to suggest that they should be on a list of top Brexit benefit priorities.  Adding insult to injury is the fact that – as Chris Grey mentioned a while ago in his analysis in the Byline Times of the government’s Brexit benefits report – the alleged ‘benefits’ are presented net of Brexit costs. That is to say, if we assume for a minute that changing the way holiday pay is calculated makes it really significantly easier for businesses to operate, it still is an open question whether any associated reduction of costs due to that measure would offset any increases due to other Brexit-related changes in the business environment. Does the calculation of holiday pay reduce the company’s operating costs more or less than the increase in expenditure due to the need to fill in customs forms when exporting to the EU, the increasing difficult to hire staff, the disruption of supply chains due to new border formalities? I guess the answer is easy to guess. In fact, I very much doubt that any of the things on the list are indeed “choking British businesses and innovation.” What is choking British businesses is the inability to hire sufficient workforce, delays and increased costs at borders, not holiday pay calculations.

The third, and possibly greatest, problem revealed by the list is that, in their desperation to find anything to show for one of the biggest disruptions to the UK economy in decades, the only idea Brexiters seem to be able to draw on is a deeply flawed, provenly disastrous, and positively dangerous approach to deregulation. I have criticised Brexiters’ libertarian misunderstanding of how markets function, how regulations work, and what the state does in the economy and in society many times before (e.g. here). BOGEMin’s list succinctly summarises all these misunderstandings and provides a glimpse of things to come in areas such as consumer- and environmental protection:

The Brexiter base assumption is that any regulation is simply some ill-advised or even deliberately harassing rule made up by a mindless bureaucrat for no good reason or perhaps just their own personal interests.

The reality, of course, is that there are good reasons for regulations on GM crops, on planning applications for fracking projects, on the length of qualifications of paramedics and pharmacist etc. Most regulations have evolved in evolutionary fashion in reaction to past problems – such as the impact of large and disruptive building projects on local communities and their properties, the real risks associated with an unregulated roll out of new, not well understood technologies, or the live-changing impact of the lack of training among medical professionals on patient safety. All this is simply ignored by Brexiters who divide the world into experts versus the people; expertise versus common sense; the (bad) state versus the (good) market. The only valid ‘knowledge’ is people’s feelings – anything else is dismissed as elitist, academic rubbish – and anyone who dares criticising that approach out is chastised as patronising, ‘out-of-touch,’ ‘Islington-dwelling’ elite.

The bitter irony is that the BOGEMin’s list clearly shows that it is Brexiters who do not take the people’s worries seriously. Indeed, the list reveals the ‘fakeness’ of Tory populism, by including suggestions to further deregulate labour markets (which was due to its impact on wages, living standards, and inequality a key root cause of Brexit) and by suggesting to remove people’s rights to opposed fracking projects in their neighbourhoods. Giving power back to the British people anyone?

Tiny things Brexit

Be that as it may, it seems to me that anyone without a horse in the Brexit race looking at the BOGEMin’s list will be struck by the smallness and triviality of most of the proposed measures when compared to the grand claims during the Brexit referendum campaign. Increasing NHS funding by £350m a weekly may certainly seem to many people like a fairly decent reason to vote for Brexit and forgo one’s EU citizenship rights (especially if one simultaneously buys the argument that there are not costs). It may be less obvious to many people how the ability to buy a vacuum cleaner with over 1400 Watts performance or an electrical pedal cycle without power limit may justify that decision.

Deep down the BOGEMin and other Brexiters know this of course. (Tory MP Tobias Ellwood’s article on the Politics Home web page is probably the clearest and most explicit sign to date that outside of a narrow elite of ideologically blinded nationalists, none believes in the Brexit project anymore). The BOGEMin knows that presenting a ridiculous list of proposed changes to regulations most people probably hadn’t even heard of before Brexit will not convince many people that Brexit was worth it. As a result, he resorted to what I think is a new addition to Brexiter’s rhetorical arsenal, namely to talk about the ‘cumulative’ nature of Brexit benefits. ‘No, we cannot deliver the promised £350m weekly for the NHS. No, a trade deal with the US is not forthcoming. Yet, over time – in 10 or 50 years perhaps – the tiny little things we are doing will amount to at least as much as all the big things we promised you!’….Except of course that they will not. One way of illustrating this is another piece of Brexit news in the category of cumulative, ‘tiny things Brexit,’ namely the alleged trade deal with the US State of Indiana.

The Indiana ‘Trade Deal’…or is it?

Also this week, Penny Mordaunt and other trade ministers finally could brag about a ‘milestone’ ‘trade deal’ with a US state. Such state-level trade deals have been pursued by the government ever since Biden poured cold water on any notion of a fast US- UK Free Trade Agreement (FTA). Since then, the Secretary of State for Trade and various trade ministers have been touring the US to seek to conclude deals at the state level. Clearly the strategy is to show the Brexit-voting public back home that Johnson’s fearless Brexit government has found a cunning strategy to bypass the Democratic administration in the White House, defying – like in other policy areas – the odds and achieve something ‘Remoaners’ said could not be achieved.

Looking more closely into what has been agreed with Indiana and what the reactions were on both sides of the Atlantic quickly reveals that here to we are in the realm of fantasy and symbolic policies.

The potential impact of a free trade agreement is usually inversely proportional to the size of the signatory country’s/territory’s population size. For a small country signing an FTA with a large one will hold a lot of opportunities for the country’s exporters, as the number of potential customers increases proportionally to the size of the partner market. For producers competing with imports from the larger partner, on the other hand, an FTA may increase competitive pressures on those producers massively, while perhaps leading to lower prices for consumers. Either way, an FTA will be more significant for the smaller than the larger signatory. In the case of the UK-Indiana deal, given that the UK has roughly 10 times the population of Indian, we could expect the conclusion of the deal to make some headlines in the Hoosier press. Yet, As Peter Ungphakorn explains on his trade blog, in Indiana one official Tweet and just one newspaper report in the Inside Indiana Business paper mentioned the deal. In contrast, in the UK it was considered newsworthy by the BBC! Given the above argument about market size and impact, the lack of interest in Indiana in itself is proof that what has been agreed is far from a milestone free trade agreement as the UK government wants to make us believe. If it were, Indiana would be talking about it.

It is also interesting that the BBC bought into government discourse by calling the MoU a trade agreement. This is misleading, because there is precious little about trade in the agreement for the simple fact that US states do not have the power to remove tariffs and other trade barriers. What the agreement does instead is setting out very vague commitments to support ‘regulators and professional offices’ if they want to pursue mutual recognition of professional qualifications and to set out rules on UK companies’ treatment in Indiana public procurement. The latter is indeed the only potentially substantive clause in the MoU. Here, the MoU proposes a most-favoured nation (MFN) treatment to UK companies – albeit with some caveats. Thus, the agreement states that in tender process for state-level public contracts, UK companies will be treated no worse than companies from other US states. Yet, this MFN excludes US states bordering Indiana (Illinois, Kentucky, Ohio and Michigan) and it is unlikely that the MoU overrides the ‘buy Indiana presumption,’ i.e. the privileged access to public contracts for producers from Indiana.

Therefore, an honest look at the content of the agreement and the reaction in Indiana illustrate clearly to anyone open to reasonable arguments that this ‘trade deal’ is part of a now well-established pattern of symbolic policymaking by the UK’s Brexit government that completely separates discourse from reality. In this context, Penny Mordaunt’s disingenuous and dishonest piece in the Conservative Home illustrates one of the key strength of this government: given that none of the members of the Johnson government seem to have any moral standards or any self-limiting commitment to truth and honesty, the most useless piece of legislation or policy can be turned into a major achievement. Since the government is not bound by reality, it does not need to achieve an actual trade deal with the US to take credit for it. It is enough to convince one state governor in the US to sign an MoU that they clearly do not care much about, to be able to come home and grandstand about your incredible achievements. The liar’s privilege is to be able to make something out of nothing; a privilege someone committed to reality and truth does not have.

The only hope we have that Britain, one day, may leave the path of fantasy and ideology and come back to the path of reality and reason is that those who cannot escape reality start pushing back. This week, different business sector’s reaction to governmental policies provided some hope in that respect.

Reality checks – businesses versus fantasy

There were at least two signs this week that perhaps as the Brexit impact becomes increasingly painful for British businesses the Johnson government may not be able to get away with purely symbolic policies and lies.

The first one came from the UK retailers’ reaction to the announcement of a return of imperial measurements in UK shops. The consultation on Johnson’s plan to reintroduce imperial measurements – pounds and ounces – instead of or alongside the metric system will launch on Friday. Yet, the industry body British Retail Consortium alongside other businesses and organisation have warned against the move, which – in their view – creates additional costs for now obvious reason. Indeed, the only reason for the return to imperial measures is in the name – imperial nostalgia.

The second sign was UK airlines’ call on UK to ease visa rules for European workers to tackle the current travel chaos. This is probably the clearest non-partisan sign today that Brexit is indeed partly to blame for the problems plaguing the travel industry.

In other areas too the evidence is mounting that Brexit is an undeniable disaster for the British economy. Latest figures reported by Bloomberg, for instance show a 17% decline in food and drink exports to the EU, while exports amongst other countries have increased and reached pre-pandemic levels. So, the claim that the pandemic – rather than Brexit – is to blame for the UK’s now well-documented export underperformance is increasingly difficult to sustain.

The BOGEMin of course still tries to sustain it! In a telling statement he accused ‘Rejoiners’ of “giving a false impression that Brexit has been negative.” The statement is telling, because it reveals – although unconsciously of course – that Brexiters do not distinguish between impressions and evidence. Yet, the evidence is damning, and reality cannot be denied forever.

As reality inevitably continues to bite, Brexiters have to resort to increasingly implausible and absurd rhetorical tricks (such as the idea of ‘cumulative tiny Brexit benefits’) to maintain the illusion. The level of absurdity in which politicians willingly engage, in turn, starts having a clear effect on people’s trust in politicians and in democracy itself. Thus, the percentage of UK citizens considering politicians are ‘merely out for themselves’ increasing by 15% in the past eight years of Tory government and now stands at 62%. No healthy democracy can function properly without people trusting the political institutions and the political personnel.

Paradoxically, the one glimmer of hope that this trend and hence a complete breakdown of UK democracy can still be averted stems from the Johnson government’s disastrous handling of Brexit itself: Hard Brexit means that the coalition of people and businesses who pay a heavy price for Brexit and are willing to speak up against it grows stronger every day. It is to be hoped that it will grow faster than the government’s capabilities to mislead the public so that the devastating effects of Brexit may still be reverted.

Brexit Impact Tracker - 25 May 2022 – The Rise of ‘Egocracy’ and Northern Ireland

A lot has happened since my last blog post more than a fortnight ago – especially regarding the Northern Ireland Protocol (NIP). The reason why there was no BIT post the last two weekends was not just workload, but also because it is both demoralising and overwhelming to process all the developments and especially the various (at times contradictory) announcements the government makes about the issue. Especially regarding the NIP, increasingly it feels like Groundhog Day. The debate is not moving forward, but we are face with the same old lies and fantasies that we have heard since 2016 at least. Re-reading my blog about the NIP from October illustrates in depressing clarity how little has changed. There is the same denial of the need for a border somewhere between the EU and hard-Brexit Britain, the same bogus solutions that the government full-well knows the EU will not accept, the same jingoistic bluster blaming the EU for the problems to rile up the Brexit-voting right-wing fringe of the British public and make them forget about the cost-of-living crisis, the non-existent levelling up policies, and Partygate.

But of course, the soul-crushing repetition of lies is part of Johnson’s post-truth strategy. The more you lie, the more people will stop bothering calling you out, because there is just too much to be called out.

The Northern Ireland Protocol: New (legal) weapons of mass-deception

Rather than summarising again in great detail what has happened in terms of the NIP – which has been done so expertly by Chris Grey (here and here), Tony Connelly, and David Phinnemore on the Encompass web page – I want to focus on how to explain the ongoing and seemingly unresolvable issues around the Irish Sea border.

The latest change in the Johnson government’s approach to the matter was the government moving away from threatening to invoke Art. 16 – temporarily suspending parts of the protocol – to threatening new legislation that would allow the UK government to unilaterally suspend parts or all of it – as Liz Truss has done on Tuesday. This has left commentators wondering what the purpose of this shift was.

An obvious place to start is, as David Phinnemore does, by seeing the legal proposals as an attempt to genuinely solve the economic and political issues caused by the NIP – namely new paper work due to border checks on trade between GB and NI and the political issue of unionist opposition to any border in the Irish sea. From this benign perspective, the purpose of the proposed legislation could be seen ‘simply tactical and designed to put pressure on the EU in discussions over the Protocol.’

Yet, that does not explain what new legislation would achieve beyond the – now well-known – threat of invoking Art. 16. While legally different from Art. 16 of the Protocol, the effect would for all intents and purposes be the same, namely to unilaterally suspend the application of parts of the Protocol. So it is not entirely clear what is gained from brining into play a new instrument to suspend the NIP, when the UK government has threatened since January 2021 to achieve the same goal by invoking Art. 16, but did not follow through on that threat.

One explanation may be that the UK government is engaging in a sort of unilateral ‘arms race,’ where the Johnson government creates new instruments to threaten the EU, which keep the right-wing pro-Brexit fringe in the European Research Group (ERG) temporarily quiet while signalling to the EU the government’s resolve. But of course, adding new legal instruments that would essentially achieve a very similar outcome to Art. 16 may easily be perceived as a typical Johnsonite diversion tactic that fundamentally shows that he is precisely not willing to actually use either of these instruments. It is a bit like a dictatorial regime with nuclear weapons, adding new fancy weaponry to their arsenal in order to parade them in front of the population knowing full well that they will never use them.

Brexit’s unsolvable borders problem

Even if we were to give the government the benefit of the doubt and accept that this is a cunning strategy to pressure the EU into further concessions then it has already made back in October, what concessions would the government want to see? There lies the whole problem: As Rafael Behr wrote in the Guardian, for Eurosceptic Tories ‘[t]here is no concession big enough, no deal good enough, just as no single fix can end the cravings of a drug addict.’  I share this view: hard Brexit means there needs to be a border between the UK and the EU, but there cannot be a border either between Northern Ireland and the Republic of Ireland – to safeguard peace as per the Good Friday Agreement. So, the border has to be in the Irish Sea which is unacceptable to the unionists and now that ‘Brexit is done’ to the Johnson government.

The irony in all this, of course, is that Brexiters want (an absolutist version of) sovereignty at any cost to be able to do things ‘our way.’ As such they want to be different from ‘our European friends and neighbours.’ Yet, the one thing that is needed to make that difference a reality Brexiters cannot accept: namely, borders. Or as Chris Grey put it succinctly: Brexiters “want to have a different regulatory and tariff regime to that of the EU. Fine - but where, then, does this regime begin and end?” In fact, it is regarding borders that the Brexit project has failed most appallingly – and that is setting a very high bar.

Further adding to the irony is the fact that an honest and realistic assessment of the NIP would reveal that it actually is economically and politically speaking as good a deal as Brexiters could have hoped for under the current hard-Brexit approach. Despite a non-negligible impact on companies relying on imports from GB into NI, overall, the NIP means NI has now a unique position as a bridge head between the EU SM and GB. That position could – in time – lead to considerable economic benefits for the region.

Similarly, for the UK government the NIP implies that the UK has been given privileges that no other third country has obtained without agreeing to regulatory alignment. Significantly, the EU has entrusted the UK – a third country – with policing its external border and the Commission’s negotiation offer of 13 October 2021 added further concessions. It is therefore somewhat ironic that Johnson’s Brexiter government focusses so much energy on attacking the one bit of post-Brexit arrangements with the EU that lends some credence to the claim that the UK could have from the EU what other third countries could not (although that is of course purely due to the delicate situation in Northern Ireland). Conversely, the UK government’s behaviour since the TCA came into force will make think the EU twice before extending any other such concessions to the UK, given that judging on past behaviours there is a real possibility the UK government would cease to operate any border at all. Rather than trying to make most of the privileged position of NI in the Single Market or even try and build on the arrangement to find trust-based solutions at other UK-EU borders, the Johnson government has weaponised the protocol for political purposes.

The explanation for this approach is that neither economic nor political reason drives the UK government’s policy in Northern Ireland. As Tony Connelly notes, the NIP is a problem not for economic nor for strictly political- but for purely identarian reasons. For Unionists, any "visible signs of a trade boundary" are antagonising unionists on the "identity" issue. This, however, still does not explain why, rather than trying to appease unionists resentments about the Irish Sea border, the UK government caters towards – or at least listens to –  the most extreme and intransigent claims made by the DUP, while ignoring the majority opinion in the region.

Last October, I was still under the impression that the government actually may believe in its own claims about the negative effects of the NIP and would therefore go ahead and trigger art. 16. The fact that I was wrong shows that triggering art. 16 is not considered necessary to solve any real-world problems. If the government really thought the issues caused by the NIP required an urgent solution justifying the unilateral suspension of its application, why would it continue to wait despite the fact that little progress has been made in the negotiations with the EU? The fact that the government has not acted yet, undermines its claims about the severity of the issues and shows that all the fuss about the NIP probably has different reasons than any real problems on the ground (of course the DUP’s refusal to enter a power sharing executive with Sinn Fein is now becoming a real problem). A further indication that these border controls are not actually the main problem here – at least not a worse one than at any other UK-EU border – is the fact that recently the government has started shifting from economic towards the political reason (preserving the Good Friday Agreement) for opposing the NIP. So, the government clearly seems to think that Art. 16 is more valuable as long as it is ‘untriggered.’

Therefore, to me, it becomes increasingly clear that there can be only explanation for the government’s approach to Brexit, the NIP, and indeed any other governmental policy, namely each individual member of the government’s own very personal interests, which implies the NIP is just another tool for the people in government to advanced their individual agendas. In other words, the UK is drifting into the territory of ‘egocracy’ where ruthlessly selfish careerists in government use the state apparatus and their position to purely and simply pursue their personal interests in increasing their wealth and power.

Support for the thesis of egocracy comes from the behaviours of two people at the heart of Brexit: David Frost and Liz Truss.

Frost’s Grudge and Truss’s Radicalisation

David Frost, despite resigning from his role as Brexit minister in December, continues to intervene constantly in the public debate, mainly through his articles in the Telegraph. Last week, he called leader of the House of Representative Nancy Pelosi’s warnings over the protocol ‘ignorant’ and insists that a trade war would hurt the EU more than the UK. In normal times, the opinions of someone like Frost would of course not count for much. Sadly, however, in Brexit Britain, we can assume that however disproportionate the attention he gets is compared to his competence, his voice is being heard and in line what Eurosceptics seem to think. What is interesting, however, is that Frost seems to talk as much, or more, about Brexit since he left his official governmental role. One has to wonder why – if he has old the right answers for the problem – he did not use his role to put them into practice. The strange situation where a person who had the chance to shape Brexit policy like no other now uses newspaper columns to lecture everyone else about what should be done is a perfect illustration of this new type of egocratic career politicians: faced with irrelevance, but incapable of assuming real responsibility, all that Frost has left is preaching from a distance in the hope that it will allow him to avoid being relegated to a footnote in the history of Brexit.

Equally remarkable as the amplification of the voice of a mediocre career bureaucrat is the radicalisation of the Foreign Secretary – and without a doubt PM hopeful – Liz Truss. When she took over the Brexit brief from Frost back in December, there was hope that she would seek a détente in the relationship with the EU and find a more productive way to work with EU Commission vice-president Maroš Šefčovič. Yet, with Johnson’s premiership still somewhat wobbly due to the ongoing story of Partygate and the Sue Gray report and the May local election results raising further questions about his leadership; and with Rishi Sunak out of the picture as a possible successor, Truss seems to fancy her chances of becoming the Tory backbenchers and the ERG’s favourite candidate for the succession of Johnson. Her chosen strategy to achieve this is to recklessly destroy any trust she may have built up with Šefčovič and the EU in her first weeks in post, by becoming as unreasonable and far removed from reality as the Brexit ultras in the Tory Party. Again, this illustrates a new type of politicians that now control the commanding hights of British government.

21st century egocrats

While commentators often consider Brexiters as staunch Thatcherites and believe the Johnson Government’s reference to Thatcherism, there is a fundamental difference between the Thatcherite ‘revolution’ of the 1980s and what is happening now. Of course, Thatcher brought about a profound change in economic and social policies in the country that transformed British society and its economic model for good. However, these policy changes did not fundamentally question the UK’s political and constitutional set up. In terms of the political institutions, Thatcher was genuinely a conservative.

Johnson and his cabinet ministers on the other hand are distinctly not conservative in any meaningful sense of the word. Just like David Cameron and George Osborne, Johnson, Gove, Javid, Patel, Raab, Turss etc. are a new type of conservatives with a different take on liberty and different views on the purpose of politics than Margaret Thatcher or John Major. One way of capturing this generational change is by looking at the intellectual heroes of the conservatives of Thatcher’s generation and 21st century Tories.

In a party meeting, Thatcher famously brandished a book written by Austrian Economist Friedrich Hayek and declared that that was what she ‘believed in.’ Hayek’s thinking is a mixture of conservatism and libertarianism in the sense that he advocates for a limited (indeed minimal) state, but also for the respect of traditional norms and rules that have spontaneously grown from the ‘bottom up.’ He believes that what emerges spontaneously has proven its functional usefulness for society and has been selected – in evolutionary fashion – as best adapted to its environment. Conversely, contrary to such spontaneously grown (common) ‘law,’ state created ‘legislation’ is bound to fail due to the limited knowledge that state officials and politicians have of local circumstance.

21st century Tories of Johnson’s ilk, on the other hand, most often refer to Ayn Rand as their intellectual hero. Most Explicitly, Sajid Javid who openly declares his admiration for the pseudo-philosopher. This is telling, because Rand explicitly rejected Hayek’s theories because she deems his recognising the importance of social norms as being ‘collectivist.’ Rand’s thinking, on the other hand constitutes ‘an assertion of individual will and autonomy against social conventions and the will of the majority.’ Rand’s vision is one of a ruthless selfish individual who rejects all externally imposed rules including social norms and instead exclusively follows their own individual truth. Indeed, truth is relative. Everyone has their own personal truth.

The Spectator quotes the philosopher John Milbank who states that 'it is extraordinarily disturbing that any mainstream politician should express any admiration for Ayn Rand. We should be concerned that someone like Sajid Javid can now hold high office within the United Kingdom. Rand promoted a cult of amoral selfishness and ruthlessness that is certainly not conservative in any traditional sense – certainly not Burkean, but quite emphatically Nietzschean.’

The Randian bent of 21st century Tories is reflected not only in their complete disregard for any laws or moral norms, but also in their constant lying and opportunistic shifting of positions whenever their personal interests requires it. In fact, in a Randian world, where truth is absolutely relative, lying does not exist. The individual is at the centre of the world and right to disregard any external constraint or reference point. This is the ideology what turns politicians into egocrats – using their public office not to pursue any public interests, but purely their own selfish goals.

These are not normal times

The longer the government persists with its hard-Brexit strategy obviously disregarding any negative impact on the common good and any negative impacts on the country, the harder it gets to see Brexit as independent from a broader political project. It becomes increasingly clear that for the architects of Brexit, Brexit never was an end in itself, but only ever a means to an end. The enormity of what has happened with Brexit is only slowly becoming clear. The importance of Brexit was not so much the decision to leave a free-trade area and increasingly political supranational organisation. That is a legitimate choice (had it been taken in legitimate circumstances rather than a bogus referendum) and could have been handled with the appropriate preparation and a competent government to guide the country through it. The real problem with Brexit is that it becomes increasingly clear that it was primarily an enabler of a far-right fringe of British politics to take control of the government in a system that relies on people’s decency and opposes few checks and balances to whoever is in power. Such a system is risky in the best of times with the best possible politicians in power, but it becomes outright self-destructive if the people in power are egocrats who follow the Randian pseudo-philosophy to justify their sole interest in self-enrichment and self-aggrandisement.

That is what is happening now. Yet, as Anette Dittert pointed out on Twitter, in Britain we are still struggling to see the enormity of what has happened. Brexit truly has brought about a revolution that has set the country on the same path as other failed democracies before it. As I argued a couple of weeks ago, it becomes increasingly clear that nothing will stop the Tory Party from seeking complete control over our political institutions. There is now also evidence that this power grab is spreading to the sub-national level, as a Tory attempt to undermine democratic institutions in Norfolk shows. It is high time we accept that what we are dealing with is not the conservative party of Thatcher or Major, but an entirely new type of political movement with an entirely new political project – that of establishing an egocracy. We have to accept that these are not normal times – these are times where the survival of our democracy is at stake. Rejecting 21st century Toryism therefore should not be seen as a partisan call for supporting any specific opposition party. Rather, it should be the rallying cry for anyone who cares about protecting British democracy, whether they vote Labour, LibDem, Green, or indeed Conservative.

Brexit Impact Tracker – 7 May 2022 – White Elephants and Unicorns

This week’s local elections and the Assembly election in Northern Ireland were considered an important test for Johnson’s government, not least in terms of how Brexit is going. Indeed, especially the NI Assembly elections were very much dominated by the Brexit-related issue of the Northern Ireland Protocol (NIP). However, the week also brought some developments in terms of the impact of Brexit on trade. It becomes increasingly difficult to deny that the government’s handling of post-Brexit trade is turning into a disaster for many British companies. The question is: Have voters noticed?

Trade and post-Brexit Borders

A striking Brexit-related story that has developed over the past two weeks or so, is the government’s announcement to further delay the introduction of full checks on agri-food imports from the EU. Brexit Opportunity and Government Efficiency Minister (BOGEMin) Jacob Rees-Mogg freely admitted that introducing such border checks (which are a direct result of the type of Brexit the conservatives chose and not of the pandemic, or the war in Ukraine, or anything else) would be an act of self-harm by increasing living costs further.  As Chris Grey has observed, it is astonishing that that admission evidently comes without any acknowledgement that it means that Brexit has generate a lot of problems and few benefits. Nowhere is this clearer than regarding Brexit Britain’s botched borders and the issue of trade.

In its attempt to pretend that Brexit is going well, the government simply ignores important issues such as the real health risks uncontrolled food imports represent for the UK population, the unlevel playing field it creates for UK producers (with farmers particularly aggrieved), and the sums of money that have already been spent to make the UK borders fit for the new Brexit red tape.

On the latter point, a remarkable development this week was that the UK ports are now demanding compensation from the government for the delays in introducing checks, which have led to massive amounts of money – some of it public – being invested in border infrastructure that now will become ‘white elephants.’ This case is a remarkable example of what happens when Brexit rhetoric meets reality. While the BOGEMin continues the Brexiter habit of selling the people unicorns – this time in the form of some nebulous transformative programme to digitise Britain’s borders’ and to create a ‘world-leading border’ by 2025 –, UK companies face the very real costs of an incredibly incompetent handling by the government of the transition from EU membership to third country status.

Indeed, the UK government’s approach to its post-Brexit borders leads to all sorts of distortions in trade. Most recent trade figures from Germany indicate according Ulrich Hoppe, director-general of the German-British Chamber of Industry and Commerce that “the UK is to some extent being taken out of EU supply chains.” In particular, Germany seems to reduce its reliance on imports from the UK due to “logistical problems related to Brexit.”

At the aggregate level, German data shows that exports to Germany have actually recovered significantly in March 2022 (up 41% on the previous month), while imports from Germany into the UK were down another 3.9% over the same month. Some observers may take this as a good sign, as a reduction in imports compared to an increase in exports redresses the trade balance, reducing the UK’s trade deficit. But of course, the 41% increase is a short term movement, which still leaves UK exports to Germany way below where they were before Brexit (see the relevant figure here). So, short term swings – especially in times of Covid and war – should not be over-interpreted. More importantly, however, the country-level figures may hide important differences across industries and types of companies that are differently affected by the new barriers to trade.

This is illustrated by a new study by the LSE Centre for Economic Performance, which provides a fascinating – although not entirely convincing – analysis of the impact of Brexit on UK trade.

The Brexit ‘export puzzle’

The key finding of the study is that while imports from the EU have fallen by 25% after January 2021 and stayed at that level, UK exports only experienced a temporary dip, but then recovered to a trend similar to pre-Referendum and pre-Covid levels. The study also finds that UK-EU trade did not decline between the date of the Referendum (23 June 2016) and the end of the transition period (1 January 2021), but only once the UK and the EU started trading under the terms of the Trade and Cooperation Agreement (TCA).

These are astonishing results for several reasons. Thus, the fact that EU imports have declined, but exports have not is difficult to explain given that the EU has introduced full border controls, while the UK has delayed them repeatedly. Partly, this may be explained by the very considerable fall in the value of Sterling since the Referendum, which makes UK goods relatively cheaper for importers. But more likely, the issue is one of methodology. The LSE study compares UK trade to rest of the world (RoW) trade. That is problematic, because other studies have shown that exiting the Single Market has not only affected UK trade with the EU, but with the RoW as well. This is in stark contrast with Brexiter common sense who sees UK-EU and UK-RoW trade as perfectly substitutable. Indeed, one of the key Brexit promises was that any loss in trade with the EU could be made up for by striking Free Trade Agreements (FTAs) with countries further afield. The real value of FTAs compared to the costs of Brexit has been debunked already; But what we are observing now is that not only is it impossible to strike trade deals of the size needed to compensate for a fall in trade with the EU, but in actual fact, Brexit also actively hurts that trade with the RoW.

In order to understand why that is the case we have to move beyond aggregate figures and look at what is being exported and how what is being exported is produced. Here Brexiter logic is flawed, because it does not recognise how goods are produced in the 21st world economy. As the Centre for European Reform’s (CER) John Springford points out, in the 21st century the production of goods is not a national affair anymore. Rather, as the IMF and others have shown, goods are produces in three main regions of the world (EU, East Asia, and North America), from which they are sold globally. Within those regions, however, production chains are broken up across national borders and the components making up the final product are ‘being traded within them multiple times across borders.’ Brexiters’ trade fantasies, on the contrary, were based on the flawed idea that Britain produces its export goods basically in autarky and then chooses to export them either to the EU or the RoW. The reality is, British firms are part of European value chains, which hard Brexit has now disrupted. So, British goods become more difficult and expensive to produce – because new red tape and additional costs are incurred at the Great Britain-EU border – making them less competitive not just in the EU, but in the world market. As such, ‘leaving the EU appears to have damaged the UK’s goods exporters serving markets both in the EU and beyond.’

As a result, what seems like a puzzle to the authors of the LSE studies is simply explained by the fact that the RoW is not the right comparison for post-Brexit trade patterns, because they too are affected by Brexit. Instead, the methodology that uses algorithms to construct a ‘doppelgänger UK,’ i.e. a counterfactual that estimates what the UK’s imports and exports would look like had it not left the EU. This counterfactual is based on how other countries have evolved that are most similar to the UK in terms of economic structure, population, etc., but not in terms of leaving the EU.

Using this approach the CER’s findings show a very different picture to the LSE report: Compared to where the UK most likely would have been without Brexit, exports are down 15.7% at the end of 2021 (chart 3 here). In particular, this methodology also shows that the UK has pretty much missed out on a big mid-2021 surge in exports, after the Covid pandemic restrictions had eased.

The LSE study finds another interesting effect of Brexit on UK trade, namely that while – according to their methodology – the quantity of exports may not have declined, the number of trade relationships has plummeted. They investigate relationships at the level of around 1,200 products and find a 30% drop in the number of trade relationships between UK exporters and EU importers. They conjecture that ‘the TCA has increased the fixed costs of exporting to the EU, causing small exporters to exit small EU markets, but not (or at least not yet) severely hampering exports by the large firms that drive aggregate export dynamics.’ That is a plausible explanation of the decreasing number of trade relationships, although an additional aspect may be that many companies – like British Corner Shop – have established warehouses inside the EU to avoid re-exporting from the UK.

Expecting Brexit

It is likely that the other surprising finding of the LSE study – that trade did not decline before the end of the transition period – is also explained by the methodological shortcoming of comparing the UK to the RoW. Indeed, virtually all other studies of trade patterns and other economic variables show that the prospect of a Brexit referendum and then of an actual existing Brexit has led to a reduction in trade, investment and other economic indicators as far back as the 2015 General Election. Thus, Terence Edwards and Mustapha Douch argue that the “UK goods exporters are highly dependent on EU countries as part of their supply chain. Even a modest increase in uncertainty surrounding such chains seems to have persuaded customers to look elsewhere.” Other studies, too, found an impact of Brexit before it actually happened; one study finding that the UK experience an output loss of 1.7% to 2.5% by year-end 2018, due to a ‘downward revision of growth expectations in response to the vote.’ Another study found that between June 2016 and March 2019, ‘the Leave vote had led to a 17% increase in the number of UK outward investment transactions in the remaining EU27 member states, whereas transactions in non-EU OECD countries were unaffected’ and ‘the number of EU27 investment projects in the UK has declined by around 9%.’ This evidence clearly indicates that firms were getting ready for Brexit by establishing new operations in the EU, while holding off on investments in Britain.

The ‘capital strike’ after the referendum had another interesting and unexpected effect: Rather than making capital investments at a time where it was unclear which side of the Single Market the UK would end up after Brexit, firms based in the UK would invest in labour, i.e. hire more people rather than buying new expensive machinery. This may also be part of an explanation of low unemployment figures and a tight domestic labour market, which has also led to some modest nominal wage increases. However, it also means that productivity increases are limited as investment in labour-saving machinery were put on hold. While in the short term this may lead to wage increases, in the long term this may have contributed to inflationary pressures as wage raises are due to high demand and restricted supply rather than to productivity gains. Therefore, at least in the manufacturing sectors, any wage rises that the Conservatives tried to sell to the British public as a Brexit benefit back in November 2021, may hence simply be a knock on effect of companies’ reluctance to make major capital investments in the UK. This is not good news for British workers.

Indeed, a study by Thiemo Fetzer and Shizhou Wang finds that tragically, the impact of Brexit on trade will make the socio-economic divisions in the UK, which explain the Brexit vote, worse not better. Despite all the bluster about ‘levelling up,’ what is happening in the country is that areas with large manufacturing sectors and high numbers of low skilled workers have seen a particularly important drop in output already before Brexit actually happened. Tragically, then, the flawed underlying Brexiter trade theory means that ‘Saturnian Brexit’ will make life harder for those who voted for it believing that the EU – rather than austerity – was to blame for their grievances. Instead of the unicorns they were promised, all they got are white elephants and an uphill struggle to recover the living standards they had as EU citizens.

The local elections, this week, however, show that this Brexit effect has not quite reached the people who voted for it yet.

Brexit divides and local politics

It was widely expected that the Conservatives would lose seats during the local elections, although the extent and reasons for possible losses were differed depending on who you asked. While the mismanagement of the Covid pandemic, Brexit, and the failure to deal with the cost-of-living crisis were explanations widely advanced by opposition politicians, Tories themselves preventively explained possible losses with a ‘mid-term’ effect, i.e. the fact that half-way through a Parliament, governing parties rarely do well. It is the latter, which lead BBC’s Laura Kuenssberg to suggests that the Tories’ losses of nearly 500 councillor seats – corresponding roughly with one in four of their contested seats – did not amount to a Tory ‘breakdown.’ That is a very charitable interpretation of one of the worst local election performances in a decade and led to a lot of outrage on Twitter. Yet, even more reasonable interpretations of the results show that the unquestionable rebuttal of the Tories by UK voters, is subject to important regional differences.

Thus, while the Conservatives faced heavy losses in England, Scotland and Wales, in some areas these losses did not primarily benefit Labour. Thus, in England in particular, Labour only made gains in vote share in London; everywhere else, its vote share declined. The real local election winners were the Green Party and especially the Lib Dems; the latter morphing into a serious competitor for the Tories for well-educated middle-class votes in the South of England. These results clearly show that an electoral pact between Labour and LibDems – and possibly the SNP – may be crucial if the opposition wants to win the next GE.

The local election results also show, however, that the Conservatives’ strategy to gain support in working class constituencies in the North of England continues to work well. Despite the cost of living crisis, all the scandals surrounding Boris Johnson and Starmer replacing Corbyn, voters in the Red Wall seats still defect from Labour to the Conservatives at the local level. Overall, Labour’s vote share has recovered from the 2019 GE, but did not make progress beyond its 2018 results. Partly, these results may be explained by the fact that the war in Ukraine (which the government and conservative media have extensively used to portray the UK as an internationally leading country and the PM as a respected and competent leader) have limited losses in some areas, while the ‘Beergate’ scandal (which I wrote about last week), allowed Johnson to distract from his own domestic issues.

NIP: From Article 16 to Article 18?

The Northern Ireland Assembly election, in turn, has provided a truly historic – albeit not unexpected – result. For the first time in history, Sinn Féin is set to become the largest party in the Stormont Assembly. However, like in Great Britain, Sinn Féin’s success was rivalled by a centrist force, with the non-partisan Alliance Party increasing its first preference votes by about 44,000 to 116,681. While it is unclear whether the Democratic Unionist Party (DUP) will agree to a power sharing agreement with Sinn Féin, the results potentially have important implications for the future of the Northern Ireland Protocol (NIP).

While some parts of the UK government fear an escalation of the conflict over the NIP (and the trade war it may entail), Sinn Féin’s success and the surge of the Alliance Party means that pro-NIP forces are now majoritarian in the Assembly. That implies that for Brexiters it becomes more difficult to call the NIP ‘undemocratic,’ given that a majority of people voted for parties who support the NIP. It also implies that when the NI Assembly will vote on the extension of the protocol in late 2024, it is unlikely a four-year continuation of the NIP according to Art. 18 will be rejected (although Unionists and Brexiters have started questioning the simple majority rule when it became clear that they may lose it in the NIA election). At the same time, given that according to Art.18(6) of the NIP the Assembly Party does not count as ‘cross community support,’ a longer continuation of eight years – which would require such cross-community support – is unlikely. The increasing pro-NIP majority in the NI Assembly will also increase the DUP’s incentives to refuse a power-sharing executive, thus leaving NI under direct rule by the UK government, which may make it more likely that the NIP will be suspended. If, however, there is a power-sharing executive, then the election may mean the NIP’s future is brighter than before May 5th.

In short, then, the elections this week show two things: firstly, Brexit truly has profoundly reshaped British politics by transforming the traditional party cleavages, with the Tories at the moment more the party of the Leave-voting areas in the North of England and the LibDems becoming the party of choice for the South; secondly, it does not seem like we have left the fantasies of unicorns grazing on sunlit uplands yet, even though ‘white elephants’ and other very concrete results of Brexit have started rearing their ugly trunks.

Brexit Impact Tracker – 2 May 2022 – Budapest-on-Thames

This week I was planning to write about new research on the trade impact of Brexit. However, what happened in Parliament this week was so extraordinary and concerning that I decided to comment on the state of UK democracy instead. Indeed, on 28th April 2022 three bills received Royal Assent which may very well put the UK on the path towards an ‘illiberal democracy’ and worse – an outright autocracy – following the Hungarian model. The three new laws are the Elections Act, the Police, Crime, Sentencing and Courts Act, and the Judicial Review and Courts Act. Taken together, these three laws arguably constitute the most serious attack on British democracy from within since the Blackshirts marched in the streets of London. As such, not the 23 June 2016, the 30 January 2020, or 1 January 2021 should be what Johnson will be remembered for. It should be 28 April 2022 when his government created the conditions for the UK to become an illiberal, authoritarian state.

No doubt, to some readers this will sound like an exaggerated, alarmist ‘Bremoaner hissy fit.’ Yet, I have rarely felt so certain that what we are witnessing is a deliberate attack on democracy carried out by a British government and the governing party. The laws that were adopted this week are so egregious in their anti-democratic nature that there can no longer be any doubt about the intention of the Conservative party led by Johnson. I am so certain of it because I have seen it happen elsewhere – namely in Hungary.

Let me first summarise why these laws are so dangerous for democracy and then make a detour via Budapest to show that it is easy to predict what we have to brace for next.

 Policing Act: Curbing the freedom of protest

The first new law limiting our democratic rights is the Police, Crime, Sentencing, and Courts Act (PCSCA). The key reason why this law undermines democracy is that it limits the right to protest and thus freedom of speech and expression of dissent in significant ways. The police are given more wide-ranging powers to limit protests ex ante, most importantly by setting a start and finishing time for any demonstration and by imposing noise limits. The law also increases punishment ex post for not complying with such conditions and for unlawful acts taking place during a demonstration. Most significantly, the PCSCA specifies that ‘damage to memorials’ could be punished by up to ten years in prison. This is a directed reaction to Black Lives Matters demonstrators toppling the statue of Edwards Colston and being cleared of criminal damage. The ruling drew ire of right-wing politicians, organisations, and media outlets, which the government now has used to justify its illiberal bill.

 Judicial Review Act: Sticking it to the ‘enemies of the people’

The second law concerns Judicial Review (JR), i.e. the ability for citizens to challenge laws and legislation adopted by parliament and bodies of the state. The Home Office, in an announcement full of self-congratulatory rhetoric, explains that ‘the Judicial Review and Courts Act delivers on a manifesto commitment to ensure courts are not open to abuse and delay and provides much needed flexibility on the outcome of Judicial Reviews (JR).’ What they mean with ‘much needed flexibility,’ of course, is that the judges will now find it harder to hold government to account, which provides the government with the much-needed flexibility to continue regularly breaking the law – both domestic and international.

Indeed, for the Johnson government, judges are one of the most annoying part of British democracy, because they can be less easily controlled than MPs. Both the triggering of art. 50 without parliamentary consent by Theresa May and the prorogation of Parliament in 2019 were challenge in this way and the challenges were upheld by the courts. It therefore comes as no surprise that they have been in the line of fire already during the Brexit negotiations process (cf. the Daily Mail’s infamous ‘enemies of the people’ headline).

Beyond the substance, a point that concerns many lawyers is the way in which the act has voided certain JRs, namely by using an ‘ouster clause’ which ‘ringfences’ governmental decisions and move them beyond the reach of courts. This implies a trend of isolating government from scrutiny and accountability, thus weakening the separation of powers.

To his credit, even former Tory minister and Brexiter David Davies spoke out against the JR bill warning that “[s]uch attempts to consolidate power are profoundly un-conservative and forget that, in a society governed by the rule of law, the government does not always get its way.”

Mind you, the government did not forget about the ‘people.’ To please its voter based, the Johnson government made it clear that the weakening of JR will not only be used to better protect Tory politicians from judicial challenges, but also against immigrants. Thus the Home Office promises that the reform ‘ends inefficient […] ‘Cart’ JRs to minimise delays in immigration, asylum and other cases that have already been refused permission to appeal by judges.’ Cart JRs are reviews launched against decisions by the Upper Tribunal – the UK’s highest court for administrative law appeals –, which now are no longer eligible for judicial review. Such decisions often concern matters of immigration and have allowed immigrants to challenge negative asylum decisions.

Elections: Disenfranchising the young, curtailing civil society

Arguably the most cynical attack on democracy that passed into law this week was the Elections Bill. Under cover of an alleged concern with increasing people’s confidence in the electoral system, the new Elections Act does three things: it introduces the need to show a photographic identity card to be able to vote; it gives the government the power to decide who can and cannot campaign or fund elections; and it reduces the Electoral Commission’s power to investigate electoral fraud (a good summary can be found here).

It is easy to show that the government has not introduced this law to offer British citizens ‘greater protection against election fraud’ or increase public trust in our democracy. Firstly, there is the inherent contradiction between the claim that voter IDs are necessary due to risks of election fraud, while at the same time stripping the Electoral Commission (EC) of its powers to investigate electoral fraud. If electoral fraud and trust in elections were a problem and the government were serious about addressing these issues, would it really weaken the EC? Secondly, there is the simple fact that voter fraud of the sort that voter IDs would prevent (i.e. pretending to be someone else at the polling station) is simply not an issue in this country. As Alina Rocha Menocal points out, ‘[b]etween 2015 and 2019, there were only 88 allegations of in-person voter fraud, out of a total of 153 million votes cast [a]nd the number of convictions is even smaller – a grand total of two convictions and one caution.’ (Rocha Menocal also notes the hypocrisy of Tory MPs who rebelled against the government over Covid19 health passes – comparing them to ‘Nazi Germany’ and claiming that “We are not a ‘papers please’ society” – while now supporting voter IDs).

So, clearly, rather than addressing voter fraud, the government pursues a different goal with this reform, which becomes clear when you look at the socio-economics of voters. It is a well-known fact that it is the poorest and least privileged people who tend not to have passports or IDs. They are therefore the most likely to stop voting when asked to produce an ID card. As such, the reform may be a preventive move by the Tories to make sure the electoral backlash is limited once its promises to the least well-off in the country have been betrayed.

That this reform is an attempt to disenfranchise certain segments of the electorate is further illustrated by the debates about what form of ID are permissible. While the law permits older person’s Oyster 60+ and bus passes as valid voter ID, the same does not apply to Student IDs and 18+ student Oyster cards. What explains that the Oyster 60+ is considered a secure form of ID, why but 18+ student Oyster cards are not? The most plausible explanation is that the government is not particularly keen on young people voting. And that, of course, is for good reasons. In the last General Election, only 22% of under 30s voted conservative, while the proportion is 62% amongst the 60+. So, for an old people’s party it makes perfect sense to discouraging young people from voting by putting additional obstacles in their way to the ballot box. Of course, the government is introducing the possibility for voters without ID to apply for a free local voter document from the Council. But we all know how such things tend to work out: Any additional obstacle to once ability to cast a ballot will create a disincentive to do so, increasing the likelihood of abstention.

There is a good chance that this strategy will work for the Tories. When Northern Ireland introduced voter IDs in 2003, turnout dropped by 2.3% at the next election. The UK as a whole had an electorate of roughly 44.5m people in 2019. If it experienced a reduction in turnout of a similar scale, that would mean that more than 1,000,000 fewer people might turn out to vote. If that drop is much stronger among those segments of the electorate who disproportionately vote for opposition parties, the Tories chance for re-election increase significantly.

Ironically – or rather cynically – the Spectator ran an article this week that praises the emerging benefits of Brexit. Clearly, the authors are struggling to come up with anything concrete to mention other than turning increasing non-EU immigration that I wrote about last week into a Brexit benefit. Yet, they do consider ‘restoring faith in democracy’ as one of the great achievements of Brexit. Indeed, the Spectator asks ‘Has Brexit succeeded in making voters feel more empowered?’ Unsurprisingly, the Spectator thinks the answer is yes. That is pure fantasy. The UK’s ‘first past the post’ (FPTP) electoral system implies that the country is literally always governed by a minority government – not in the usual sense of the term as a government that has less than 50% of the seats in parliament, but in the sense that virtually all British governments since the late 20th century have received less than 50% of the votes during the General Election. In other words, at the best of times the UK’s FPTP system means, most people are not represented by the government. The new electoral laws will only make matters worse for the reasons mentioned above. Therefore, an increasing number of mostly young people will feel ‘voiceless in Westminster.’

One reason for the Voter ID law may be that it has become more difficult for Tories to increase their electoral chances by redrawing the constituency maps (gerrymandering). An interesting article by Charles Pattie and David Rossiter shows that the secular trend of secure labour seats being in areas that tend to lose population, while secure conservative seats were in areas that gain in population size has stopped. As long as that trend was at work, constituency boundaries had to be changed to rebalance the number of seats from less densely populated labour seats to more densely populated conservative ones (because otherwise it would take less votes to elect a Labour MP than a Conservative MP), thus seemingly favouring Conservatives rather than Labour. But these trends have changed recently, which means that ‘it is no longer inevitable that reviews will tend to favour the Conservatives.’ Rather than population trends creating a bias against conservatives if left uncorrected, Pattie and Rossiter observe that the ‘main source of bias in elections over the last 30 years comes not from constituency size effects but from vote efficiency (and abstention).’ The last point is important: if redrawing the electoral map, becomes less favourable to the Conservatives, they may need additional ways in which to increase their chances of being re-elected, such as encouraging abstention by putting obstacles in the way of those segments of the population that tend to vote for Labour and other opposition parties.

Electoral Commission

The second element of the Elections Act that will undermine democracy is the subjection of the Electoral Commission to ‘strategic and policy control’ and the removal of the EC’s ability ‘to bring prosecutions against those who break electoral law relating to parties and campaigners.’ This means the EC cannot ‘take politicians to court over secret donations and illegal campaigning’ anymore, or to investigate electoral fraud independently; and if it does investigate, its work is subject to governmental guidance on specific cases. Here, it is important to note, that the new law does not subject the EC to parliamentary, but to governmental control. For instance, under the law the minister for the constitution to attend meetings of the Speaker’s Committee, the statutory body responsible for holding the Electoral Commission to account, further opening the door to government interference with its work. So, this is not a case of Parliament taking back control, but a case of the government further increasing its powers and isolating the governing party from accountability and scrutiny.

Campaigning

The third effect of the new law is that [t]he minister for the Cabinet Office will be unilaterally able to define what campaigning is and which groups can or cannot engage in the democratic process by campaigning or donating. According to David Howarth, former electoral commissioner, this gives the ‘government the ability to ban whole categories of organisations from campaigning at elections, without adequate parliamentary oversight,’ which he deems to constitute ‘a slippery slope to authoritarianism.’ Recent European history supports this concern.

Orbán’s ‘illiberal democracy’ project

The new laws the government has introduced should genuinely worry anyone who cares about democracy in the UK, but they become even more worrying when put in context of what has happened in other European countries in the past decades. Most importantly, the parallels between the ‘democratic backsliding’ in Hungary under Victor Orbán since 2010 and what Johnson’s Tories are doing in the UK are shocking.

Orbán’s attack on democracy started with the media, then moved on to judges and the courts, then civil society, and finally universities. Right after the election of 2010 Orbán’s government introduced a new Press Law, which created the National Media and Communications Authority that was invested with far-reaching powers ‘to impose heavy fines for vague infractions, including coverage that is unbalanced, or offensive to human dignity or common morals.’ He then proceeded to reshaping the media landscape by transferring ownership of news outlets to a foundation controlled by people close to his Fidesz party. In 2013, a law was adopted limiting power of constitutional court, including allowing the Court only “to challenge laws only on procedural grounds, not on their substance, and scrapping all decisions made by the court before 2012.”  Like in the UK, where the Elections Act seems like a punishment for the EC for having held government to account on several occasions, the Hungarian law followed a Supreme Court ruling earlier the same year that blocked a Fidesz proposal to change voter registration rules in its favour. Then came attacks on NGOs and civil society organisations, which were both subject to public campaigns denouncing them as foreign agents and making them subject to surveillance and investigation by security services. In combination with a long list of other legal reforms, the result has been that ten years into his reign, Orbán’s Hungary has not become an ‘illiberal democracy, but rather it cannot be considered a democracy at all.

Indeed, by 2022 Orbán’s power has become so entrenched that even six opposition parties supporting the same candidate was not enough to prevent him from gaining a 2/3rd majority in parliament. Democratic backsliding does not necessarily mean that there are no elections. It means that the elections are stacked so much against opposition parties that whatever they do, the government cannot be removed from power through elections. That does not mean that that outcome is what ‘the people’ want. It means that the system is such that the voices of those people who have the ‘right’ opinion are being amplified, while those who have diverging opinions are being harassed, ridiculed, and ultimately drowned out by government propaganda.

It is also noteworthy that Orbán of course did not invent from scratch his strategy of turning Hungary into an ‘illiberal democracy.’ Rather, he had himself closely followed in the footsteps of one of his avowed idols: Russia’s Vladmir Putin.

What’s next for Britain? On a highway to Budapest-on-Thames

Of course, the details of Hungary’s and the UK’s path to illiberalism differ, as the policies adopted in each country were adapted to their specific contexts and existing political systems. Importantly, Johnson’s first move was not to try and bring the media under control. Presumably, because a large part of them is already supporting the right-wing fringe of the Tory party. Still, if the thesis that Johnson has put the UK on the path – indeed on a highway – to an ‘illiberal democracy’ is correct, then we can glean further insights from the Hungarian case to predict what will happen next.

While increasing their control over the media is not a key priority for the Tories, independent reporting still constitutes an annoyance that would better be stomped out. The increasing use of strategic lawsuits against public participation (SLAPP) against journalists is one sign of that starting to happen. However, the government’s assault on the BBC is an even clearer sign of the fact that the government is willing to crack down on dissenting voices in the media. On this blog, I have been very critical of the BBC’s coverage of Brexit-related issues (e.g. here). Admittedly, – due to my frustration with reporting for instance on labour shortages or lorry queues that mention the pandemic and global supply chain problems but not Brexit – at times my criticism has been too harsh. While the BBC has at times fallen short of what I would consider a critical and balanced view on the issue, it does remain a key pillar for British society and democracy. That conclusion is reinforced if comparing the BBC not to what I would ideally want to see journalists do, but to what else is out there in the British mediascape. In comparison to some of the private news outlets, the BBC has always been and remains a massively important source of affordable quality information and commentary. That status is increasingly under threat. Indeed, also this week the pro-Tory press celebrated the coming scrapping of the licence fee, which will mean the BBC will become less independent and more reliant on other sources of funding, which most likely will mean commercial goals – rather than quality journalism – will be driving the Corporation in the future.

There may be other parallels emerging from Johnson following the Orbán playbook, notably the willingness to interfere with universities in order to silence critical academic voices. Orbán has forced the Central European University to relocated from Hungary to Austria. The UK government has also shown that academic freedom is something it is willing to interfere with, as is illustrated by the attempt to have Vice Chancellors report people teaching Brexit in universities and by the imposition of its own version of ‘free speech’ on universities. As the government becomes more entrenched it is highly likely that such attacks will further increase, threatening academic freedom and science. 

Another interesting effect of Orbán’s illiberalism is that it has arguably contribute to a ‘brain drain’ of young skilled workers from Hungary, which in turn has led to labour shortages diminishing the attractiveness of Hungary as a destination for foreign companies, especially in high value added manufacturing sectors. The ‘brain drain’ is partly explained by higher salaries in other EU countries, but arguably also related to the increasingly authoritarian political context that leads young Hungarians who are critical of the government to seek a better future abroad. The labour market has become so tight that the government felt compelled to introduce a law that allows employers to force employees to work overtime. Reducing workers’ rights to address home made labour shortages very much sounds like something that the Johnson government may soon copy from the Hungarian populists. 

Labour Day – but not Labour’s week

With UK democracy under attack, where is the opposition in all of this? Sadly, it is nowhere to be seen. Rather, Labour is struggling to draw any benefits from the Tories self-inflicted wounds in the forms of a never ending stream of scandals (including one being found guilty of sexual assault and another one having to resign under pressure for having watched pornography in parliament). Rather, the Tories’ strategy to drag the Labour party down into the gutter with it seems to be working. Faced with inexcusable behaviours and scandals, the Conservatives’ strategy is to dig up dirt on oppositional MPs or craft comparable scandals involving opposition politicians to show the public that the other side is no better. This week, the Daily Mail revealed that Labour deputy Angela Rayner was present at the same occasion during lock-down where Labour leader Starmer had been photographed with a beer bottle in his hand. Durham police had already decided not to investigate the event, but Tory MPs are urging them to review the decision. Regardless of what happens next, the story will be enough to create a ‘Beergate’ scandal that can be used to minimise the government’s lockdown parties in Downing Street. Using Beergate to counter Partygate, may be a good electoral strategy for the Tories, but it will result in many voters feeling reinforced in their belief that ‘all politicians are the same.’ What that does, of course, is sounding the death knell of democracy as Alexandra Hall pointed out.

 What leaves one even more desperate in the current situation is that Labour does not only let itself be dragged into the same mud that the government is wallowing in, but also do they not seem particularly concerned about the threat to democracy that the Tories are posing. Thus, during the vote on the elections Bill in the House of Lords earlier this week, just 67 of the 168 Labour peers showed up to oppose the government. I am yet to find a plausible explanation for such a poor turnout on such an important matter.

What’s Brexit got to do with it?

Brexit is now an officially recognised as a disaster, with the Brexit Opportunities and Government Efficiency Minister (BOGEMin) Rees-Mogg now openly admitting that introducing the border checks on imports made necessary by hard Brexit were an act of self-harm.  Brexit is particularly disastrous in economic terms as Chris Grey has documented this week. But of course, the goal of Brexit was never economic. Its real goal is much better encapsulated in the ‘taking back control’ slogan.

Except that the leading Brexiters’ intention never was to give back control to ‘Britons,’ ‘the people,’ or even to Parliament. The only ones ‘taking back control’ are the motley crew of libertarian anti-state rentiers, aristocrats, and political chancers who have made a career out of stirring up hatred and resentment to divide the country and entrench their own power and wealth. Without Brexit many of these people would not be where they are today. Brexit is the only reason why Johnson has become PM; and few people would put any money on any of the current cabinet ministers being in the position they are had they been appointed based on skill, experience, or capability, rather than unconditional loyalty to the PM and the hard Brexit project.

So, personal career advancement was clearly one reason why certain people turned Brexiters. Yet, this week revealed another, more substantive reason, why exciting the EU was instrumental for the Brexit coalition to achieve their goals; namely to remove any barriers to their pursuit of unlimited wealth and power.

Of course, the EU has done too little to prevent Orbán from turning Hungary’s weak and young, but still promising, democracy into a quasi-authoritarian state. Indeed, Orbán’s approach to the EU has been a very astute one. He uses criticism of ‘Brussels’ as an effective rhetorical device to create an external enemy, while not criticising the EU itself very much (which remains popular in Hungary) and while continuing drawing large sums of money from the EU structural funds that can be used for his populist domestic policies shoring up electoral support. At first glance, the UK’s authoritarians’ approach was less habile in the sense that they cut themselves off EU funding and created a whole lot of economic problems that make their populism economically more difficult to implement. On the other hand, exiting the EU has cut the government free from any – however weak – influence of the EU over democratic backsliding in the UK. In the Hungarian case, the EU does now seem to take things a bit more seriously launching a Rule of Law procedure against the country that could result in cutting EU funding. Thanks to Brexit, the UK’s authoritarians do not have to fear any such direct interference by the EU.

This post should not be read as ‘Conservatives bashing.’ I am actually not opposed to conservatives or conservatism per se. I have read books by Roger Scruton and fully accept that conservatism is a perfectly legitimate position to have in a democracy, even if I do not share many of its values. But what we are currently witnessing is not about democratic conservatism. This is about something very different. Namely anti-democratic authoritarianism. There may still be people who believe that the promise of ‘illiberal democracy,’ which as has become clear this week is part of the Brexit project, is somehow a popular corrective to a cosmopolitan liberal elite project that ‘ordinary people’ cannot identify with. It is nothing of the sort. ‘Illiberal democracy’ is a rhetorical device to sell authoritarianism and autocracy to voters in a democratic system. It is a way of making the Turkey vote for Christmas. The ultimate goal of the project is purely and simply to entrench the wealth and power of a small elite who own most of our media and control the Tory party and government. This week has shown that they will stop at nothing to achieve that goal. With the changes to our democratic institutions that they pushed through this week, they have come an important step closer to achieving that goal.

Readers may find it hard to believe that a democratically elected government in a Western European country would have such sinister plans; and I was often wondering if I am being overly pessimistic. But this past week has dissipated any remaining doubts. The writing is on the wall. The signs are too obvious and too familiar to someone who has spent considerable time analysing how democratic backsliding happened elsewhere. The people in Hungary in 2010 did not believe it; The people in Russia in 2000 did not believe it either. They thought that there were things Orbán and Putin would not do. They thought that their governments’ thirst for power and wealth had some limits. They thought there was some genuine concern for the ‘common people.’ They were wrong. It is high time that we in Britain learn the lessons from those experiences and understand that soon there will be nothing that can stop the power grab by the Tory party. When that happens, Brexit will go down in history as the project that was meant to wreck the EU, but instead wrecked one of the World’s oldest democracies.

Brexit Impact Tracker – 23 April 2022 – Reification, Symbolic Policies, and the Europeanisation of British Businesses

This week’s news was – once again – very much dominated by ‘Partygate’ and the debates about a possible investigation into the PM misleading Parliament. Yet, there were some important Brexit-related news too. Most importantly perhaps, our Brexit Opportunities and Government Efficiency Minister (BOGEMin) Jacob Rees-Mogg testified before the Commons’ European Scrutiny Committee (ESC), which is a re-purposed Eurosceptic select committee that used to ‘scrutinise’ new European legislation applying to the UK, but since Brexit has turned its attention towards the Withdrawal Agreement (WA) and the Northern Ireland Protocol (NIP). What the BOGEMin had to say to the ESC holds some interesting clues about how Brexit is going from the government’s perspective.

Wither international law and economic realities

The BOGEMin’s remarks in the ESC meeting essentially showed two things: firstly, that he does not accept the rule-based nature of the international order; secondly, that he does not accept the economic realities of 21st century Britain.

The NIP

Regarding the first point, the BOGEMin stated in no uncertain terms that to him the NIP was something that the UK government only signed, because it believed it would be changed afterwards. His precise words were (according to Nick Tyrone’s substack): “We signed it on the basis that it would be reformed……That is really important to understand because a lot of commentary that says: ‘Well, we signed it and therefore surely we should accept it lock, stock and barrel.’ That’s absolute nonsense.”

The BOGEMin’s suggestion that the EU would have signed a treaty containing a clause that triggered an almost immediate renegotiate seems very implausible; Especially given that maintaining peace in Northern Ireland by avoiding a land border on the island of Ireland was THE key sticking point in the negotiation process.

Regardless, it seems that the UK government is serious about its claim that the clause stating that the NIP can be changed implies a right for the UK to demand that it will be changed. Indeed, the PM has promised to ‘fix’ the Protocol and the government is reportedly working on legislation that would permit the UK Parliament to ‘override’ parts of it even without triggering Art. 16. This development sets up another clash with the EU over the Northern Ireland issue, as the UK will most likely be in breach of international law if it continues down this road.

These developments related to the NIP are interesting because they once again are revelatory of a worrying basic feature of the Brexit movement which Chris Grey calls ‘anti-ruleism.’ The disregard for any rules – whether domestic or international – betrays a fundamental authoritarian ‘might is right’ approach to politics, where the only justification one needs for imposing one’s ways on others is the power to do so. The extent of one’s power – not rules or others’ rights – limits what one is allowed to do. This is a fundamentally undemocratic and illiberal attitude that the Brexiters in government share with authoritarians around the world.

Regulatory divergence

The other significant statement BOGEMin made to the ESC was that he now wants us to stop talking about regulatory ‘divergence’ from the EU, because to him the EU regulations should not be regarded as more important than the regulations of – say –  the US or Singapore. His precise words were: “We must get away from this idea of divergence. I don’t care what the EU does any more, any more than I care what the United States does or the Singapore does.”

That is an interesting statement for two reasons: Firstly, it reveals the BOGEMin’s deep ignorance about – or lack of concern for – the economic realities that British business are facing. Many observers and business people were quick to point out the absurdity of this claim (some of them nicely summarised in a Tweet by Peter Foster). His suggestion that UK car manufacturers should not follow EU rules about speed-limiters, for instance, reveals that he completely ignores the fact that UK companies continue to operate in, sell to, and do business with the EU. Contrary to the Brexiters in government, who seemingly make and break the rules as they please, businesses do not have the luxury to simply ignore rules and regulations that govern the markets they operate in (see below).

The second interesting point with his plea to stop talking about ‘regulatory divergence’ is that it might indicate an emerging attempt to shift the public’s attention away from ‘Brexit opportunities’ which he is in charge of. Various reports and the creating of the position of BOGEMin have provided precious little by way of clear opportunities to repeal EU regulations in UK law and generating clear benefits. The legislation on gene editing seems to have become the one case Brexiter can hint at. It becomes increasingly clear that in most cases repealing, changing, or diverging from EU regulations will increase costs for businesses (e.g. by super-imposing a new approval regime for chemicals on top of the EU’s REACH regime). Therefore, since a direct comparison between UK and EU regulations the BOGEMin may be preparing the ground for the public to stop paying too much attention to how exactly UK regulations have changed (or not) since Brexit and with what effect. So ‘getting away from the idea of divergence’ may be a strategy to better obfuscate the fact that in the vast majority of cases regulatory divergence creates Brexit costs, not benefits.

Symbolic policies 1: Free Trade Agreements

The denial of economic reality by the BOGEMin is combined with an equally reality-denying and gravity-defeating and purely symbolic international economic policy that focusses all its efforts on Free Trade Agreements (FTAs).

This week, escaping the heat of Westminster, the PM travelled to India to make progress on the trade deal with India. I have posted about all the issues with the UK-India FTA in a previous post. The most fundamental reason to be sceptical about any promises made in relation with the UK-India FTA is that, while it may boost UK exports of whisky and professional services, it will never make up for the loss of access to the EU single market. Britain currently conducts twice as much trade with Belgium alone as it does with India. An FTA may redress that difference a little bit, but it most certainly will not allow to completely compensate for all the loss in trade with Belgium and the other 26 EU members.  Another problem with the India FTA is that the government, in its enthusiasm for free trade with anyone but the Europeans, often neglects to mention that trade liberalisation cuts both ways. India, much less desperate to get a deal quickly, will only sign one that has considerable upsides. Here, access to the UK market for agricultural produce will be one important ask. That in turn may very well mean for the UK to agree to lowering Sanitary and Phytosanitary Standards (SPS) on imports from India, which trade enthusiasts have urged the UK to do for some time. Shankar Singham, for instance, has criticised the EU’s ban on imports of Indian Basmati rice due to high levels of fungicide residuals (p.8). In other words, those in favour of an FTA with India seem willing to sacrifice UK food standards to seal the deal. Such an approach would of course have multiple knock-on effects, such as making exports of certain UK goods to the EU even harder, because the EU may worry about the lowering of standards in the UK.

More broadly, there is a distinct possibility that in certain sectors, an FTA with India – negotiated by a government desperately trying to prove to the British public that it can deliver on the promise of post-Brexit freedom to trade with the whole world – may lead to an ‘India shock,’ akin to the ‘China shock’ that China’s accession to the World Trade Organisation (WTO) triggered. The ‘China shock’ led to a massive increase in import competition from China, affecting the livelihoods of workers in formerly industrial areas of the UK and the US. An FTA with India where the UK has ‘few defensive interests’ (as Singham puts it in his Eastern Promise report), i.e. where the UK sells out whatever sector needs to be sold out to get the deal done, may have a similar effect on sectors such as low-skill services that can be provided remotely or farming. This could have devastating effects on certain parts of the country, especially because the UK government is adopting a similar approach with few ‘defensive interests’ with other major farming countries such as Australia.

It is unlikely that the Johnson government will be moved by any concerns about a too one-sided trade deal with India. For the government, FTAs have become reified symbols of sovereignty that are not judged based on their content or economic impact, but simply on their number. Since FTAs have become a symbol of freedom and sovereignty rather than a means to achieve an economic end, for Brexiters the more FTAs we have the freer and more sovereign we are.

That attitude is also reflected in the government’s new approach to a trade deal with the US. Now that an FTA with the US has been all but ruled out by the Biden administration, the UK government has started negotiating with individual US states over ‘bilateral economic pacts.’ The problem, of course, is that US states cannot sign Free Trade Agreements with foreign countries. Therefore, what is being negotiated are non-legally binding bilateral economic pacts, which are – according to Trade minister Mordaunt – statements "of ambition" with "immediate and practical" benefits for businesses. These pacts will seek to reduce regulatory barriers and costs, e.g., through mutual recognition of qualifications. But such pacts will not reduce tariffs and business are reportedly sceptical of their value. But that, of course, does not matter to the government. What they are looking for are announcements in the British media of ‘world-leading’ trade pacts with Texas, Arkansas, etc. made possible by Brexit. Few readers will read on beyond the headline or bother to discover what material impact such pacts actually have.

Symbolic policies 2: Immigration

Trade Deals are not the only policy tool that has become reified and now plays a purely symbolic role for the government to have something – anything – to show for Brexit. A similar disconnect of a policy’s symbolic values from its actual impact is immigration. The government announced to great mediatic effect a bold policy for dealing with illegal immigrants by sending them to Rwanda. There are serious doubts whether that policy is practical and if it were, whether it would achieve its goals and at what cost. But again, that does not matter to the government. The important thing is that the UK papers for a couple of days talked about how the Tory government is tough – indeed cruel – on illegal immigrants and how labour and others are pushing back.

Janan Ganesh’s, talking about populist politics in the US, notes that if “populism is to be all circuses and no bread, the performers will have to resort to ever wilder and more shocking feats.” That is precisely what is happening in the UK. With less and less bread on the table of many UK families, and given that people will get bored of promises of all the Brexit benefits that are just around the corner, the government has become very innovative in designing policies that have little actual impact, but can be sold in the pro-Tory media as great Brexit victories.

Actual impact of these policies does not matter. Nor does the fact that some of them are in direct contradiction with each other. Thus, the government’s symbolic policies in the area of immigration and in the area of trade are to some extent incompatible. The government’s desperation to conclude an FTA with India will almost certainly mean increasing immigration from India. For the Indian government, one of the most important asks in the negotiations will be easing of visa rules for Indian workers and students. On his visit to India, Johnson and India’s PM Modi were talking about a ‘living bridge’ between the two countries.

That is of course not a bad thing per se. With EU immigration reversing and labour shortages affecting many sectors, the country desperately needs immigrants. Rather surprisingly, even the Daily Express seems to understand and ran an article this week celebrating “a 25 percent increase in non-EU migrants in the last year.” For the Express, cause for celebration is the fact that less than a tenth of the nearly 240, 000 overseas work visas issued last year were to workers from the EU (down from around 50% by the time of the MAC report on EEA immigration in 2018 when we were still members of the EU). Conversely, the inflow of Indian, Pakistani, Nigerian, and Filipino workers has increased. It is great to see the Daily Express celebrating immigration – although only because it is seen as a sign of independence from EU –, but it is much less clear how this trend in extra-EU immigration will go down with the Tory voter base.

It has of course been a long-standing conservative promise to its voters to reduce the number of immigrants. Nothing suggests that this manifesto promise will be fulfilled anytime soon. Moreover, if the Tory/Brexit base had a problem with the alleged impact of immigration on public services, benefits and the like, they may in for a nasty surprise. The 2018 MAC report on EEA immigration showed that EU immigrants had a higher ratio of tax contributions to benefit burden compared to the average UK citizen or non-EU immigrant, which are now increasingly replacing EU immigrants (see this excellent thread by Prof Robert Busch). From this perspective, it is unlikely that the post-Brexit patterns of immigration that are emerging will go down well with Tory voters. Indeed, the Express ran a poll on the question “Is Boris right to increase immigration from India in exchange for a trade deal?” 88% of the Express readers who answered the poll said ‘no.’ Therefore, on this front too, the government finds itself between a rock and a hard place: if it wants a trade deal with India to make good on its promise of post-Brexit trade deals, it will have to ease visa rules, thus risking its reputation of being tough on immigration.

Post-Brexit UK Companies become more European

While the government becomes even more detached from reality, withdrawing increasingly into the realm of purely symbolic policies aimed at demonstrating independence from the EU, UK companies move the other way. Indeed, Brexit seems to make UK businesses more European!

A Newark-based company announced this week that it will be closing down its operations in the UK and move to the EU instead, leading to the loss of 110 jobs. Yet, such obvious cases of full-on ‘Brexodus’ is not the only way through which UK companies become more, not less, European. The Financial Times reported on a boom in trade hubs in the Netherlands set up by UK companies to avoid importing into the UK and re-exporting to the EU. Not surprisingly, the report shows that this has been happening ever since the 2016 referendum and especially during the protracted Brexit negotiations, which made it difficult for companies to predict what sort of deal – if any – would be reached. As Chris Grey puts it, such decisions are initially ‘unreported and unknown outside of the companies themselves,’ but over time we will see such decisions having a cumulative effect. There is an increasing number of academic studies that document the Europeanisation of UK businesses after Brexit, which allow us to better understand the complex and at times subtle ways in which Brexit impacts the UK economy. Financial services and business lobbying are two cases in point.

Financial service migration

The pre-Referendum prediction that 100,000 jobs could be lost in the City of London alone due to Brexit has become the favourite ‘Remainer prediction’ that Brexiters like to take aim at to discredit what they call ‘Project Fear’ (see my previous post on this point ). So far, it would indeed seem that the actual number of jobs lost in the City is lower by a factor of ten. A new study by Prof. Shawn Donnelly provides some insights into why to date the exodus of jobs from London has not been as great as expected. A key insight is that while a lot of activities have been moved to other financial centres inside the EU, staff have not. Moreover, there are factors that make some activities more likely to migrate to the EU than others. Overall, the impact of Brexit on financial services in London are varied with ‘stock markets moving wholesale (to Amsterdam), asset management migrating strongly (to Luxembourg and Ireland), clearing services hardly budging, and banking in between (to Paris, Dublin and Frankfurt).’

Donnelly’s work identifies various factors that explain the differential impact on different activities and the relative ‘inertia’ of finance jobs. A key reasons why financial service companies stay in London are so-called ‘network’ or ‘agglomeration effects,’ i.e., the fact that companies like to be in areas where other companies active in the same sector are located. Locating in proximity to other companies providing similar or related services generates positive synergy effects and make access easier, which makes a large financial centre more attractive compared to smaller ones.

Moreover, the economic pre-conditions for the provision of some services are not met in smaller financial centres. An important example is clearing and settlement for which the EU has further extended the UK’s waiver to provide this service to EU firms until 2025. The reason for the inertia of clearing services is – according to Donnelly – ‘a combination of high market concentration, network effects on cost, efficiency and effectiveness […] and close relationships with central banks as lenders of last resort,’ but also that no EU financial centre currently has the depth of financial markets needed for clearing transactions.

However, the EU has stepped up pressure on UK financial service firms to migrate jobs into the EU. In January 2022 the European Central Bank (ECB) announced, that after two years of suspension due to the pandemic, it would more strictly audit companies’ asset and staff commitment to EU countries. As EU regulatory pressure on firms to not just move services, but assets and personnel, job losses can be expected to pick up. Moreover, the importance of network effects also suggests that once another financial centre reaches a critical mass, migration may start snowballing and more UK companies not just becoming more European, but stop being British entirely.

British Lobbying in Brussels

The second study that hints at increasing Europeanisation of UK companies by Prof. David Coen and Alexander Katsaitis focuses on British business lobbying in Brussels after Brexit. While the BOGEMin gladly ignores EU regulations and encourages all of us to do the same, British businesses do not have that luxury as they continue to do business inside the EU. Therefore, even after Brexit, they will want to have influence over policy making in Brussels. Coen and Katsaitis show that British firms are now at a distinct disadvantage compared to EU firms, because they have lost the political channels of access to EU policymaking process via MEPs or permanent representatives to the Council. Therefore, they will have to use the administrative/bureaucratic channels of influence instead, i.e., focussing on influencing the Commissions Directorates General, where technical expertise that companies can provide guarantees access and influence. That implies they will “need increased public affairs activities such as consultant service” at the same time that they also need to shift lobbying from Brussels to Westminster. This implies increased costs, which – as ever – will hit SMEs harder than large companies.

Coen and Katsaitis also find that another channel through which UK businesses can compensate for the loss of access and influence through political channels is by more strongly integrating in European professional associations, which paradoxically means that British companies may become more European than they were before Brexit.

Taken together, the developments this week hint at an increasing discrepancy between the government’s obsession with shunning anything European to demonstrate sovereignty and independence from the EU and UK businesses’ need to become more European to continue operating in the EU illustrate that far from being over, Brexit continues to create deep cleavages and divides in British society; and as long as the Brexit project continues to be based on nonsensical symbolic policies, the much needed process of healing cannot begin.

Brexit Impact Tracker – 17 April 2022 – Gaping Wounds & Band-Aids

This week’s news were dominated by the UK having for the first time in its history a convicted law breaker as Prime Minister (and Chancellor) and by the diversion tactic of the new plan for immigration (pushed through by the Home Secretary via a ‘ministerial direction’ to overcome opposition within the government). Both events are related to Brexit, but already received a large amount of commentary from people with much greater expertise in these areas than I have (see on the law breaking UKICE’s Jill Rutter and of course Chris Grey’s blog post; on the new refugee policy look out for UN HCR’s commentary). Other Brexit-related events I feel more competent to comment on concern trade and ‘levelling up.’

 The Trade and Agriculture Commission (TAC) published its advice on the Australia Free Trade Agreement (FTA) this week, and we finally got to learn about the details of the UK Shared Prosperity Fund (UKSPF), the centrepiece of Michael Gove’s ‘levelling up’ agenda.

The UK-AUS FTA’s impact on nature, animals, and humans

An interesting piece of Brexit related news this week was the TAC’s advice on the Australia FTA, because the deal was lauded by the government as ‘world-leading’, but strongly criticised by the National Farmers Union (NFU) and called a ‘trade capitulation’ by the FT’s Alan Beattie (see my previous blog post). Therefore, the TAC’s advice is interesting not just regarding this first big post-Brexit FTA itself, but also in terms of the UK’s strategy regarding FTA with other countries.

The TAC had the mandate to advise on concerns in the areas of environmental protection, animal welfare, and public health by answering three questions: “whether the FTA requires the UK to change its levels of statutory protection in relation to (a) animal or plant life or health, (b) animal welfare, and (c) environmental protection”, whether it reinforces the UK’s levels of statutory protection, or whether it affects the UK’s ability to reinforce protections in these areas.

On BBC Radio 4 Farming Today, the chair of the TAC, Prof. Lorand Bartels  - incidentally an Australian national – summarised the findings as essentially rejecting any concerns about the FTA’s impact on the environment, public health, and animal welfare as either exaggerated or unfounded.

Reading the report, however, it is not entirely clear what the optimistic assessment is based on. Or rather, it is clear that it is based on a very minimal, procedural understanding of environmental protection, health, and animal welfare. The conclusion is essentially based on the fact that the FTA does not reduce the UK’s ability to adopt environmental regulations compared to the current WTO rules; in some cases the FTA even requires both parties to maintain existing standards. So, the positive assessment is essentially based on the – questionable – assumption that current standards are good enough in both countries (indeed, there is a strong relativism inherent in the report: ‘It can never be assumed that what is normal in one country needs to be normal in another. Nor, as a rule, does international law, or trade agreements, entitle one country to determine production practices in another country. The assumption is that states are sovereign, and when they cede sovereignty, they do so voluntarily.’)

Where problematic practices are acknowledged (such as mulesing of sheep without pain relief), the report minimises concerns because the commission argues that import of such produce into the UK will not increase significantly; and if they do the UK’s ability to ban a produce does not change compared to WTO rules.

That sounds reassuring…Except, of course, that these existing rules already set a pretty high bar and burden of proof for the country that seeks to ban any imports due to public health, animal welfare, or environmental concerns. Indeed, imposing measures on imports covered by the agreement requires that the country imposing the measures is able to demonstrate the causal link between the practice and the negative effect on the UK, is able to prove the necessity of the measure to address the issue, and is able to show that the measure is not a ‘disguised restriction on international trade’ or an ‘arbitrary or unjustifiable discrimination between countries where the same conditions prevail.’ Therefore, any attempt to block imports that raise concerns – however legitimate – can be challenged by the exporting party and quite possibly defeated on the grounds that they constitute unjustified discrimination.

Furthermore, in the area of environmental protection, the FTA adopts an odd definition of environmental laws whereby ‘Australia’s “environmental laws” are defined as meaning only Commonwealth laws. This is significant, because under Australia’s federal system most environmental legislation is at state and territory level.’ In other words, Australia’s obligations under the FTA only apply to its federal laws, not to its more important state and territory level legislation.

Moreover, despite the confident argument throughout the report that the FTA will not affect the UK’s ability to maintain its standards, the TAC seems to advocate for the UK to change its regulatory regime and possibly algin it on the Australian regime. This transpires most clearly regarding pesticides. The report mentions different pesticides that are permitted and widely used in Australia but banned in the UK. These include neonicotinoids, the herbicide paraquat, and fungicides such as epoxiconazole and chlorothalonil. Yet, rather than mentioning the devastating effects of these substances not just on pollinators, but also on bird species, or the long-term effect the decline of pollinators will have for humans, the TAC stresses the negative impact of the reduction of pesticide use on yields and farming profitability. Thus, the report notes that “the restriction on neonicotinoid pesticides in the UK has contributed to a significant reduction in production of canola (oilseed rape) in the UK.” Rather than acknowledging any legitimate concerns regarding pesticide use, the TAC seems to suggest that post-Brexit UK may want to ‘learn’ from Australia: “It should be noted that regulatory cooperation under the FTA may facilitate the UK’s exposure and understanding of the Australian pesticides approvals regime as it continues to consider the best future model for its own independent regime.”

The report on the AUS FTA makes it clear what the TAC’s priorities are – on Radio 4’s Farming Today programme, it’s chair stated that ‘competition is the name of the game.’ Everything else is secondary. As such, the TAC adopts a naïve 19th century free trade approach, where any liberalisation is unquestionably good, regardless of the unequal impact on different groups of people - let alone on animals and the environment. The report also betrays a resolutely technocratic world view that James C. Scott has called ‘high modernism.’ The commission still believes that (short-term) yield and profitability are the only relevant standards by which to judge agricultural production methods; and technologies like pesticides and OMGs are the way to improve this metrics. Even in a report on the environmental, human health, and animal welfare impact of the FTA, these areas are only considered as an afterthought. The TAC does not seem aware that it is precisely the unfaltering belief in human ability to control nature that has brought us to the brink of a man-made mass extinction.

This attitude is of course not surprising from a commission that counts amongst its members arch-libertarian Brexit ultra Shanker Singham. Brexit is a reactionary and retrograde project that seeks to turn back the clock a century or two. The TAC’s advice fits that project by applying that retrograde thinking to the analysis of environmental impact of trade.

 Overall then, despite the reassuring tone, reading between the lines and looking behind its legal details, the report does not make one confident that Britain’s post-Brexit trading regime will avoid going down the deregulation route. Indeed, despite all the reassurances, the TAC notes that the FTA leaves room for the UK ‘to adopt decisions under the agreement, together with Australia, that may constrain its freedom to regulate in the future,’ and that ‘these decisions are not necessarily subject to parliamentary scrutiny in the same way as amendments to the agreement, although any implementation of these decisions in domestic law would follow ordinary parliamentary procedures.’ In other words, while the FTA leaves room for the UK government to defend its environmental, animal welfare, and public health standards, it also leaves room to do the opposite. It is not hard to guess how the current government will use this leeway.

Regardless of the impact on environmental and animal welfare standards, we should not forget that the impact of the FTA on the UK economy is most likely going to be negligible (adding .08% to GDP, according to the Office for Budget Responsibility), while nothing in the report suggests that the impact on UK sheep farmers will be positive.

Trade in services – the right kind of growth?

In other Brexit-related trade news, we are getting used to shock headlines, such as City AM announcing based on new HRMC figures that between 2020 and 2021 the number of British businesses exporting to the EU has dropped by a third due to Brexit red tape (an interpretation that HRMC cautions against due to methodological changes to the way data are collected). There are also more of the now familiar stories of agricultural produce rotting in the fields due to a lack of buyers, most recently the case of a beetroot farmer in Staffordshire.

Yet, there are also some positive headlines. Thus, City AM reported that ‘City firms launch recruitment drive despite Brexit warnings.’ The article comments on a report that shows that banks, brokers, and insurers in the City of London are recruiting for 73 per cent more roles in the first quarter of 2022 compared to 2021. No doubt, Brexiters will call out Remainers for fearmongering over the job growth in financial services. Yet, the article also makes it clear where that job growth comes from, namely ‘[s]tronger income generated from deal making.’ In other words, what is booming is a speculative financial activity that generates profits for shareholders, but oftentimes few economic benefits for the firms concerned or for the wider economy.

An article by Richard Barfield for the UKICE think tank provides evidence that rather than a financial service boom, what we are witnessing is a displacement from some financial activities to others. Indeed, overall, post-Brexit financial service exports to the EU have declined by 38% between 2018 and 2021, while they remained stable with the rest of the world; professional service exports declined by 12% compared with a growth of 40% to the rest of the world. That is a dramatic decline, with important implications for the UK economy given that services accounted for 80% of UK economic output and 47% of its exports, earning a ‘trade surplus of £117 billion in 2018, including £23 billion with the EU.’

The reason for the decline are the direct result of Brexit as changes to trading arrangements ‘impede UK champions such as financial services (loss of passporting rights) and professional services (derecognition of qualifications).’ Therefore, it is likely that what we observe is a growth in those types of financial and professional services that do not rely on access to the EU market, but a steep decline in those that do. Activities like mergers and acquisitions can be carried out remotely, something services firms increasingly do since the pandemic, thus avoiding any post-Brexit issues with mobility of service workers. But even here, Brexit may eventually put a limit to how much the City can grow. City AM notes that “[f]inance firms are struggling to plug roles due to a scarcity of highly-skilled workers.” Therefore, to maintain growth in the service sector in the long run ‘the UK has little choice but to negotiate lower barriers with the EU’ as Barfield notes.

Yet, to date, there is no evidence that the UK government is ready to do anything of the sort. The Brexit ideology of ‘sovereignty’ is so engrained that all the government is willing to do is applying band-aids to gaping wounds. An illustration of that approach came this week regarding cabotage rules for touring musicians. Since Brexit, the number of unloads in the EU is limited to three in ten days, after which the truck has to return to the UK before being allowed to re-enter the EU, putting at risk many tours of the continent. This week, the Department for Transport (DfT) has agreed to bring in a short-term, temporary license that would allow the ‘big five’ haulage companies to operate their vehicles under both GB and EU operating licenses depending on where their vehicles are needed for a particular tour. That will still mean extra costs for tour operators, but avoids the most disastrous effect of the impact of the Trade and Cooperation Agreement (TCA) on the industry. Once again, Brexit works best when it is not implemented.

In short, then, the impact of Brexit on services is variegated. Some activities may not be as badly hit as others, and may indeed benefit depending on how regulations evolve. For instance, if the government went down the Singapore-on-Thames model, turning the UK into the world’s largest low regulation, off-shore tax haven and refugee for dirty money, that could potentially lead to an inflow of capital and thus arguably generate aggregate economic growth. What matters, however, is not so much the evolution of an abstract econometric measures such as GDP growth, but how that growth affects people’s lives. A Singapore-on-Thames strategy will not bring back jobs to the formerly industrialised areas in the midlands and north of England. It will generate capital inflow into financial centres, most importantly the City of London. As such it will mainly benefit the already rich elite of financiers and rentiers rather than improving the living conditions of people in formerly industrial heartlands of the UK. Therefore, such an approach would make things worse not better. Indeed, average GDP growth is not all, regional and sectoral distribution is everything. It is on that front that the Johnson government is failing. This was illustrated this week by the long-awaited publication of details on the UK Shared Prosperity Fund (UKSPF).

Sharing prosperity or spreading pain?

After considerable delay, Michael Gove’s Department for Levelling Up finally published the prospectus accompanying the UKSPF, which constitutes the centrepiece of the government’s ‘levelling up’ agenda and is meant to replace EU structural funds. Since this post is already getting too long, I will not go into the details of the SPF here. An excellent summary of its functioning and key issues was provided by the FT’s Peter Foster in his weekly Britain after Brexit column.

Suffice it to say that from the reactions of the regions concerned it becomes clear that few people seem ready to believe the government’s reassurance that the SPF does indeed guarantee that no region will be worse off than during EU membership. Indeed, rather than matching the £1.5bn yearly that regions used to receive under the last EU budget, the government only promises to gradually increase spending to reach that amount by 2025. In the meantime, the government counts transfers of remaining EU funds towards the overall amount and will only spend £0.4 billion this financial year, £0.7 billion in 2023-24 and £1.5 billion in 2024-25. In other words, more band-aid treatment for a gaping wound. Unsurprisingly, the reactions in the regions most reliant on EU funding were scathing. The Northern Powerhouse Partnership estimates a real terms cut in funding of more than a third compared to EU membership and Welsh First Minister Mark Drakeford fears a shortfall of £1bn for Wales.

Moreover, Peter Foster considers that rather than delivering on the promise to make funding easier compared to the EU system, all the UKSPF does is replacing EU bureaucracy with home-made red tape. The Institute for Fiscal Studies, in turn, considers the UKSPF a missed opportunity to update the system to take into account demographic changes in different regions and address the inequalities in the EU funding regime. Instead, the UKSPF entrenches them further. In other words, once again, where there was a real Brexit opportunity – however limited – the government did not manage to deliver on it due to bad policy making.  

As the fog of the pandemic is lifting and the clouds of Brexit promises are dissipating, while actual post-Brexit policies and economic developments become clearer, there can be no doubt that we are miles and miles away from the sunlit uplands we were promised. Not even the staunchest Brexiters can deny that, as is becoming clear especially from the desperate attempts to ridicule any effort to analyse the impact of Brexit. Thus, Time Stanley’s newly-coined term Brexit Derangement Syndrome, that I wrote about last week constitutes a plea to stop talking about Brexit. However, as Chris Grey noted in his usual perceptive way, it reveals the opposite of what it pretends to capture: ‘Presumably, Brexiters believe that leaving the EU will make long-term differences to the UK. If not, then why bother to leave? But, if so, then why would it be deranged the discuss the effects? The obvious answer is because they have been so dire that they discredit the decision to leave.’

This week’s Brexit-related events provide no evidence whatsoever to reconsider that conclusion. The separation from the EU has left gaping wounds all over the UK – the Northern Irish border being the most egregious one, but the shortfall in regional funding, and the massive effect of Brexit on the UK’s most successful export industries follow not far behind. Yet, all the government has to propose are band-aids. Needless to say, that the haemorrhage will not be stopped until the UK government moves back from the world of fantasy and wishful thinking to the reality of policy making.

Brexit Impact Tracker – 10 April 2022 – Brexit Britain’s Botched Borders

 In some sense Brexit is all about borders. The call to ‘take back control of our borders’ was front and centre in the Brexit campaign in 2016. Fundamentally, Brexit is a project that seeks to re-establish borders in the name of an outdated understanding of (territorial) sovereignty. And yet, it is precisely in terms of borders that the Brexit project is failing on literally all fronts. Indeed, if we conceive of a territory as being delimited by four kinds of borders that regulate the flows of people, of goods, of services, and of capital from one territory to another, it becomes increasingly clear that Brexit Britain’s borders are botched in all these areas.

The People border – Refugees, migrant workers, and travellers

Brexiters like to think of the UK as ‘world leading’ in whatever it does. In terms of its response to the refugee stream from Ukraine, it is world leading in falling behind. When BBC’s Mark Easton confronted the Home Secretary with the fact that the UK has issued roughly ten thousand visas to Ukrainian refugees, which compares to Germany’s 300,000 for instance, all she could say in response was that the UK had to carry out security checks because it was a third country while the EU did not. That seems like an absurd claim, given that Ukrainians are not EU citizens and therefore their treatment when entering either Germany or the UK has nothing to do with the EU. But it goes to show that the Home Secretary either does not understand the situation, or – more likely – she thinks the UK public is ignorant enough to buy whatever absurdity she may come up with.

Anyone who has ever had to deal with UK Visas & Immigration (UKVI) will not be surprised about the slow, chaotic, and inhumane way of dealing with visa applications of Ukrainian refugees. I have personally witnessed many times the anxiety and stress the Home Office puts foreign academics and overseas students through before they get the right to work or study in the UK. Poor customer service, technical issues like losing digital fingerprints, and delays in processing visas so that people have to delay the start of a new job – at considerable personal financial costs – make refugees and immigrants’ lives miserable. Of course these issues are not simply the result of incompetence and underfunding, but part and parcel of the Tory’s ‘hostile environment’ strategy towards immigration. The hostile environment strategy pre-dates Brexit, but by ending free movement of people for the nationals of the 27 EU countries, Brexit has massively increased the number of people who are subject to this treatment.

Priti Patel’s restrictive points-based immigration system together with the harassment-bordering treatment of visa applicants by UKVI certainly explains why EU workers are staying away even after the pandemic. Staff shortages in hospitality are well-known and continue to plague owners of restaurants. Similarly, the Parliament’s Public Accounts Committee noted in a new report estimates that for the agricultural sector alone, in August 2021, “the number of vacancies was estimated to be 500,000 out of 4.1 million roles in the sector.” This includes not just vegetable and fruit pickers, but also vets and abattoirs workers. Amongst other devastating effects this situation has had for UK farmers, the Committee lists the fact that 27,000 pigs had to be culled and binned, which seems even more shocking when considering – as Russ Jones did – that at the same time the country has £2.5m people using foodbanks.

As the pandemic ebbs and people start travelling again, staff shortages were painfully exposed at UK airports and ports. This is a result of staff leaving or being laid off during the pandemic and airports “struggling to recruit and train new staff quick enough to cope with demand, leading to staff shortages and delays at check-in and security.” As such, it is not Brexit alone causing these delays. For instance, German airports too report staff shortages of 20% and are expecting long waiting times over the Easter weekend. But in the UK Brexit has contributed to the problem. Even the BBC did not manage to entirely avoid talking about Brexit in an article on flight cancellations, which result not only from the fact that ‘other jobs were tempting workers away’ but also that ‘some European Union nationals had left after Brexit.’ So, the impact of Brexit here is not that the UK experiences staff shortages while EU countries do not. Rather it is that the problem will be more severe in the UK and be more difficult to address than in EU countries.

To be fair with Brexiters, these issues with the people’s border are not necessarily unexpected negative impacts of Brexit. Rather, some of them were part of the plan to make foreigners’ lives in Britain as miserable as possible. The seemingly unexpected element is that borders cut both ways and the negative consequences of ending free movement of people are now also affecting British citizens. But by and large, a Brexiter, while complaining about delays to their own holiday trip, may very well be quite pleased with the chaos that currently reigns in the UK visa and immigration system.

The trade border – trade in goods

More striking and problematic than flight cancellations and delays at airports are the lorry queues at Dover and other UK ports. The pro-Brexit explanation of these queues is simple. The BBC for instance simply states that “at Dover, the suspension of P&O ferry services and bad weather have also caused delays.” David Frost, in an article in the Telegraph, more explicitly rejects any link to Brexit by stating that rather than by Brexit “delays at Dover [are] caused, in fact, by the withdrawal of P&O ships.”

The easiest way to rebut Frost’s explanation is simply to point to the flawed chronology. The lorry queues at Dover have been a problem at least since January 1st, 2022 – the sacking of P&O works took place on March 17th, 2022. So the emergence of the queues pre-dated the sackings, but it coincided with the introduction of new customs checks on January 1st (Also, the weather in Dover back in January was not bad by British standards!).

This is not to say that everything that’s going wrong in the country is due to Brexit. P&O ships not running, and storms do of course affect channel crossings. The point, however, is that Brexit does constitute an important contributing factor to the border delays we are seeing. At some level, Brexiters now accept that. As reality gets harder to deny and the problems simply do not go away, Brexiters now consider extreme solutions, such as simply not carrying out any border checks on goods imported into the UK. Indeed, the latest decision to delay the introduction of full import controls on food and plant products has come with some suggestions that this may become a permanent solution. There are also Brexiter economists - like Patrick Minford – who in all seriousness try and make an economic case for such unilateral trade liberalisation.

In reality, of course, unilaterally giving up controls over borders potentially comes at a huge price. Frank Dunsmuir, head of international trade and customs at Fujitsu who hosts the CHIEF customs declaration system, estimates that the delay in implementing customs declarations between January 1st, 2021 and July 2021 may have cost HRMC as much as £30bn in missed VAT income. There are also a myriad of risks associated with diseases – both animal and human – (again Chris Grey’s  blog this week provides a very in-depth analysis of this aspect). There is also the issue that the laxer UK import controls, the less other countries will trust that goods circulating in the UK and therefore the harder it will become for the UK to gain access not just to EU, but also to other countries’ markets.

At the same time, Britain – who, remember, ‘holds all the cards’ – simply cannot afford to introduce full veterinary and food checks on EU imports, because it may very well lead to a collapse of supplies as the industry body Cold Chain Federation warns. Some experts doubt import checks would stop large EU exporters from exporting to the UK. Still, as Peter Foster points out, the concern that the UK might face problems with food supplies is great enough for UK industry bodies to even abandoned their plea for a ‘level playing field’ for UK and EU food producers. They are now willing to accept a one-sided arrangement where EU exports into the UK are not checked, but UK exports to the EU are. Remainers could not have dreamt of a better illustration of the absurdity of Brexiters’ ‘taking back control’ claim and of the Brexit government’s incompetence in delivering on the unicorns it promised!

The only other solution Brexiters have to offer is that world-leading ‘smart border’ by 2025, i.e. technical solutions that makes physical borders unnecessary, replacing them with electronical checks away from the border. The problem of course is that the way in which the UK government has handled the implementation of new border arrangements since Brexit, gives little cause for optimism that such a smart border can be made to work in the next three years. The latest example of a botched border arrangement is the post-Brexit Goods Vehicles Movement System (GVMS), which lorries transporting goods from GB into the EU have to register with and use to fill in customers declarations. That system has been down for days now, adding to the costs and delays exporters are facing. Indeed, the parliamentary Public Accounts Committee considers the 2025 target ‘optimistic, given where things stand today and we are not convinced that it is underpinned by a detailed plan to deliver’ (p.27).

The Irish Sea trade border

Arguably, the most botched Brexit border of all is the one in the Irish Sea. Any issues resulting from the Northern Ireland Protocol (NIP) are of course highly politicised, but it is undeniable that the NIP has led to various new barriers to trade between GB and NI. The Tory right is stepping up pressure again for the government to trigger Art. 16 and thus suspend parts of the NIP (which will solve nothing). Yet, the fact is as many people have noted over and over again, there simply is no solution to the ‘Irish trilemma’ – i.e. you can have two out of the following three things: Leaving the Single Market/Customs Union; no hard border on the island of Ireland; and a whole-UK approach to Brexit. The NIP sacrifices the latter. Johnson and his Brexiter crew new that – or should have known that – but are now behaving as if there was an acceptable alternative that would not mean the return of a hard border between Ireland and Northern Ireland. That is an illusion. David Frost – erstwhile architect of the NIP – seems to move towards acknowledging that by insisting that there is a border on the Island of Ireland. Yet that bit of realism from Frost does of course not make the trilemma go away and the return to a physical border on the Island of Ireland remains an unacceptable solution for the EU.

Trade border - trade in services

In terms of borders, the elephant in the room remains trade in services. Incredibly, trade in services – one of Britain’s key areas of economic strength – was completely neglected in the negations of the Trade and Cooperation Agreement (TCA). Brexit negatively impacted UK services exports already before Brexit had actually happened, with one study estimating the effect to be a fall of £133bn between the 2016 Referendum and 2019 – nearly 10% of the UK’s service exports. Now that the pandemic is easing, service exporters start feeling the serious impact of Brexit in full.

Here the key Brexit blunder is the neglect to include a ‘mobility chapter’ in the TCA. This makes it difficult for UK service exporters to send workers to EU countries to deliver services there. Peter Foster speaks of up to 1000 EU and members-state level restrictions. This will impact especially smaller companies as well as independent artists and musicians, as even David Frost acknowledges (although, of course, he blames the EU for it).

Capital borders

The – invisible – borders regulating the flow of capital from one country to another are not often discussed in relation to Brexit. That may be, because Brexiters do not want us to take notice of them. It is hardly an exaggeration to see the Brexit movement as part of what Susan Webber (aka Yves Smith) – founder of Naked Capitalism – calls a “finance-led counter-revolution” that aims “to reduce the bargaining power and pay of ordinary workers relative to investors and elite technocrats.”* It is indeed well document and clear beyond any reasonable doubt that Brexit was supported by the same super-rich financiers who supported other right-wing populist movements. It is also clear that for these super-rich, support for right-wing populism is not merely an ideological project alone, but also serves their material interests. By supporting superficially patriotic, right-wing populists, these financiers buy the loyalty of politicians who put in place a regulatory system that provides for tax havens and ample opportunity to make money through political connections (see for instance the PPE scandal).

The revelation that Chancellor Sunak’s wife Akshata Murthy had non-domicile status in the UK, which allowed her to avoid paying UK tax on foreign incomes, provides only the latest illustration how this group of footloose rentiers abuse the system. Most importantly, Murthy does not pay any UK tax or NI on her nearly £12m yearly dividends on her stake in Indian Software company Infosys. For HRMC that means a yearly loss of income of around £5m and £250k in NI. Legal institutions like the non-dom status – a century old feature of British tax law but reformed under Chancellor Osborne – constitute key tools for the super-rich to remain non-taxable by and non-accountable to nation states. Like many others before him, ex-banker Sunak has used his political positions to rigorously pursue strategies that allow him and people like him to enrich themselves on the back of working people. The Chancellor’s priorities are clearly illustrated by the real term cuts to universal credit, pensions, and the increase in National Insurance, while no windfall taxes on profits of oil companies are considered.

The rentier interests also become clear in the fact that the Johnson government ruthlessly is selling off anything that is still state-owned in the UK (most recently the announcement that Channel 4 will be sold off). The government also practices an open border for capital when it comes to takeovers of UK firms. That is despite the fact that recent security concerns about Chinese investments in technologies (e.g. the removal of Huawei from the UK 5G network) have led to a new National Security Investment Act. While the government takes a stand against Chinese investors when it seems politically appropriate (e.g. in the case of Huawei and 5G, where the US had adopted a similar approach), when none is watching the government continues to allow the flogging off of potentially sensitive British companies to foreign investors. Most recently, the Welsh chip manufacturer Newport Wafer Fab was bought by a Chinese firms. Therefore, when it comes to cross-border capital flows, the Brexit movement stands for murkiness and openness, not taking back control.

Can Britain’s borders be fixed?

The short answer to this question is of course they can! What stands in the way of working towards that goal, however, is Brexiter denial and dishonesty.

Given the irresistible weight of reality, we now hear Brexiters say that ‘no sensible person would deny that leaving the single market and customs union has some effect on trade in the short run’ and that we always knew ‘that a change in trading relationships with the EU would cause a hit to the UK economy.’ Except, of course, denying this is precisely what Brexiters have done for the past five years when promising frictionless trade and a Brexit with no downsides. As Nick Tyron aptly put it this week, for Brexiters “[e]very problem created by Brexit either does not exist or if it does, it’s not our fault.”

David Frost for instance continues to deny any suggestion that trade has been impacted by Brexit. Claiming instead – like Rishi Sunak did last week – that it is impossible to tell given the confounding factors of the ‘pandemic, trade re-routing, and methodological change’ Trade experts, of course, disagree as the impact of Brexit is so strong that it is becoming increasingly easy to see the stark difference in trade performance between Brexit Britain and other countries, including Germany.**

Brexiter dishonesty about the new borders goes further. Brexit Opportunities Minister Jacob Rees-Mogg has now started to deny that non-tariff trade barriers are the logical and necessary consequence of the type of Brexit Johnson’s government has chosen. Instead, he shifts the blame onto the EU. In an interview on LBC – reported on Nick Tyrone’s blog – he replied to a fisherman named Robin complaining about the non-tariff barriers by saying that ‘I accept Robin's point that the EU is applying non-tariff barriers to make life difficult for British fishermen but that is because of the doctrine of the European Union, not because of the doctrine of the UK government.’

This, of course, is a completely false interpretation of the facts. The EU’s ‘doctrine’ was perfectly compatible with avoiding non-tariff barriers by allowing the UK to stay in the Single Market and Customs Union. But of course, the UK would have had to accept the necessary condition for SM/CU membership, namely regulatory alignment.

This continuing lack of honesty and realism makes it impossible for the government to effectively address any of the current border problems. Brexit’s impact on the UK trade border is the fundamental reason for the lorry queues in Kent. Acknowledging that is a crucial first step to then try and find a better solution than the current one. Modern borders are complex institutions that connect complex economic systems. The impact of Brexit on this complex system is complicated and multifarious as Chris Grey shows in meticulous detail in his Brexit & Beyond blog post this week. The simplistic nature of the Brexit project means that a government guided by Brexit as its only lodestar, is very badly equipped to address any of these challenges. It therefore would seem that a change in government – or at least in PM – will be needed for any of these border issues to be solved.

Brexit politics

 Despite the – to me – obvious botched handling of Brexit by Johnson’s government, 28% of people surveyed by Ipsos this month still consider Brexit to have a positive impact on the UK economy. That contrasts with the 45% who think it has had a negative impact. Yet, if we add the 22% who consider it has had no impact at all, a clear majority of 50% do not consider Brexit to be a problem for the UK economy. This certainly reflects the success of the government and the pro-Brexit media in attributing the cost-of-living crisis and other economic issues people are facing to all sorts of reasons (the war in Ukraine, the pandemic) without acknowledging the role of Brexit. In other words, the governments diversion strategy, and the fact that Brexit has coincided with other truly historical events allows Brexiters to eschew responsibility.

 That creates the conditions for Brexit becoming a mythical background event that people do not associated with any real-world outcomes. The same Ipsos poll shows that the approval ratings of key Tory figures in government are falling. So, people do not seem particularly happy with the government, but they are being judged not on delivering Brexit but on other things that people do not associate with Brexit.

 The disconnect of Brexit from the realities of its impact may serve the Tories’ strategy to campaign on Brexit in the next election. If people do not associate their current economic grievances with the way in which we left the EU, the Tories will be able to campaign once again on mostly ideological aspirational themes of ‘sovereignty,’ ‘independence,’ ‘anti-woke’ and – let’s face it – English/British supremacy. That may be the only way to hold together the disparate coalition that voted Tory in 2019, which ‘had more in common on cultural issues than on economics’ as David Gauke puts it.

 Johnson’s suggestion this week that Kier Starmer is the person who would take us back into the EU indicates that the Tories are serious about making the next GE campaign another battle between ‘Remainers’ and ‘Leavers,’ rather than one about the economic realities people are facing.

 In that context, the opposition should resist the temptation to be drawn into a ‘keep Brexit done’ v. re-join debate. Reality is firmly on the side of Remainers. The more people’s economic grievances become undeniable, the easier it will be of Labour to simply point to the botched job the Johnson government made of Brexit and to attack the Tories for being the ‘high tax, low growth’ party. Whether or not re-joining is the right solution to fix the mess Johns has created should not be at the centre of the campaign. ‘Making Brexit work’ may not be a good slogan for Labour – because it puts off many Remainers, but the fact is that – whatever we call it – whoever is in government after the next GE needs to urgently fix our third country relationship with the EU.  

 A recent excellent study by Richard Bentall and colleagues shows that a middle-of-the-road strategy on Brexit may indeed be the most likely strategy to win the next GE. The study shows the difference in answers when you ask people if they want to re-join or remain outside the EU and the answers to the question whether Brexit was the right or wrong decision. The difference is striking. The country remains split into two camps of pretty much equal size in the first case (38% re-join vs. 39% stay out), but a majority (48% vs. 38%) says it was wrong to leave, 59% (vs. 30%) say the government is handling Brexit badly, and 52% (vs. 17%) say Brexit is not going well.

Bentall’s explanation is that the Remain/Leave divide has become a matter of identity rather than policy preference, which makes it very unlikely people will change their opinion on that issue. As a result, Prof. Bentall and his team suggest that the best electoral approach to Brexit is one that does not defend either ‘Brexit at any cost’ or the ‘reverse Brexit’ alternative, which both trigger people’s ‘Brexit identity.’ Rather, an intermediary strategy that promises a pragmatic ‘New Deal with Europe’ – maintaining independence but pragmatically collaborating more closely with the EU – is the one that most people – Remainer or Leaver – find acceptable. That strategy is close to, but not the same as ‘Make Brexit Work,’ in the important sense that it would be explicit in pointing out the fact that the government’s Brexit is failing on all fronts but would not commit to re-joining as the only way to fix Brexit.

That strategy is not without risks. Labour may lose some staunch Remainer votes. More importantly, perhaps, accepting Brexit as a matter of fact (we have excited the EU) should not be equated with accepting Brexit as a political project. The fact that Brexit was achieved through an illegitimate referendum campaign that broke electoral law cannot go unchallenged if British democracy is to be protected from ongoing and future attacks. But again, that does not mean the answer should be a campaign based on the promise to re-join. Such a campaign would trigger Brexit identities and may very well lead to another victory of the ‘Leave’ side in a situation where the country remains split pretty much 50-50. Therefore, to take back control over the government, Remainers may have to accept the new Brexit borders for now in order to be able to fix them later.

 *Many thanks to Bill Maslen for sending me this quote, which I hadn’t seen before!

** To be fair with Frost, he does attempt to engage with some of the more substantive aspects of Brexit’s impact on trade, namely the OBR estimation that by 2030 UK productivity will be 4% below what it would have been without Brexit.  Frost the ‘economist’ rejects the claim that higher trade leads to higher productivity arguing – wrongly – that the link between the two ‘is often based on evidence from emerging markets or ex-Communist economies’ and pointing – rightly – to the fact that ‘the UK's own trade openness has grown since the financial crash, but productivity has not.’
The link between trade and productivity is not uncontested amongst economists, but when using a solid measures for productivity and trade-openness and controlling for all relevant factors it is pretty robust across all countries, not just emerging economies.
More specifically regarding his claim that UK productivity has not increased despite greater trade openness, this is most likely explained by the large (excessive?) role that non-tradable services play in the UK economy. Productivity gains are much harder to achieve in these types of services (Baumol’s disease) than in manufacturing and other high-value added activities. Therefore, due to its industrial structure, which – as a result of deindustrialisation since the Thatcher period – is tilted towards non-tradeable services, Britain will on aggregate benefit less from trade openness in terms of productivity increases than more manufacturing-focused countries.