Friday, 30 September 2016

Institute of Government: silence is not strategy

The Institute for Government have produced a damning report on the progress made by the government so far on Brexit.  Tellingly sub-titled ‘silence is not a strategy’ the report points to the incoherent administrative machinery being created, with turf wars between the different Brexit ministries. It also shows the initial costs involved in staffing these ministries, which they estimate at £65M a year – but that is just the first instalment on what will undoubtedly be an extremely hefty bill in the coming years. The scale of the demands upon the civil service and its inability to cope with them, partly because of the cutbacks of recent years, is becoming ever clearer.

There remains no clarity in what the government is seeking to achieve with respect to Brexit, and the latest coded comments of Brexit ministers like Liam Fox make very little sense, not least because of the continuing confusions over what key terms – single market, customs union, WTO trading rules and so on – actually mean. Europe leaders are bemused at this ignorance, as shown by their disdainful reaction to Boris Johnson’s comments that the link between the single market and free movement of people is “baloney”, and seem now to believe that a hard Brexit is inevitable. Leaders aside, in the last couple of weeks I’ve talked to Bulgarian, French, Danish and Norwegian people all of whom are completely mystified, confirming the observation that many are making that the UK is becoming a “laughing stock”.

For Theresa May, the politics of this are immensely complicated even if it were clear what she wants to achieve. The core difficulty is the same one that led to the referendum in the first place and which it was meant to resolve: the split between fanatical anti-Europeans and if not fanatical then at least pragmatic pro-Europeans within her own party. That has not simply reappeared as a hard versus soft Brexit split. However, in this incarnation, it cannot be addressed as party management matter since whatever decision is taken will ineluctably determine the long-term future of the UK as well as having immediate consequences. The lesson from her predecessor must surely be that the anti-EU faction cannot be appeased in any way: nothing other than full, hard, early Brexit will satisfy them.

But if that happens there are now very severe warnings of massive job losses in the financial sector, and ever louder noises coming from the car industry, care industry, academia and other sectors that the results will be – and are already beginning to be - catastrophic. For Brexiters, no doubt, this is just ‘Project Fear mark 2’, but the (what one hopes are) serious-minded civil servants working on the plans can hardly react in so cavalier a fashion. Nor, presumably, can the Prime Minister.

So if she, herself, is seeking a soft or softish Brexit then she now has almost no room for manoeuvre, except perhaps to hope that delay will lead to an implosion of the Brexit wing of her party, and especially of its ministers in government. If that is so, then silence is indeed a strategy, although for how much longer it can hold is questionable. Alternatively, if she is willing to accept (or, even, wants) hard Brexit then it is difficult to see why she does not simply come out and announce that: the pain of it will not be reduced by waiting. However, if that is her position it becomes incomprehensible why she would have set up an administrative machinery with the flaws so clearly dissected by the Institute for Government.

Wednesday, 21 September 2016

Reading today's OECD statement

Considerable caution is needed when dealing with both economic forecasts and media reporting. When the two are combined, it becomes positively hazardous as with today’s OECD statement on the impact of Brexit. Read the Independent and you learn that “OECD halves growth forecast due to EU Referendum vote”, but the Guardian’s pro-Brexit economics editor Larry Elliot reports that the OECD has “backtracked on its warning that the UK would suffer instant damage” from the vote. The pro-Brexit Telegraph takes the same line, but headlines it under the rather cautious formulation “Brexit not as bad as feared”. Of course, all three reports are in some sense true. The first report highlights the OECD cutting its prediction of UK growth in 2017 from 2% to 1%; the second and third increasing its prediction of UK growth for 2016 from 1.7% to 1.8%.

In any case, there isn’t any point at all in trying to read the economic effects of Brexit yet. Brexiters are keen to insist that what they call ‘Project Fear’ has been discredited because there has been no immediate recession as predicted by, especially, the Treasury. However that is meaningless because all of those predictions were predicated on the understanding that Article 50 would be triggered immediately after a vote to leave, as the then Prime Minister had said would be the case. The Treasury report on the immediate impact of a leave vote is explicit in stating this (paragraph 1.6 on p.12 and paragraph 1. 38 on p.24 of the link).

This didn’t happen – one of the few sensible decisions that Cameron made in this whole saga – and as a result the situation is in limbo. That doesn’t justify any celebration from Brexiters, as there are plenty of negative impacts already and not a single indicator that has shown a positive reaction to Brexit (the fall in sterling may be a positive for exporters, but it wasn’t a positive reaction to Brexit, and of course any positive for exporters is a negative for importers). If they were right about the new opportunities opened up by leaving, you might expect just one such reaction and if the best that can be said is ‘not so bad as feared’ it is hardly a ringing endorsement! Moreover, within that limbo, at least part of the reason why the economy has held up has been the very strong monetary intervention of the Bank of England - for which savers and future pensioners will pay a heavy price. 

The short-term predictions cannot therefore be evaluated until Article 50 is triggered, and crucial to the reactions to that will be whether by then it is clear that the government will seek soft Brexit and that the EU are likely to agree to that. If that is not the case (or even if, before Article 50, it becomes clear that it will not be the case) then we will see immediate and negative economic effects. Even so, it will be a long time before the full economic consequences of whatever version of Brexit emerges will be known.

The economic consequences of Brexit are anyway only part of what matters. Less easily quantifiable, and already starting, are the political and what might be called reputational effects. The status of Britain in the world, and its influence in shaping key debates and policies has undoubtedly been diminished. The former US Secretary of State Dean Acheson famously said in 1962 that “Great Britain has lost an empire and has not yet found a role”. In recent years that role had become that of the fulcrum between the US and the EU, and the peaceful post-communist transformation of eastern Europe was perhaps its greatest achievement. Whatever form Brexit takes in terms of trade arrangements that political role has now disappeared for good.

Monday, 19 September 2016

Another referendum?

Both Owen Smith, the Labour leadership contender, and Tim Farron, the Liberal Democrat leader are proposing a second referendum. Smith is unlikely to win the leadership contest but the post-Brexit landscape presents considerable opportunities for the Liberal Democrats to recuperate some of the substantial electoral ground they lost in 2015. Their pro-EU credentials are longstanding, and with Corbyn’s Labour at best ambivalent about the EU they could be a natural home for ‘the 48%’. Former LibDem seats like Cambridge Central, now held by Labour, could be there for the taking if they get their post-Brexit positioning right.

However, there are serious problems with Tim Farron’s (and Owen Smith’s) proposal for a second referendum. These problems are emphatically not those reportedly identified by Vince Cable and Paddy Ashdown. Their objection is that there are no grounds for a re-run of the June vote. That objection is flawed because Farron isn’t proposing a re-run of that vote, but a new vote on the actual Brexit deal, once it is struck.

The problem with Farron’s proposal is, rather, that there is no good question that could be asked of the electorate once a deal has been negotiated. Supposing the government had negotiated some sort of soft Brexit. Then, the question on the ballot paper would have to be: do you want to stay in the EU or leave on soft Brexit terms? But that question would never be acceptable to many leavers, as it offers EU or EU-lite as the only options. And, actually, I think they would be justified in their objections.

Alternatively, suppose that the government had negotiated some sort of hard Brexit. Then, the question on the ballot paper would have to be: do you want to stay in the EU or leave on hard Brexit terms? But that would be a highly unsatisfactory question as there would be many people who do not want to be in the EU, but to whom a soft Brexit would be acceptable, who would be pushed to voting for hard Brexit as the only non-EU option.

In any case, any negotiation – whether for hard or soft Brexit – can only happen after Article 50 is triggered, and it is entirely unknown whether once that has happened it could be rescinded and, therefore, whether it would even be possible to stay in the EU. Thus it is not clear that this could be an option on the ballot paper. On the other hand, whatever the negotiation has been, there will have been only one negotiation, and so the ballot paper question couldn’t be: do you want hard or soft Brexit? Because only one of them would actually be available, as only one of them would have been negotiated.

So what should the LibDem policy be? The answer to that is clear. They should be calling for a referendum before Article 50 is triggered on the question: do you want the UK government to seek soft Brexit or hard Brexit? In practice, this might be worded as: do you want the UK to remain a member of the single market or to leave the single market? This is eminently respectful of the June referendum decision because it would be saying: 'yes, you voted to leave the EU; now we are asking you what you want leave to mean'.

Such a referendum would also speak directly to the reality of the present political situation: the June vote was a vote against EU membership, but it wasn’t a vote for any particular alternative. So we actually don’t know what the electorate want now, and rather than leave this to the internal power plays of the Tory Party we should, if we think that the June Referendum must be respected as the will of the people, be asking that electorate how they want to proceed.

Although I am suggesting that this should be the policy of the LibDems, I actually think it should be the policy of all parties, because of the need to clarify what the June vote meant. It could be particularly attractive to the governing Tories because although the referendum was meant to resolve the EU issue for them, it has done no such thing. Instead, there is an internal struggle between hard and soft Brexiters.

I’m sure that many of us will feel exhausted at the very thought of another referendum. But given that the first referendum happened, and given that it didn’t mandate any particular way of leaving the EU, a second referendum on how to do so seems the only way to answer that question, and it must be answered before Article 50 is triggered, not after the negotiation is completed.

Friday, 16 September 2016

Taking stock

The novelist and political commentator John Lanchester has written an incisive analysis of the referendum result, the reasons behind it and its possible aftermath in his essay ‘Brexit Blues’ in the London Review of Books. I don't agree with all that he says, but it is well worth a read. Part of what he discusses is the way that the leave vote was an expression (albeit highly manipulated) of the discontent of those in the white working class outside London who had lost out from or been left behind by globalization and recent UK politics. A very similar discussion was presciently provided just a couple of days after the vote in counter-consultant Martin Vogel’s elegant essay.

That has become a familiar analysis – albeit that Lanchester and Vogel express it with considerable subtlety and alongside many other, less familiar, points. It is somewhat borne out by the fascinating polling data from Lord Ashcroft, which show the social class demographic of the vote (36% of social classes C2DE for remain; 57% of social classes AB). But that also shows that there were plenty of people in each class group who voted differently to their group’s trend. The data also show that age and whether in employment or not were strongly correlated with voting patterns (by contrast, gender was not a factor). More revealing is the way that voting leave associates with negative attitudes to multi-culturalism, feminism, environmentalism and social liberalism (and the converse for remain voters). This suggests that cosmopolitanism versus localism, rather than simply social class, is the key axis here.

Labour leader Jeremy Corbyn (who was a lukewarm campaigner for remain, and is widely believed to be pro-Brexit, albeit on different grounds to most leavers) this week said that the leave vote was “a decisive rejection of the economic status quo”, meaning neo-liberal capitalism, and that “it can no longer credibly be argued, for the majority of people, that free trade and free markets alone will deliver increased prosperity”. It’s not entirely clear from the Ashcroft data that this is so, because although voting leave associated with the view that globalization was a force for ill, leave voters (and remain voters) were split about 50-50 on whether capitalism was a force for ill or for good.

The more important point is that, whatever those voting leave may think, those who lead them and, in particular, the Brexiters now in government positions and responsible for negotiating Brexit do not think Brexit means anything even remotely like what Corbyn thinks it means. Instead, they are advocates of more globalization, more free trade, and more free markets. So even if Labour under Corbyn were to win the next election – which current polls suggest is highly unlikely – by then the shape of post-Brexit Britain is likely to have been settled in ways quite different to those favoured by Corbyn.

Leaving aside whether it could even be negotiated with the EU, it is in any case unlikely that Corbyn’s preference – which seems to be membership of the free market but without the restrictions he believes (debatably) this imposes on nationalization and competition policy – would resonate with those leavers for whom immigration/ free movement of people is the main issue. In fact, Corbyn would do well to reflect on the differences between his own and Lanchester’s and Vogel's much more nuanced analyses of what the Brexit vote meant. Or, to put it another way, if the key axis is cosmopolitans versus locals, then Corbyn’s socialist internationalism is a version of cosmopolitanism whereas Labour leavers were animated by localism.

It still remains completely unclear what the eventual settlement will be (nothing decisive has happened in that respect since my previous post unless you count the bathetic call from Boris Johnson to refurbish the Royal Yacht to serve as a floating embassy for global free trade deals). Lanchester (writing at the end of July) thinks it likely that it will be a Norway type free market membership arrangement which will bypass the concerns of many leavers, but will reflect the view of the remainers plus enough of the leavers to be democratically defensible.

I would probably have said the same thing at the end of July. Now, I am not so sure. There is, however, one statistic in the Ashcroft polling which is especially interesting in terms of how things may now play out. During the campaign, it was generally held that leavers were far more passionate about leaving than were remainers about remaining. But the Ashcroft polling shows that more than three quarters (77%) of those who voted to remain thought “the decision we make in the referendum could have disastrous consequences for us as a country if we get it wrong”. More than two thirds (69%) of leavers, by contrast, thought the decision “might make us a bit better or worse off as a country, but there probably isn’t much in it either way”.

This may suggest that remainers will be much more implacable in opposing Brexit (or at least trying to mitigate its worst effects) than leavers will be in insisting on it (or at least in any particular form). It certainly seems to be the case that remainers are not willing just to sit down under the narrow result, as the continuing popularity of The New European paper, as well as well as the numerous grass roots and parliamentary ‘post-remain’ groups, shows. And there are surely powerful allies in the civil service, business and the City. Nigel Farage, in his farewell speech to the UKIP conference today said that they had won the battle but must now win the peace – by which he meant hard Brexit. The job of remainers is to prevent that, and not just for themselves but precisely for the jobs and well-being of those who vote leave on a flawed prospectus. For even if Lanchester and Vogel are right about the motives of at least some of the leavers, the fact is that leaving the EU - especially in the hard Brexit variant - will not address their problems, it will massively exacerbate them.

Tuesday, 13 September 2016

Growing absurdity

The near farcical chaos around Brexit intensified this week. Yesterday, David Davis admitted that the negotiations to leave might be “the most complicated in history”. True enough, but during the referendum campaign the leave side – including Davis – insisted that it would be easy, shouting down those who voiced caution. Today he has gone further, saying that a trade deal may not even be possible, again repudiating the claims made in the campaign. At the time, the repeated claim was that the UK would stroke a quick, easy and advantageous trade deal.

Of the other Brexiters, Liam Fox has gone to ground after his weird attack on British business, and Boris Johnson has given his support to Change Britain, the inheritor of the Leave campaign, in pressuring the government for ‘hard Brexit’. Is this the first time that a government minister has associated himself with a group to lobby … government ministers!? Within this, it is almost unremarkable that the leave campaign’s fraudulent promise of £350M a week for the NHS has been formally abandoned by Change Britain.

Meanwhile, the realities of what leaving the EU might mean in terms of restrictions on the travel of UK citizens are finally being realised and discussed, with Brexiters fulminating that such restrictions would be unacceptable and spiteful, as if it were the EU that had decided to expel the UK rather than the UK deciding leave.

The situation is now becoming absurd. On the basis of a close vote on the back of a campaign to leave the EU that has now been pretty much disowned by its leaders, an essentially impossible scenario has been enshrined as inevitable. But we are only at the beginning of what has the potential to be a calamity. On the other hand, precisely because of the chaos of the situation it may be that unpredictable outcomes are possible.

Saturday, 10 September 2016

Liam Fox's speech on British business

Liam Fox, the minister responsible for post-Brexit international trade, has created controversy in a speech in which he castigated British business for being insufficiently export-oriented, which he ascribed to it having become “too lazy and fat”, resting on previous achievements. Too many executives prefer an easy life playing golf rather than seeking exports, according to Fox. Which makes him wonder “what is the point of us going out and looking for new markets for the United Kingdom”?

It was a strange speech for a trade minister seeking to make deals to make, as it hardly paints a positive picture of UK businesses. And a particularly strange speech for a Brexiter to make. After all, their claim during the referendum campaign was that ‘buccaneering’ British businesses needed only to be set free from the ‘shackles’ of Brussels to take the world by storm. On the other hand, since Brexit has created highly uncertain trading conditions for British businesses in their biggest market and beyond, it seems through a referendum result that most businesses cautioned against, it seems at the least tactless. One interpretation is that Fox is ‘getting his excuses in early’. Given what is acknowledged by most experts to be the near impossibility of the quick, good trade deals that the Brexiters promised, perhaps Fox is getting ready to blame the failure of Brexit on others?

The speech also underlines the fragility of the politics of the UK’s post-Brexit government. Only a few days after the Prime Minister had to disown the comments of the Minister for Brexit about the single market as ‘expressing a personal view’, she had to do the same about Fox’s speech. It’s the third time in two months that May has disowned something that Fox has said. And the speech also contained a renewed criticism of his Brexiter cabinet colleague, Boris Johnson. Small wonder that a columnist in the Brexit-inclined Daily Telegraph recently suggested that Fox “is a ticking time bomb” in May’s cabinet. And this is not just about personalities: it reflects the fact that there was and is no consensus amongst Brexiters about what post-Brexit Britain looks like.

However, I am more interested in the less-reported parts of Fox’s speech. For in it he also insists that “we must be unreconstructed, unapologetic free traders”. This is an important statement because during the referendum, a vote to leave was portrayed as a chance to reverse the impact of globalization, and the leave vote itself has been widely portrayed as the revolt of those dispossessed and left behind by globalization. Indeed the left-wing case against the EU – subscribed to by Labour leader Jeremy Corbyn – was precisely that. But as Fox’s remarks in this speech – along with his support for TTIP, opposition to which was another plank of the left-wing Brexit case – show, those leading Brexit are not in the business of protectionism.

So just as those who voted for Brexit on the grounds that it would yield £350M a week for the NHS have been misled, so too have those who imagined that it dealt a blow to neo-liberalism. It’s an unusual achievement to make a speech which alienates both right-wing business elites and left-wing anti-globalization activists, but Fox has managed just that.

Thursday, 8 September 2016

Continental partnership: a workable solution?

In the light of my speculations yesterday about the kind of deal that Theresa May might be hinting at in her so far rather cryptic comments, I was fascinated to come across a discussion paper from Bruegel, a reformist European think tank. Published on 29 August, it is entitled Europe after Brexit: A proposal for a continental partnership. The abstract reads:

“After the British decision to leave the EU, Europe’s trajectory, even its destiny, has again become a matter of choice. In an increasingly volatile world, neither the EU nor the UK have an interest in a divorce that diminishes their influence as the balance of economic power shifts away from the North-Atlantic world. We propose a new form of collaboration, a continental partnership. The UK will want to have some control over labour mobility, as well as leaving behind the EU’s supranational decision-making. The proposed continental partnership would consist in participating in goods, services, capital mobility and some temporary labour mobility as well as in a new system of inter-governmental decision making and enforcement of common rules to protect the homogeneity of the deeply integrated market. The UK would have a say on EU policies but ultimate formal authority would remain with the EU. This results in a Europe with an inner circle, the EU, with deep and political integration, and an outer circle with less integration. Over the long-run this could also serve as a vision for structuring relations with Turkey, Ukraine and other countries.”

In summary, it proposes some limitations on free movement of people along with:
- Participation in a series of selected common policies consistent with access to the Single Market;

- Participation in a new continental partnership system of inter-governmental decision making and enforcement;

- Contribution to the EU budget;

- Close cooperation on foreign policy, security and, possibly, defence matters

In essence what would be created would be a kind of dual system of the EU and the new continental partnership (CP). What is interesting about this proposal is that it is not just an idea for a deal to ‘accommodate’ the UK, but rather embeds this within a wider sense of a reformed EU and – something rarely discussed – a solution to some of the problems of the EEA, to the ongoing issues around the position of Switzerland, to the long-term situation of Turkey, and to some of the tensions between east and west European member states which are apparent in the run-up to the Bratislava summit. This is important if we move from a Brit-centric approach to Brexit in which the UK makes demands and negotiates for these to one which recognizes that Brexit and the negotiations around it are a two-way street.

It is striking how consistent this plan is with what May has said so far, and it could be seen as an intermediate model between Brexit-lite and hard Brexit which I and others have taken to be the only feasible options. It would be better than Brexit-lite in reducing the political and diplomatic damage of Brexit, and like Brexit-lite would reduce the economic damage. Of course, such a plan would face much opposition within both the UK and the EU and its member states. Still, it could be a workable solution. It’s certainly the most interesting idea for one that I have seen so far. It is well worth a read.

Australia's warning

Hot on the heels of Japan’s striking intervention, Australia has now warned that a post-Brexit deal would be a long time coming and would be subordinate to negotiations with the EU. Meanwhile, Reuters is carrying a damning assessment of the UK’s ability to negotiate future trade deals.

The assumption (or hope) must be government ministers – especially those charged with Brexit – are getting a crash course in these realities which were, of course, dismissed as Project Fear during the Referendum campaign.

Similarly dismissed were the pre-Referendum warnings of budget airlines like RyanAir that Brexit would make them less likely to invest in UK operations. This, too, turns out to be true and yesterday the Irish company announced that none of their 50 new planes would be based in the UK as a result of Brexit. We can expect a trickle of such announcements during the current ‘phoney war’, which will become a flood if the outcome is hard Brexit.

Wednesday, 7 September 2016

Single market: access or membership?

The government’s first parliamentary statement of Brexit, made by David Davis on Monday, was hardly illuminating. One exchange (on how to manage the transition from EU to UK law) seemed to sum things up, though, when Davis admitted that what he had initially thought would be straightforward turned up to be much more complicated than expected. It is perhaps a bit late in the day for that. On the key issue, there is no clear sign of what the aim is in terms of single market membership in particular. Davis seemed to imply that membership was highly unlikely, but the Prime Minister almost immediately said that such an implication was not government policy. Instead, the aim is, apparently, to secure ‘the best possible deal of trade in goods and services whilst having some control over EU migration’. But what that means is almost as unclear as Brexit means Brexit’. Trying to understand the various cryptic statements being made is becoming an exercise in Biblical hermeneutics and presumably either means that no one has any idea how to proceed, or that there is an almighty row behind the scenes between different views.

None of this is helped by a persistent confusion – both during the campaign, but now, more alarmingly, amongst ministers – between single market membership and single market access, with the related confusion of these with ‘tariff-free trade’. Single market membership is not just about tariff-free trade; it is also about the removal of non-tariff barriers to trade and it is from this that most EU regulatory harmonization flows (which does not play well with the Brexiter ‘taking back control’ playbook). Non-tariffs are the most technically complex and significant barriers to trade and are most especially pertinent to services. For this reason, a single market access deal would be unlikely to cover services, which are key to the UK economy and to UK exports. This would also be very unattractive to foreign direct investors who want not just to sell into EU markets but also have deeply intertwined pan-EU goods and services supply chains.

Similarly, single market membership entails free movement of people not as a kind of a bolt-on which, for some ideological reason, the EU insists on but as a core part of the definition of what a single market is: a complete unification of production and consumption of goods and services. You can no more be a member of the EU single market without free movement of labour than you could have a functioning UK single market that restricted movement between different counties. Incidentally, this is why I think a single market is a much better response to globalization than a free trade area; because it partially equalises the rights of labour and capital so that labour can move to jobs rather than being forced to take or leave whatever capital investments are made. Be that as it may: to want single market membership but no free movement isn’t simply an unrealistic negotiating position, it’s a logical impossibility. You might as well say you are going to sail your boat up the M1. Free movement isn’t a ‘price to paid’, negotiable to a higher or lower level, for being in the single market: it is an integral and definitional aspect of being in the single market.

This makes what seems to be the Prime Minister’s current approach completely unrealistic. The idea seems to be that some degree of single market membership can be set off against some degree of control of free movement. Stated in those terms, it is a meaningless formulation: you are either in the single market or you’re not. But it is equally meaningless to state it in terms of seeking some degree of single market access which can be set off against some degree of control of free movement. If you are outside the single market and have a trade access deal, free movement of people doesn’t arise at all so there is no set off to be made. The set off is, rather, if you have trade access (even assuming it is tariff-free) you aren’t going to have much in the way of services access, and will still face non-tariff barriers to trade. So this is a circle that can never be squared, especially for a predominantly service economy: you either wreck that economy or you have free movement. That’s the choice.

The only sense that can be made of it is this. Since May has been careful to state that she is seeking the best possible deal on goods and services, the implication (unless she simply does not know what she is talking about) is she is hoping for single market membership. If so, the only degree of control over free movement of people she can get is a properly enforced version of the current rules (which as this useful article explains are not the free for all that is supposed) and, just conceivably, some beefed-up version of the EEA emergency brake, perhaps all packaged up as a form of Associate Membership. I think this may be what she has in mind by insisting it will not be an ‘off the peg solution’ which I take to mean not identical to EEA membership as currently configured. It also explains the formulation of ‘some control’ over EU migration, which is certainly more conditional than most Brexiters want to see. This may also explain why she has come out against a points-based immigration system, as this would certainly be incompatible with single market membership. Even so, under repeated questioning today, she will not say whether single market membership is the aim or not, so it remains a matter of speculation.

If it is her aim on something like the terms I have outlined, it will be a hard sell to both the EU and the EEA, and of course also to Brexiters, and sooner or later I assume there will be open conflict over it, including, very likely, resignations from some of the Brexit ministers. Politically the key to that would, presumably, be keeping the relatively malleable Boris Johnson on board, even if Fox and/or Davis walked out. But, whatever the plan is to be, it has to be one that ceases the present confusion – if not dishonesty – about the complete difference between single market access, however preferential the terms, and single market membership.

Sunday, 4 September 2016

Japan's statement on Brexit

The Japanese government today issued a very stark warning to the UK about the consequences of Brexit. Described by Sky News as “unprecedented”, the detailed statement made clear that Japanese investment in the UK (which accounts for about half of all Japanese investment in the EU) was contingent on a Brexit-lite type deal in which the UK remains in the single market and accepts free movement of labour. Japan is important to both manufacturing and services, having major stakes in both the car, pharmaceutical and financial services sectors.

This is highly significant, because the Brexit case has always discounted the impact on foreign investment, insisting that warnings from Japan and other countries that they would disinvest were just part of ‘Project Fear’. The statement is also important because it links together (in its reference to “rules of origin”) UK membership of the single market with UK access to the trade deals done by the EU, which would cease to exist on exit, even Brexit-lite (because they are deals between the EU and third parties, whereas Brexit-lite would mean EEA membership of the single market, rather than EU membership).

For hardcore Brexiters, any economic price is worth paying for hard Brexit. Is that likely to be true for the British people as a whole? I doubt it. So Japan’s statement surely ratchets up the pressure on Theresa May to deliver Brexit-lite, as the least-worst form of Brexit.

Facts about Brexit

The Electoral Reform Society has produced a report saying that the public felt “totally ill-informed” by the debate during the Referendum. I found during some talks I gave during the campaign many people who said exactly that. I don’t altogether buy this, as there were and are numerous high quality sources of information that can be found at the click of a mouse.

In fact I think what was more of a problem was a surfeit of competing claims, and what was lacking was any authoritative analysis of these. One reason for that, of course, was the environment created by the Leave campaign in which “experts” were derided, and with that derision came an erosion of any claims to authority. Another reason was the way that the BBC – still the main and most trusted news source in the UK – approached the campaign in terms of its interpretation of ‘balance’. What this meant was treating every claim as having two equal sides to it, and in the process abdicating any responsibility for evaluating those claims, especially the notorious “£350M a week for the NHS” lie.

Actually, what was even worse was that any external voice warning against Brexit – Obama’s ‘back of the queue’ comment being the most high-profile example – was treated by the BBC as a statement by the Remain campaign and so ‘balance’ only required a response from the Leave campaign. This played directly into the narrative of the Leavers that such interventions were part of an orchestrated attempt by ‘the elite’ to oppose Brexit.

Now that we are post-Referendum, the need for good sources of information has not diminished, and so here I list some accessible websites that I have found especially useful.

Head and shoulders above anything else is the excellent EU Law Analysis blog, run by Professor Steve Peers of Essex University. It is not by any means solely concerned with Brexit, of course, but includes many posts on this which deal with the complex, technical realities.

The Conversation, a site which makes academic work accessible to general readers, has published many articles on Brexit [disclaimer: a couple of them by me], some of which are highly informative, which can be accessed via this link. The New Europeans site [another disclaimer: I have also written on this site] carries a wide range of factual and op-ed pieces of high quality, and the LSE Brexit blog is an excellent curation from many sources including LSE’s in-house experts.

General sites aside, this pre-Brexit report by Jean-Claude Piris from the Centre for European Reform on what different Brexit scenarios could look like is very useful. The last of the seven scenarios listed is trade under WTO rules, and it has always been an article of faith to Brexiters that this is the available default setting. But in fact it is highly problematic and would require extensive negotiation, as this excellent piece from Peter Ungphakorn, a former WTO official, explains.

Finally, and rather different, I suspect that this document could become significant. It is a plan for Brexit, drawn up by an ex-UKIP member, known as the Flexcit plan. Its significance is that it proposes Brexit-lite as a first step towards a more comprehensive ‘market’ approach in which the EU single market would cease to be administered by the EU and would instead be run by the UN European Commission Europe. It is in this respect complete fantasy, but it is of interest as it is conceivable that Brexiters might accept Brexit-lite as a gateway to this unrealisable goal.

Where we are now

This new blog will comment on the aftermath of the UK Referendum decision to leave the European Union. It starts from the position that this decision was a national catastrophe to which I was completely opposed, and that it was made on the basis of persistent, shameless lies from the Leave campaign which seriously mislead the British people. However, the blog will not attempt to re-argue the case for remaining in the EU or for the reversal of the decision, as I do not think that this is in prospect. Instead, I will analyse the unfolding consequences. As an opening post, I will summarise the current situation and in future posts discuss issues and developments as they emerge.

As the summer ends, serious consideration of the consequences of the vote to leave the EU begins. Thus far, the British Prime Minister Theresa May has been able to get away with the formula ‘Brexit means Brexit’ and thus avoid the obvious questions about what this actually means. It is not entirely meaningless, as it is a political signal to Brexiters, especially in her own party, that there will be no further referendum nor a parliamentary vote to overturn the result. But it does not answer the question – never answered by the leave campaigners – as to what being out consists of. The crucial fault line is between remaining a member of the single market (‘Brexit-lite’) or being outside it and having perhaps some form of trade deal (‘hard Brexit’).

These are entirely different scenarios (as I explained in a pre-Referendum article) even though both are forms of not being in the EU, and before long the UK is going to have to decide which it will aim for. Some politicians are still talking as if it is possible to remain in the single market but be exempt from freedom of movement. That is a fantasy. It might be possible to have single market membership with an enhanced ‘brake’ on free movement, but it is unlikely that even this would satisfy the Brexiters, many of whom are already insisting that only hard Brexit will honour the Referendum result. May’s own position remains completely unclear and contradictory, in that sometimes she speaks of immigration being the key issue, and other times implying otherwise.

Ultimately May will have to decide whether to take the political hit of continued free movement or the economic hit of being outside the single market. It may be that, by appointing prominent Brexiters to lead the negotiations, she is playing a subtle long-game, anticipating that (as is already beginning to happen) they will fall out amongst themselves and fail to come up with a viable plan. It’s equally possible that having seen her party jettison successive leaders over the issue of the EU she is determined to do anything to avoid alienating its Eurosceptics. If the latter, then it carries some dangers for a party that has always had close links with, and relied on funding from, big business and the City in particular.

How the latter plays out depends on the economic consequences of Brexit, which have so far been contradictory and muted. Initial dramatic fluctuations in currency and stock markets have abated, but this really means nothing. The vote was akin to dropping an economic depth charge: a huge splash, followed by an eery silence. The explosion will come later, perhaps when Lisbon Article 50 is triggered, or perhaps when it becomes clear what kind of deal is in prospect which might happen before or after that. Until then, there is little point in following each and every economic indicator. That does not however mean that beneath the surface important things are and are not happening in terms of, for example, deferred investment decisions, as well as adverse consequences for British science. Politically, too, the strategic damage of the UK ceasing to be the fulcrum of US/EU relations is beginning because this will occur regardless of the form Brexit takes. In fact, this is likely to ultimately be as significant as the economic damage and I suspect that within a few years the already existing calls for the UK to cease to be a member of the UN Permanent Security Council will become greater and will be successful.

The complexity of removing the UK from the EU is daunting to the point of impossibility, and goes well beyond the issue of the single market. The entire framework of legislation and security, as well as (under hard Brexit) the status of British people in rEU and Europeans in the UK will all have to be negotiated. One of the ironies of the situation is that those who will have to deliver Brexit are by and large those who realise that it is as impossible as it is undesirable. As a result, there are already noises from Brexiters that civil servants are obstructing British exit. We will hear much more of that in the future as the complete lack of realism of Brexit becomes impossible to avoid. Over a whole swathe of issues (the leaving process, the nature of the single market, the way that the WTO and trade deals work etc.) the Brexit position is composed of, at best, half-truths or just outright fantasies. It is therefore inevitable that the coming months and years will see a series of collisions between these fantasies and the realities (and equally inevitable that Brexiters will blame this on others).

Crucial to this is that whereas Euroscepticism has hitherto been a matter of domestic UK politics – and the Referendum itself arose from this – the reality of Brexit means that it has to engage with the wider world. That means firstly, of course, the EU itself. It will no longer be good enough to make airy claims about what the EU is ‘bound to do’, or to expect any particular goodwill. Brexit poses serious problems for the EU and there must be a strong presumption that anything that looks like a good deal for the UK will be avoided, for fear of further defections. Indeed, it cannot automatically be assumed that the scenarios of Brexit-lite or hard Brexit are available for the taking, whatever the UK government may decide to aim for.

The non-EU world matters, as well. Part of the Brexit dream is of a world-wide web of new trade agreements. There is some irony in that, as part of the Brexit case was a protectionist, anti-globalization one. But its leaders were almost entirely global free marketers and one of them, Liam Fox, is charged with making new trade deals. That again will be a long-term matter, and one danger is that in a desire to show that deals can be struck, bad deals will be struck. At all events non-EU countries like the US and Japan are already making it clear that their diplomatic pre-referendum warnings that the UK would be isolated were not idle.

It is ironic that the core Brexit claim that leaving would enable the UK ‘to take back control’ actually entails a far greater dependence on gaining agreements with other countries, most of which regard Brexit with bemusement, amusement or outright alarm. Ironic, too, that having supposedly taken back control the Brexiters seem to have no idea what it is that they actually now want to do. It is this strange new landscape that I will comment on in the months and years to come.