15 minute read
As the UK and the EU edge fractiously towards a ‘thin’ free trade deal, with varying levels of suspicion, mistrust and rancour on both sides, it might be a good time to step back and take a longer-term view of Brexit.
Let’s be frank, a second referendum, perhaps with a slim victory for remain, would have left the European issue unresolved. Leave voters would have felt cheated, wound up by howls of outrage from the pro-Brexit press, with all the old arguments reignited and fuelled with ever more power.
The complex reasons for remain in 2016 failed to persuade at the time and have not succeeded much better since, but I suggest the narrow leave victory didn’t really settle the issue either.
The country is still divided with a clear and consistent majority thinking the decision to leave the EU was wrong. The gap, around 6 percent, while larger than the percentage by which leave won in 2016, is not huge. The reason the divisions persist seems obvious to me. Brexit at the moment is still an unproven hypothesis.
The referendum result and the 2019 general election provided the government with a green light to test that hypothesis and proceed with showing that Brexit truly is the path to increased prosperity, security and sovereignty. As of January 2021 (or later if another extension is agreed) we move from the hypothetical to the demonstrable. The electorate will finally be able to see if we have indeed been ‘shackled’ by membership of the EU.
What we know so far does not bode well. Businesses are relocating to Europe at an increasing rate while lorry parks are being constructed to mitigate the worst of the expected chaos at our borders even if we leave with a trade deal. Britain’s coveted AAA credit rating was lost after the referendum result, downgraded in 2017 and again this week.
But Brexit must be a clear success; simply maintaining the status quo would surely be regarded as a failure given the cost, disruption and divisive nature of the debate. If the promises made in the campaign, or even most of the important ones, are actually fulfilled, then Remainers will be silenced and forced to accept they were wrong.
With 50 percent of the British public believing Brexit was a mistake, against 39 percent still thinking it was the right decision, the government must win round a majority to life outside the EU. It promises to be an uphill task.
Some people claim to be prepared for any hardship, even becoming impoverished through unemployment, in exchange for a particular form of Brexit. But they are almost certainly a small minority. Most leave voters, certainly at the margin, expect solid and tangible improvement.
Are they likely to get it? The odds are stacked heavily against, in my opinion.
The government will soon attempt something successive British administrations have been trying and failing to do for at least a century in good times and bad. That is to restore the nation to the lofty heights of global trade and power it last knew under Queen Victoria. It will not be easy.
George Orwell, in a 1929 essay about Burma (now Myanmar) described the British empire as a sort of captive market for British industrial goods. Foreign products were kept out by “prohibitive tariffs” while English factory owners made what he called exorbitant profits.
The loss of empire after the war, encouraged by America, not only robbed Britain of her prestige and power it also deprived industry of a huge soft market for British goods. We have been trying and failing to compete fairly ever since.
We therefore face a familiar mountain but in the current attempted assault, Britain will be chained to a heavy concrete block with the word Brexit chiseled into it.
The problems about to hit us, start with the fact that Brexit came at the wrong time. In 2015, while we were a full member of the EU, Britain’s growth rate was at the top of the G7 league and last year unemployment was at a record low of 3.8 percent. We are unlikely to see those figures again for many years, if ever, and although coronavirus will disguise some of the impact, the steady flow of companies moving to the EU will be very hard to explain, especially to those whose jobs are lost.
Boris Johnson famously once said that “most of our problems are not caused by ‘Bwussels’, but by chronic British short-termism, inadequate management, sloth, low skills, a culture of easy gratification and underinvestment in both human and physical capital and infrastructure”.
He is in my opinion, about to discover just how right he was before he sold an entire nation for personal advancement.
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Coronavirus is the other great unwelcome factor. The pandemic has been and continues to be, a major health crisis but the economic disaster that is stalking the nation in its wake has brought us the deepest recession for nearly 300 years. The end of the transition period will coincide with a massive rise in unemployment, threatening the public finances with chronic difficulties and borrowing levels never seen in our peacetime history. It will seriously limit the chancellor’s future spending plans, essential to the government’s levelling up agenda.
Next, for ideological reasons the government has given itself a Hobson’s choice of either a hard Brexit or a very hard one. The impact of a vast expansion of totally unnecessary border bureaucracy adding friction and cost to trade with our biggest overseas market will be severe whatever the outcome of the talks. Leaving without a deal would simply add to the pain by having tariffs imposed on many of our most popular exports, like cars and agri-food products.
As Professor Chris Grey has ably pointed out, according to the government’s own ‘Check, Change, Go’ website, life in Britain is going to get very much worse, or as he says, it will deliver “an unrelenting diet of misery”. If we leave acrimoniously without a deal, even this sorry outcome will pale alongside the poisonous atmosphere created between ourselves and the EU.
There is little enthusiasm for Brexit among industrialists. The wealth-generating sectors of the economy that rely on an uninterrupted flow of raw materials and intermediate parts from the EU are universally opposed. Trade will be hobbled and for many businesses, life will become a “day to day struggle”. Financial services, a big export earner, will be hit particularly hard with the trickle of organisations leaving London now, soon to become a flood.
In any case, Brexiters in government, mostly humanities graduates, journalists and lawyers, display a fundamental misconception about our economy. Michael Gove for example thinks the great prize of Brexit is leaving what he calls the “anti-science and anti-innovation approach that the EU has had hitherto”.
After 50 years in industry, I feel I have an advantage over him. Virtually every apparently British-made pack, pouch, bag, bottle or carton on the shelves of British supermarkets and DIY retailers will have been produced, printed, filled, stacked and wrapped by advanced machines designed and built in foreign factories, chiefly in the EU.
As proof of this, you have only to look at Interpack, the world’s premier packaging machinery exhibition, hosted in Dusseldorf, Germany, and attended by all the industry’s global leaders. Well done if you spot any British manufacturers among the 2,820 exhibitors; they tend to be very small and like hens’ teeth. None of the world’s top 20 suppliers of automated warehouse systems is British for example; I am not sure we have a single manufacturer. For a bloc that is supposed to be anti-innovation, the EU seems remarkably over-represented.
Greg Clark, business secretary in 2017, talked about investing £11m in robotics to “build on our world-leading reputation in these cutting-edge sectors”. The year before, the International Federation of Robotics pointed out Britain had a density of installed robots of 33 per 10,000 employees, barely above the average of 30 in emerging markets. Sweden had 154, Italy 126 and Korea 411. Germany, with 170 robots per 10,000 employees, regularly installs ten times as many as the UK. World leading? Really?
Invariably, and I choose the word carefully, European factories have invested well, are serious, innovative, lean, modern, frighteningly efficient and light years ahead of us. We import 30 percent of our food from the EU because it’s often more competitive. If the UK government thinks EU regulations are holding us back, I would advise them to brace for a revelatory thunderbolt.
It is not that Britain doesn’t invest, it just doesn’t invest enough, and too often is the last to do it.
Trade deals with the USA, India and China could be a welcome fillip but are far more likely to pull in imports than raise our exports. They only work for an advanced economy like ours if you have the industry to take advantage. I am not convinced we do. Any growth in gross domestic product (GDP) will be slow in coming and small compared to the huge drop in European trade.
Our representative at the World Trade Organization (WTO) hails the UK joining the WTO’s government procurement agreement as if it represents a bonanza; but British suppliers lost the contract to even print our own blue passports to the Franco-Dutch company Gemalto. Look out for plenty more where that came from.
But Brexit must be a success, or at least be presented as such, so there is a very real danger that the government will once again engage in a dash for growth much like Edward Heath and his chancellor Anthony Barber did in the 1970s. It took 25 painful years to get inflation back under control.
All eyes will soon be on the relative growth rate of the UK against the Eurozone, which is forecast to shrink in 2020 by 8.7 percent. The UK on the other hand is looking at a shrinkage of 12.4 percent. The 20.4 percent fall in UK output in Q2 was the largest in any of the world’s major developed economies. Britain begins the race by dropping even further behind and panting hard even before the starting pistol is fired.
Neither is the EU about to fall apart, despite it being the dearest wish of many Brexiters including Nigel Farage and Steve Baker. Unfortunately for them, gleeful forecasts of its demise have appeared regularly since 1957 but it stubbornly goes on growing and is the world’s undisputed regulatory superpower. Living next to it while trying to introduce your own standards, as domestic manufacturing continues to shrink, takes some chutzpah and is bound to fail. We will never escape the EU’s regulatory gravity, as I’ve already explained.
In the pages of The Telegraph, the future of the euro is regularly called into question, but despite all the naysayers it has grown in importance and is currently the second most commonly held reserve currency after the US dollar, representing about 21 percent of international foreign currency reserves; our pound sterling by comparison is below 5 percent.
Brussels has declared that it wants to break its reliance on London’s capital market by building more capacity inside the EU, something that Brexit, according to Valdis Dombrovskis, an executive vice-president of the European Commission, has made “more urgent”. I have little doubt they will do it. Those who are confident the City is safe should remember when Boeing dominated the world’s civil aircraft market. Presumably, the Americans also thought Europe would never catch up, let alone see Airbus overtake them.
To the surprise of many Brexiters, the EU is more popular now than it was before the referendum. In 2018, it reached the highest level of support for 35 years. The 2020 European Social Attitudes Survey showed support for the EU is actually increasing in the UK.
The British government will very soon be engaged in an existential struggle to keep the kingdom united. Brexit can only hasten its break-up. It will be a pivotal moment if former members of the UK drift back towards the EU, leaving a rump England and Wales as the only nations in Europe, apart from Russia and Belarus, without a hand on the tiller helping to set the course of the continent of which we are a part.
Michael Gove, speaking in April 2016 said, “The suggestion that Bosnia, Serbia, Albania and Ukraine would remain part of this free-trade area — and Britain would be on the outside with just Belarus — is as credible as Jean-Claude Juncker joining UKIP.” Incredible as Gove thought it was, this is precisely what is about to happen. It is not impossible that even Belarus will eventually accede, leaving only Britain and Russia outside the EU.
As of January, Britain will be one of only three countries in Europe which will be beyond the reach of the European Court of Justice, as if we are either outlaws, or so superior we need to be judged by different standards to everyone else. I really wonder how helpful that is for European trade.
Given all these issues it’s hard to see how Brexit will show any measurable benefit at all for many years, if ever. If, as I anticipate, the rewards are slow in coming, prove elusive or things go seriously downhill, how will the Conservative Party handle it?
Johnson, Gove and chief negotiator David Frost will quickly become yesterday’s heroes but Brexiters will continue to blame everything on the EU, the deal, the negotiators or the way it was negotiated – giving the lie to the ‘taking back control’ slogan.
To see how the fallout might be managed in the short and medium term, look no further than Communist Russia from 1925 until the Soviet Union broke up in 1989. Struggling Russian citizens, and those in the satellite nations, were constantly promised standards of living to match the west, who they blamed for all their difficulties. It took nearly 70 years before Mikhail Gorbachev finally admitted defeat. A ruthless and determined government, with newspapers under its control, can keep things going for quite a long time.
But I do wonder if the patience of the British people will stretch that far. Is the press and news media – the fourth estate – likely to be complicit and turn a blind eye to more national decline? I don’t believe so. Unlike in 1973 when we first joined, there is now a very active pro-EU movement in this country and abroad, and eventually it will be possible to demonstrate that Brexit has either failed or, seemingly against all the odds, succeeded.
In 2019, Britain returned to the policy it last held almost 70 years ago when it was not a member of a European trade bloc and not desperately trying to become one. Sooner or later, Johnson or more likely one of his successors, will I believe be forced to adopt the approach to Europe that Harold Macmillan and every UK prime minister since, right up to Theresa May, has pursued from the late 1950s, as Britain gradually lost her European leadership role. That is to say, a policy of engagement, integration and influence.
There is a story that in 1955, as discussions were taking place about forming an economic community, the six founder members sent senior ministers to the talks while Britain sent a comparatively junior Board of Trade civil servant, named Russell Bretherton.
It is claimed Bretherton had been told to make no commitments and eventually he supposedly withdrew with these words: “Gentlemen, you are trying to negotiate something you will never be able to negotiate. If negotiated, it will not be ratified, and if ratified, it will not work”. All this is contained in a lecture given by Vernon Bogdanor CBE, professor of government at Oxford University, in 2014.
But Bretherton’s son wrote to The Economist late in 2013 denying his father had ever used those words and setting the record straight. Bretherton was apparently sympathetic to the European Economic Community idea and wrote to his political masters in August 1955: “We have in fact the power to guide the conclusions of this conference to almost any direction we like, but beyond a certain point, we cannot exercise that power without ourselves becoming, in some measure, responsible for the results”.
He later said, “If we had been able to say that we agreed in principle, we could have got whatever kind of Common Market we wanted”. Unfortunately, we didn’t do either, as we now know.
By December 1959, Macmillan was writing to his foreign secretary:
“For the first time since the Napoleonic era, the major Continental powers are united in a positive economic grouping, with considerable political aspects, which, though not specifically directed against the United Kingdom, may have the effect of excluding us, both from European markets and from consultation in European policy”.
It is hard to see what has changed since then, except that we are now in a far worse position. In 1960, the UK had the fourth largest economy in the world (Germany was ahead of us even then); we are now sixth and likely to be seventh at the end of the year.
Crucially, we are now far more integrated with European industries. Complex just-in-time supply chains crisscross the continent in a way that was not even possible then.
In 1960, we had sizeable industries in coal, steel, cement, hosiery, shipbuilding, car, truck, motorcycle manufacturing and others, all of which have either gone altogether or are now under foreign ownership. Britain had a huge military presence then, with more than half a million service personnel; over 100,000 in the Royal Navy alone, which boasted eight aircraft carriers, 170 cruisers and frigates, 54 submarines and over 200 coastal patrol vessels.
Despite all this, successive governments of both Tory and Labour felt that Britain was too weak to go it alone.
Through Brexit, we have brought about exactly what Macmillan feared and tried desperately to avoid. We have given up on any leadership ambitions in Europe. In a few years, we will have come full circle, watching enviously from the sidelines as the EU and the Eurozone grow more powerful economically, diplomatically and perhaps even militarily, without us.
If we are ever to become enthusiastic members of the EU, something radical is needed to convince the disbelievers, and Brexit may be it.
Unless being outside the EU proves a clear success, we will be forced to reach the only conclusion possible. There is nowhere else for us to go. The myths that have driven British exceptionalism for years will have finally been exposed. Britain will have to re-join the EU, whatever the cost.