Monday will mark the second anniversary of the UK officially leaving the EU (although really existing Brexit only started after the end of the transition period on 1.1.2021). Brexiters still seem to be holding their breath in expectation of a sudden ‘Brexit Bonanza.’ But their celebratory tone contrasts with the absence of anything concrete to show for after two years outside the block. It is not for lack of trying, mind. The Spectator’s Steerpike laments: “With Boris ruling out a VAT cut on energy bills and Rishi's taxes killing off 'Singapore-on-Thames,' let's hope mandarins find some examples of the UK exploiting its post-Brexit opportunities.” The Express on the other hand did find something positive to report on, announcing that “UK drivers rejoice as hated EU law set to be axed under radical new plan in Brexit coup.” The paper was referring to a Bill voted on in the commons – and celebrated by Grant Shapps on Twitter as Brexit dividend – that repeals a ‘controversial EU law,’ which would potentially have increased insurance premia on vehicles not primarily designed for use on the road (such as lawnmowers, mobility scooters, and golf buggies). Of course, the lawnmower, mobility scooter and golf buggy drivers’ joy about this yearly Brexit dividend of an estimated £50 may be short-lived, given that in April the government will increase National Insurance contributions by around £180 a year for taxpayers on the basic rate.
Beyond Brexit dividends, Brexiters also continue to make every effort to deny the actual and most obvious impacts of Brexit so that we have to rely on investigative journalist and whistle-blowers to establish the otherwise obvious fact that increasing paper work and border checks necessarily creates frictions and makes trade less smooth.
Brexiters’ desperation to stave off reality encroaching on their Brexit fantasy, may also explain why they are desperately the trying to construct a link between Brexit and the UK’s role in the Ukraine crisis. As Chris Grey adroitly explains in this week’s Brexit & Beyond blog, all the contortions necessary to make that link plausible, fail at the first, very basic hurdle, namely the fact that even as EU member ‘the UK operated an entirely independent foreign and defence policy.’ Rather than reflecting a new-found ‘global leadership’ role, the UK’s foreign policy currently seems to be hostage to Brexiters’ desperate compulsion to see Britain reclaim its rightful place on top of the world geopolitical system and to a Prime Minister fighting for his political survival and keen on some positive (or indeed even just different) headlines.
As such, the past week was another one following the now familiar pattern of the Tory party’s home-made problems – most notably the shocking handling of the investigation into ‘Partygate’ – paralysing progress on any of the real issues facing the country.
Northern Ireland Protocol: Deal, no deal, same deal?
Most importantly, the continuing political and public focus on Johnson’s personality and possibly unlawful actions start impacting on the most delicate unsolved Brexit issue: The situation in Northern Ireland.
Some sources reported that the UK-EU talks about the Northern Ireland Protocol (NIP), after some optimism earlier this year when Liz Truss replaced Lord Frost, seem to have stalled due to uncertainty about Johnson’s future. Other news this week contradict this pessimistic interpretation to some extent. Irish foreign minister Simon Coveney and Liz Truss had a phone call on Friday following which Coveney tweeted that “Progress on key issues in February is possible” and Liz Truss stated earlier in the week that she wanted “to make significant progress by February.” These optimistic statements are of course politically motivated, and there still is no movement on the sticking points.
Meanwhile, on the ground the situation risks escalating. Democratic Unionist Party (DUP) NI Agriculture Minister Edwin Poots argued that recent court rulings required him to seek retrospective approval from the wider Stormont executive to carry out the checks on goods arriving from GB required by the NIP. While Sinn Fein prevented the issue from being put on the agenda, the DUP First Minister Paul Givan confirmed on Thursday that Poots would order for the checks to be stopped regardless. This would mean the UK would be in breach of the NIP once again.
Neither Truss nor Johnson seem particularly worried about the impact the DUP’s move might have on the UK’s relationship with the EU. Indeed, Johnson outburst during PMQ (accusing the ‘insane EU’ of ‘pettifogging’ over the implementation of the NIP) and Truss’s statement that the UK government would not prevent the DUP from suspending the controls, as well as the Foreign and Commonwealth and Development Office (FCDO) itself taking to Twitter to attack the protocol seem to blatantly contradict the otherwise more reconciliatory tone and Truss’s insistence on progress.
Whatever the reasons for these contradictory statements and actions coming out of Westminster, the discrepancy between discourse and reality increasingly seems like the one constant in the government’s approach to Brexit.
Agility and restlessness in financial regulation
Equally ambiguous and contradictory news also reached us regarding financial regulation and services.
The good news story this week was that demand for UK consulting firms have recorded their sharpest ever increases in overseas income last year, – according to the FT – thus “belying concerns about the impact of working restrictions imposed by post-Brexit trading relationships.” The big problem with that claim is, of course, that the increase is almost entirely due to Covid-related working from home rules in many countries, which has meant business travel has become a non-issue for the delivery of such services. So, the right way to look at this is not that demand for consultancy services has increase thanks to Brexit, but rather Covid-induced increased demand for remotely delivered services has been possible in spite of Brexit.
In less good news, the FT also reported on the EU’s decision to delaying the implementation of capital requirement rules enshrined in the Basel III accord until 2025. Concretely, this means that EU banks will require less capital coverage for loans made to companies that do not have a credit rating (most European companies). They can therefore lend to such companies at lower costs than banks in countries that fully implement the Basel III accord. It is not yet known – and won’t be for another few months – whether the UK will follow the EU or instead fully implement Basel III thus potentially creating a competitive disadvantage for UK lenders.
Beyond this new example of potentially harmful regulatory competition (in terms of financial stability), the episode provides interesting insights into what the opportunities and dangers of regulatory divergence look like in practice. There is the well-known fundamental problem that diverging from EU rules will mean for most companies not being subject to one – potentially lighter touch – regulatory regime, but rather having to comply with two rather than just one such regimes. Yet, there are more subtle issues with predictability and certainty of regulations too.
In this instance, it is the EU who decided to use a light-touch approach to regulation, thus putting pressure on the UK regulator to follow suit. One can see how this can lead to a race to the bottom, even though experts do not think the UK regulator will follow the EU’s lead in this instance.
The more fundamental issue though is the uncertainty Brexit creates: The view, popular amongst Brexiters that the way of handling regulatory divergence after Brexit is simply creating a bonfire of regulation is of course an illusion. One lawyer quoted in the FT put it this way: “Divergence is not going to happen through a roll back of historic rules, it’s going to come from the different approach to rulemaking.” In other words, it takes more than a wrecking ball to create a competitive regulatory system. In this process, another Brexiter trope – that of ‘regulatory agility’ after Brexit – may come back to bite the UK. While companies in general may like more ‘agile’ regulators produces more flexible and lighter touch regulations, too much ‘agility’ in the form of uncertain and potentially constantly changing rules is not in firms’ interests either. Here, the often-decried slowness of EU law-making and regulation can actually be an advantage for firms, because it creates planning certainty by providing a relatively stable regulatory environment. That is often worth more for firms than the elusive struggle to get the ‘optimal rules’ for their business. Here, the UK’s planless approach to Brexit risks creating an actionism, driven by political needs rather than technical expertise that will lead to a ‘restless regulator’ that is unable to provide a stable environment for businesses.
Again, the argument is not that regulatory divergence cannot generate any ‘dividends’ for the UK economy. The argument is that none of the Brexiters – driven as they are by a blind and mindless libertarian ideology – seem to understand the realities of economic regulation in the modern world economy. Identifying and then pursuing the potential for a competitive – but still prudential – regulatory regimes would require detailed analysis of opportunities. Such analysis require a deep understanding and consideration of the technical details, like the ones carried out by the regulatory divergence tracker or perhaps the reasonable statements made by the UK’s new Information Commissioner on the potential for the UK to lead on privacy regulations.
Two years of reality checks – still no realism
The ERG and Brexit ultras like Frost push the government for a supposedly ‘common sense’ approach to economic regulation, foreign policy, trade policy etc., which are however based on a complete denial of the realities of 21st century modern states and economies. The views of the Brexit ultras are not only denying technical realities, but also political ones. As Tom Peck wrote in the Independent this week, the commonsensical anti-regulatory, anti-state reflexes of the Brexit ultras are not very popular amongst the British public either. Ultras like Frost urge the government not to go down the route of a “high tax, high regulation, high control” society. What they do not understand is that most people are aware that they depend on public services to live a decent life and turning Brexiters’ libertarian fantasies into policy would create a reality that benefits the rich and powerful only.
If we were to sum up the first two years of post-Brexit Britain, a sentence written by Hanna Arendt in 1948 about another set of fanatics may sum it up best. She noted a ‘curious contradiction’ between an ‘avowed cynical “realism” and their conspicuous disdain of the whole texture of reality.’ The same contradiction still characterises the Brexit movement. As a result, even after two years of reality checks, the British public is condemned to wait for Brexiters cynical realism to give way to real realism.