Over the past fortnight, Britain has been marked by two important Brexit-related events: The (temporary?) political demise of Boris Johnson and the seventh anniversary of the Brexit referendum.

The downfall of one of the most crucial figures in the Brexit saga so far, former Prime Minister (PM) Boris Johnson is potentially a very important event not just in terms of Brexit, but even more so in terms of the future direction of the conservative party, and British politics in general. Johnson resigned from Parliament due to his anticipated suspension from the House of Commons following the Privileges Committee report on ‘Partygate.’ Johnson’s behaviour in relation to the parties held at Downing Street during the national lockdowns was deemed grave enough by the Tory-dominated Privileges Committee to warrant a 90 days suspension from the Commons. Such a long suspension could have triggered a byelection in which he could have lost his seat. He avoided that fate by resigning. Johnson allies Nadine Dorries and Nigel Adams also announced their resignations in solidarity with Johnson and in protest of the Committee’s work, although – as of two days ago – Dorries still does not seem to have followed through on that.

Johnson’s resignation from parliament more or less coincided with the publication of his resignation honours list as a PM. The list contained, among others, 29-year old Charlotte Owen – whose only notable achievement seems to have been to have worked as Johnson’s aid for a few short years – and people who have since been spotted on an appalling video of one of the lockdown parties that The Mirror obtained. Together, with Johnson’s puerile reaction to the report – calling the privileges committee a ‘Kangaroo court’ and apparently trying – together with his closest allies – to pressure its members before the publication, the debasement of the offices of PM and of MP by Johnson seems to have culminated in a dreadful grand finale.

That is not to say, of course, that Johnson will not try and stage another comeback. Nigel Farage himself had floated the possibility of an alliance with Johnson to form a new right-wing party. Such an alliance may always have been a very long shot, given how different the two are both in terms of substance and ideology. It has become even less likely now that another bizarre story is unfolding involving the former UKIP leader. Last week, Farage tweeted about his UK bank having closed his accounts. Reportedly, the bank in question is Coutts – which has drawn mockery given Farage’s ‘man of the people’ image. Farage himself sees the move as punishment by the ‘establishment’ and the ‘corporate world’ for his role in Brexit. A more likely explanation is that some of the financial transactions involving Farage’s accounts may be under investigation. Indeed, the description of what has happened that Farage provided in his video seems fairly consistent with what the bank might do if it followed the procedure under the Criminal Finances Act and the Proceeds of Crime Act that prohibit the banker from given account holders the reason for accounts being frozen (rather than ‘closed’). In the coming weeks and months, we will certainly hear more about what exactly happened to Farage’s finances, but for now it seems like he may be in considerable trouble himself and hence not a great ally to launch a new right-wing party with.

In the meantime, Johnson has taken on a job as Daily Mail columnist – very fittingly breaking ministerial code in the process – thus stating once more very publicly his contempt for the British political system, its conventions, and the rule of law.

The struggles of the two major figures of British right-wing populism are reflective of the state of their project as a whole, which was illustrated two weeks ago by the reporting and commentary on the seventh Brexit referendum anniversary.

Sore winners

The Brexit Referendum anniversary on June 23rd was marked by the now customary schizophrenic messaging from Brexiters who are torn between blaming others for the failure of Brexit to deliver on its promises and claiming that Brexit has provided all sorts of benefits. A representative of the latter group was Johnson who celebrated the referendum anniversary with a Tweet that nicely summarised the main Brexiter lies about Brexit benefits. The benefits he lists are Free Trade Agreements (FTAs – see below) and a ‘bold’ new foreign policy including in the Pacific and Ukraine. He concludes that Brexit has ‘paid off and will pay off hugely as time goes on.’ Like a broken record he still refers to the vaccine roll out as a key Brexit benefit. Even if the quick vaccine roll out had only been possible thank to Brexit – which once again it has not –, the government still botched the Covid response leading to the sixth highest death rate in the world and the highest in Europe. The Covid inquiry starts showing this in brutal detail. The UK’s Covid response is not a policy that the UK government should be proud of.

Johnson’s on insanity bordering optimism is increasingly the minority view among Brexiters though. Much more common now is the other reaction: finding others to blame for Brexit not having delivered anything positive for the country. As Chris Grey argues, this has led to an obsession among Brexiters with attacking Remainers rather than boasting about having delivered on Brexit promises. Rather than celebrating the 7th anniversary of their ‘Independence Day,’ with Vote Leave style-videos that show everything that has improved since Brexit, Brexiters spend their days sneering about how Remainers got this, or that prediction of negative impact wrong and that therefore Brexit was a success and Remainers see themselves ‘humiliated.’

It is – of courses – inherently absurd to benchmark Brexit against the most pessimistic predictions made by those who lost the referendum rather than against the promises of those who won it. But given that none of those promises have come true, one can understand why Brexiters have to resort to this strategy.

There may, however, be a deeper reason for this strategy too. If we wonder counterfactually whether Brexiters’ attacks on Remainers would be less vitriolic had Brexit gone well and were it delivering on all – or at least part of – the fantastic promises that made people vote for it. Say, net immigration were down; or an FTA with the US that significantly uplifted UK trade had been signed. Perhaps then, Brexiters would be less sore winners and work towards uniting the country behind their great project?

Perhaps. But somehow, I doubt it. In fact, the spiteful attacks on Remainers are not an unfortunate and avoidable by-product of the Brexit project. They are at its very core.

Prof. Grey rightly notes that ‘You can hardly recruit converts to your cause by insulting and humiliating them.’ As such, the sore winner strategy Brexiters increasingly resort to makes not much sense. But that is looking at it from a ‘civic minded’ point of view of someone who believes the country should be united, divisions and hateful attacks avoided, and policies be geared towards promoting some notion of democratically agreed-upon public good. None of these views are held by the political entrepreneurs who made Brexit their vehicle. They do not want to recruit converts beyond the number necessary to stay in power. To the contrary, they are desperate to keep the divisions open and the wounds sore that Brexit has inflicted on the country. In fact, if everyone were to rally behind their project, they would lose the most important fuel that drives their political ambitions forward: hatred of ‘the other.’

Like any exclusionary populist ideology, Brexitism crucially relies on a Schmittian understanding of politics as the opposition of friend and enemy – rather than of the peaceful co-existence of groups with legitimately diverging opinions within a liberal, pluralist society. For Brexiters, Remainers are ‘the other’ – the ‘enemy within.’ Now that Brexit is done, the main ‘enemy without’ – ‘Brussels’ –, while still useful in some instances (‘EU punishment’), is not as readily blamed for everything that is going wrong in the country. Therefore, it has lost some of its potential to mobilise support for Brexitism. Similarly, blaming ‘immigrants’ continues to play an important role in Brexiters’ political mobilisation strategy (‘stop the boats!’); but increasingly it is a risky strategy given that focusing on immigration also underscores the Tories’ failure to deliver on one of their most consistent policy promises – to bring net migration down. Here, of course, others can be found to be blamed – namely judges and the European Court for Human Rights (ECHR). But beyond all of this, having a large number of internal enemies – variously identified as ‘the establishment,’ ‘the blob,’ ‘the civil service,’ ‘academics,’ etc., etc. is a true bane for Brexiters that helps them fan the flames of discontent and hatred.

Therefore, we should not expect the period until the next Brexit anniversary to see a healing of wounds. As long as Brexiters are in – or close to – power, the division and hatred will continue. Brexiters’ interest is not solving the countries pressing problems or making the average person’s life better – their interest is purely and simply staying in power – and for that they need people to be angry and frustrated.

As such, while in socio-economic terms Brexit increasingly clearly looks like a failure for both Brexiters and Remainers, in political terms it has delivered and keeps delivering for Brexiters. Not in the sense that ‘Brexit’ per se will remain a politically viable tool to mobilises political support – the polls clearly point in the opposite direction; but in the sense that it has created deep divisions and hatred on which exclusionary populists thrive. It is therefore unlikely that they will stop bashing Remainers as quasi-religious fanatics and the like. If they did, their political business model would stop working. Instead, they will move on from Brexit and find other divisive issues to capitalise politically on. The most important example is the European Convention for Human Rights, which it is rumoured may become the next object for a Brexit-style referendum campaign to rip open any scar tissue that may have started to form over the Brexit wounds.

Pride and preposterousness

The political capital Brexiters accumulate by dividing society is one reason why Brexiters continue to deny the very real economic price we are all paying for their project. To some extent, the damage is good for Brexiter political entrepreneurs, because it further increases popular frustrations that can be turned into political mobilisation for their far-right political project. Yet, outside of the political entrepreneurs who made a career out of Brexit, another reason for Brexiters’ inability to acknowledge and start addressing Brexit damage is pride. As I have argued before, ultimately Brexit is also the result of a superiority complex and misplaced nationalist pride. People afflicted with these ailments may still actually believe the evidence on Brexit damage to our economy is not real.

Graham Gudgin is one of the most outspoken defenders of Brexit and relentlessly criticises macro-economic modelling of Brexit impact on GDP growth. Johnathan Portes nicely summarises the state of the debate on the UK in a Changing Europe web page. The short version is that Gudgin and his co-authors attempt to discredit the most sophisticated econometric method economists like John Springford are currently using to assess the impact of Brexit compared to what would have been without Brexit. Gudgin’s strategy essentially consists in criticising the complexity of Springford’s methodology – the synthetic control method (SCM) – and the lack of ‘transparency’ of the algorithms it uses to weight the variables that are included in the estimation. Instead Gudgin and colleagues propose simpler, more intuitive methods to assess whether Brexit has had a negative effect. In their latest working paper, an alternative method proposed is the Error Correction Model (ECM). However, that method does not generate substantively different results – but rather confirms that the UK substantially underperforms compared in terms of GDP growth compared to what would have been expected without Brexit (see table on p.12 of their working paper). As a result, other explanations for these unacceptable results need to be found. The key one provided in Gudgin and Lu’s paper is the fact that these underwhelming results are mainly due to the US’s ‘overperforming’ due to expansionary fiscal policy.

Economists like John Springford (here) and Jonathan Portes (here) are certainly better placed than me to defend the SCM and the results it generates. Here, I just want to note the more general issue with ‘populist economics,’ which I have written about before (here). Fundamentally Gudgin and other pro-Brexit economists apply to econometric analysis the same populist anti-expert, common sense attitude that they apply to any policy problem. Thus, Gudgin and Lu argue for a counterfactual that uses only three countries rather than the 22 that Springford included. In a strange populist variation on Occam’s razor, the argument seems to be what is simpler, is easier to understand, and hence closer to the truth.

The search for simplicity leads to another parallel with populist political discourse, namely the claim that we can go back to a simpler reality from times gone by. Portes notes that the alternative – in their view superior – method Gudgin and Lu advocate ‘might perhaps have been standard a decade or so ago,’ but has now been superseded by what experts consider superior, more complex methods. It is that complexity that Brexiter economists – not just Gudgin but also Patrick Minford, Julian Jessop and others – are fighting against like Don Quixote against the Windmills.  

Their hatred of complexity and yearning for simple solutions is what has inspired much of the Brexiter movement. The basic populist idea that underlies this attitude is the idea that common sense is superior to technocratic expertise and the assumption that any issue – however complex and intricated in reality – can be reduced to a simple, straightforward problem that has a clear solution dictated by common sense. The reason why we are not seeing this simple solution implemented is that elites either benefit personally from not doing so or choose not to do so for ideological reasons. Gudgin applies this reasoning to economics, just like Brexiters like David Frost, Jacob Rees-Mogg and many others apply it to ‘sovereignty,’ ‘democracy,’ and ‘free trade’…

Free Trade

Related to free trade, another example of populist Brexiters yearning for reality-defying simplicity came in the form of Trade Secretary Kemi Badenoch’s speech about international trade. During the launch of a new e-commerce trade commission, Badenoch stated that all that was needed to boost UK exports was a ‘change in perception’ away from negative tropes towards an understanding that international trade ‘isn’t too tough.’ The Institute of Directors and the London Chamber of Commerce and Industry both criticised these remarks; the latter urging the Trade Secretary to focus her energies on solving the actual problems exporters are facing – including new trade barriers imposed by Brexit.

Badenoch’s statement that trade is simple very much chimes with Brexitism’s claim about common sense being enough to run the country and solves its complex problems. Yet, it also illustrates another Brexiter truth, namely that all that is needed for Britain to solve its many problems is a strong enough belief in its greatness. Chris Grey noted this week that ‘amongst the more cult-like Brexiters there is the sense that [belief] means something like ‘faith’, in a quasi-religious way, such that reality will bend if faced with a sufficiency of it.’

While the UK trade secretary attempts to convince UK exporters that thy need to believe harder in their ability to export, the EU announced its own free trade agreement with New Zealand. The conclusion of this FTA comes during the same month as the UK’s own deal with New Zealand entered into force. No doubt, Brexiters will boast about ‘nimble Britain’ having done a deal more quickly outside the EU than the EU behemoth. Yet, in international negotiations, speed is not necessary a good thing. Economic bargaining power theory tells us that in a bargaining situation, those actors have more power who can afford to be patient. In their desperation to fabricate Brexit benefits, Brexiters were quick to conclude any FTAs that were politically feasible; and they were willing to do so on literally any terms offered by the partner country – inflicting – in the process - an astonishing cost on the country.

Both the Australia and New Zealand FTAs are mainly remarkable not in the sense that Britain was able to conclude them relatively quickly, but rather in the huge price British farmers will be paying for Tory glory. The National Farmers Union has long criticised these deals for opening up almost completely the UK market to imports from Australia and New Zealand while offering nothing to British farmers. In contrast, the EU has negotiated a deal that seems to protect its farmers to a much greater extent than what the UK government has done. To be sure the EU farmers union too is unhappy about the further opening up of EU meat and diary markets to NZ imports, but equally New Zealand’s counterpart considers the deal not going far enough, which may indicate the EU and NZ landed somewhere in the middle, where the UK accepted nearly complete market access. For instance, in exchange for reducing barriers to imports from New Zealand, the EU obtained the agreement that protected names such as ‘Feta’ cheese could not be used by New Zealand’s farmers anymore, thus providing protections to EU farmers.

The price to pay for pride

All that said, I increasingly feel arguing about the macroeconomic impact of Brexit is futile. The evidence will become clear enough when we have longer time series. In the meantime, we simply cannot afford arguing about the macroeconomic impact of Brexit when all alarm bells should go off based on what companies small and large say the impact of Brexit on their business is. Even if Brexit had not impacted UK GDP yet, it is as certain as night follows day that it will, given how business experience it. Indeed, the Bank of England itself forecasts now that the UK economy will not grow at all until 2026. This is the price we are paying for Brexiter nationalistic pride.

Regulatory divergence

The British pride to be able to ‘do things differently’ or ‘our own way’ comes at a high price. Rather than Britain using its newfound ‘independence’ to do things better, so far, the British government has rather behaved like a child in its terrible twos. It does not matter whether the outcome is worse than if we did things in cooperation with someone else or by following EU rules. We want to do them ourselves, in our own way. Just like a two-year old who insists on cutting the food on her plate herself – even though the outcome will be a terrible mess – so the UK government wants its own rules. In the process, regulatory divergence from the EU – after FTAs – risks becoming the next Brexiter fetish that is valued by Brexiters for its own sake rather than for any superior outcomes it might produce.

Diverging from the allegedly overbearing EU ‘red tape’ was indeed one of the most often cited argument for Brexit and promised post-Brexit. Yet, companies operating in Britain and the EU are not pushing the government to deregulate, but rather are urging the UK not to diverge from EU regulations, as this reduces their costs of operating across borders.

Opportunity costs

Another, more subtle, way in which Brexit has cost the UK has been brought to light once again during the Covid19 inquiry. Former Health Secretary admitted to the Covid inquiry that one of the reasons for Britain’s unpreparedness for the pandemic and its high deathrate was the distraction caused by preparation for no-deal Brexit. Indeed, he had signed off a decision to ‘re-allocate departmental resources from pandemic preparation to no-deal Brexit preparation.’ This is a very important example of the type of indirect opportunity costs of Brexit that remain largely hidden from public sight. Indeed, Brexit costs us not only directly by reducing trade and economic activity, but also indirectly in terms of what else the British government could have done with the massive amount of time and resources that went into preparing for, implementing, and now dealing with Brexit.

Inflation

The by fare highest price that Britons pay for Brexit pride, however, is the staggering rise in mortgage payments due to the Bank of England’s stubborn anti-inflationary policy that has led last week to the 13th interest rate hike in a row. Interests now stand at 5%. Back in May, the Resolution Foundation estimated that even at 4.5%, British Households would be paying an additional £12bn in mortgage payments. That money will lack elsewhere, lead to lower household disposable income and spending, and is now forecast to lead to a recession in Q4 of 2023 and Q1 2024. The latter is indeed the intended effect of the BoE’s orthodox approach to inflation: By reducing demand, it is hoped prices will come down too. Much has been written and said by experts like Danny Blanchflower or Richard Murphy about the flaws in the BoE’s doxa – most fundamentally that we are not in a demand-driven inflationary phase but in a supply shock one. To cite a source that has no skin in the Brexit game and no horse in the Leavers-versus-Remainers race – the Australian Financial Review cites the Canadian investment bank TD Securities explaining why the UK is facing higher, more persistent inflation, and lower GDP growth (these are taken as facts not hotly debated political issues) than other G10 countries:

“The simple explanation for this [is] that the country underwent a unique adverse supply shock in the past few years that no other country faced. While monetary policy can’t offset the impact of Brexit in the longer-run, the short-run impact requires a policy offset, and is something that policymakers in this country have generally refused to acknowledge. This hesitation to face such a deep structural shock means that the UK is slipping behind in its fight against inflation.”

The UK policy makers refusal to acknowledge the impact of Brexit means the BoE’s Andrew Bailey needs someone else to blame. Unsurprisingly, he turns on trade unions and working people’s wages to explain the persistent inflation. That argument is nonsense, but PM Sunak clearly is convinced suggesting he might block public sector pay raises in the name of fighting inflation. Long past are the days where we were promised Brexit would lead to a reset of UK labour markets and bring us a high wage, high skills, high productivity economy. Now, all Brexiters can promise is years of economic pain and declining living standards.

Insane optimism versus surrendering to reality

Brexiters are very optimistic people. None incorporates their reality-defying, insanity-bordering optimism better than Boris Johnson. In his referendum anniversary Tweet, Johnson urged his followers not to listen to the ‘prophets of doom’ and to instead ‘believe in this country and what it can do.’ Reality should not stay in the way of that belief. If reality is not as rosy as Brexiters promised it would be outside the EU, then that is probably due to the fact that we have not believed hard enough, that someone is working in the background to sabotage the project, or that it takes time for our belief to transform into sunlit uplands.

From that perspective, reality becomes the enemy and anyone advocating a realistic approach becomes a traitor. The Express decries any notion of showing pragmatism in our relationship with the EU as an act of ‘surrender to the EU.’

To be sure, I am not advocating to accept Thatcher’s TINA – ‘there is no alternative’ – approach to economic – or any other – policy making, that suggests countries’ do not have a choice but follow the current doxa. There are always alternatives, and indeed the world is in desperate need of alternatives to the failed social and economic policies of the past four decades or so. What I am advocating though is that any alternative needs to start from reality – not defy it – and be based on a serious analysis of the situation, the likely impact of its implementation, and possible costs for a wide range of people.

It is beyond ironic that Brexiters – the noisy advocates of a ‘common sense’ approach to solving complex problems and the enemies of experts – are so stuck in their ideology that they cannot be pragmatic about things like regulatory alignment with one of the leading regulatory regimes in the world.

As soon as Brexiters are removed from power, a new, less ideological government will find it difficult to resist the temptation to spur on our flailing economy by simply doing the logical and pragmatic thing. This is all the more the case that outside the right-wing media and Brexiter bubble, fewer and fewer people still want to stay outside the EU. So, there is a glimmer of hope there.

This is the last BIT post before the summer. The next two months will imply a lot of travelling and some holidays for me. I will be back with regular posts in September. Happy summer dear readers!