Brexit Impact Tracker – 13 March 2023 – A Hostile Environment

The past two weeks in the British political mediascape were almost entirely dominated by the reheated debate about Covid Lockdowns sparked off by Isabelle Oakeshott’s decision to hand over former Health Secretary Matt Hancock’s personal WhatsApp message to the Telegraph, and by the Tory evergreen theme of immigration. The latter was reignited by Home Secretary Braverman’s introduction of the Illegal Immigration Bill (IIB) and the row that followed after Match of the Day (MOTD) host Gary Lineker tweeted about the similarities of Braverman’s language with that used in Nazi Germany in the 1930s. This Tweet earned him a suspension from presenting MOTD on Saturday and plunged the BBCs sport section in turmoil as other presenters withheld their labour in solidarity with Lineker, until an agreement was reached on Monday.

One thing to note about both these issues is that in fact they are non-issues. That is not to say that the government’s handling of the pandemic should not be scrutinised, or that small boats with refugees crossing the channels are not a problem. However, regarding the former, there is an official Covid inquiry underway, to which – despite Oakshott’s insistence to the contrary – the leaked messages do nothing to help with. Indeed, her move – and the selective publication of the messages by the Telegraph – is clearly motivated by the interests and preferences of the anti-lockdown wing of the Tory party. Regarding the latter, people crossing the English Channel in dinghies is a problem in terms of the safety of the refugees whose lives are at risk. It most certainly is not a cause for panic when around 40,000 people a year arrive in a country of 67m or when the government – which spends around £1,000bn a year – spends £5m a day on accommodation for these people. These figures may seem huge in absolute terms, but in comparison to the size of the country and the government budget they are tiny. Indeed, in international comparison, the UK takes on very few refugees and asylum seekers, as reasonable Tory MPs too will admit.

So, why does Britain indulge in the luxury of busying itself with non-issues when the country is facing various very serious global (climate, Ukraine war) and domestic (NHS, cost-of-living and poverty) crises? The answer is that the Tories would rather have us talk about culture war issues – like lockdowns and vaccines or illegal immigration – than the things they are not good with, i.e. managing the economy and solving real problems.

Of course, Rishi Sunak will claim he solved the Northern Ireland issue a couple of weeks ago and that he got a deal with France’s president Emanuel Macron over the ‘small boats crisis.’ So, the government will certainly claim it is very much on top of the pressing issues. The reality of course is that both instance – NIP and raise in numbers of people arriving in small boats – are issues caused by the very same government that now wants credit for allegedly solving them. Indeed, both issues are self-inflicted wounds related to Brexit. In the case of the NIP the link is very direct and widely known; in the latter case, the problem is caused by the UK government’s (unnecessary and ideologically driven) withdrawal from the Dublin III agreement. So, at best, any solution the government finds for these issues amount to damage limitation. But it is even doubtful that these are solutions. The deal with France resembles previous ones and essentially consists in Sunak having successfully convinced Macron to take £500bn from the UK. The money will be used to build a new detention centre for refugees near Dunkirk and to step up patrols on the French shores. Experts expect none of these measures to work. But of course, it gives Sunak a photo op and a headline in the Daily Mail (although that headline was certainly less positive then he will have hoped, as the paper and other far right actors like Farage were primarily shocked by the £500m price tag of the policy). On the key issue, however, – getting a returns agreement for refugees arriving in the UK via France –, Sunak got nothing at all from Macron.

Being unwilling, too incompetent, or ideologically blinded to solve any of the real issues plaguing the country, the Tories’ last-ditch effort to avoid an electoral wipe out means more culture wars and symbolic policies and less substance. The Illegal Immigration Bill, introduce in the Commons last week, fulfils that – and only that – purpose.

Illegal Immigration Bill

The aptly named Illegal Immigration Bill – aptly named in the sense that various legal experts and political actors – including the EU – consider it almost certain that the bill violates international law. The IIB includes clauses that deny asylum seekers existing routes to appeal decisions, it disapplies protections for victims of modern slavery that the UK has signed up to under the European Convention Against Trafficking (ECAT), and it even removes the possibility for refugees to received legal counsel (a good summary can be found here). As Nick Cohen put it poignantly, as such Rishi Sunak has become the first UK PM in 200 years who is opposed to anti-slavery legislation.

The most worrying bit of the bill are perhaps art. 11 and 12, which give the Home Secretary wide-ranging new power to decide about the detention of illegal immigrants. Indeed, rather than defining the power to detain in objective language as existing legislation does, the IIB only refers to the ‘opinion of the Secretary of State,’ which makes a legal challenge difficult. One charity called the removal of the right to appeal a ‘shocking attack on the rule of law.’ By disapplying various modern laws protecting refugees, the bill may force courts to fall back on older, common law legal principles, such as the habeas corpus principle to protect refugees from arbitrary detention by the state. As such, the bill provides another example of a governmental power grab, that betray authoritarian tendencies.

In terms of the substance, few people seem to believe that this bill will ever solve the problem, as the ‘solutions’ that it proposes are simply impractical. Indeed, there is only a very faint chance that the new plan will stop boats from crossing the channel or enable the government to remove illegal immigrants from the country. Instead it will most likely create new problems, such as pushing refugees to disappear into the informal economy.  

So, this is clearly another case where the government is purely interested in starting a culture war, catering towards the most extreme right-wing fringes of voters and the media – who have labelled the BBC presenter walk out a ‘mutinous chaos’ –, and has no intention to actually solve the ‘problem’ at hand. This may explain the reaction to Gary Lineker’s tweet. As Sunak said, the government is ready to pick a fight not just with ‘lefty lawyers’ but also public figures like Lineker who speak their minds. In fact, picking a fight was the very purpose of the bill. The government openly admits that it does not really know – or care – whether the bill is compatible with the UK’s legal obligations. Thus, the Home Secretary herself wrote to MPs saying there was "more than a 50% chance" the legislation was not compatible with the European Court of Human Rights. In fact, challenging international law seems to have been the very purpose of the bill, as Braverman revealed that the stated goal of the bill was to ‘test the limits’ of the UK’s international legal obligations and ‘push the boundaries’ of international law.

Lucky Labour?

On the News Agent podcast, Emily Maitlis commented on the IIB arguing that labour was lucky that the Tories were proposing yet another policy that was bound to fail. In her view, it makes it easy for Labour to simply attack the Tories on their inability to design effective policies that achieve their goals, while avoiding to have to engage with more substantive discussions about concrete aspects of these policies, e.g. how many refugees are too many?

I would disagree with this analysis. In fact, Labour is in the process of falling into the same trap it as fallen into with Brexit in general. A couple of months ago, I argued that one problem with Starmer’s ‘make-Brexit-work’ strategy was that it suggested that the failure of Brexit is merely a problem of implementation, rather than one of a fundamentally flawed project. Instead, I argued, we should continue to ‘bremoan’ and challenge not just the concrete implementation of Brexit, but also its fundamental principle. The same goes for the UK’s post-Brexit immigration policy. If Labour merely focuses on attacking the Tories’ track record in delivering on the goals, they themselves have define (stopping boats, bringing down net immigration), Labour let the Tories set the agenda and define the terms of the debate.  That will make it more difficult to propose a real alternative once Labour is in power.

For instance, after Sunak’s meeting with Macron, Shadow Home Secretary Yvette Cooper stated that “Rishi Sunak has failed to secure a strong enough agreement with France to deal with the dangerous boat crossings. He has failed to get a returns agreement in place, and it looks like his planned new law will make it even harder to get that vital agreement with Europe. Meanwhile, some of the border cooperation measures won’t even be in place for several years even though the problem is now.” That statement implies that Labour accepts the Tories analysis of the problem and the metrics by which a successful immigration policy should be judged, namely a returns agreement, stopping boats from crossing the Channel, and seeking stronger policing at the border. That may be a sound electoral strategy as long as the Tories do not get a grip on the situation, but it makes it more difficult for Labour to propose a different analysis of the situation, for instance that 45,000 people arriving in the country a year is not our biggest problem, that trying to prevent them from crossing by sheer force is not a viable solution.

In the past two weeks, Labour’s room for manoeuvre has considerably shrunk. Sunak’s successful negotiation with the EU of a deal on the NIP (although the ratification of that deal by the UK parliament is currently not making progress – see Chris Grey’s blog for an update on that) and his enthusiasm for NI’s single market membership, leaves Labour with its self-imposed customs union, single market, and freedom of movement red lines in a difficult position. If the Tories are shifting towards a position where SM membership for parts of the UK is compatible with their definition of Brexit, then what is there left for Starmer to say about his vision for a closer relationship with the EU? He all of a sudden finds himself on the hard Brexit side of the debate. Similarly, if the boats need to be stopped as a matter of urgency, returns agreements and stronger controls on the shores of France and the UK are accepted as the way to do it, what alternative vision for an immigration policy can Labour provide? In both cases, Labour seems to be trapped by its over-eager acceptance of the terms of debate imposed by the Tories and all it can do is promise to be better at achieving the goals defined by the Tories. That is hardly a great basis for providing the country with an alternative vision and plan for the country then what the Tories can provide. This mindset amongst the Labour leadership was also on display when Emily Thornberry commented on Lineker’s tweet and agreed with the Tory narrative that Lineker that he had gone too far; playing once again into their hands.

Towards state broadcaster

The BBC sunk to new lows this week by not only deciding not to broadcast an episode of Sir David Attenborough’s latest documentary for fear of right-wing backlash, but also by suspending - in the name of impartiality! – a sport commentator for their political views. The argument that this is a row about impartiality, is utterly ludicrous when one looks at how the BBC has handled other instances of presenters making political statements. Many people have pointed out Lord Sugar’s tweets urging voters to back Johnson’s Tories in the 2019 General Election. Similarly, early on in the current Tory reign, Jeremy Clarkson famously said “Frankly, I'd have them all shot. I would take them outside and execute them in front of their families. I mean, how dare they go on strike when they have these gilt-edged pensions that are going to be guaranteed while the rest of us have to work for a living?" Clarkson did apologies at the time, but the Tory outrage about impartiality was limited if I remember correctly and then PM David Cameron simply said it was "a silly thing to say... I'm sure he didn't mean it".

So, what is happening here is not the BBC struggling with its impartiality rules in a changed 21st century context, where its presenters have a reach not just when on air, but also as private individuals on Twitter and other social media. What is happening is something a lot more sinister, namely that a government with authoritarian tendencies tries to turn the public broadcaster into a mouthpiece for the government rather than an independent and impartial provider of news and analysis.

Indeed, among all the things Brexit – and more generally the Tories in government for 13 years – has broken, the most high profile victim is the BBC. The Lineker crisis shows that the BBC is on a path to be transformed from a public broadcaster into a state broadcaster. The former is a publicly funded media company whose mission is to inform, educate, and provide quality journalism in a sea of commercially and politically motivated news production. The latter is a media company whose sole purpose is to broadcast and defend the policies and ideologies of the government of the day, however indefensible they may be.

Clearly the right-wing of the Tory party either want no BBC at all (and therefore advocate an end to the TV licence system), or – while they are in government – they want a BBC that is a state broadcaster, just like Russia 1 is. One example of this mindset was on display when Tory minister Robert Jenrick told LBC’s Nick Ferrari that the duty of a BBC journalist was to be in lock step with ‘public opinion.’ Public opinion, of course, is not unambiguously in favour of the government’s approach to illegal immigration. While support amongst conservative voters is high, the number of people who consider the government’s immigration policies to be right, is no larger than those who trust labour (35% in both cases according to a Ipsos poll). So, what Jenrick is saying of course, is that the BBC should speak for those people who support the government and thus become the government’s mouthpiece.

The whole saga is even more ludicrous when one considers that the very same people that attack Lineker are often self-declared advocates of ‘free speech’ as Nick Tyron has also pointed out in his blog post. If there was still any need for this, the Lineker affair showed how the far-right (and I would include most of the front bench of the Tory party in that category) waffling on about ‘free speech’ really is just a partisan tool to try and shut up any dissenting voices. It is not an attitude born out of liberal conviction, but to the contrary a tool in their authoritarian toolbox – and as such not dissimilar to 1930s Germany.

1930s Germany

Even people who agree with Lineker have voiced concern about his tweet, pointing to Godwin’s Law according to which whenever you have to invoke Nazi Germany in an argument, it is a sign that you have lost the argument. So, was Lineker’s Nazi comparison out of order?

In the current context, I think Lineker’s comparison of the UK government’s narrative on immigration to the language used in Nazi Germany in the 1930s seems warranted. It should be made clear that Lineker did not compare the immigration bill to concentration camps or the Holocaust. His claim was about similarity of language during the 1930s (not the 1940s). He was not the first one to be appalled by that similarity, as the protest of some Holocaust survivors at Braverman’s ‘invasion rhetoric’ shows. In fact, the current Tory government, in more than one respect, does indeed show parallels with Nazi Germany before November 1938 (November 9/10 1938 was the night of the ‘Reichskristallnacht,’ which according to Hannah Arendt marks the moment where the Nazi regime stopped being ‘just’ authoritarian, and became totalitarian.).

In fact, I would go further than Lineker and argue that the similarities are not just in words, but also in deeds. Here, one striking recent development is the increasingly frequent recourse by the government to removing people’s rights as citizens.

Brexit removed in one stroke all our EU citizenship rights, which surely is one of the most extensive revocations of individual citizenship rights in modern UK history (we all lost the right to travel, work, vote in local elections, and settle freely in 27 other countries, which in itself is an absolutely enormous attack on our rights). Yet, under Home Secretary Javid, Patel, and Braverman even UK citizenship has become increasingly precarious. According to the charity Free Movement, there has been a jump in the number of people who have been stripped of their UK citizenship since rules were relaxed in 2015. Shamima Begum is only one high profile case in this respect, which illustrates that underneath the still fairly liberal discourse about equality before the law, the Begum case is fundamentally about how we define Britishness. As Ex Liberal Democrat leader Tim Farron said following Begum’s recent failed appeal against the decision: had she been a white teenager from Manchester called Sharon, removing her citizenship would most certainly not have been considered, however grave her crime.

Removing someone’s citizenship and thus denying them not just political rights, but also any meaningful protection of their basic human rights, is an extreme measure, because in the current system any individual human rights are essentially tied in with one’s status as a citizen of country. That is why Arendt called for a ‘right to have rights’ as a precondition for the post-war human rights order to have any practical meaning whatsoever. Stripping people of their citizenship rights is a sure indication of authoritarian tendencies in a polity, because it seeks to solve problems of public order and criminality not by treating the offenders as a subject of the law, but by casting them outside the political community altogether and thus make them rightless. That is precisely what Nazi Germany did at an increasingly large scale during the 1930s.

The IIB continues on this path of restricting the ‘right to have rights’ by becoming a UK citizen. One of the harsh new rules introduced by the bill is refusing people the right to become members of the British political community if they reached this country by the only ways that are open to them due to the government’s decision to not provide any safe and legal routes for most refugees. This is part of the government’s approach to keep refugees and asylum seekers in a rightless limbo where they are being denied even basic human rights. For the government only British humans should be entitled to have rights. Others should be locked up for 28 days “with no recourse for bail or judicial review.”

In another sense too Lineker’s ‘Nazi comparison’ is spot on. The current system of international human rights including the Universal Declaration of Human Rights of 1948 and the European Convention of Human Rights – and indeed the whole current rights- and rules-based international order as it has emerged after WW2 – was a direct reaction to the authoritarian and even totalitarian horrors of the fascist period. It was a system devised to constrain governments and force them to adhere to rules about the protection of individuals and their rights. The problem of course is that a state strong enough to protect your rights, is also strong enough to violate them. So, these duties and constraints on states by necessity have to be enshrined in international law so that states can be held accountable not just by their own population, but by other states in the international community.

As we know only too well in this country, politicians with authoritarian inclinations and delusions of grandeur do not like that system, because it limits their appetited for unlimited power. That is why the current government riles against ‘lefty lawyers’ and why Tories push for leaving the ECHR and break international law. Here too, parallels with 1930s Germany are perfectly reasonable to observe. Experts of international law have pointed out the struggles the Hitler regime had during the early 1930s with formulating a coherent National Socialist stance on international law. A regime based on the idea of racial superiority of the Volk almost naturally tended towards an absolute definition of national sovereignty, which logically implies a rejection of the legitimacy of international law. As one scholar writes: ‘If the Volk was the highest and finest institution of common life, how could it ow duties to follow rules laid down by some more universal system?’ it does not seem too much of a stretch to see parallels in this idea that no external force can tell the German people what to do and the never ending waffling of Brexiters about ‘sovereignty’ and British exceptionalism that I have written about before. The whole point of Brexit was to reject the international order, ‘take back control,’ and ‘do things our own way,’ without caring what other countries do or what the international community considers universal principles.

It is no coincidence, that this British exceptionalism and sovereign – like in Germany in the 1930s -also leads to a very open and violent distain for lawyers. The undignified way in which the PM uses his office to attack ‘lefty lawyers’ is in itself shocking and utterly condemnable. The attacks become even more shocking when seen in light of how the legal profession and legal scholars were attacked under the Nazis in Germany. “Nazi theorists understood that […]hostile or indifferent lawyers could sabotage or slow their program by adhering to old precedents or by reading the new statutes restrictive.” This explains their virulent attacks on lawyers – especially international lawyers – and the anti-academic rhetoric targeted at them. Of course, the Nazi attacks on legal scholars in the early 1930s went a lot further than what we are witnessing in the UK in the 2020s. To quote the same scholarly article, in Germany in the 1930s ‘[p]eople who hold certain views on international law are dismissed, exiled, imprisoned and even hanged.“ But Lineker pointed out the similarity in language and here the obvious hatred of lawyers who dare challenging the government is indeed ‘not dissimilar’ to how the Nazis treated legal scholars.

Project Fear

I remember well, when I first heard the term ‘project fear’ during the 2016 Brexit Referendum campaign I immediately thought it was referring to the Leave campaign not the campaign for remaining in the EU. After all, it was Leavers who painted a picture of a UK too weak to defend its interests inside the EU without being pushed around and bullied by other countries or EU bureaucrats. Indeed, it was the leave campaign that painted a picture of a dangerous world out there that Britain had to protect itself from – a world full of migrants waiting to invade our shores, taking our jobs, and houses. It seems to me that this is precisely the project fear the Tories have now made their main policy. Braverman’s absurd claims about 100m immigrants heading our way illustrates that only too clearly. The talk about ‘invasion’ is geared towards stoking fear and that is all I could ever see in the Brexit project: a cowardly reaction to a world changing in a way that they do not like and that scares them. A Britain preferring to cosy up with Putin’s oligarchs who promise a world that ‘strongmen’ can still control, rather than a Britain that defends the rules-based liberal world order in face of ever-growing challenges.

Fear is crucial to understanding this government’s actions at another level too, namely Sunak’s  fear of the Tories’ own right-wing fringe that seems to motivate much of Sunak’s policy programme. Similarly, Baroness Jenny Jones very eloquently explained in the House of Lords how fear of the public may explain the government’s authoritarian agenda.

Sadly, fear also has gripped the main opposition party. Namely, the fear of seeming to urban and elitist and thus losing the ‘red wall vote’ again in the next General Election.

The only hope we have, is that the British public will slowly understand that ‘hostile environment’ is not just the Tory government’s official immigration policy, but its plan for the country as a whole. Indeed, the government is making this country more and more hostile not just for refugees and immigrants, but for most of us. That includes not only people who want clean rivers and sea shores, or people working in the public sector, but also large numbers of those who own a house. Mortgage costs will increase for an estimated 4m households in 2023, which – together with the expected increase in unemployment – means that more households are at risk of defaulting or have to cut other spending to be able to pay their mortgages.

While the Tories may welcome the fact that immigration has taken centre stage this week, distracting the public from its other failures, the above-quoted Ipsos poll shows that the issue is way down the public’s priority list that is led by economic concerns and concerns about the NHS. Immigration only comes in in 7th place. Making noise about invasions and boats will deflect attention from the economy for a few weeks perhaps, but ultimately given the sheer extent of economic hardship many people are facing, the real issues facing the country cannot be kept off the front pages for very long. At one stage the government or the opposition need to come up with a plan for how to make this country a less hostile environment for the people living here.

Brexit Impact Tracker – 27 February 2023 – A Done Deal? The ‘Windsor Framework’ and the Paradoxes of Brexit

The past weeks since my last post have been dominated by Rishi Sunak’s negotiations with the EU about a new agreement on the implementation of the Northern Ireland Protocol (NIP). Reports of an imminent announcement of an agreement have come and gone until today the UK Government and the EU announced that a deal has been finalised. This arguably constitutes a major event in the Brexit saga, although it remains to be seen whether the deal that has been done is a done deal.

The Windsor Framework

After Sunak met EU Commission President Ursula von der Leyen at Windsor – after months of intensive talks – an agreement has been reached that will help make the NIP workable. During a joint press conference with von der Leyen, Sunak listed three ‘big steps forward’ implied by the agreement that has been baptised the ‘Windsor Framework:’ firstly, the establishment of a light-touch ‘green lane’ for goods exported from GB and destined for NI only; secondly, agreement on certain goods  - including plants and seeds as well as medicines – becoming automatically available in Northern Ireland when they have received UK regulatory approval; and thirdly – and perhaps most remarkably – the establishment of a new mechanism called the ‘Stormont Brake,’ whereby the Northern Ireland Assembly not only is consulted on changes to EU laws that apply in NI, but can actually stop EU laws from applying in NI if changes have a ‘significant and lasting’ impact on everyday life in NI. How exactly this mechanism will work remains to be seen, but it is fair to say that even more so than the ‘green lane,’ this can be seen as a significant concession by the EU.

Stormont Brake – the new art. 16?

In the joint press conference, Sunak described the Stormont Brake as a mechanism whereby “the democratically elected [NI ]assembly can pull an emergency brake for changes to EU goods rules that would have significant and lasting effects on everyday lives. If the brake is pulled, the UK government will have a veto [over new or changed EU laws applying to NI].”

In its presentation of the deal, the UK Government understandably focuses on the UK’s veto-right over EU law. Meanwhile, the EU’s explanation of the Stormont Brake stresses that this mechanism would be triggered under the most exceptional circumstances and as a matter of last resort, in a very well-defined process set out in a Unilateral Declaration by the UK.

In several respects, the Stormont Brake seems reminiscent of another Brexit creation, namely the famous Art. 16 of the NIP. For one, like the NIP the Stormont Brake seems to be based on a relatively vague definition of ‘significant and lasting’ effects of EU law on ‘everyday life’ in NI, which seems to be the threshold for the Northern Ireland Assembly to invoke it. For the other, it seems obvious that – just like Art. 16 – the Stormont Brake could easily be weaponised by Brexit ultras to threaten the EU whenever they do not like some of the consequences of their Brexit.

An important pre-condition for the brake to apply, however, is that the power-sharing executive at Stormont is restored. It therefore increases pressure on the Democratic Unionist Party (DUP) to back the deal and to abandon its boycott to participate in the executive. Other NI parties, however, have voiced concerns about the impact of the Stormont Brake, which some fear will provide nationalist parties with a veto. Indeed, while it will take some time for details about the functioning of the mechanism to be clear, it may well be that it creates a tension with the principle of the cross-community vote.

Still, however limited its use may turn out to be in practice, the Stormont Brake seems like a remarkable achievement for the UK Government. No doubt, Brexiters will put down to intransigence and hardball negotiation tactics and possibly the threat of the Northern Ireland Protocol Bill. In reality, the concession may simply illustrate just how seriously the EU takes the situation in Northern Ireland and therefor is ready to grant concessions it would not otherwise grant. Northern Ireland does indeed constitute a remarkable piece in the Brexit puzzle.

The Northern Irish Brexit paradox

The way in which we got to this point is revelatory of the sort of politics Brexit has created – and Northern Ireland is the most revelatory case in this respect.

Let us remember that in the Referendum Northern Ireland voted overwhelmingly (55.8%) against Brexit and was taken out of the EU against the will of a majority of NI voters. In other words, a major constitutional change with far-reaching consequences was imposed on the nation against its people’s explicit will. The only group of parties who were in favour of leaving the EU – unionists and in particular the Democratic Unionist Party (DUP) – are also the ones who now vigorously oppose the arrangements made necessary by the Brexit they voted for. Indeed, the NIP is the logical consequence of the hard Brexit they supported, but that they now say they cannot accept. That position is even more astonishing given that at least economically, for most businesses in NI the NIP is actually working. Indeed, the widely-publicised ‘problems’ created by the NIP concern primarily exports from GB to NI, who have to deal with new border formalities at the Irish Sea border, while many businesses in NI benefit from the unique position inside the EU single market for goods and inside the UK’s domestic market. Indeed, Northern Ireland seems to be the only region of the UK that is actually benefitting from Brexit in economic terms, seeing growth rates four times as high as the rest of the UK. This of course makes perfect sense: Establishing a business in NI allows you to serve both the UK and the EU markets with minimal trade formalities. Consequently, the additional costs of administering the new border checks (estimated last year at £200m) are outweighed by the extra trade with the Republic of Ireland (£1bn) and the rest of the EU. The positive effect of the NIP on the NI economy would most likely become even stronger once the uncertainty about its future is removed, encouraging more GB and EU companies to invest in NI. In fact, Northern Ireland, seems to be the only region of the UK where ‘levelling up’ is happening – although not due to the Government’s ‘levelling up’ policy, but rather as an unintended consequence of the particular position NI has inside both the EU’s SM for goods and the UK’s internal market.

So, a region that strongly opposed leaving the EU, is now the region that most benefits from it, although not because of leaving the EU, but because it is the only region that left the EU’s single market only partially. Furthermore, those parties that supported Brexit seem to be struggling with the new situation more than those – nationalist – parties who opposed it, but now have a much stronger case for Irish reunification than before.

Sunak’s most significant achievement

If Sunak manages to get the DUP to back his deal and abandon its boycott of the Stormont power-sharing executive, this would certainly be his most significant achievement as politician to date. He has obtained concessions from the EU that go beyond anything that other Brexiters’ before him had obtained, including not only the Stormont Brake but also the European Court of Justice’s (ECJ) role being softened, a reshape of rules on VAT and on government subsidies for businesses. The acceptance by the EU of the principle that goods destined for the Northern Irish market should be treated differently from goods destined to the EU market is a particularly significant breakthrough. This so-called green lane, red lane system, where goods destined for NI will be subject to softer-touch formalities and checks than good destined for onwards export to the EU has been made possible by assurances from the UK that real time data will be exchanged with the EU and border control posts (BCPs) will be established. In practice, for those goods that will remain in NI, this system would make the Irish Sea border very thin. Getting the deal through the Commons would allow Sunak to claim that – at least regarding NI – he got Brexit done (in the sense of providing workable solutions for the problems Brexit itself has created).

And yet, here again, Brexit leads to a paradoxical situation where rather than bragging about his skills to negotiate as good a deal as the situation would objectively allow, Sunak seemed until the very last minute to be worried about claiming a successful conclusion of negotiations. In various interventions last week – when there was talk about an agreement being imminent – he insisted that negotiations were by no means done. Brexit politics rewards unreasonableness and boosterish grandstanding, but punishes political pragmatism and realism.

Sunak’s stance is of course largely explained by internal Tory party politics. The European Research Group (ERG) and other Brexit ultras in the Tory party as well as the Democratic Unionist Party (DUP) in NI are likely to reject any deal that does not meet their maximalist demands. In particular, if the DUP insists on its ‘seven tests’ for an acceptable solution to the issue of the Northern Ireland trade borders with GB and the EU, there is no chance that Sunak’s current deal will be deemed acceptable. That in turn will mean the DUP will continue boycotting the Stormont Executive, which would mean the political situation in NI remains very precarious.

The paradox of Sunak having made major progress on solving the NIP issues, but not owning up to it until the last minute is symptomatic of post-Brexit Tory politics, where the party is held hostage by its extremist fringes. Here, it does not help that Sunak may have some common sense and pragmatism, but is a very inexperienced politician as Anand Menon pointed out in an article in the Independent. His strategy of negotiating the deal in secret with very few details being shared with what will be its main opponents – the ERG and the DUP – may indeed have been a bad strategy. At the same time, it is doubtful whether the agreement could have been achieved had the extremist red lines been included in the negotiations. To some extent, Sunak’s weak position within the party – due to the need to call a General Election in 2024 and due to the Tory’s trailing behind Labour in opinion polls – may turn out to be his biggest strength. Given the currently unlikely prospect of a GE victory, he really does not have that much to lose and might as well gamble on getting the NIP issue solved to have some sort of legacy. This may make him bolder than he would otherwise have been in confronting the ERG and the DUP.

A watershed moment

Whatever happens in the coming days or weeks, today’s agreement marks a watershed moment in Britain’s post-Brexit journey. For the first time at least since 2019, there are signs that the UK government is serious about solving some of the issues caused by Brexit, rather than just exploiting them for political benefit. For the first time, a workable solution for the most delicate post-Brexit issue – peace in Northern Ireland – is within reach. A key question now is: How will the Brexit ultras and Unionists react? They now essentially have a choice between choosing what Chris Grey has called the ‘rapprochement’ path and the ‘Brexit repetition’ path. In the first instance, the hatchet is buried and relationships with the EU slowly go back to something more cooperative and closer than they have been since 2016; in the second one, Brexiters make sure the relationship with the EU ‘would be one of permanent hostility, resentment and suspicion.’ Accepting Sunak’s NIP deal would send a strong signal that we may be moving towards the former. Rejecting it, would be a major setback and may indeed reignite the acrimonious battles of 2019.

As such, Sunak’s victory may only be short-lived. His deal does not end European Court of Justice (ECJ) oversight of the implementation of the NIP, nor does it completely remove the Irish Sea border  - let alone the NIP itself. All of these are red lines for Brexit ultras in the Tory party and for the Democratic Unionist Party (DUP), which may mean the framework is already dead in the water.

Over the past days, Brexit ultras in the ERG – like Mark Francois – have reiterated their maximalist position that that any role for the ECJ in overseeing the protocol and the application of EU law to NI would be unacceptable. Similarly, the current agreement clearly does not pass all the seven tests set out by the DUP, as the Irish Sea border as well as ECJ jurisdiction over EU law remain. The DUP may be tempted into backing the deal, among other things because the Stormont Brake only applies if power-sharing resumes. Yet, the fact that its competitor unionist party the right-wing Traditional Unionist Voice (TUV) has already publicly stated that it will reject the deal may create pressures for the DUP to do the same, lest it will lose voters to the TUV. That may not bode well for Sunak’s deal.

Another danger for Sunak’s deal is the importance it has for Boris Johnson’s renewed bid to become PM again. Johnson was not in the Commons today and has not made any public statement whether he will back the deal. He is said to ‘study and reflect’ on the agreement. However, earlier today, his possibly closest ally Nadine Doerries was fuming about former ‘Brexit Spartan’ Steve Baker who seems to be backing the agreement. That may give us some sense of where Johnson himself stands. Indeed, it is hard to see how backing the agreement would in any way be favourable to Johnson’s immediate personal interests, given that it would mean that he would concede both the failure of the NIP he signed and the NIP Bill he introduced. Since his personal interest is all he is interested in, it is probably safe to say he will not be backing it.

His recent interventions on the subject suggest as much. Last week, zombie politician Johnson intervened in the negotiation process by warning PM Sunak against abandoning the Northern Ireland Protocol Bill which Johnson introduced and which would have allowed the UK to unilaterally suspend parts of the NIP. Had that bill to passed into law, it would have breach international law and quite possibly lead to a trade war with the EU as a result. Brexiters like Penny Mordaunt found Johnson’s intervention ‘not entirely unhelpful’ based on the usual Brexiter trope that to get anything from the EU you need to have your hand hovering over the proverbial red button.

In reality, Johnson’s intervention is completely dishonest, as its only purpose surely was to undermine Sunak in the hope of preparing the way for his own comeback as PM. That at least is how senior Tories like Lord Mendelson and George Osborne interpreted the intervention. Indeed, Johnson’s role in the NIP is yet another Brexit paradox. The person who signed the NIP, praised himself for negotiating it, and considered it "a great deal for our country" has now become its main detractor.

However, there are signs that another faction of Brexiters may take a more favourable position towards the Windsor Framework. David Davies hailed the new agreement as a ‘spectacular negotiation success,’ essentially claiming that it gives the UK the special treatment Brexiters always said the UK could have (in the form of the Stormont Brake which is ‘without international precedent’). This pragmatist position may be quite attractive to Brexiters in the Tory party. Not only would it allow them to – once again – decry as fearmongers anyone who doubted the possibility of far-reaching concessions from the EU, but also the deal may provide Sunak with an unexpected boost ahead of the 2024 General Election.

The Windsor Framework would considerably improve relationships with the EU and the Biden administration in the US, averting a trade war with the EU and a falling out with the US ahead of the Good Friday Agreement anniversary in April. Concretely, it would most likely mean the UK would participate in the Horizon research programme after all, which constitutes a major concern for UK universities that have seen EU funding drop. Electorally more importantly, by dropping the Northern Ireland Protocol Bill, his chances of getting France’s Emanuel Macron to agree to a deal to prevent small boats from crossing the English Channel may be significantly improved.

Taken together, Sunak could go into the GE campaign claiming to be the one who actually ‘got Brexit done’ and who also did something about illegal immigration which of course Tory voters feel strongly about. The prospect of this change of fortunes may push some moderate Brexiters to back him and his deal.

Some Tory strategists expect the ‘rebellion’ within the party to be limited. Even if it were large, the deal may still pass the vote in the Commons which Sunak has promised due to Labour’s support. Having to rely on the opposition to pass the deal, however, could seriously damage Sunak’s premiership. Once again, the country seems to be held hostage by the internal power struggles in the Tory party.

Damage limitation

The Windsor Framework is far from a done deal. The coming days and weeks will see important players make up their minds whether or not to back the deal and vote for it in the Commons. Whatever the outcome – the start of rapprochement with the EU or a Groundhog Day of 2019-style Brexit tensions – one thing we should not forget is that all the efforts made to reach this deal; all the civil service and political resources committed to it; all the attention and time spent on negotiating it, still only served one purpose: Limiting the damage Brexit has done to the country. It is heart-wrenching to think what else UK and EU politicians and official could have done with these precious resources had they not been tied-up by the never-ending and futile Brexit project.

Brexit Impact Tracker – 14 February 2023 – Brexit’s Zombie Politicians and the (Deliberately) Nasty Party

If you build an electoral strategy on the assumption that working class people are nasty, brutish, horrible people like Lee Anderson, then you are seriously misunderstanding the working class and are bound to fail.

In my last blog post I wrote that on Brexit’s third anniversary the jury was in and hardly anyone could seriously contest that so far it had been a complete failure. The strongest evidence yet to support this claim came with a scoop reported in the Observer on Sunday 12 February 2023. The Observer reported on a secret cross-party summit bringing together very senior Tory and Labour politicians –from both the Remain and the Leave camps – as well as very senior figures from the business world to discuss how to reduce the damage Brexit is doing to the country. According to the reports very senior Leave figures – including Michael Gove, Gisela Stuart, and Norman Lamont – were present alongside Remainers like Shadow foreign Secretary David Lammy. The Observer’s Toby Helm considers that the summit ‘reflects a growing acceptance among politicians in the two main parties, as well as business leaders and civil servants, that Brexit in its current form is damaging the UK economy and reducing its strategic influence in the world.’

The meeting is nothing short of extraordinary, both in terms of the cross-party and ‘cross-Brexit divide’ list of attendees, and in terms of the visible candour with which the heterogenous group seems to be discussing the need to find a better solution for UK’s relationship with the EU than the Trade and Cooperation Agreement (TCA) provides. As such, the report could be seen as a good sign about an emerging cross-party, cross-divide pragmatism to address the undeniable damage Brexit is doing.

At the same time, the report is also disturbing in several respects. Most obviously, the fact that the meeting was held in secret and only known to the public due to a leak is shocking. It illustrates the utter dishonesty with which the two major parties in the UK deal with the biggest decision the country has made in decades. Clearly there is a growing – almost universal – consensus amongst the countries political and economic elites that to make Brexit work better, we need closer ties with the EU. Yet, no leading politician seems to have the courage to say that in public. This seems even more astonishing given that the British public – according to all the polls I am aware of – very largely has reached the same conclusion. So, why can leading politicians even outside the circle of committed Brexiters not be honest about it?

The answer lies in what I have describe in several previous posts as the Brexit hostage situation we are held in. The reason why the most powerful politicians and business leaders in the country cannot be honest with the people is simply that a small group of right-wing authoritarian and nationalist populists has managed to capture key positions in public life that allows them to potentially derail either leading parties’ hope to govern the country.

For the Tories, this group – as Chris Grey extensively and convincingly discussed this week – is in the process of eating up conservatism from within. Given the influence the ‘Brexitists’ have gained over the Tory party, it comes as no surprise that PM Sunak does not even dare telling journalists whether or not he was aware of – let alone supported – the secret meeting. Instead, he waffles on about how proud he was of supporting Brexit!

For Labour, the mighty right-wing press constitutes a permanent threat that means straying too far from the right-wing mainstream that currently dominates British politics would imply a potentially lethal barrage of negative headlines that may destroy any hope of forming the next government.

Beyond the dishonesty and cowardice that the secret summit betrays, there are two other dangers that dampen any hope that this signals a return to pragmatism.

One danger is revealed by what the Observer reports to be Michael Gove’s take on the summit. Namely, that Brexit is still the right decisions, but just not being done in the right way. This, of course, has become a wide-spread coping mechanism amongst those Brexiters who are not delusional enough to think that things are going well. Rather than taking responsibility for the failure, they bemoan that what we got is not the real Brexit they voted for. There will always be a hard core of Brexiters who will cling on to that belief however badly Brexit turns out to be for the country.

Still, it is important to challenge this narrative, which may otherwise serve to justify an even more extreme form than the hard Brexit Johnson and Frost negotiated. Indeed, the risk here is that rather than thoroughly defeating Brexiters’ flawed arguments about ‘doing things our own way,’ ‘sovereignty,’ etc., ‘Remainers’ provide them with a way of rehabilitating their arguments.

To be sure, eventually, the country will have to come together and heal the deep wounds Brexit has inflicted on the British body politic. But not on any terms. The risk is that if ‘moving on’ happens without a proper analysis of why Brexit took place and why it was never going to work, the ideas that drove the Brexit fringe of the UK’s political sphere will continue to cast their long shadows over the inevitable process of softening hard Brexit.

The second danger is that discussing in secret amongst members of the elite the most consequential political decision the country has made in decades is water to the mills of those who attempt to convince the British public that a large-scale conspiracy against the ‘real people’ is taking place. Indeed, Monday’s newspapers were full of Brexit Ultras crying – once again – ‘betrayal!’; and David Frost once again made the headlines for warning against a ‘secret plot’ to unravel the deal he negotiated (which, incidentally, he otherwise says needs to be renegotiated).

The past weeks have provided ample evidence that both these phenomena – zombie ideas and conspiracy theories – constitute increasingly dangerous challenges for British democracy.

Zombie ideas and zombie politicians

The notion of zombie ideas has entered the social science vocabulary a while ago to describe bad policy prescriptions that have not worked in the past, but refuse to ‘die.’ In a similar way, a remarkable effect of Brexit is the creation of zombie politicians – i.e., politicians who have proven that they are inept, dishonest, or led by misguided policy ideas –, and yet do not seem to leave the political scene. Just like in a Romero zombie movie, every time a knew blow is dealt (partygate, mini-budget, breaking of ministerial code…), you think ‘surely this one is fatal!’ only to see the corpse get up again and return to front-line politics.

The master zombie politician is of course Boris Johnson who already attempted a comeback when the Truss government was in its final throes. That attempted comeback – so shortly after having to leave office due to a series of scandals, each one of which would have been career-ending for any politician a few years ago – was astonishing. Even more astonishing is that despite that failed comeback attempt, only a few months later there is talk of another one. Some allies even consider it ‘likely’ that Johnson will return to Number 10 this year. The vast majority of the British public do not want him back, but in the past few years the British people’s opinion has rarely mattered in determining who the Conservative party choose as the leader of our country. The comeback attempt is even more remarkable given that an investigation into Johnson potentially having misled Parliament over ‘partygate’ is still ongoing and a new scandal around his personal finances and their link to the appointment of Richard Sharp as BBC chairman have since emerged.

Just like he used to do during his time as PM, whenever his dodgy affairs caught up with him at home, ‘Boris Pilgrim’ once again flew to Kyiv to meet Ukrainian president Volodymyr Zelensky to bask in the reflected glory of a real war time leader. (Incidentally, just how dishonest Johnson’s and the Tory’s attitude towards Ukraine is is illustrated by a new Chanel 4 documentary that documents the influence of Russian money on the Tory party).

The other zombie politician erring the twilight zone between the realms of political oblivion and front-line politics is Liz Truss. Her essay in the Sunday Telegraph last week is extraordinary in many respects. The Financial Times’ Louis Ashworth has provided an excellent paragraph-by-paragraph comment on the essay that reveals all its absurdity and dishonesty.

Yet, I think it is important to take the essay seriously, because absurdity and dishonesty are no longer attributes that prevent people from occupying the highest offices of the state in post-Brexit Britain. Indeed, Truss’s strategy to rehabilitate herself may not work for her personally, but it can still cause a lot of damage.

The narrative she is trying to sell can be summarised like this: Despite being an outsider with little organisational support, she managed to obtain a ‘popular’ mandate (from the Conservative party members) to urgently reform the British economy that has been flailing for decades. The economic policies adopted by her predecessor would have meant tax raises and increased public spending. Something had to be done urgently. As a result, as soon as she took office she acted ‘with maximum speed.’ Truss and her chancellor Kwasi Kwarteng therefore did not wait long to implement the ‘mini-budget,’ which she describes – quite inconsistently – as simply a ‘return to Conservative economics and a ‘brave’ break with orthodoxy. The policy was right and would have succeeded had the markets not reacted so negatively and had she been given time to implement it in full. However, a coalition of “the blob of vested interests” within Whitehall, opposition by people defending the economic orthodoxy (presumably the Bank of England), as well as ‘a concerted effort by international actors to challenge our Plan for Growth,’ ultimately brought her down.  

Many commentators on the essay have noted the astonishing lack of remorse and self-awareness. The most worrying bit, however, is the fact that this is a former PM making arguments that are only one step removed from the most absurd conspiracy theories out there on the internet. Indeed, it is a small step from the discourse about the ‘blob’ and ‘international actors,’ to the sort of conspiracy theories that see Sunak as a puppet of a ‘globalist world conspiracy’ led by Klaus Schwab and the World Economic Forum. No wonder, then, conspiracy theories seem to become increasingly acceptable and accepted in the British public sphere, as GB News illustrates.

GB (Fake) News and the banalisation of dishonesty

One of the more shocking developments in the past two years is the transformation of GB News from a right-wing irrelevance, into an outright fake news and conspiracy theory channel. Matthew Sweet – an expert on conspiracy theories – provides various examples of how GB News spreads anti-vax conspiracies on its airwaves, including in an interview with former Tory MP Andrew Bridgen and suspected rapist and human trafficker Andrew Tate. GB News could be discounted as just some oddity. However, the proximity to figures close to power – including sitting MPs – is greatly worrying in terms of what it says about the UK’s political culture.

A regular guest on GB News is newly appointed deputy chairman of the Conservative party Lee Anderson. He illustrates better than anyone else the proximity of the UK’s governing party with right-wing extremism. Anderson constitutes another step down ‘fake news lane,’ as he incorporates the banalisation of dishonesty in politics. In a remarkable radio interview, he attempted to justify a fake video in which he had a friend of his pose as Labour swing voter with the fact that we all have lied at one point in our lives. Such a banalisation of dishonesty and fake news is nauseating. Worse still, the Mirror reports on Anderson’s proximity to white supremacist groups with members of whom he has been photographed repeatedly.

Anderson’s appointment may seem astonishing given his divisive and toxic personality. Indeed, it did not take long for him to be in the middle of controversy around his support for the death penalty, forcing the government to distance itself from his statement. Yet, everything suggests that Sunak new exactly what he was doing when appointing him as deputy chairman.

The (Deliberately) Nasty Party: Campaigning on hatred

Twenty-one years ago, after their General Election defeat of 2001, the Tories were still very worried about their image as the ‘nasty party’ and no other than Theresa ‘hostile-environment’ May denounced the Party for ‘demonising minorities.’ Twenty years on, being the nasty party has all but become the Conservatives’ official election strategy; and demonising minorities and opponents is one of the few thing most Tory politicians seem to agree on.

On this blog, I have written many times how the Tories seem to reignite the so-called ‘culture war’ whenever their economic track record comes under attack. This analysis has been confirmed on Monday by the defection of Iain Anderson – a senior Conservative businessman and former Tory ‘LGBT business champion’ – to Labour. As a key reasons for his decision he mentioned the fact that ‘[i]t was made pretty clear the plan is to run a culture war to distract from fundamental economic failings.’

In this context, Lee Anderson’s appointment makes perfect sense. Who better suited to represent the anti-woke nastiness, intransigence, and machoism than the person they call the ‘red wall rottweiler’? Equally, Sunak having to distance himself from Anderson’s statement about the death penalty shortly after having appointed him may better be seen as part and parcel of that strategy and hence intended rather than an embarrassment. Indeed, the hypocrisy of officially condemning extreme views within the Party, while in fact doing everything to give those extreme views a platform, increasingly seems like part of the ‘deliberately nasty party’ strategy Sunak has opted for. It shows those nasty voters they want to woo that deep down the PM agrees with them, but the – still too strong – ‘establishment’ forces him to tune down his real convictions.

The voice of the working class?

Lee Anderson likes portraying himself as a ‘salt of the earth’ guy who despises ‘middle aged academics’ and speaks for the working class. Similarly, much of the right wing media portray him as a representative of the working class and seek to discredit any criticism as being motivated by a ‘hatred of the working class.’

For someone like myself who grew up in a working-class family and spent their summers and holidays working in factories and on construction sites to finance their studies, I can confidently say that Anderson and his nasty views do not represent in anyway working-class values. Yes, there are working class people like him: nasty, brutish, big-mouthed, crude. But they are like that not because they are working class, but because they are horrible people. The vast majority of working class people I grew up with – including my parents – were often politically to the right, but mostly very decent human beings with compassion for other people – including immigrants and refugees – and who showed respect for other people’s lifestyles, views, and convictions. If Anderson represents anyone, it is not working-class people, it is horrible people. And such horrible people you can find in any class. Ironically, the right-wing media’s claim that Lee Anderson’s views somehow reflect those of the working class who the ‘left’ despites is the greatest insult of them all!

Moreover, Anderson’s worldview of a deep divide between workers and academics is both exaggerated and dangerous, because it stirs up a nefarious anti-intellectualism and obscurantism. The university sector is one of the UK’s most successful ‘industries’ both in terms of what it contributes to society and in economic terms. The anti-intellectualism that right-wing Tories now adhere to is illustrated by the nonchalance with which the government treats our participation in the EU’s Horizon programme, which constitutes yet another act of Brexit-induced self-harm. Anderson’s railing about middle-aged academics is perfectly in line with that and should not go unchallenged.

The next Brexit and the grapes of wrath

The radicalisation of the Tory party has also reignited the discussion around the European Convention of Human Rights (ECHR), which Sunak says stands in the way of effectively dealing with immigration. While a considerable part of the Tory party still does defend the rule of law and threatens with a rebellion, Sunak’s target audience is the right wing of the party, especially now that the zombies Johnson and Truss have returned to walk the political earth again. The tragedy of course is that the so-called ‘small boat crisis’ – if it is indeed a crisis – has very little to do with the ECHR or ‘lefty lawyers’, but has everything to do with Brexit, as a new report unmistakably shows. It is the decision to not only exit the EU, but also end the Dublin agreement on returns of refugees to safe countries, that explains the increase in arrivals. No Brexiter would of course ever admit that. Instead, they set sight once again on the next ‘European thing’ to exit – probably in the hope of rekindling the fire of hatred that brought them to power.

That strategy clearly is working as the appalling attack on asylum seekers in Merseyside illustrates. Braverman’s (another zombie politician) half-hearted condemnation of the attack (‘well, people are angry, because immigrants misbehave. What do you expect?’ – I’m paraphrasing), is probably the most appalling thing she has said since becoming Home Secretary – and the bar was very high. In post-Brexit Britain, a bunch of angry, violent, xenophobes setting on fire a police van barely raises an eyebrow in Westminster, but of course climate activists demonstrating constitutes an unacceptable draining of police resources and justifies new laws to crack down on our civil liberties to protest.

Overall, then, it has been another appalling week in British politics and the political sky seems to get darker and darker. The run up to the next General Election promises to be toxic and hateful, due to Sunak’s strategy of positioning the Conservatives as the nasty party. But to finish this post on an ever so slightly more optimistic note, there are signs that the right-wing Tories’ fake Populism is coming back to bite them: If you insist that the Tories are the representatives of the ‘real people’ and the Brexit vote shows what the people really want, but the people actually increasingly disagree, then you are increasingly left high and dry. More generally, if you think – which Conservatives clearly do – that working class people are nasty, brutish, horrible people like Lee Anderson and you build your electoral strategy on that misconception, then I think you are seriously misunderstanding ‘the people’ and bound to fail. The Tories’ nasty party strategy may work with a relatively small minority of the electorate, many of whom may be Tory party members, but certainly do not represent British public opinion in general. Together with the increasingly deep internal divisions that Chris Grey wrote about last week, there is hope that “Brexit is slowly killing the Conservative Party,” possibly making room for a less nasty, less corrupt, more modern centre-right party. That is something the UK desperately needs.

Brexit Impact Tracker – 4 February 2023 – All the Things Brexit Has Broken

On Tuesday Brexit turned three. I started this blog roughly a year after when the transition period had just finished. The idea was about truth telling. The Brexit referendum campaign had left a deep and troubling impression on me. I remember watching one of the televised debates and staring at the telly in shock and disbelief when it dawned on me that the Leave side actually had no idea what Brexit would look like and how the country would leave the EU were they to win. There were some vague references to Norway and Switzerland; but clearly no plan and no clue about what Brexit would actually mean. The worst, however, was the endless stream of lies coming out of the Leave campaign, that right-wing newspapers eagerly help spread. This blog was meant to somehow contribute – however little – to the task of making sure that those who told the lies would not get away unchallenged once Brexit actually happened. I wanted to document the damage the whole project was inevitably going to do to the country and thus to provide a factual basis to restore some truthfulness in British politics.

I do not think I expected the task of documenting the Brexit damage to be so easy. That is to say, it is not easy at all to keep track of all the things that Brexit has broken and all the ways it has affected the British economy, politics, and society. It is a proper mess. Nor is it easy to remain as objective as possible and not to attribute everything that is not going well in the country to that single cause. What is easier than I thought it would be, however, is to assess whether on the whole Brexit has been good or bad for the country.

Lies on repeat

The third Brexit anniversary this week made it very clear that Brexit has delivered no benefits for the country in the past three years that would outweigh the massive costs of having left the EU. The easiest way to prove that statement is to look at what the people in government had to say about it. The Prime Minister – a Brexiter himself – tweeted the following list of things he thinks the Tories have done to ‘harness’ the new found ‘Brexit freedoms’: The fastest vaccine rollout, striking trade deals with over 70 countries, taking back control of our borders, cutting red tape for businesses, levelling up through our freeports, and designing our own, fairer farming system. Home Secretary Braverman tweeted a quite similar list only adding the ‘points based immigration system’ and concocting ‘[r]egulatory freedoms worth over £100bn in the REUL Bill and Edinburgh Reforms.’

Every single item in these lists of alleged Brexit benefits – except perhaps the agricultural policy – are a-hundred-times-debunked falsehoods. The UK’s vaccine rollout was somewhat faster than the EU’s. Yet, that had nothing to do with EU membership, but rather, with the fact that the EU exported part of its domestic production to help other countries, while the UK kept all for its domestic use. All but three of the 70+ trade deals signed after Brexit were rolled-over EU trade deals. Those that were not are even according to the people who negotiated them bad for the UK (the ones with Australia and New Zealand), or have actually made trade more difficult not easier (the Trade and Cooperation Agreement with the EU itself). Net migration is at an all-time high and the Tories themselves are the ones complaining about the small migrant boats arriving across the English Channel, while businesses are reeling under labour shortages as well as increased red tape. Finally, establishing freeports is allowed under EU law, and economically they are at best meaningless, at worst damaging to UK’s regional economies. With or without freeports, levelling up is simply not happening among other things because lost EU funds are not being matched by the new UK funding system.

So, if this is the best leading Brexiters have to show three years after Brexit, I think it is fair to say the matter of whether Brexit has been a success or an abject failure is well and truly settled. The British public seems to increasingly agree. A new striking poll carried out by Unheard found that there is now only one single constituency in the whole country where a (slim) majority still thinks Brexit was the right thing to do.

Why is Brexit failing?

How to explain the abject failure of Brexit? One explanation is that the whole project was a delusion and promised things that it could never achieve, because they are simply unachievable fantasies. That is because the basic premise driving much of Brexit is that it is possible to have your cake and eat it: That you can exit the EU, but the EU would still grant you unhampered access to the single market while letting you set unilaterally your own rules, regulations, and standards. That you can stop Europeans from settling and working in the UK, while still being allowed to buy a house and retire in the EU without any questions asked. In short, that our country can have everything it wants without conceding anything in return. There may be a universe where that is possible, but sadly it is not the one we live in! So, Brexit’s failure was baked into the ‘cakist’ nature of the project itself.

But in another sense, it did not have to be quite this disastrous. I remain firmly convinced that exiting the EU is a legitimate choice for any member state to make (if the decision is taken in a legitimate way) and that it can be done in a less damaging fashion then the exit the UK chose. That is not to say that it would be better for businesses and people than being a member, but it could be done with less damage than the UK’s Brexit. Such an exit, however, would have to be carefully planned and happen in a gradual way not in a rush without any plan. That was never going to happen in the case of Brexit, because it was the project of the most delusional and ideologically blinded fringe of the British political elite.

None illustrates that point better than David Frost. Indeed, it is one of the most painful results of Brexit, that the whiskey merchant turned political philosopher has become a public figure. His interview with Emily Maitlis on the News Agents podcast constituted a fascinating microcosm of the contraptions Brexiters now have to resort to to find any justification of their project. His account of how we ended up in this mess went something like this: Brexit was a great idea, but then Theresa May proposed a bad deal. David with his pal Boris came to the rescue and managed to wrestle an improved deal from the EU. Unfortunately, the Remainer Parliament put obstacles in their way (in the form of the Benn Act), which limited the greatness of the deal Boris and David could get. Still the deal was good, but then the EU triggered article 16 of the Northern Ireland Protocol (NIP) to stop vaccines from leaving the EU (Maitlis had to correct him that the EU did not actually trigger Art 16 only suggested it might do). That created the problems in Northern Ireland and hence the NIP needs to go. So, according to Frost, how do we get out of this mess? Simple: Vote Tory in the next General Election so that they are given the chance to do Brexit better in the next Parliament. But beware, it will of course take another ten years before any benefits can be felt!

That is quite an extraordinary narrative aimed at shirking any responsibility and clinging on to the one big lie that made his political career possible.

The most extraordinary moment in the interview, however, was when, in his desperation, Frost attempted to bat off Maitlis’s question about labour shortages following the end of free movement of people by bragging about the record level of net immigration. This of course is pretty much the polar opposite of what his party has promised their voters for years and years. I guess I should not be surprised anymore when Brexiters attempt to excuse one of Brexit’s broken promises (no negative impact on the labour market) using another one (cutting net migration). In fact, it could almost be amusing, and I might feel some satisfaction hearing the absurdities Brexiters have to resort to in their desperate attempts to try and defend their record.

Unfortunately, the damage Brexit is doing to both the UK economy and its political system leaves no room for Schadenfreude, but only for concern and worry.

Indeed, the damage is so pervasive and multifarious that one could start a new discipline, that of ‘Brexit damageology.’ Chris Grey in his blog post last week has provided a useful distinction between different types of damages Brexit is doing to the UK. The direct and central damage of Brexit is Brexit itself, i.e. all the disadvantages UK companies and people are now facing because of their non-membership in the EU. However, there are equally bad types of more indirect damage. The first one of them is that it has become perfectly normal in British politics to deny the ‘complexities and realities of international interdependence.’ Secondly, what Chris Grey calls the ‘most toxic twist’ is turning the defence of reality against fantasy into an act of treason.

These three types of damage rely on a web of lies that make it hard to see how the country can untangle it without suffering major additional damage. Indeed, Jonathan Lis, writing in the Byline Times, considers Brexit ‘a lie so etched on the body politic that to expose it will somehow take the entire establishment down too.’ I think it could be worse still, namely that the Brexit damage not only breaks the UK economy and politics, but also its society.

Three years of Brexit: The economy at breaking point

On the economic front, the past fortnight has added further evidence of the damage Brexit has done over the past three years. There was the news about British Volt going out of business after all, there was the news that the Chancellor had to bail out the Steel Industry (with money that the state allegedly does not have), then there was the story about UK car production having fallen to its lowest level since 1956. Brexiters, no doubt, will say all this is the result of the war in Ukraine, the Covid19 pandemic, or ‘global supply chain problems.’  Yet, while the Ukraine war and Covid19 are of course global problems, Brexit is not. In that context, it is striking that the International Monetary Fund (IMF) expects the UK to be the only G7 economy to shrink in 2023. Therefore, one may be forgiven to increasingly succumb to the mortal sin of ‘British declinism.’

Brexiters, of course, immediately dismissed the IMF forecast, shouting of the top of their virtual lungs that the experts at the IMF always get their forecasts wrong. To some extent that is true. Forecasts are notoriously difficult to make and the IMF economists – just like any economist – regularly get them ‘wrong’ (if a discrepancy between forecast and reality can actually be considered to be a ‘mistake’ rather than just something that is in the nature of forecasting). What Brexiters of course do not tell you is that there is no bias against the UK In IMF forecasting. So, on average, they do not get Britain’s forecasts more wrong than they do other countries’. The interesting thing about the most recent forecast then is simply that the UK’s prospects are so clearly worse than comparable countries.

Hunt’s anti-declinism

Chancellor of the Exchequer Jeremy Hunt will not have any of this pessimism though. In a speech on Friday a week ago he stroke back against the ‘declinist narrative’ and sought to demonstrate that Brexit has made possible his glorious ‘four Es’ plan for the UK economy (the four Es mentioned in the speech standing for ‘enterprise,’ ‘education,’ ‘employment,’ and ‘everywhere’ i.e. ‘levelling up’).

Arguably, the reasons why he is defending Brexit at a time when the numbers of believers in the project in the general public are dwindling, has to do with internal Tory politics. As the Financial Times’s Stephen Bush writes, talking up Brexit may be part of an appeasement strategy targeted at the Tory right-wing ahead of the March budget, which will contain few tax cuts and possibly more government spending.

I am sure, with his speech, Hunt will have convinced the Brexiters in the ERG and in his Party that Brexit is great. I doubt he has convinced anyone else. Indeed, business groups hit back shortly after the speech. The director general of the British Chambers of Commerce, was quoted as saying that the Chancellor completely omitted two crucial additional Es: namely fixing energy and exports without which there will be no growth. Kitty Usher from the Institute of Directors more bluntly said to Hunt’s ‘four Es’ a fifth should be added: E for ‘empty’. Indeed, other than aspirational talk about Britain becoming the world’s Silicon Valley and the usual promises that this could be achieved purely by way of deregulation, the speech largely remained in the realm of fantasy and slogans without providing any coherent policy plan of how to achieve those aspirations.

Quite tellingly, the only positive voice the FT cites is Tim Pitt – former advisor to chancellors Hammond and Javid – who found the speech provided a “refreshing balance of realism and optimism”, “identifying areas [of] policy [that] can make a difference.” However, identifying the areas where Brexit can make a differences has been long done. Jill Rutter from the Institute of Government for instance wrote in the FT a couple of weeks ago that the five areas of digital technology, life sciences, green industries, financial services and advanced manufacturing were areas where divergence from EU rules may provide growth potential. But of course, the trick is not so much to identify these areas, but to actually develop the policy plans needed to turn the promises into reality. In that department, when it comes to move from slogan to policy, Brexiters and our government seem completely out of their depths.

No plan Brexit

The emptiness of Hunt’s economic strategy reveals the bankruptcy of the kind of economic thinking that underlies Brexiter thinking – both the libertarian kind of Truss and the IEA and that of the orthodoxy represented by Hunt. This was illustrated by the inability of the government to come up with any response to the US’s new industrial policy and the EU’s reaction to it. Industrial policy is something that is inherently incompatible with libertarian and orthodox economic policy and therefore something the Tory government cannot easily come to terms with. This became crystal clear when the then secretary of state for industry Kwasi Kwarteng decided to ditch it two years ago.

The impact of the plan- and cluelessness of the government regarding industrial strategy could be observed by developments in the steel sector last week. While the government has no industrial strategy, the state does intervene sporadically in the economy when it seems politically appropriate. Last week the Chancellor announced that Indian-owned Tata Steel and Chinese-owned British Steel would receive around £600m of state support to not close down plants in Scunthorpe Lincolnshire and Port Talbot, South Wales and instead invest in greener technology. This may sound like sensible industrial policy given that the two companies taken together employ 7,500 workers.

However, it is also the perfect illustration of how the Tory party’s self-imposed ideological ‘no-nos’ prevent it from adopting reasonable long-term strategies and instead forcing it to resort firefighting when things are too broken.

Indeed, the struggles of both British and Tata steel were predictable and indeed predicted by actors in the steel sector. Yet, the government never seriously addressed the issues facing the steel industry. It did not provide anywhere near sufficient state aid to help the transition to more sustainable steel production; neither did it take industry complaints about the uncompetitive level of electricity prices seriously. A parliamentary briefing found that for the first half of 2020 UK steel industry paid 84% above the median price in the EU. That is remarkable, because we have been told that the only problem standing in the way of the UK having a ‘world-leading’ Steel Industry were EU restrictions on state aid and the inability to set our own trade strategy. Yet, all the UK government has managed to do since Brexit is insufficient and contradictory actions on steel tariffs, energy prices, and state support so that investors were put off by the uncertainty.

For instance, in 2016 the EU put 19 trade remedies in place to protect European steel from Chinese dumping. When the UK exited the EU, the Trade Remedies Authority (TRA) recommended to then Trade Secretary Liz Truss that nine of the 19 should expire on June 30, 2021. Unsurprisingly, UK steel producers strongly objected to that decision.  Ultimately, International Trade Secretary Anne-Marie Trevelyan announced in June 2022 that all 19 protections would remain in place. By that point, however, years of regulatory uncertainty had already affected investment in the sector.

So, given the uncertainty and without sufficient action on other issues – such as energy costs – the trade remedies ultimately proved ineffectual. Worse still, they have led the Indian government to retaliate with tariffs of its own on British steel, which constitute a further obstacle to reaching a Free Trade Agreement (FTA). Such an FTA with India has already been compromised by Trade Secretary Badenoch’s statement a few weeks ago that more visas for Indian students could not be part of the FTA, since ‘we left the EU because we did not believe in free movement of people.’

In the area of steel, as well as immigration, then, Brexiters continue to privilege their ideological red lines over solving real world issues that actually would make a difference to the country. Brexit is not the root cause of this ineptitude, rather just like the inchoate economic policy, it is a symptom of the gradual takeover of the conservative party by ever more radical and extremist ideologies. This has led to a governing elite of egocrats whose economic and political abilities are extremely limited and whose lodestar is self-interest.

Scandals and failures: Breaking society

The most nefarious political damage Brexit is doing to the UK is that running the Tory party, with its front benches stuffed with self-serving egocrats, is only possible by disregarding any previous standards of decency and integrity in public life.

The list of scandals and investigations involving the most senior Tories continues to grow literally every week. PM Sunak, who took over the party leadership on a promise to bring back integrity after three abysmal years for standards in public life, clearly is unable to uphold his declared ‘values’ of integrity against the rot in his party. That is not surprising of course, given that he himself is part of the rot. Thus, he is the one who reappointed Suella Braverman just a week after she had to step down from the Cabinet due to breach of the ministerial code. At the time, that move seemed like the action of a weak PM, desperate for any support from within the party he could get. But the PM’s handling of Nadim Zahawi’s tax affair put a whole new complexion on that move.

Certain elements of Zahawi’s tax affairs had been publicly known since last summer. Yet, the affair blew up in full after Christmas. It has since been revealed that the Chairman of the Tory party failed to declare the fact that he was under investigation by the HMRC when he was appointed Chancellor of the Exchequer and probably also lied to Sunak. After days of toing and froing and a short investigation, Sunak ultimately had to sack the Chancellor. Zahawi himself of course shows no remorse for defrauding the Treasury – which he then went on to lead – to the tune of several million pounds. Rather, he used his resignation letter to attack the media’s role in making sure he was found out and held to account.

For Sunak the Zahawi affair is bad news. As Adam Bienkov astutely observes, the fact that Sunak cites the breach of ministerial code as the reason to sack Zahawi, while he was happy to reappoint Suella Braverman days after she was sacked for a breach of the ministerial code by his predecessor Liz Truss, makes him look opportunistic and weak, not decisive and having integrity.

In a normal situation, the Zahawi affair would probably keep the media and public sphere busy for several months. Not in Brexit Britain. This case is just one among a long list of scandals, which make it difficult to concentrate on one single one for very long. Indeed, in parallel to the Zahawi case, another scandal broke, which involves former PM Johnson who may have given the Chairmanship of the BBC to someone who helped him get a £800,000 loan from a Canadian businessman.

These two scoops almost made one forget about the ongoing investigation into bullying allegations against Deputy PM and Justice Secretary Dominic Raab. Worse still, the media coverage there is from the right-wing press spins the Raab investigation into a tale of a supposedly left-wing Remainer civil service conspiring against an elected pro-Brexit politician. This is probably an attempt to deflect from the fact that the PM himself is under increasing pressure to clarify whether he knew about bullying allegations against Raab when he reappointed him as justice secretary.

Zahawi, Johnson, and Raab are only three examples of a type of highly corrupt and unserious egocrats who were carried to power by the Brexit wave. So, the scandals they are involved in presumably is only the type of the iceberg.

The list of scandals and failure to uphold high standards in public office since 2016 is shockingly long. It is hard to underestimate the damage this is doing to the UK’s political system and society. The problem is not so much one of people losing trust in politicians. As a Hansard Society report found after the expenses scandal of 2009, trust in politicians was already so low back then that the scandal could not cause a much further decline. Yet, that does not mean such scandals are unproblematic. The signal our governing party is sending to the nation for at least the past seven years is not only that ‘greed is good,’ nastiness acceptable, and private interest above the public good, but also that anything goes in terms of moral standards and social norms. The News Agents recalled that John Profumo ended up cleaning toilets in East London after having fallen from grace due to an extramarital affair. Johnson, Patel, Braverman, Raab, and possibly Zahawi too, in contrast, briefly resign from their positions but re-enter the political arena almost immediately and have a good chance of occupying a high office of the state again even without ever really acknowledging their faults let alone apologising. It does not take much to imagine how this sort of behaviour at the top of British society will affect the attitudes of ‘normal’ citizens towards issues of honesty, integrity, and public service. Britain risk becoming one of the most cynical nations in the world.

 Three years of Brexit have broken the British economy and British politics. If Brexiters remain in power for much longer, it will also break British society.

Brexit Impact Tracker – 22 January 2023 – Dishonest honesty: The Brexit Hostage Situation

Brexit-related events of the past two weeks* seem to suggest that the consensus that Brexit is turning into a complete failure is spreading and barely requires any argument anymore. Most strikingly, the Telegraph’s pro-Brexit Sherelle Jacobs has declared Brexit unsalvageable. More specifically, she writes ‘the Tories have made such a hash of Brexit that the project is probably now unsalvageable’ and openly admits that Brexit is ‘stoking tensions in Northern Ireland and strangling small firms with red tape.’

Less surprisingly, perhaps (given his ‘Remainer credentials’), ex-Tory leader William Hague explicitly blamed Brexit for the collapse of British Volt, once lauded as a symbol of British post-Brexit industrial revival. What is more interesting though, is that despite acknowledging its damaging effects, even Hague still defends Brexit. On the News Agents podcast, he compared Brexit to ‘running uphill’ suggesting that it somehow constitutes a form of exercise that will make Britain stronger in the end. This must be the most absurd Brexit analogy that I have heard to date. Its absurdity shows just how difficult it is becoming to defend Brexit.

Starmer’s dishonest honesty

Keir Starmer’s take on Brexit is quite similar to William Hague’s. On the same podcast he quite openly admitted that Brexit causes all sorts of economic and political problems, and yet he insists that there is no case for rejoining the Single Market (SM), let alone the EU. While he did specify – when pressed – that he meant that there was no political (as opposed to economic) case, a month ago he has made the more problematic claim that there was no economic case either. Starmer’s argument seems to be that the rejoining process would be long and equally uncertain as the process of leaving, which would mean investors’ appetite for investments in Britain would be dampened for an additional five or so years.

It is questionable whether that is true. One could imagine that some investors would find a UK that is negotiating a closer relationship with the EU including the prospect of rejoining the SM a more attractive destination for investments than a UK permanently cut off from the SM through the current Trade and Cooperation Agreement (TCA).

In the same interview, Sir Keir also rejected the Swiss and Norwegian models for managing the relationship with the EU as a non-member. He rejects the Swiss model – in place since 1991 – because it had to be renegotiated over 200 times since coming into force. This was either a throw away comment made in an interview situation or revealing of the fact that even the leader of the opposition does not fully understand what Brexit actually means.

Indeed, any model of association with the EU that guarantees frictionless or near frictionless access to the SM will necessarily have to be constantly renegotiated. That is the case, because EU law and associated countries’ laws are of course constantly evolving. In such a situation, the only way to avoid constant renegotiation would be a complete, unilateral, dynamic alignment with EU rules by the associated country. If a country is willing to simply accept as the price to pay for access to the Single Market the automatic transfer into domestic law of any new rules the EU creates (as well as the European Court of Justice’s interpretation of those rules), then an association model may be possible that does not need constant updating. In any other case, being outside the EU means being in a state of more or less permanent negotiation.

That brings us to Starmer’s continuing dishonesty about Brexit. If he dislikes an agreement that requires regular renegotiation, the logical consequence is dynamic unilateral alignment. In some areas this may be politically feasible and desirable (e.g. in the area of Sanitary and Phytosanitary Standards for trade in food, plants, and livestock). Beyond such specific areas, however, the agreement that allows maximal access to the SM without being EU member would necessarily imply accepting EU rules unilaterally, which is hardly acceptable to much of the British public. For Brexiters, such alignment will be seen as an unacceptable attack on ‘sovereignty’ and the contrary of ‘taking back control.’ Remainers/Rejoiners, on the other hand, will ask why it is preferable to stay outside the EU and follow all their rules, rather than rejoining and having a say over the rules we are following anyways. In that sense, what Starmer is promising seems to be some mythical ‘eat cake and have it’ agreement that cannot exist. If membership is rejected, there is necessarily a trade-off between frictionless access to the SM and following rules we do not have a say on.

A similar dishonesty comes to light when Starmer speaks about immigration. Here, the Labour leader admits that the UK labour market is suffering from labour shortages partly caused by Brexit and he acknowledges that the UK needs more immigration. At the same time, he is clear that he is not willing to commit to such an increase in immigration and has categorically rule out a return to freedom of movement. As a result, he has to resort to similarly vague (and largely unrealistic) alternative solutions such as activating people who have dropped out of the workforce or forcing companies to invest in skills that Brexiters are usually resorting to. Yet, very little is currently known about the precise policies that a possible Starmer labour government will adopt to achieve either goal. It stands to reason that addressing these two issues – people dropping out of the workforce and companies not investing in skills – would have to start with a thorough investigation of the root causes of these two phenomena, which in turn would require a deep and honest look into everything that’s wrong with the British economic model. Starmer does not seem to be willing to do that.

Hostages in our own country

I do not want to be too harsh on Starmer though. The point is precisely that Brexit has put the UK into a position where the right-wing press and right-wing political formations like the European Research Group (ERG) and Change UK can hold us all hostages with their extremism.

Indeed, while few people are left in the country who doubt that Brexit is damaging the UK every day, those who dare openly talk about what our ways out of the mess are seem even fewer. According to pollsters and political scientists there are good reasons for that. For Starmer, the main reason for that caution is that discussing any realistic improvements on the current situation is expected to put off the so-called ‘red wall’ voters. The deeper reason for such fears, however, is that anyone attempting to openly discuss a realistic alternative to the current situation has to fear the right-wing press labelling them ‘Rejoiner,’ ‘diehard Remainer,’ ‘enemy of the people,’ or similar, which to many still seems like potentially career-ending.

As a result of this situation, acknowledging that Brexit is not working is not a taboo anymore. Saying what is really needed to ‘make it work,’ however, still is. This leads to a situation where our politicians are busy fighting the symptoms rather than the root cause of the problems. That applies also to Sunak and his government.

Symbolic policies with real (negative) impacts

Honesty being impossible, policies that would actually help with the current situation being precluded for ideological reasons, all the government has left is symbolic policies and fighting symptoms.

In terms of symbolic policies, Sunak has decided to speed up the Retained EU Law (REUL) bill which implies any EU-period law not explicitly retained will expire at the end of 2023. The law is hugely problematic from a democratic point of view, will potentially do considerable damage to the environment, workers, and the British economy, and serves no purpose other than signalling an unwavering opposition to the EU and a commitment to radical deregulation. As Jill Rutter’s explains (among many other legal experts), the unintended consequence of simply removing 4000 pieces of law concerning things like – food safety, worker protections, and the environment – are enormous.

Worse still, in another sign of how (somewhat paradoxically) Brexit is undermining British parliamentary sovereignty and instead strengthening the executive’s power, MPs’ request to get more time to scrutinise the laws by extending the deadline of the ‘sunset clause’ from December 2023 to 2026 and to give MPs a bigger say in the process were rejected. That means that the Bill, which passed the Commons on Wednesday, gives the government the power to remove up to 4000 laws through secondary legislation without Parliamentary scrutiny.

One minister defended the bill stating that the government did not plan to weaken protections, and the bill was a chance to ensure the UK economy was competitive. The latter statement is another example of the naïve view that ‘unregulated’ means competitive. Incidentally, the Telegraph’s Jacobs succumbs to the same fallacy when suggesting that replacing the ‘innovation-crushing GDPR’ would make British industries more competitive. That idea should by now be dead and buried since Brexit has illustrated better than any other real-world experiment ever could that we do not live in a world of isolated national economies anymore. Therefore, Brexit does not just affect companies that trade with Europe (although of course it does affect them), but also companies that are producing primarily for the UK market or for non-EU export markets, but depend on inputs and intermediary goods from a range of countries, including EU member states. Therefore, however much you deregulate the UK economy, companies who depend on cross border flows of goods and services will not necessarily benefit from that.

That is not to say that there are no possibilities to create a regulatory environment in some sectors that could benefit British-based companies e.g. in the creative industries, life sciences as Jill Rutter pointed out; but creating such a regulatory framework will certainly require more than an ill-advised ‘bonfire’ of any existing regulations without any serious consideration for the likely impact of each law that will expire. There can be little doubt that the REUL bill will have a very significant impact on post-Brexit Britain, but it seems hard to disagree with Best for Britain that the impact can be nothing else than catastrophic.

Another symbolic policy which has made the headlines this week is the government’s ‘levelling up’ agenda. A controversy has taken place over the allocation of more levelling up money to London boroughs than to Yorkshire and the Northeast of England. The government defends the allocation arguing that there are deprived areas in London and the Southeast too and that the per capita allocation is lower in the South East than the North, due to the much higher population density. Both claims are certainly true. However, the bigger problem we should not lose sight of is that the levelling up funds only partially replace money lost by councils due to austerity and obtaining those funds is subject to a administratively burdensome and extremely costly bidding process that creates uncertainty and makes planning difficult for local councils. Levelling up provides an example of another symbolic Brexiter policy that was only ever meant as a slogan and therefore is not fit for purpose in practice.

Combatting symptoms

While I have written about symbolic policies many times before, another type of legislation that the UK’s post-Brexit political system is increasingly spewing out is legislation combatting symptoms rather than causes. Indeed, the government’s reaction to the growing expressions of discontent that are gripping the country – in the form of strikes over pay and living costs, but also protests over climate change – is to crack down on the expression of discontent while showing a sheer incredible unwillingness or inability to address the causes.

Most strikingly, the answer to increasing hardship amongst nurses and other NHS workers – who for the first time in history voted for strike – is to restrict people’s right to strike via the new Strikes (Minimum Service Levels) Bill. The answer to increasing number of protests against the current disastrous economic and environmental policies, is to criminalise forms of protest and conferring more powers to police to stop protests. There are even suggestions that Sunak is trying to quell the Church of England’s criticism of the government’s often inhumane and immoral policies by ‘vetting’ bishops before their appointment.

While such anti-democratic policies are greeted with great enthusiasm by right-wing media outlets, they do of course not help solve any of the problems that make people descend into the streets or walk out from their jobs. Indeed, they are a pure expression of desperation by a government that is losing control of the country and has no plan how to fix it.

The government is hence hell-bent on doubling down on symbolic policies and suppress any expression of discontent and civil society pressures for change, while turning up a notch the ruthlessness with which it attempts to burn as many bridges to Europe as it can in what may be its last months in power. Meanwhile, the opposition finally dares naming a key culprit causing many of our problems but does not yet dare to be honest about the solutions. We are hence stuck with Brexit due to ideological delusion on one side and cowardice-bordering political prudence on the other. The one unlikely source providing a way out from this situation may be the Northern Ireland Protocol (NIP).

The NIP to the rescue?

Besides the ‘accident in waiting’ that is the REUL bill, the other area where a Brexit-related storm is brewing is Northern Ireland. To be fair, there have been some optimistic noises coming out from the ongoing negotiations between the UK and the EU about the implementation of the NIP. In particular, The Irish Times and other outlets lauded the agreement on the UK agreeing to provide the EU with real-time data about GB-NI trade as a breakthrough. Indeed, given years of stubborn opposition to such an agreement, the UK government finally agreeing to it is a positive sign of more pragmatism, which may make a technical solution to some of the issues around the NIP possible.

Yet, it remains very doubtful that any such technical fixes will be politically acceptable to the Brexiters in Westminster and Unionists in Northern Ireland. Indeed, the ERG and the DUP continue to threaten to reject any deal that does not meet their maximalist demands. The government seems to be aware of that, reportedly considering calling the permanent border posts that it has now started building ‘huts’ rather than ‘border posts’ in the hope to make them less inacceptable for unionists and Brexit ultras like the ERG.

The stage is hence set for a major test for Sunak’s authority and Brexiters’ and Unionist’s resolve to insist on an extreme stance on Northern Ireland.

Sunak’s leeway seems extremely limited, given the USA’s insistence that an agreement needs to be reached by April 10th, the date of the 25th anniversary of the Good Friday Agreement. Indeed, the fact that the stakes are so high in NI – namely the threat of a return of a civil war-like state – and the importance foreign powers and the world hegemon attribute to the question, make the NIP much less an internal affair than the rest of Brexit. While the US and EU may not care how much damage the Brits decide to inflict on themselves, the situation is different regarding NI. NI is thus at least partially protected from the full blow of Westminster madness.

The question then becomes whether Sunak will be willing to ‘stand up to the ERG’ – as opposition leader Starmer challenged him to do this week – and find an agreement with the EU. If he does not or if his government does not survive the attempt to do so, then more political chaos will ensue.

If he does, then Northern Ireland may continue to benefit from the ‘best of both worlds’ (EU single market membership and largely friction less access to the GB market). In the latter case, given the ever-growing discontent with Brexit among the UK’s population and businesses, soon the question may then arise: Why can the rest of the country not have what NI has? That question will be hard to answer once people stop listening to the ideologues. As a result, Northern Ireland may very well become the thread by which Brexit will eventually unravel …Until that happens, however, we all remain hostages of a narrow – and shrinking – group of die-hard Brexiters and their right-wing media supporters.

 

*Regular readers of this blog will have noticed that my posts have become somewhat less frequent over the past few months. This is essentially down to the fact that I started the BIT as a ‘lock down project’ and find it more difficult to make the time in my schedule now that work and life are back to ‘normal.’ I will strive to keep up with important developments, but currently fortnightly posts do seem to work fairly well.

Brexit Impact Tracker – 8 January 2023 – Brexit Britain in 2023: Moving on, making work, or reversing?

As we enter year III of actually existing Brexit, one would be forgiven to think that the acrimonious debates about Brexit should be settled by now. The evidence that it is not going according to plan simply seems overwhelming. Instead of friction less trade, the government now contracts disaster zone charity to support truck drivers at Dover. Instead of more trade with the world’s largest economies (except the EU), the UK is predicted to have the worst performance among all G7 countries. Instead, of sunlit uplands, people not only are facing an unprecedented drop in living standards, unprecedented – and quite possibly deadly – waiting times for medical treatment together with new bureaucratic burdens that crush small and medium sized enterprises (SMEs). Instead of extra billions for the NHS, in some areas lost EU funds are still not being matched by the UK government…

…and yet, the country still remains almost evenly split between those who want us to move on from Brexit and ‘make it work,’ and those who want to reverse it as soon as possible. The latest poll of polls does show a remarkable 58% majority for rejoining. At the same time, the (nearly) other half of the country (42%) still favours remaining outside. Nearly seven years on from the Referendum, the divisiveness of the Brexit issue has hence hardly abated, which is also reflected in a continuing public debate about what to do with Brexit.

That said, in the political arena, it would seem that despite all the obvious problems Brexit is creating there is an increasing political consensus around ‘moving on.’ Among those who want us to move on are not only those hard-core Brexiters who continue to denounce any critique of how Brexit is going as unpatriotic ‘remoaning,’  but also the government that does its best to avoid the topic of Brexit by blaming all the country’s problems on the pandemic and increasingly on striking workers. More surprisingly perhaps, the ‘moving on’ coalition also includes the Labour party, whose leader Keir Starmer still promises not to go back on the Referendum result of 2016 and instead to focus on ‘making Brexit work,’ while the Shadow Secretary of State for levelling-up dismissed any hopes of rejoining as ‘fantasy.’

To me, Labour’s approach makes some political sense. Most observers (e.g. Philip Stephens in the FT and Chris Grey) would agree that rejoining the EU is a question of decades not a question of years. For the next General Election (GE), which will take place by 2024, the question may therefore be irrelevant. In the meantime, we have to accept the reality that we are now outside the EU and somehow make that situation work as well as it can work. That does not mean that the situation will be better compared to had we not left the EU. Even less does it mean that Brexit can be made to work anywhere close to the way Brexiters had promised it would work. But whoever is in government for the next decades will have to focus on limiting, and if possible, reversing the damage Brexit has done to the UK and thus make it work better than it currently does. Yet, that focus on fixing the concrete problems Brexit has created comes with its own dangers.

The (not unproblematic) economic case against Brexit

An interesting – albeit subtle – shift in the public discourse about Brexit has resulted from the fact that as the damage becomes more obvious, opponents of Brexit attack the project by relying on evidence of the concrete failures to deliver on various promises. That is a solid and understandable strategy. Nothing is more powerful than confronting Brexiters with the reality of their fantasies.

It is a key reason why it is increasingly obvious that Brexiters have lost the post-Brexit narrative, which Chris Grey observed on his Brexit & Beyond blog back in May 2022: “If Brexit had been even half as successful as it was claimed it was going to be then, by now, you’d expect that to be easily demonstrable and increasingly self-evident even to those who had formerly doubted, or at least to a growing number of them.” Needless to say, that that statement holds true even more today than last year.

The economic reality, therefore, makes the work of critics of the Brexit project easier. However, it also comes with a risk: Attacking Brexit on the concrete failure to deliver on various promises turns the debate increasingly into one of implementation rather than principle. This is reflected in the Brexiter defence of their project, which now mostly relies on claiming that Brexit has been done in the way they wanted it done and that what we got is – due to the scheming and machinations of ‘Remainer public service’ – ‘Brexit in Name Only’ (ignoring of course that what we got is close to the hardest possible form of Brexit there could have been). But it is also implicitly underlying Starmer’s approach: Making Brexit work suggests – implicitly of course – that there is nothing wrong with Brexit per se, but it is a problem of implementation.

That makes this strategy potentially dangerous. Brexiters may be losing the narrative about the concrete benefits/failures of Brexit, but – it seems to me – they are winning the narrative about the principle of Brexit. In other words, as we focus on the concrete problems Brexit creates – as important as that is –, we risk inadvertently accepting the ideological claims and the process that brought about Brexit in the first place. Fighting the economic failures of Brexit is fighting the symptoms rather than the root cause of the problem, namely that it is based on a flawed ‘theory’ of how the world works. Of course, many of the economic problems created by Brexit are a result of the flawed understanding of the world that underlies the project. But fixing the economic issues does not necessarily address these more fundamental flaws.

Why we need to keep remoaning

A good illustration of how Brexiters are winning the narrative about the principle of Brexit is the most interesting Byline Times conversation between Hardeep Matharu, Annette Dittert, and David Goodhart. In that conversation, to bat off evidence about Brexit’s economic damage, Goodhart makes the now increasingly common Brexiter claim that the gains in terms of ‘democracy’ and ‘sovereignty’ are worth the economic price we are paying for Brexit. Thus, he states that ‘the fact that Britain’s GDP is going to be 4% smaller than it would have over a 20-year period seems relatively small compared to the win for democracy.’ He also considers that other European countries are ‘falling behind’ Britain, because they let EU rules be imposed on them, while Britain has a ‘more robust democracy.’ Both statements go unchallenged even though they are so obviously wrong. For one, the Leave campaign did promise a ‘no downsides Brexit’ in both political and economic terms and promised all sorts of economic benefits from leaving the EU – there was no mention of a possible trade-off. But more importantly, it also seems patently obvious that British democracy has taken a serious hit due to Brexit and is in as much danger as the British economy because of it. Not only is there the undeniable and well-document ongoing executive power grab that undermines parliamentary sovereignty, but also are there numerous attempts to disenfranchise the British voters through voter IDs, changes to the mandate of the Electoral Commission etc (for details see my previous blog post).

It would seem that opponents of the illiberal populism that drove Brexit have largely abandoned that battlefield to focus on the urgent matter of Brexit’s economic damage, which is understandable given the pressing issues and the cost-of-living crisis. But it is dangerous. It creates a sense that we all agree that the Brexit referendum was won fair and square. It was not. Not only was the Referendum campaign marred by irregularities and the electoral law was repeatedly broken by the Vote Leave campaign. There is also still the possibility that there was foreign interference in the campaign, although the government decided that it did not want to know.

Of course, to some readers, this will sound like ‘remoaner whining’ and I guess it is precisely that. But the fact is that we should always bemoan the way in which British democracy was slapped in the face in a farce of a referendum that can be considered democratic only if we ignore the fact that democracies need to follow the rule of law, comply with constitutional standards, and that the tyranny of the majority is not true democracy. As such, we should not ‘move on’ and never accept the referendum as a legitimate expression of what the people in this country wanted. If we do, we push the boundaries of what politicians in this country are allowed to do. We set a precedent that it is okay for a slim majority of the voting population to remove fundamental rights form the minority. We accept that electoral results that come about through illegal means still have to be accepted. We also accept that two of the four nations making up the UK can be force against their will to accept a fundamental change to their nations’ place in the world.

All this is not a ‘win for British democracy.’ It is the beginning of its end. That is why we need to keep ‘remoaning.’ Not just regarding the economic impact of Brexit, but the way it was imposed on the people in this country.

Why we need to win the ‘culture wars’

On this blog, I have repeatedly argued that the sooner we move the Brexit debate away from focussing on the ‘culture wars’ aspect (British supremacy, sovereignty, independence) towards its economic realities, the better for those who seek to defeat the nationalist project driving it. Increasingly, I believe that may be wrong. Brexiters and the right-wing press have shown in the past year that however bad Brexit’s economic damage gets, they will always be able to spin the narrative in a way that allows people to continue believing in the principle of the Brexit project…if only there had not been a pandemic, if only there hadn’t been a Remainer Parliament when the TCA was negotiated, if only the EU were not punishing us, if only Johnson had not been ousted, if only the Civil Service were not conspiring against Brexit etc etc…Brexiters will always be able to blame anyone but themselves for the mess they created. As such, pointing out the economic reality of Brexit will never be enough to defeat them. Indeed, while many prominent Brexiters’ political career is intimately linked to Brexit, perhaps somewhat paradoxically Brexit is not really about Brexit for its most fervent promoters. In fact, as I have argued many times before, Brexit has always only ever been a means for Brexiters to gain power within the Tory party and ultimately pursue their interests from a position of power. That goes for all the Egocrats that Brexit has spewed out as well as for the ‘grey eminences’ in the European Research Group (ERG) that now hold hostage the government and the Tory party. Brexit always will be a tool for these political entrepreneurs to push forward their personal and ideological agendas. If they are defeated on Brexit, they will move on to something else.

To some extent, there are signs that this is already happening, e.g. when Justice Secretary Dominic Raab once again suggested that the UK might be leaving the European Convention for Human Rights. The impression one gets is that deprived of a scapegoat after having left the EU, Brexiters bellicose victimhood is in search for a new foreign villain who can be blamed for the UK’s many problems. Once the ECHR is slain, Brexiter bellicose victimhood will move on to the next villain…and so on for all eternity. The only way to make it stop is for reason to prevail over the culture warriors.

Therefore, ultimately, we will have to wade into the ‘culture wars’ and defeat Brexiters on the front of their underlying ideology in order to set the country onto the path of renewal and recovery.

What I mean by that is not that I am hoping for the “woke” to defeat the right-wing nationalists, or for – what David Goodhart calls the ‘anywheres’ to defeat the ‘somewheres.’ In my – probably controversial view – the woke movement is a symptom of the same malaise that created the right-wing nationalist backlash against liberalism, not a solution to it. Thereover, by ‘we’ I do not mean adherents to a specific brand of left-wing political ideology, but rather anyone believing in the value of reason and Liberalism (writ large), whether they are left, right, or centre. In that sense, winning the culture wars does not mean imposing a ‘woke’ conception of the world on nationalists. What I mean by it instead is that those parts of civil society and politics that unapologetically defend reason and liberalism manage to build a broad public consensus that rejects the reality-distorting conspiracy theories, the hate-based politicising, and the false explanations of our current problems that have led to the culture wars and made Brexit possible in the first place.

Winning the ‘culture wars’ to fix the economy – and vice-versa

Winning the ‘culture wars’ will also help with the economic issues created by Brexit. In an excellent article in the Byline Times (I’m referring to the print version, which seems slightly different from the online version), Jon Bloomfield and David Edgar discuss the strange new alliances between formerly left-wing Marxist and conservative communitarian ‘culture warriors.’ They make the excellent point that dividing the working class into somewheres and anywheres, with the former explicitly being defined as ‘white working class’ and the latter including working class minorities together with the (mostly white) urban elites’, is a powerful strategy to divide the working class. Conversely, the left-wing culture warriors’ insistence on ‘white privilege’ while ignoring all the socio-economic depravation white working-class people are facing is equally divisive. According to Bloomfield and Edgar parts of the working classes ‘are antagonised by being called privileged when they often work for low wages with little job security or live in places scarred by decades of under-investment.’

What this analysis suggests is that sparking off a culture war has allowed political parties to largely ignore the real economic problems that drive much of the discontent and hatred that is poisoning our political culture. Indeed, it is becoming increasingly obvious that many of the economic problems plaguing the country cannot be explained just by Brexit – which only made dire situation worse still – and even less by Truss’s short-lived economic madness, rather, wrong-headed economic policies implemented over more than a decade has weakened the UK’s economy to the extent that it has become very fragile. Here, the economic orthodoxy that has given us austerity is chief amongst the root causes of our troubles as John Burn-Murdoch shows. The shift of the public’s attention to the ‘culture wars’ has allowed politicians to avoid facing up to that economic reality.

At the same time, genuinely addressing the economic grievances that result from the economic orthodoxy, would make it possible to overcome the ‘culture wars’ mindset that is still prevailing in the country. If the socio-economic situation in the former industrial areas in the North of England were better, I’m sure people living there would be much less tempted to hate me – the foreign-born, North London-dwelling academic – much less than they are told to do right now.

One way to win the ‘culture wars’ would hence be to be serious about tackling the long-standing structural, economic problems that provided the fertile soil on which extremist, divisive, hate-driven ideologies can flourish. This week’s political events possibly provide some hints at whether this is likely to happen under a new – non-Tory – government.

Starmer: Tory light or Trojan horse?

An almost comical start to the political year was provided by the leaders of the two largest parties in the country. When it became known that Keir Starmer would deliver his first keynote speech of the year on January 5th, Downing Street – evidently in a rush – announced a speech by the PM for January 4th. Worse still, both party leaders held their speeches in the same place, the Here East building in East London. The temporal and geographical proximity of the two speeches is comical, but it is also quite telling in terms of the proximity of their economic programmes. At least, that is the take professor Richard Murphy adopted on his blog. According to him, there is little daylight between the economic approaches of the two leaders. Indeed, “[b]oth believe government must be run like households. Neither has the slightest grasp of macroeconomics that any good prime minister must possess. And neither is willing to mention the biggest issues the country faces (what the country is; EU relations; Northern Ireland; inflation matching pay rises to prevent recession; the overwhelming need to address climate change as a priority of greater significance than growth; the unaffordability of housing; crushing inequality; the gross injustice of student debt; electoral reform; the cost of childcare; the social care crisis and so much more).”

From this perspective, both post-Truss Tory economics and labour economics under Starmer are a continuation of the sort of flawed orthodox economics that created the conditions for Brexit. Starmer’s orthodoxy may be a bit more compassionate than the Tories,’ but fundamentally, it will not correct the fundamental misguided policies of the past forty years, most importantly austerity, stagnating wages and underinvestment in public services and infrastructure.

Another Sheffield professor – Michael Jacobs – however, disagrees and sees Starmer as a ‘closet radical’ and Labour’s economic programme as much more radical than critiques understand. He points towards the spending promises on the energy transition as well as the industrial strategy. The problem though is that these promises are hardly credible if the fiscal conservative approach to public debt and borrowing is to be pursued (the idea seems to be to fix the country without spending a penny). That fiscal conservative also leads Labour to continue relying on approaches that have failed in the past, most importantly the reliance on public private partnerships (PPPs) in delivering public services. As Carillion has shown, most of the time, PPPs end up being imbalanced deals that socialise the risks and privatise the profits associated with the service to be delivered.

So, however radical Labour’s industrial strategy might be, it is embedded in an orthodox macroeconomic policy framework that makes it doubtful whether the numbers really add up. Again, Jacobs is more optimistic expecting Labour “to equalise the tax rates paid on capital gains and dividends with those on wages” as well as make other changes to the tax system that could raise £26bn a year.

Jacobs also points out labour’s commitment to workers’ rights and wages, which – according to him – would make strikes less common. This constitutes a fundamentally different approach to Sunak’s government, whose response to the current strike wave is to curb workers’ rights to strike. Here, Starmer does seem to be focussing on the underlying issue, while the Tories seek to supress the symptoms of a rotten economic model.

If Jacobs is right and Starmer’s right-wing performances are only part of a persona while his actual policies are closer to Corbyn’s than to those of Blair or Brown, then the question is how that will go down with the public. This strategy sounds like a Trojan horse strategy, where what is publicly stated on the tin is not what is inside. Depending on what the Labour manifesto will say, there may be a risk of creating a split personality and preparing the ground for a feeling of betrayal after a possible Labour electoral victory.

At the same time, it may be a good strategy to overcome the inherent bias in the UK electoral system towards older generations (which in all likelihood will get worse at the next GE due to voter IDs) and deliver for the younger ones what they prefer. Indeed, in an intriguing column John Burn-Murdoch shows that the millennials do not seem to follow previous generations pattern of becoming more conservative with age, but at age 35 they are considerably more left-wing than previous age cohorts. That makes intuitive sense given the declining opportunities and living standards that generation is facing. To be a conservative you need to have something you want to conserve.

There is a question mark over whether Starmer may be pushing his conservative, Brexit-embracing persona too far. The most striking element hinting at this possibility this week was Starmer’s attempt to reclaim the Brexiter slogan ‘taking back control’ for Labour by proposing a ‘take back control bill’. Opinions are very divided about whether that was a smart move or setting himself up for a backlash. Marketing scholar Thomas Robinson considered the move akin to Doppelgänger branding strategy, where a company uses a the motto or logo of a rival against the brand in order to repurpose it. Indeed, when Starmer says ‘take back control’ he is talking about decentralisation of the UK’s political system, rather than the Brexit promise of the British people – via parliamentary sovereignty – taking back control from Brussels (which in practice has turned into an all-powerful, largely unaccountable government taking back control from Parliament). This would be an important change in the British political system. Yet, given the fiscal conservatism Starmer seems to adhere to, the suggested decentralisation will not be backed up with sufficient financial means for local authorities to deliver the services they are meant to deliver. If that is case, decentralisation will only be a means for the Westminster government to shift blame for austerity to the local level.

Whichever is the case, to come back to my initial point, Starmer’s strategy is another case where the Brexit project is being attacked based on its implementation rather than its principle. Yes, we can and should take back control, but the Tories have done it wrong! That may be true, but the point is that Labour explicitly buys into the Tory discourse by saying we cannot spend our way out of the Tory mess, which is a very problematic statement given that underinvestment is a key reason for the Tory mess as Richard Murphy points out.

In short, then, we still seem quite a far way off the necessary honesty about the root causes of Brexit to move towards addressing the country’s political and economic problems. In political terms, if we only focus on pointing out that Brexiters have not delivered what they promised, we reduce the issue to a problem of policy implementation and perhaps competence, rather than exposing the fundamentally dishonest way in which Brexit was achieved. If we do that, Brexiters win that part of the post-Brexit narrative, which will have repercussions for British democracy for generations to come. In economic terms, the ‘culture wars’ are one of the key reasons why these problems are so difficult to tackle, because they prevent the necessary political coalition from emerging. Therefore, winning the culture wars is a key element in making the country ready to ‘move on’ from its current state.

Brexit Impact Tracker – 24 December 2022 – Scorched earth, nastiness, and the spectre of a Faragist revival. How the Tories are getting ready for the next General Election

Labour’s strategy regarding Brexit has given rise to a lot of comment and analysis (e.g. Chris Grey’s recent blog, or my own musings), but the Tories’ approach is not less intriguing. Despite hopes Sunak’s government would be marked by a return of realism to British politics, Sunak still seems to espouse an ideological commitment to a hard-right course. Including on topics where that puts the party at odds with the vast majority of voters. Thus, Sunak stubbornly refuses to negotiate with the unions over the NHS workers’ pay demands, despite strong support for the strikes among the general population (50% according to an Ipsos poll). Rather than trying to win a popularity contest in the centre of the political spectrum in a hope to win the next General Election (GE), it increasingly seems like the Conservatives’ strategy is aimed at preparing for their time in opposition. That strategy has at its core seducing right-wing voters with a mixture of fantasies and nastiness, while scorching the (economic) earth for the next government.

 

Burning down the house

On December 9th, 2022 Chancellor Jeremy Hunt announced a set of 30 regulatory reforms – dubbed the Edinburgh Reforms – of the UK financial services industry, promising to ‘unlock investment and turbocharge growth in towns and cities across the UK.’ How exactly the turbocharging of growth will happen is unclear when one looks at what is being proposed.

One argument seems to be the usual Brexiter trope about Britain’s ‘agility’ outside the EU. According to the government, the reforms will establish a ‘smarter and home-grown regulatory framework for the UK – that is both agile and proportionate’ and will repeal ‘burdensome pieces of retained EU law.’

Substantively, the proposals include reducing solvency requirements for insurance companies currently set by the EU’s Solvency II directive. The government promises that this will unlock around £100bn for infrastructure investment. It is worth noting, however, that the EU has announced to take similar measures.

Similarly, the promised overhaul of the listing rules on the London Stock Exchange (LSE) certainly will attract more companies to London, possibly slowing the decline of the LSE since Brexit. But these are hardly going to be companies with large operations and high levels of employment in the UK, and certainly not SMEs. The jobs that this will create are in the City of London not in Grimsby or Middlesborough.

Moreover, the reforms will undo some of the prudential regulations introduced after the global financial crisis of 2008 (e.g. ringfencing and bonus caps) and impose a mandate on the financial regulators to adopt a more risk-taking approach. Indeed the government announced that: “Regulators will have a duty to facilitate, subject to aligning with relevant international standards, the international competitiveness of the UK economy and its growth in the medium to long term.”

Taken together, one gets the impression that the proposed reforms can only end in disaster. Scholarly work by financial historians and economists has shown that the one unescapable consequence of financial liberalisation without prudential regulation is financial crisis. Indeed, serious financial sector figures, like Sir John Vickers and Lord Turner, consider some of the proposed reforms ‘pointless, dangerous,’ or simply a ‘mistake.’

 

Regarding the claim that boosting financial services will lead to growth in ‘towns and cities,’ we should remember that the bloated finance sector in London has never played a major role in financing UK businesses. In fact, British banks and other financial institutions mainly keep busy with making money with money (speculation), rather than providing funding to the productive industry (see one of my own studies with Philipp Kern for instance). That was one of the reasons why the coalition government decided to establish the British Business Bank to finance SMEs.

The fundamental flaw of Hunt’s reforms is the basic assumption that financial services are a sector like anyone else, which implies that companies (banks and other financial institutions) compete with each other based on ever changing products (e.g. new forms of ever more complex derivative financial instruments) to maximise profits. This constitutes a transformation of  finance from a support service, providing the lifeblood to the productive economy, into a purely speculative money-making operation, which Ian Toporowski has called ‘the end of finance.’ That development is not something to celebrate, even less to actively promote, because all it does is increasing systemic financial risk and provide a small strata of the population with the possibility to amass obscene fortunes, while draining the rest of the economy from talent and resources, thus arguably increasing inequality.

For the Tories, however, the reforms may be win-win in terms of their electoral strategy. The straw fire the government is igniting may generate short-term economic growth in a limited part of the economy. While not doing anything to rebalance the UK’s economy from a bloated financial services sector to productive industries, that straw fire may be enough to provide the Tories something to boast about come the 2024 GE. At the same time, the financial crisis that will almost certainly ensue, may not materialise until the Tories are in opposition. In other words, the straw fire may burn down the house once the Tories have moved out, creating problems for the next (non-Tory?) government whose economic incompetence the Tories can then denounce. In short, the Edinburgh Reforms may become a useful part of what one could see as a scorched earth approach to the economy, increasing the Tories electoral chances not in 2024, but in the following GE after a period in opposition.

Indeed, many of the disastrous policies now undertaken – e.g. regarding the underfunding of public services – can be interpreted as part of a scorched earth strategy, whereby the Tories are preparing the ground for their time in opposition. Destroying the public sector and the economy now, will make it harder for any Labour or coalition government to turn things around after 2024. That will increase the Tories chances to recover even from a very serious electoral defeat in 2024.

Trade fantasies and trade realities

Trading in fantasies has always been a hall mark of the Brexiter political strategy. It still is key to the Tories’ electoral strategy. Two weeks ago, Liam Fox presented the third Global Britain Report, which is at the heart of the Brexiter strategy to make people believe Britain is greater than it really is.

Fox’s assessment of how Global Britain is going is a sullen one though. Writing in the Telegraph, Fox blames the civil service for the fact that “[…] in the three years since Brexit, rather than supercharging our presence [overseas], we are falling behind.”

A key aspect of Global Britain is trade. Yet, while Fox urges government and businesses to recognise the importance of trade and especially to understand “value of trade in the intermediate goods which now account for almost 50 per cent of the total,” there are no direct proposals whatsoever regarding how trade with the EU could be facilitated, e.g. by reforming the Trade and Cooperation Agreement (TCA). Once again, Tory economic policy consists of empty, ideological slogans about supply-side reforms, competitiveness, efficient government, while denying the reality British exporters are facing due to the Tories’ trade deal with the EU.

Indeed, just how disconnected Fox and his party are from reality is illustrated by the contrast between the Global Britain Report’s complete ignorance of trade barriers and the calls from the British Chamber of Commerce (BCC) to have more honesty in discussing the necessary reform of the TCA. In its report on the occasion of the second anniversary of the TCA, the BCC draws up a 24-point list of measures aimed at easing the trading restrictions UK companies face when doing business with customers inside the EU. The wish list of British businesses includes a Sanitary-Phytosanitary (SPS) agreement modelled on the Swiss example, a VAT regime modelled on the Norwegian one, and recognition of EU standards for certain goods.

The BCC’s survey of its members also shows that rather than teething problems, the post-Brexit trade deal with the EU the obstacles for British businesses to trade with the EU are structural and here to remain. As that realisation sinks in, UK businesses reportedly become increasingly frustrated with the government.

The government, in turn, seems unperturbed and continues to oversell any progress there is with its trade policy. After the failure of the UK-US trade deal to materialise, Trade Secretary Badenoch was in India this month for face-to-face negotiations with her Indian counterpart. A deal still seems some way off, notably because of conflicts between the Tories trade policy and their anti-immigration stance, which limits the leeway for concessions on visas for Indians.

In the absence of any concrete ‘world-leading’ trade deal signed with any major nation, the government has blown out of all proportion the signature of a Memorandum of Understanding with South Carolina. It is not worth spending much time commenting on this ‘deal,’ because it is substantively completely meaningless and certainly not a Brexit benefit that will compensate for the massive loss in trade with Europe.

This situation is particularly concerning because the world around us is evolving while Britain is stuck with a governing party unable to update its policy beliefs and strategies to reality. That reality increasingly diverges from how Brexiters imagine international trade works. The US’s Inflation Reduction Act (IRA) signals another step of the world’s largest economy away from free trade towards more protectionist and interventionist policies. Generally speaking, the IRA constitutes a massive ($369bn) investment package, that makes tax credits and subsidies dependent on the use of US-made technologies. Thus, a key provision in that respect is a new clause that makes subsidies for the purchase of electric vehicles (EV) dependent on final assembly in the USA.

The EU has reacted with concern, considering the Act to unfairly discriminated against European firms. In response, it is considering its own subsidy programme for green technologies. France and Germany in particular are pressing the Commission to abandon its traditional anti-state subsidies stance to allow members states to pursue more active industrial policies in order to compete with the US. The fact that such a programme is being considered is in itself remarkable, given that the Commission has for decades developed an extremely strict regime strongly limiting member state’s ability to provide firms with any state subsidies.

The significance of this change should not be underestimated. It potentially constitutes the beginning of a new era of a more nuanced approach to free-trade and a more active role of the state in the economy. Such a role may very well be necessary for advanced economies to make the transition to a net-zero economy and for individual trading blocs to be able to compete with heavily state-subsidised firms from countries like China.

This new reality seems to completely escape the UK government. Once again, unable to deliver on any of the promises made during the referendum campaign, the government retreats into symbolic policy territory to at least maintain a semblance of competence and success. This strategy also applies to immigration policy – the key policy in the area of nastiness.

A deliberately nasty immigration policy

This week the High Court ruled that the Home Office’s plan to send refugees arriving in Britain to Rwanda was lawful. Unsurprisingly, the government proclaimed a great victory, and the right-wing press was evidently pleased. In reality, however, as David Allen Green argued, the ruling also shows that implementing the plan will be a massive challenge for the government and the civil service. Indeed, while the policy itself was deemed lawful, so far, EVERY concrete decision on individual cases taken by the Home Office under the plan was quashed by the court. This illustrates that implementing the policy may very well constitute an insurmountable challenge. And even if implemented, the plan will do nothing to solve the actual problem it is meant to address (i.e. illegal immigration), but that is not the point. The government and especially Home Secretary Suella Braverman will not care, because the main purpose of the plan is to show to right-wing voters that – no matter the strength of resistance – this government means business when it comes to cracking down on refugees and does as it bloody well pleases regardless of any standards of humanity or decency. That is the sort of nastiness the average sun or express-reading Tory voter wants to read about. In a few years’ time, they will not bother looking up any figures regarding the absurd cost of the Rwanda plan (Some commentators estimate that a seat on a Rwanda-bound deportation plain may costs up to £1m!), or its actual impact on the number of refugees coming to the country.

In that context, adopting an unrealistic but highly symbolic anti-immigration approach is relatively cost free for the Tories. If Labour forms the next government, none will remember five years later that the Rwanda plan was fundamentally flawed and would not have produced any tangible results. Instead, the Tories will be able to claim that they had the right policy but were prevented from following through by electoral defeat. Promising a return of Rwanda-style policies may then become a key electoral strategy in the 2029 GE.

Farage’s long shadow

While the Tories strategy can be explained by various factors, including ideological blindness and egocratic tendencies amongst leading Tories, one factor seems to be increasingly driving Tory strategy, namely the spectre of a resurgence of Farage or a Faragist party. This seems like something Tory politicians are increasingly nervous about. In that context, the increasingly radical anti-immigration approach by the Home Office since 2010 makes good sense.

Given the unfavourable polls, damage limitation may be a key concern for the party. Playing to the right-wing anti-immigration gallery is an important element to that damage limitation strategy. While it will probably not avert an electoral defeat, it may prevent the resurgence of a Faragist right-wing challenger party to the Tories – most importantly Reform UK. Indeed, political scientist Matt Goodwin notes that if the 9% increase in voting intentions for the Reform UK party in recent polls were to persist into 2024, this would be sufficient to seal a Tory defeat in the next GE. Keeping the former UKIP vote on the Tories side, is therefore a necessary, albeit not sufficient, condition to avoid defeat. Even if accepting defeat in the next GE, if the Tories lost voters to both Labour and Lib Dems on the centre right and Faragists on the far right, the blow could be so hard that five years in opposition may not be enough to recover.

A deepening gap – the damage limitation strategy that damages the country

The gap between fantasy and reality that is characteristic of Tory denialism across several areas, is increasingly translating into a gap between the UK and other Western countries, in particular EU member states.

Nowhere is the crass denial of reality clearer than in the diverging approaches to trade policy between the UK and other Western countries, which risks leaving the UK in the worst of both worlds. While the EU and the US are getting ready for – and are indeed shaping – the new global trade regime, the UK government seems stuck in an outdated ideology and utterly unprepared for the new realities. The Times’s Simon Nixon argues that it is high time that the UK government accepts to see the world as it is, not as it would like it to be. In the absence of doing that, the UK’s isolationism will mean the country will remain outside any of the worlds’ main trading blocks and become a declining middle-power in the North Atlantic in between the two largest economic blocs. Or in Chris Grey’s as ever astute formulation: “Brexit leaves the UK trapped between the trade blocs of the EU, the US and China, affected by all three whilst belonging to and influencing none.”

The deepening gap between the UK and other countries also becomes obvious when comparing the UK to Ireland. Britain’s fearful approach to international integration and the idea that sovereignty requires ‘going it alone’ seems most ridiculous when compared to Ireland’s approach. As Emma DeSouza writes in a Byline Times article, the Republic of Ireland is increasingly becoming an integral part of the EU. Irish politicians are occupying key positions in the EU including, the head of the EU’s Russia sanctions, the lead of the EU’s climate talks, the general secretary of the European Trade Union Confederation, and the president of the European Court of Human Rights. Brexiters will be hard pressed to explain how occupying these positions reduces Ireland’s sovereignty.

The UK government’s denialism is also in evidence regarding a new proposed foreign influence register, which is unanimously considered to not solve the problem it proposes to address (foreign influence on British politics), while imposing massive additional bureaucracy on legitimate businesses, NGOs, and professionals. (It is also remarkable how this ill-advised policy flies in the face of both the Edinburgh Reforms’ claim of the government to ‘unburden’ the economy of unnecessary regulation and its strategy of making Britain a competitive financial centre). The FT’s Peter Foster considers that “[s]uch denialism has become a hallmark of this series of post-Brexit governments, but constantly saying things that everyone can see are untrue is not a way to imbue confidence in those who would interact with the UK — from investors to academics, charities to industries.”

That is no doubt true. However, for domestic purposes, constantly saying things that everyone can see are untrue may be a very good strategy. Indeed, while this will sound like a cliché, it is eerily similar to how George Orwell describes Big Brother’s strategy to foster ‘controlled insanity’ of the masses through the strategies of ‘doublethink’ and ‘blackwhite.’ The former describes a situation where the ‘truth consists of lies and these lies can be changed at any time into new lies,’ while the latter is at play ‘when told that something is black that has to be believed and thought by everybody, even if it’s white.’ In Brexit Britain, white is black. The South Carolina MoU is game-changing, the vaccine roll-out is the result of Brexit, the TCA is not hurting British businesses. We all known none of this is true, except if you define the truth as lies.

Taken together, denialism, fantasies, nasty symbolic policies, and the scorched earth approach to the economy constitute a potent yet horrifying strategy of damage limitation for the Tory party. Needless to say that the damage this strategy will do to the country is enormous.

Brexit Impact Tracker – 12 December 2022 – The Benefits of “No Benefits Brexit”

This blog is usually all about doom and gloom. Not this week. For the first time in a while, I feel there is reason to be cautiously optimistic – not for the short term or even the medium term, but when looking beyond the next painful years.

It is becoming increasingly obvious that there has been a sea change in how the country talks about Brexit. A few months ago, Brexit was still a taboo. It has now become the object of an increasingly widely shared consensus in the population and among media outlets that it has simply been an unmitigated disaster. That is regrettable and many people will suffer for a long time as a result of Cameron’s disastrous decision to hold an in- out vote on EU membership without any proper constitutional safeguards. Yet, long term, “no benefits Brexit” may turn out to be a salutary shock for the UK that opens up windows of opportunity for much needed fundamental change that would otherwise have remained shut.

 No benefits Brexit

 The facts showing that Brexit has no benefits are unambiguous and denying them looks increasingly like delusion or ideological obstinacy. This was illustrated last week by the PM himself whose defence of Brexit, when put on the spot during PMQ by the SNP’s Ian Blackford, seemed extremely unconvincing and unconvinced. He feebly suggested that he was still proud to have supported Brexit and that there had been benefits in the form of the world’s fastest vaccine roll-out, taking back control of our borders, reducing immigration, as well as ‘trade deals and deregulation.’

 The first two are well-known, long debunked lies (on the vaccine roll out this Byline Times article, on record-level immigration post-Brexit see here).

 The deregulation and trade deal claims, too, have been shown to be complete nonsense time and again (including on this blog here and here). But just to repeat some key points: Post-Brexit deregulation has not really happened because none can agree on what to deregulate. Former Brexit Opportunities and Government Efficiency Minister Rees-Mogg ultimately had to turn to the public to get an idea of what regulations people would like to see repealed – without success of course –, before the government came up with the disastrous idea of simply scrapping all retained EU law at the end of 2023, unless an explicit decision is taken to retain a specific law.

 Regarding trade, a couple of weeks ago, a new set of figures was made public that show that not only are the Australia and New Zealand trade deals most likely harmful to the UK, but also the much-lauded Japan agreement – in place since January 2021 – has not stopped trade with Japan from falling. The reason for this seemingly surprising result of the UK-Japan deal is that trade does not work like the simplistic Brexiter world view suggests it does. As I have written before, in the 21st century few goods that countries trade are produced inside the borders of just one country. Most – especially high value added – products are the result of a complex division of labour across firms and operations located in various places. Therefore, whatever goods the UK wants to export to Japan may rely on parts that are produced inside the EU. The very basic Trade and Cooperation Agreement (TCA), which barely goes beyond WTO rules, hurts that sort of intermediary trade just as much as bilateral UK-EU trade in finished consumer or investment goods. Similarly, whatever Japan wants to export to the UK may not be a finalised product destined for consumption in the UK. Rather, it is most likely an intermediary product that may be assembled into a final product in the UK for sale in the UK and elsewhere – most importantly the EU. Indeed, before Brexit, the UK had become Japan’s gateway to the EU. Therefore, Brexit is not providing the UK with benefits from replacing EU trade with trade with the rest of the world. Rather, it is hurting UK trade with both. The figures about the Japan-UK trade deal illustrate this painfully.

Brexiters will continue to deny this and spread misleading information about trade deals, as Michael Gove did last month, for which Tories have now been reprimanded by the UK Statistical Authority, and as trade secretary Kemi Badenoch did again yesterday by promising an ‘amazing trade deal’ with India within a year. Despite the continuing lies and falsehoods, outside of the Brexiter bubble, however, people have started catching up with reality.

 That leads to the frustrating situation where we are being held hostage by a small minority of fanatics in the Tory party. For instance, a Byline Supplement poll suggests that as many as 81% of decided respondents would support a Swiss-style relationship with the EU, which presumably implies that they would not object to unilateral alignment with EU rules and perhaps even European Court of Justice (ECJ) jurisdiction. That position has been strongly rejected by both PM Sunak and labour leader Starmer, which makes it difficult to see where political change will come from…and yet, Brexit has been such a disaster that it has revealed fundamental flaws in the UK’s constitutional set up, which has the potential to fundamentally reshape the country.

 The Brown Report

 One indication of potentially profound reforms to come is the report of the Commission on the UK’s future, chaired by former PM Gordon Brown, which was revealed by Labour last week. The former PM’s report contains some radical proposals, most importantly the transformation of the House of Lords into an elected chamber representing regions and nations. This proposal addresses two key concerns of the Commission, namely, tackling corruption and decentralising the UK’s constitutional set up to give more powers to regions and local authorities. Regarding the former, the report portrays a grim picture of the House of Lords, citing Martin Williams’ book Parliament Ltd which claims that “lifetime appointments to Britain’s Upper House are being sold to wealthy donors.” The report argues for stronger ethical standards in public life and envisages banning second jobs for MPs.

 More generally the Brown Commission denounces in no uncertain terms the influence of foreign money on British politics and suggests the powers of the Electoral Commission should be strengthened to be able to deal with that issue. That in itself would constitute a major break with the Tory strategy of past years of undermining the Electoral Commission’s powers to avoid scrutiny.

 The issues of corruption and the over-centralisation of the country pre-date Brexit. Yet, it is ‘thanks’ to the Referendum that an extreme faction of the Tory party has taken control of the country and made these issues so egregious. The truly sickening revelations about Tory peer Michelle Mone’s shameless profiteering from public contracts for personal protective equipment (PPE) are only one – albeit particularly shocking – example of this.

Similarly, the over-centralisation issue has been exacerbated by the fact that both Scotland and Northern Ireland have been taken out of the EU against the majority will of their populations, as expressed in the referendum. The situation is made worse by the recent Supreme Court ruling against the power of the Scottish Parliament to legislate for a second independence referendum, casting doubt on the notional of a voluntary Union.

The silver lining is, that the accumulation of such revelations and decisions over the past six years may mean that enough political will may now exist to tackle these thorny questions that concern the behaviours and powers of lawmakers themselves.

 Of course, much will depend on whether Labour actually will form the next government and which parts of the Brown Report will find their way into the Labour GE manifesto.

 Preconditions for change

 In one respect, Brown’s report on the British constitution is disappointing, namely regarding the electoral system. No mention is made of any plans to replace the first past the post (FPTP) system with some form of proportional representation (PR) for elections to the House of Commons. Such a reform seems urgent, not only to remedy the blatantly undemocratic situation of a permanent rule by minority governments (in terms of popular vote share), but also to create the preconditions for a more constructive collaboration amongst political parties in the UK. The latter may in turn be a precondition for a way out of the current Brexit mess. Chris Grey’s most interesting and thought-provoking blog post about Labour’s Brexit strategy outlines ways in which a cross-party agreement on Brexit could come about and what its benefits would be for a future Labour government. Professor Grey’s blog suggests that such a cross-party agreement may be the only way in which Labour could be bolder on Brexit. Yet, cross-party agreements do not come naturally to British political parties, as the whole political system is based on an in-built structural adversarialism and antagonism between majority and opposition that makes collaboration and cooperation look like weakness or collusion. Labour may be able to manoeuvre the Tories into a position where they have to commit to ‘making Brexit work,’ as Prof Grey suggests. But much better would be a more fundamental change to the UK’s polity that creates the preconditions for cooperation rather than opposition among the UK’s major parties. Here, the Brown Report misses a trick.

 Yet, even in the absence of electoral reform, change to the two major parties’ Brexit strategy may be inevitable. Here, one possible source of change is time. The popularity of Brexit will wane naturally and inevitably due to the fact that voters in the older cohorts who disproportionately supported it are dying. Electoral support for isolationism may hence decline as those age groups who were strongly opposed to Brexit, but did not get to vote in the referendum are entering the electorate. A related source of change is that politicians whose careers are tied up with the Brexit debates will also progressively leave the political scene. Replacing the current Brexit-tainted politicians with a new generation seems like a necessary condition for a more constructive relationship with the EU to emerge, as Tom Hayes argued in a recent blog post. On both aspects, time is on the side of reason. Sadly, Kier Starmer’s strategy may mean that Britain is walking down the path towards reason in slow motion.

 Chester By-election: Is Starmer’s ‘Tory light’ strategy working?

 In my last blog post, I wrote about Starmer’s electoral strategy, which in my view is based on the assumption that the way to beat the Tories in the next General Election (GE) is to out-Tory the Tories and move Labour considerably to the right. Starmer may thus seek to recapture the votes of former Labour voters in the North- and Middle of England. From an electoral strategy perspective, my concern with that ‘Tory light’ strategy is that it may neglect the impact it has on young, left-of-centre voters in urban areas who may be put off and prefer not to vote at all rather than supporting Starmer’s centre-right strategy. As Chris Grey pointed out last week, there is another risk: Starmer’s red lines regarding Single Market (SM) and customs union membership may put off not just left-wingers in the Labour party, but also centrists in the South of England who would expect a much clearer departure from the current policy regarding UK-EU relationships. As Chris Grey argues, “Starmer’s excessive Brexit caution is actually rather incautious in a post-Brexit, post-left-right context, given how many Labour voters were remainers.” During the next GE, this may lead anti-Brexit Labour voters to turn to whoever supports a softer version of Brexit and thus decreasing Labour’s chances to win an outright majority. For those voters, the Liberal Democrats – who currently have the boldest and clearest approach to rebuilding the UK’s relationship with the EU including rejoining the SM – may constitute an attractive alternative to a centre-right Labour party that largely continues the Tories’ Brexit strategy. Moreover, academic research suggests that the type of seats Labour needs to win to get a majority in the next GE is diverse, but predominantly in the middle of the political spectrum. I hence have serious doubts about Starmer’s ‘Tory light’ strategy.

 Yet, the Chester by-election last week may seem to suggest that Starmer’s strategy is working – at least electorally. While Chester is considered a safe Labour seat, the slump in Tory votes from 32% to 20% is very significant and of the order Labour would need at the national level to overturn the current majority in the House of Commons. (To not completely abandon my habitual doom and gloom, depressingly 22.4% – i.e. nearly 1 in 4 – voters in Chester still think voting Tory is the way to go, casting doubt on any hopes of a Tory electoral wipe out). So, in Chester, Starmer’s centre right strategy seems to have worked. Rafael Behr suggests something similar about Starmer’s strategy in general in his Guardian column last week.

 But here is the catch: Even if Starmer’s strategy were to be electorally viable, there remains one other big problem. Namely, what will a Labour manifesto based on this strategy look like going into the next GE? This is where Starmer’s trepid centre-right strategy may come back to bite him. If the centre-right strategy wins Starmer an outright majority, then his hands will still be tied by what he promised if he is not to lose any credibility and come under sustained attack from the pro-Brexit, right-wing press. It would be very easy to portray him as a traitor if he were to veer off course on any of his Brexit-related promises (no free movement of people, no single market membership, no customs union, no rejoining).

 At the same time, the next government most likely will inherit a dismal economy in a situation where not just the UK, but the world economy will be struggling with sluggish growth and high prices. In that situation, Starmer will need a good economic strategy to deliver any economic growth and increase in living standards for the British people. In such a situation, one big advantage that the UK has in comparison to other advance economies is that it has had Brexit. Not in the sense that Brexit provides opportunities to grow outside the EU. Rather, the one big opportunity hard Brexit presents to the next government is that reversing or at least softening it will constitute a low hanging fruit in terms of boosting economic growth. Contrary to what Starmer says, doing that could add up to 4% to GDP over time, which is the sort of growth spurt many Western governments are currently dreaming of being able to deliver to their voters. By drawing unnecessarily red lines around the issue of Brexit, Starmer essentially promises to fight one of the most difficult economic battles the country has faced in recent decades with one hand tied behind his back. To be clear, I remain convinced the slogan ‘making Brexit work’ makes some electoral and pragmatic sense, as the country may not be ready for a government running on a promise to reverse Brexit. But what policies exactly are necessary to make it work – e.g. unilateral regulatory alignment - should be subject to careful consideration and planning, not something that is pre-determined by considerations of electoral expedience. Indeed, some of Starmer’s statements about the way to make Brexit work may be incompatible with some of his red lines. Thus, Labour’s plan to conclude a veterinary agreement with the EU for Northern Ireland to reduce trade frictions seems almost certainly to imply some level of unilateral alignment on EU rules, which seems to be contrary at least to the spirit of his statements on Labour’s EU policy.

 Missing a historic opportunity?

 Starmer’s strategy to out-Tory the Tories on Brexit, immigration, and anti-unionism is particularly regrettable given that “no benefits Brexit” provides another potential benefit, namely the once in a lifetime opportunity to rid the country off the Tory party in the next GE. That may sound dramatic, but there may now be a small, but nevertheless real, possibility for the Tory party to suffer a similarly disastrous electoral defeat as the Canadian Tories did in 1993, which ultimately led to the disappearance of the party. The disappearance of the Tory party in the UK would make room for a more modern, less corrupt centre-right party in British politics, replacing the anachronistic rent-extracting monstrosity that has held back the country for way too long. If that were to come to pass, at least Brexit would become the truly transformative moment in British history that finally rid the country of its archaic political system and made space for the country to enter the 21st century.

 Perhaps it took Brexit for us to understand that Britain’s problems are primarily home-made, not the EU’s or anyone else’s fault. The past two years have clearly shown for instance that it is not sending money to Brussels that explains why the NHS is on the brink of collapse. It is the Tories’ misguided economic and fiscal strategy that literally – and possibly intentionally – starves our public services to death. It is the corruption inside that party that means the crown jewels of the British state – such as Royal Mail – are sold off to Tory cronies without much public debate or parliamentary scrutiny. It is the corruption inside the Tory party that explains why PPE contracts can be used by Tory donors to siphon off millions in taxpayers’ money and hide in offshore bank accounts and trust funds without providing anything of use to the country. With the scapegoat of the EU gone, all the rot in the Tory party has been exposed in bright daylight and people start to take notice.

 The Tory’s current plight is compounded by the fact that Sunak is completely dependent on the right-wing of the party to survive, which most recently has led the government to approve the construction of a new coal mine in Cumbria and to perform a U-turn on the manifesto promises of a yearly house building target. Both policies are considered to be favoured by older, more right-wing voters and unlikely to go down well with younger ones (which may be one of the reasons why the Tories do everything to disenfranchise them with the new electoral ID law).

 All this creates a golden opportunity for Labour to not just win the next GE, but to actually change the terms of engagement and thus to prepare the ground for the truly transformative change the country needs. Labour should focus on taking the people their fear of a new political direction that Sunak calls the ‘politics of yesterday,’ but is in reality a necessary condition for the country to tackle the existential issues it is facing both in terms of the economy and the environment. The pro-rentier libertarian market-fundamentalists have had their chance since the 1980s to show the benefits of their policies. It is now abundantly clear that all that their policies achieve, is massive pain for the largest number and obscene levels of wealth for the few. Rejecting this set of policies does not imply a Corbynite return to old-school state socialism but has to imply a better balance between states and markets. There is a massive amount of space between the Truss-Kwarteng-IAE type extreme pro-rentier libertarianism and the Corbynite return to socialism.

 Yet, Starmer is making the same mistake as Tory leaders since Major made when faced with Farage’s populism and then increasingly ERG’s extremism. Ultimately, pandering to and co-opting, rather than confronting and rejecting, the factions that defend extreme views has deep-reaching consequences for any political party and the country as a whole. While it may provide a quick fix for an incumbent party leader to silence extreme voices, long term the effect this strategy has on the party and indeed the country’s political landscape is – as the case of right-wing nationalism and Brexit shows – potentially disastrous. The main problem with the pandering and co-opting strategy is that it does not only shift the policies that are being considered into an ever more extreme direction (see the Rwanda policy), but it more fundamentally shifts the country out of the realm of reality, rational analysis, and reason, into the realm of fantasy, conspiracy, and paranoia.

 Still, “no benefits Brexit” and the chaotic state the UK is currently in provides a once in a generation opportunity to shift the centre of the political spectrum away from the right-wing madness we have seen taking hold of UK politics over the first two decades of this century. That will only happen if Labour looks beyond winning the next GE and instead starts thinking about what mandate they will need from the British electorate to fix the country. If the manifesto simply contains a promise to ‘make Brexit work’ better than it did under the Tories and to control immigration better than the Tories did, then the next government will not have the mandate to deliver the fundamental change that the country so desperately needs after decades of wrong-headed economic policies that transformed a once flourishing country into a rentier capitalist economy. Starmer’s Labour may be in the process of missing yet another chance to redefine how we think about the economy, the state, and the world we live in in the 21st century. However, the appetite for fundamental change seems to be growing in the British public sphere. Eventually, a political force will emerge that manages to transform that appetite into a political programme.

Neverwhere Brexit Britain after Singapore-on-Thames: Switzerland or Silicon Valley?

Brexit is failing us. That must be the one overarching insight of the past two years. The past couple of weeks have provided ample additional evidence for that conclusion.

Thus, this week evidence emerged that the Financial Sector in the UK may not have experience the rapid decline some had expected before the Referendum, Brexit seems to have led to sluggish growth at best, but more likely a slow decline of the UK financial services industry. Thus, banking jobs are estimated to be 91,000 fewer, compared to a situation where the pre-Brexit trend of financial service growth had continued. Symbolically, this week, the UK also lost its position as the most valuable stock market in Europe.  At the same time, supposed Brexit benefits have been increasingly exposed as not being much of a benefit at all. Most importantly, perhaps, the lustre has come off off one of the most important Brexiter tropes related to Brexit benefits, namely the ability to conclude Free Trade Agreements (FTA) with countries around the world. While I have argued for a while that the FTAs concluded by then Trade Secretary Liz Truss were concluded for purely symbolic reasons without any regard for their real world impact, now even mainstream media outlets openly question the significance of the FTAs that have been concluded when compared to the damage Brexit is otherwise doing. More significantly still was a devastating speech by former cabinet minister George Eustice in the Commons this week, which constituted a full-blown attack on Liz Truss and chief trade negotiator Crawford Falconer. In the speech, Eustice argued that the UK had made far too many concessions to Australia in order to conclude the AUS-UK FTA by a date chosen by then Trade Secretary Truss for purely political reasons. Coming from a former Cabinet minister and Brexiter, this is an astonishing admission indeed. Not quite as high profile, but nevertheless significant, were the statements made by former Bank of England (BoE) economist Michael Saunders who squarely blamed Brexit for the damage done to the UK economy, which will almost certainly see a return of austerity in the not too distant future. Finally, a BoE monetary policy committee member blamed Brexit for high food prices and hence a decline in real wages.

In short then, despite Brexiters having been in complete control of government since late 2019 at the latest, they have not managed to create anything that would allow them to say: ‘See, we told you it will be great.’ Instead, the situation they created is an absolute, complete, utter, and unmitigated shambles on every imaginable front. This was illustrated this week by Andrew Griffith – a Treasury minister – who failed to name a single Brexit benefit when put on the spot in the Commons.

With Jeremy Hunt’s autumn statement, we are now back in fiscal conservatism territory, although outright austerity has been delayed until after the next general election (GE) in 2024. Still, living standards are set to decline by 7% by 2024 and the middle classes are the ones to lose most from the economic strategy. Needless to say, that this is not a visionary new economic strategy leading to the sunlit uplands we were promised before the Brexit referendum.

The will of the people…of 2016

In their desperation, Brexiters cling on to the claim that Brexit is the will of the people whatever its real world impact six years after the referendum. Jeremey Hunt, in an interview with Sky, even claimed that the UK had decided to leave the EU following a ‘proper democratic process.’ That of course is a false claim, given that the Electoral Commission has clearly established that there was nothing proper about the Referendum campaign. Even if we were to accept that the referendum result was legitimate, Brexiters have to face the awkward question what exactly makes 23 June 2016 the only point in time when people’s opinion mattered. Since then, the mood in the country has clearly changed, with all polls I am aware of suggesting most people think Brexit was a mistake. Thus, according to a recent YouGov poll 56% - including 20% leave voters in 2016 – thought leaving was a mistake compared to 32% who think it was right to leave. Similarly, an Omnisis poll even found a 57% majority in favour of rejoining, against 43% staying out. That does not mean rejoining is a realistic option, but it clearly shows that the people do not want hard Brexit at any cost. At the very least, these figures suggest a mandate for a closer relationship with the EU. Chris Grey rightly asks, “Just for how long and how far can a referendum, the mandate of which has now been fully discharged, be used in defence of a version of Brexit that was not even the subject of that vote?”

Looking for Neverwhere

Unable to make their Brexit promises a reality – despite being in control over the government –, Brexiters now seek to push Brexit back into the realm of the aspirational, the yet-to-come sunlit uplands, the just-around-the-corner land of plenty. The Brexit Britain of the promises is becoming Neverwhere. A place that exists somewhere, sometime, but not here and not now. Brexit is becoming a myth, an aspiration, a hope.

One of the reasons Brexit has failed so miserably is precisely illustrated by the continuing debate about what model the UK should follow. As unbelievable as this may seem for a neutral observer, six years after the referendum vote and two years after Brexit became a reality, the UK government still has no idea what form it wants Brexit to take. After Liz Truss’s short-lived government’s attempt to implement an economic strategy that came close to the Singapore-on-Thames model of Brexit failed spectacularly, making us all poorer in the process, Brexiters are looking elsewhere for inspiration.

Last week, Jeremy Hunt was accused of secretly ‘plotting’ to pursue a Swiss-style arrangement, which led Nigel Farage to threaten a comeback to ‘crush’ a ‘plot to reverse Brexit.’ This week, both the PM and Hunt disowned any Swiss-style agreement and Hunt instead proclaimed he will turn the UK into the Silicon Valley of the world.

What is most astonishing about these debates is that they should have taken place long before a referendum was called. First the government should have explored what the options were, then it should have drawn up a realistic and reasonable exit plan, then it should have put that to a vote. Instead, here we are two years into real existing Brexit and the government still has no clue what to do with the country’s newfound ‘freedom.’

The problem is that this situation is unlikely to change, because Brexit was inherently a project based on an illusion. As Neil Shofield-Hughes argued in an excellent Yorkshire Bylines article: Brexit was a promise of having agency rather than being subject to decisions taken elsewhere. It was a promise of regaining control over our lives. But the fatal flaw in the project has always been that the loss of control many people feel is only to a limited extent the EU’s fault. There are other sources of disenfranchisement that have nothing to do with the EU. For one, we live in a country where the majority of us are governed by a government they did not vote. In the 2019 General Election (GE) 43.6% of voters cast their vote for the conservatives, while 56.7% of voters did not get the government they wanted. Worse still, despite the week popular support, the party who won the election can continue to appoint Prime Ministers and significantly change the policy direction of the government without any voters having a say in it. For the other, in a world where a considerable number of rules are made by international, rather than national bodies, the EU may be perceived like one such body imposing its rules on member countries. Yet, it also constitutes a bloc that allows member countries to shape those rules and to create a counterweight to the rules emanating from other international bodies or countries – say the WTO or the USA.

The fatal flaw in Brexiter thinking is that it is based on the idea that if you leave the EU you can somehow leave all the constraints behind that come with the reality of 21st century global economy and politics – rather than having to choose whose constraints you want to follow and how much say you have in formulating them. That is of course not the case and can never be the case. A medium-sized country does not reshape the world order by leaving a club it was part of. That is the fundamental lie Brexit is based on. Therefore, the necessary honesty to come up with a viable plan for post-Brexit Britain almost by definition undermines the project itself, because the project is based on hubris, which suggests that no plan is needed. One thing the first post-Brexit government that is serious about solving these issues will have to do is to assess the UK’s options realistically.

The Swiss and Silicon Valley options

It was the Sunday Times which first reported last Sunday that the government was considering to try and reduce the damage Brexit is doing by seeking a Swiss-style agreement with the EU to replace the damaging Trade and Corporation Agreement (TCA). Yet, on Monday Rishi Sunak – speaking at the Confederation of British Industry (CBI) conference, unequivocally rejected that possibility saying that an agreement based on unilateral regulatory alignment was unacceptable. Eurosceptic Tory MPs seem to attribute the source of the Swiss-style idea to Chancellor Jeremy Hunt, who voted remain in 2016. The usual paranoid incriminations about the ‘Remainer establishment’ having taken back control ensued.

I have written extensively about the Swiss-EU arrangements last year, when the Swiss government decided the halt the seven-year long negotiations with the EU over an ‘Institutional Framework Agreement’ (IFA) that would be superimposed on the over one hundred sectoral agreements Switzerland and the EU have concluded.

That IFA was a condition imposed by the EU for the continuation of the so-called ‘bilateral way’ in Swiss-EU relationships. It implied among other things, that Switzerland accepts ECJ jurisdiction over the agreement, which was one of the stumbling blocks in the negotiations. As a result of the failed negotiations, the bilateral way seems to have turned into a cul-de-sac. As a result of the problems with the ‘institutional questions,’ several bilateral agreements are already being phased out, because the EU refuses to renew them. This concerns Switzerland’s participation in the Horizon Europe research programme, but also the certification of Swiss medical products in the single market. In other areas, most notably air traffic and land traffic, the EU has shown more pragmatism and updated existing bilateral agreements despite the lack of an institutional solution, based on a clause that allows this to happen when ‘overriding interests’ are at play (GER). But even in the latter areas, the bilateral solution is increasingly under pressure, e.g. in the case of cross-border traffic of workers, where new bureaucratic hurdles now have to be overcome for Swiss locomotives and wagons to be able to enter the EU.

The main arguments against a Swiss-style agreement raised in the UK are the fact that it involves a great deal of unilateral alignment on EU rules, EU Court of Justice (ECJ) jurisdiction, and accepting all EU “freedoms,” including the freedom of movement of people (although Switzerland does have some safeguards against ‘social dumping,’ but these were precisely under pressure during the negotiations over the IFA). But even outside these specific issues, given Switzerland’s struggles with the bilateral way, it hardly seems like a model other countries could follow. Indeed, it only exists, because the EU saw it as a temporary solution until Switzerland gets ready for EEA- or EU membership.

That the EU is making life for third parties difficult by insisting on unilateral alignment of regulations and acceptance of the jurisdiction of the ECJ is a fact. Whether that stance is in the long-run beneficial to the EU itself and the European continent in general is debatable (I have argued before that the EU needs to rethink its approach to third parties). Call it bullying, or call it an economic and political union’s legitimate right to ask for compliance with its rules in exchange for access to its internal market; Either way, these facts were well-known before the UK Referendum and should have strengthened the case for remain, not for leaving the bloc.

The Swiss-style agreement having been rejected both by the PM and the Chancellor Jeremy Hunt, senior Tories then reverted back to other pie-in-the-skies solutions for the current post-Brexit disorientation. As mentioned above, Jeremy Hunt in an interview with Sky News’ Beth Rigby proclaimed that his plan now is to turn the UK into the World’s next Silicon Valley. As always with Brexiter fantasies, there is absolutely no plan behind such grandiose statements. ‘Silicon Albion’ is to happen just because of the natural greatness of Britain without any economic strategy, investment in skills, infrastructure, or indeed a supportive legal system, which – as previous academic studies have shown – are crucial to replicating the success of Silicon Valley. Such sophistication and strategy planning is not part of the Brexit project, which is entirely based on the innate superiority of Britain, rather than any realistic assessment of the potential of this country.

The rotten Tory party

In addition to the lack of plan, the lack of strategy, the lack of realism, the Tories are struggling with the rot that has spread to large parts of the party. Examples from the past couple of weeks include the growing number of formal complaints about deputy-PM Dominic Raab’s behaviour and renewed concerns about the corruption at the very heart of the Tory party around the procurement of Personal Protective Equipment (PPE) during the pandemic – with Michael Gove at the heart of the scandal around Michelle Mone. In normal times, this sort of corruption and lack of integrity from senior party members would certainly be enough to bring down a government. Not in post-Brexit Britain. The political culture in the country has declined to the extent where the public barely notices these major scandals are happening. For now, the public seem to value Sunak’s leadership – presumably for having put an end to the chaos that Truss brought onto us – and rate him higher than Starmer in terms of their capability to be PM. Still, after just a month in office, PM Rishi Sunak seem already weak and under pressure from many sides within and outside the party. These fissures in the PM’s authority will soon become a problem, as he is arguably facing some of the most dramatic challenges any peacetime British government has had to face. His frail authority will make any coherent policy on levelling up, Northern Ireland, and trade with the EU more difficult. We are two years away from the next General Election and it feels like we are in a lame duck phase already, at a time where the country needs direction and leadership more than ever. Many people’s minds are already turning to what the next – possibly Labour – government will do. Reports from this weeks CBI conference suggest that there is a lot more enthusiasm amongst the UK economic elite for Labour than for the Conservatives. To those of us who are exhausted after 12 years of Tory mismanagement of the country this will sound like good news. Yet, some of Starmer’s recent statements seem deeply worrying.

The other Tory party

The internal strife and divisions the Tory party is suffering from, and the dire economic situation would make one think that it is the time for the opposition to fundamentally change the direction of policies that got us into this mess. Far from it, Labour leader Kier Starmer seems hell-bent on trying to beat the Tories at their own game, rather than leading us out of the impasse. Not only is the Labour leader strongly opposed to unionism,  but also he is striking tones on immigration and Brexit that are barely distinguishable from Tory politicians.

At the CBI conference, Starmer stroke tones on immigration about ‘weaning the economy off immigration’ and end the UK’s ‘low pay model,’ which were virtually undistinguishable from Johnson’s arguments when he tried to convince the country that Brexit-induced labour shortages had been part of a plan to move the UK to a high skills, high wage economic model. Starmer’s pledge has to be seen in context of this week’s latest migration figure, which have reached a new record level. In reaction, the government is likely to embark on another ill-advised symbolic policy, that will aim at bringing down that number just for the sake of it. The most likely way in which the government will try to achieve that is by making it harder for foreign students to come and study in the UK by limiting the right of their dependents to move to the UK as well, and by banning what the government calls – but does not define – ‘low-quality degrees.’ This will allow the government to claim in the right-wing press that it managed to ‘control our borders,’ while doing considerable damage to yet another UK industry. Indeed, UK higher education contributes an estimated £95bn to the UK economy and employees around 800,000 people. Any crack down on foreign students – just to bring down net immigration numbers – will most likely lead to universities going out of business and/or increasing fees for domestic students to make up for the shortfall of international fee income. Rather than challenging the relevance of the single metric of net immigration or the frankly idiotic concern with students – 97% of whom leave the country again after they finished their studies –, Labour seem to accept the way the Tories are framing the immigration issue. Starmer’s statements this week also go against the explicit demand of UK businesses and are factually incorrect – as Jonathan Portes argues – in the sense that there is no evidence for a trade-off between companies’ relaying on skilled immigrant workers and training domestic workers.

Worse, still, Starmer now also blows the ‘Brexit betrayal’ horn that we are so familiar with from the pro-Brexit press and Tory party. This week, in reaction to the rumours about the government considering a Swiss-style deal with the EU, Starmer warned the government against ‘ripping up the Brexit deal,’ which not only lends credence to the quasi-conspiratory theories about Brexit having been betrayed by the ‘Remainer establishment,’ but also seems to suggest that Johnson’s TCA should not be up for renegotiation. Worse still, Starmer drew an unnecessary red line in the sand vowing not to re-establish free movement of people.

The current mess the country is in would seem like the perfect opportunity to shift back the Overton window more to the centre of the political spectrum. Twelve years of Tory policies have shown conclusively that austerity and fiscal conservatism do not work, that immigration is important for the country, and that dreams of Anglo-Saxon superiority and Empire are not a viable strategy to generate prosperity. The opposition should be bouncing all over the Tories and shouting from the roof tops: ‘Look, everything they told you about fiscal orthodoxy, immigration, and sovereignty is wrong! Here is an alternative, less toxic path to our future.’ It is a golden opportunity for someone to stand up and finally challenge the toxic right-wing discourse that has gripped hold of the Western world since the 1980s. Britain is arguably the Western country where right-wing policies have been implemented most consistently and radically. As such, it is the perfect example to illustrate that these policies are trying to address false problems with false solutions and therefore are misguided and doomed to fail. It is the country where a more reasonable centrist set of policies could be developed based on people’s first-hand experience with the right-win policies the Tories have inflicted on us for over a decade now. Britain, therefore, could be the environment in which a genuinely new discourse and political programme emerges. Instead, what Starmer is shouting from the rooftops is ‘I can to Toryism better than you!’

The tragedy is that Starmer would not even need to draw any red lines. To be sure, a clear stance on Brexit is needed so that the party, once it comes to power, has a strong electoral mandate for whatever approach the Labour party wants to take. But to win the next GE, Labour most likely does not need to pledge not going back on any of the extreme policies the Tories have adopted – including on Brexit. Starmer’s strategy of drawing red lines on Brexit and immigration maneouvers the Labour party as a whole into a corner, making it difficult to seek a serious change to the current trading arrangements with the EU.

Quite frankly I am not sure what Starmer’s Labour strategy is here. Possibly, he feels that people left of the centre of the political spectrum are so disgusted by the Tories that they will vote Labour no matter what. Hence, catering to the right wing of the Tory party using anti-Union, anti-immigration, pro-Brexit rhetoric will allow him to reconquer the pro-Brexit former Labour heartlands in the North and Midlands of England without hurting their electoral appeal in the liberal urban centres. I am not sure that strategy is going to work. What it means, de facto, is that the country will choose between three right- and centre-right parties – the Tories, the LibDems, and Labour – but there is almost no choice in England – other than the Green party perhaps – for people on the left of the political spectrum. Rather than putting pressure on the Tories from the left and the right – as would be the case if Starmer pitched his programme more to the centre-left, with the LibDems covering the centre-right ground – Starmer is creating competition on the centre-right, which ultimately may throw the next GE wide open – especially if left-wingers are equally disgusted by Starmer’s Labour as they are by the Tories and decide to stay home.

The next two years will be crucial for Britain. If a political alternative emerges that provides people with a sense of control over their lives, while being based on a realistic understanding of what is economically and politically feasible, then there is hope that the country can be turned out of the impasse it currently is in. It is disheartening that neither the government nor the opposition seems to be anywhere close to formulating a policy programme that seems fit to achieve this. Rather than building our future, there is a real risk that we continue to look for Neverwhere even after the next General Election.

Brexit Impact Tracker – 13 November 2022 – Fighting for political survival: Moderation, bad economics, and the establishment of a gerontocracy

This week was a calm one compared to the chaos that has become so characteristic of post-Brexit Britain. The calm should not lull us into believing, however, that somehow Britain is starting to overcome the economic, political, and constitutional ‘multicrisis’ that it is facing. The crises simmer on just under the surface and will blow up eventually. It seems increasingly unlikely, that the Sunak government will be the one that can stop that from happening. Not only is Sunak’s grip on power inherently based on support from the far-right of the Tory party, which limits his room for manoeuvre, but also has a series of questionable ministerial appointments completely undermined any claims to professionalism and integrity, which are important to regain the trust not just of the financial markets, but also of other countries’ leaders. This week, serious questions have been raised about Dominic Raab’s behaviour towards civil servants when he was Justice Secretary in the Johnson government. After Suella Braverman and Gavin Williamson (who resigned this week over bullying allegations), Raab now is the third member of cabinet whose appointment suggests a complete lack of judgement by Sunak. These personnel problems weaken the PM’s authority and make him vulnerable not just to attacks from the opposition, but also from within the party. Two weeks into the job and Sunak’s political future starts already to look uncertain. As a result, his main focus may soon become the fight for his political survival rather than solving the country’s problems.

Sunak’s moderation

The week has brought some signs of moderation of Sunak’s government compared to the most extreme policies of his predecessors. Thus, the absurd policy of creating investment zones has been abandoned. Since the beginning of his premiership there have also been some actions that suggest a more moderate approach to the UK’s relationships with France. The thawing of relationships could mean that perhaps a solution to the issues of Channel crossings of refugees in small boats may be found in collaboration with France.

The Northern Ireland Protocol (NIP) is another area where some optimistic statements could be heard from various actors involved. Irish foreign minister Simon Coveney, saw cause for a ‘flicker of optimism’ regarding the NIP already under the Truss government. This week, EU Commissioner Šefčovič reiterated that a solution to the NIP could be found ‘within a couple of weeks’ if the political will was there. Sunak seemed eager to show such political will by attending the British Irish council meeting in Blackpool where he met with Irish Taoiseach Michael Martin and insisted that he was optimistic about the possibility of a negotiated solution.

However, the situation on the ground in Northern Ireland and in the Tory party  are so complicated now, that even with the best will in the world a solution may become elusive. As Chris Grey argues, with the passing of the deadline for the reestablishment of the Stormont Executive, the situation in Northern Ireland has morphed from a trilemma into a quadrilemma. A PM constrained by the Brexit straitjacket is unlikely to be the best person to lead us out of that quadrilemma. Any concession may spark off the fury of the unionists in Northern Ireland and the extremists in the party assembled in the European Research Group (ERG). Therefore, even if he were willing to do a deal, it may very well be that politically he would not survive it. As Chris Grey’s analysis suggests, the one way out of the quadrilemma might be that ERG support for an NIP deal can be secured in exchange for them getting what they want on another issue, e.g. the retained EU law bill.

The latter bill is increasingly seen as a major source of chaos were it to be adopted in the way it is being proposed. The bill would essentially mean that a myriad of UK laws (how many is still somewhat unclear as the government had to admit this week) would by default cease to apply at the end of 2023 due to a ‘sunset clause.’ The idea for this approach was born out of Jacob Rees Mogg’s mind, where laws only have one function, which is to constrain and prevent people from doing things. Many laws of course do have that function. But they also have a range of others – including the function of enabling (rather than constraining) people to do certain things (see for a general statement of that insight in institutional scholarship this paper by Gregory Jackson and Richard Deeg). On that bill too, Sunak has shown some inclination towards a more moderate stance than his predecessors – albeit only for pragmatic reasons rather than out of conviction.

There are hence some signs of moderation and realism emerging from Sunak’s actions during his first two weeks in office. Such realism is needed to start addressing the various crises the UK is facing and as such, without it the Tories are unlikely to win the next General Election. Yet, however much realism Sunak may show, his and the Tories electoral fate will depend on the economic situation…and on that front the news are not good.

Economic reality and the Brexiter pushback

This week may have marked the start of the recession many experts have warned about. The UK’s GDP has contracted by -0.2% in the third quarter. That slump is less than some expected (most experts predicting a contraction of around -0.5%). This may be water to Brexiters’ mill. The Truss premiership disaster seemed to have broken the Brexit taboo in the UK media, with various mainstream media outlets – including the BBC – running reports about the damage of Brexit. Yet, in parallel, Brexiters seem to have stepped up their own efforts to prove that all is well in Brexit Britain, and what is not well is not due to Brexit. This Brexiter pushback against accepting economic reality is a key stumbling block for the UK to start healing its self-inflicted wounds.

Briefings for Britain’s odd theory of trade and productivity

A month ago, Briefings for Britain has published a comprehensive report attempting to dispel various predictions Remainers had made about the impact of Brexit on the UK economy – including its impact on the GDP, trade, and labour markets. The authors argue that none of the negative predictions have materialised. Rebutting the report’s findings in detail would take more time and space than I have, but some of the claims need to be challenged.

At a general level, the arguments are subject to two logical flaws that are very common in Brexiters’ defence of their project’s economic impact. Chris Grey summarises them perfectly: The first one consists of the ‘deeply illogical’ claim that since the UK is not the only country that experiences severe economic problems, the UK’s problems cannot be due to Brexit. The second one consists in the reversal of the onus: Brexiters defend Brexit’s economic record by comparing it to the most pessimistic – and admittedly at times alarmist – predictions made before the referendum (often based on specific assumptions that may not have come to pass), rather than assessing it against the promises that were made by Brexiters themselves.

Beyond these general flaws, the report also makes some more specific very questionable arguments notably regarding trade and productivity.

Regarding trade, fundamentally, the report tries to make the gravity defying argument that somehow it would be possible that more trade barriers do not negatively impact trade. The report points to the Scottish Salmon industry, which according to the figures provided by the report has boomed despite new trade barriers. This optimistic assessment seems contrary to what surveys and a great deal of anecdotal evidence about the struggles of many small companies suggests. It also contradicts serious academic studies.

Of course, it is not easy to estimate the impact of Brexit on the UK economy given all the confounding factors and the fundamentally counterfactual nature of the question (i.e. we want to know what the UK’s economy would have looked like today had Brexit not happened). This is precisely why we need sophisticated methods, like the synthetic control method (SCM) – often referred to as the ‘doppelganger method.’ Yet, Briefings for Britain and especially Graham Gudgin seem to have a particular dislike for that method. The report is another obscurantist attempt to cast doubt on the most sophisticated methodologies used to estimate the impact of Brexit on UK trade arguing for simpler ‘methods’ instead. The simple but important intuition behind the SCM approach is that we should not compare the UK’s post-Brexit economic performance to 2016 or any other date in the past, but rather to our best estimate of what the performance would have been had the UK remained an EU member.

In the new report, Briefings for Brexit apply their dislike for sophisticated methodologies to the link between international trade and productivity increases. The report criticises studies that are based on large samples that include emerging economies. Instead, they carry out an analysis that seems to be based on a simple regression of hours work per GDP on import and export growth per year for twenty high-income economies. The lack of sophistication is compounded by the fact that the authors do not adopt a longitudinal approach, but simply averaged the two variables of interest across a 40 year period (1980-2019). Based on this ‘analysis,’ the report concludes that there is no link between international trade and productivity growth and therefore the OBR’s prediction of a 4% decline in productivity due to Brexit is wrong.

More serious studies, show that the relationship between trade intensity and productivity growth is complex and contextual, but robust including for developed economies. For instance, a study by the ECB finds that the relationship is driven by at least three different mechanisms a reduction: in input costs, competitive pressures, and knowledge transfers. While the importance of knowledge transfers may be more important for developing countries and explain why the effect on productivity may be greater there, the relationship still exists for developed countries too.

Regardless, even if we accept Gudgin and colleagues’ premise that we should keep things simple and that it ‘[…] is more informative to compare the UK directly with the major advanced and especially larger EU economies,’ the case for Brexit seems very weak based on current figures. Thus, the UK is the only G7 country whose economy shrunk during the third quarter of 2022.

Besides, the report repeats another claim that reveals a deep ignorance of how the modern global economy works. The authors observe that ‘exports to non-EU countries were down by around 11%’ and argue that therefore ‘[o]bviously, this cannot be due to Brexit as no significant new trade barriers with non-EU countries have been created.’ As I have argued at length in a previous post, this claim ignores how modern international production networks work. Trade barriers between the UK and the EU may very well affect exports from the UK to other countries even if there are no new trade barriers between the UK and third countries. The reason for this is the nature of modern production networks. Brexiter trade theory is based on the flawed assumption that whatever UK companies export is produced in autarky. The reality of course is that the production of goods exported from the UK is internationalised and thus relies on trade in intermediary goods across the UK-EU border. The argument that given that a reduction in trade between the UK and non-EU countries is proof that the cause for the reduction cannot be Brexit is therefore nonsense.

‘Doing things differently:’ The end of the EV delusion

Another Brexiter – although from a different political camp – who defends the same line as Briefings for Britain is the Guardian’s Larry Elliot who sees all Remainer warnings against Brexit belied by reality, and considers Brexit still to be mainly an opportunity to look at an under-performing economy in a new light and to do things differently.’

Here too it is hard to share the Brexiters’ optimism about how that is going. One of the key ways we were told the UK would do things differently once outside the EU was by becoming a world leader in innovative high-tech sectors. One of those is the electrical vehicles (EV) sector. Here, the self-delusion has been increasingly exposed in recent weeks.

A few weeks ago, BMW announced that it would halt the production of the electric MINI at its Oxford plant and instead partner with a Chinese company to develop the fourth generation MINI in China. Another blow to the government’s strategy to turn the UK into an EV powerhouse was the news that the ‘iconic’ EV charger commissioned by the government may never be made. The biggest setback, however, is the recent struggles of Britishvolt, the company Johnson announced would build a battery gigafactory that would create thousands of jobs in Northumberland. Instead, the company is struggling and only very narrowly – and possibly only temporarily – avoided bankruptcy.

These events cannot all directly be blamed on Brexit. But what they do show is that beyond all the boosterism, when it comes to actually implementing a post-Brexit economic strategy, the government is not serious. Partly, Britishvolt’s struggles have been caused by the government itself who has not yet given the company a promised £100m advance. Regarding the EV charger, the Department for Transport conceded that “the concept is not intended for manufacture or deployment.” That seems like a very odd statement, given that the then Transport Secretary Grant Shapps when announcing the project a year ago promised it would be ‘rolled out across the country’ and make ‘charging even easier & accessible.’ It is hard to see how that could be done if the charger was not intended for manufacture!

But at one level the department for transport’s statement may be actually very close to the truth. As so often, Brexiters’ priority is to cement their power by trading in fantasies and symbolic policies rather than seeking to solve any of the problems the country is facing. Delusional fantasies are never a good basis for sound economic policy making – the Truss government has proved that with its mini-budget that cost pension funds an estimated £75bn. So far, the Sunak government does not seem any more serious about its economic strategy. For instance, the Chancellor, Jeremy Hunt’s plan  seems to entirely focus on austerity and tax rises, while he continues to downplay the cost of Brexit. Instead of developing an economic plan matching the post-Brexit situation, Sunak and Hunt have created another yet another fantasy, namely they idea of a fiscal black hole that they tell us needs urgent closing – when in actual fact it is very largely a fabrication and when there are alternatives.

On a path to a Gerontocracy

There are some signs that the Tories themselves are not very confident they will manage to solve the countries’ economic woes in time for a 2024 GE victory. The evidence for that is provided by recent actions redrawing the electoral map and voter suppression that will increase the Tories’ chances of remaining in power. Indeed, the Elections Act – adopted in April this year – has been described as a worse piece of voter suppression than what has been seen in some US states. Indeed, the act contributes to turning the British democracy into a gerontocracy! The list of accepted ID cards that voters will have to show at the polling station at next May’s local elections is clearly tilted towards older voters. Indeed, six of the Government-accepted IDs are specifically targeted at older people, who are much more likely to vote Tory than younger voters.

Just like Sunak, the Tory party is fighting for its political survival. The Elections Act seems like one tool by which the government attempts to election proof its running of the government. Given the limited room for moderation and realism and given that ideologically-induced bad economics Sunak and Hunt are pursuing, establishing a Gerontocracy may indeed be their best bet to remain in power for more than two years.

Brexit Impact Tracker – 6 November 2022 – Post Truth Brexit: The fantasy-reality gap is widening

It was a sad week in post-Brexit Britain. While the Treasury’s and Bank of England’s reckless economic policies have put us on a path to recession and mass unemployment, the public eye and political discourse is stubbornly fixated on the non-issue of illegal immigration.

It also became clear once again, that contrary to some hopes, there is little daylight between Sunak’s government and the two Brexit governments that preceded his. Thus, the ‘new’ government proves to be equally prone to dramatic U-turns as its predecessors. This week, Heaton-Harris announced that there will be no new elections in Northern Ireland, despite his insisting that such an election would be necessary if the Stormont executive collapsed.

There has also been a new case illustrating that Rishi Sunak’s judgements on personnel appointments are equally questionable as those of his predecessors. Evidence has emerged that he knew about Gavin Williamson’s unacceptable text messages to the former chief whip when he offered him a job in the new cabinet. Together with the ongoing questions around his reappointment of Suella Braverman, this casts his claims to integrity and professionalism in a bad light and provide further proof that Sunak like Johnson and Truss is primarily an Egocrat.

Most worryingly, though, the week has also provided more evidence that far from moving the Tory party back onto the terrain of realism and reason, the Kwarteng-Truss mini-budget fallout has convinced those in charge of the party that they need to double down on denying reality. Post-truth’s grip on UK politics seems to grow stronger.

Post truth – The government’s official policy

A couple of weeks ago, I was quite hopeful that Truss’s disastrous Premiership may have opened up a window of opportunity for more reasonable forces to take back control of the government and thus move us away from greatly damaging symbolic policy-making onto territory of moderation and reason. This week’s post-truth politics have proven me and many other commentators wrong.

A seemingly innocuous example of the continuing force of post-truth politics was Michael Gove’s tweet about Free Trade Agreements (FTAs). His tweet claimed that the conservatives have concluded “new free trade deals with over 70 countries since 2016. That’s over £800 billion worth of new global trade.” (Incidentally, in a sign that to him this is all just a big joke, he added in reference to his infamous attack on ‘experts’ that he did not ‘think people have had enough of exports’).

As fullfact.org shows, the conservative party’s claim that Gove retweeted is false in several respects. For one, the FTAs concluded with 71 non-EU countries since 2016 are not ‘new’ in any meaningful sense. The vast majority (69) are simply roll-over deals of FTAs that the UK had with these very same countries as an EU member (in some cases on slightly different terms, e.g. the one with Japan). Only two FTAs are truly new – the deals with Australia and New Zealand.

More importantly, the claim that these deals are worth over £800bn of ‘new global trade’ is completely false. The figure of £800bn is the total amount of trade the UK does with the countries with which it has an FTA. So, this sum is not ‘new trade’ but the overall amount of trade that we currently do with these countries. The FTAs concluded since 2016 have not generated this volume of trade, but – at best – prevented it from decreasing after Brexit. The implied claim in the message, that somehow the conservatives have managed to add £800bn to the UK economy is hence entirely misleading.

Moreover, the figure of £800m includes both imports and exports. Therefore, in some cases an increase in that figure were it due to genuinely new trade deals – e.g. with Australia and New Zealand when they enter into force – may actually not be good news. For instance, the aggregate value of trade may hide patterns where an increase is due to a surge in imported products, which displace UK products. This is a fear UK livestock farmers have repeatedly voiced regarding the UK-Australia deal and the UK-New Zealand deal. Long term, this could increase imports, but actually reduce exports if the size of the domestic livestock farming sector decreases significantly as a result. The total value of trade between the UK and countries that we trade with is therefore completely meaningless in terms of measuring its impact on the health of the UK economy, let alone people’s living standards.

This reification of FTAs by Brexiters is one of the clearest examples where Brexiters successfully use a post-truth strategy to shift the political debate into the realm of purely symbolic policy-making. Concluding FTAs is seen as proof that we have taken back control and that Project Fear was wrong, which is all that matters to Brexiters.

Another example of post-truth politics was provided by Kemi Badenoch the new Secretary of State for Trade. Bloomberg’s Lizz Burden tweeted about a worrying conversation she had with the Trade Secretary where Badenoch launched an attack on the Office for Budget Responsibility (OBR) based on the fact that economic forecasts are never entirely accurate. While none would deny that forecasts are of course rarely 100% correct, the fact that the Trade Secretary derives from that rather banal observation the conclusion that the impact of trade barriers on economic flows is a matter of opinion (‘The OBR has a view, we have a different view’) rather than one of facts and scientific analysis is disturbing to say the least.

More worryingly still, it becomes increasingly clear that the PM himself is no more committed to truth than his far-right cabinet ministers. During Prime Ministers Questions (PMQ) this week, – trying to defend the mess the Home Office is making of the asylum system – Sunak did not hesitate to create a completely false link between illegal immigration and the EU’s principle of Free Movement of People. This is either a sign of great ignorance, or one that the PM himself uses post-truth strategies as a tool to shore up support for the government, while showing no interesting in getting on top of the actual issues at hand.

Immigration: A fabricated crisis

Arguably the most widely-publicised and debate topic this week is the so-called ‘migrant crisis,’ which is probably the most egregious case of post-truth politics in the UK. This week, Home Secretary Braverman tried to convince her target audience that the UK is somehow under assault from an army of migrants ‘invading’ the country. In reality, the number of asylum seekers coming to the UK is relatively low compared to other EU countries, compared to its historic peak (in 2002 there were 84132 applications, which compares to 63089 in the year up to June 30, 2022), and compared to the 133,854 who were granted visas under the Ukraine Scheme, and the  75,764 granted under the Hong Kong scheme. In other words, while small boat crossings should be a concern due to the dangers involved and the impact the mismanaged situation has on local communities, the numbers that arrive in that way are certainly nothing the UK government could not handle were there a minimum of political will and competence. If we can accept more than 200,000 people from Ukraine and from Hong-Kong without any visible problems, surely 63,000 arriving through other channels would be easily manageable for a large country like the UK – which – ironically desperately needs more workers.

So, the ‘migrant crisis’ is 100% a crisis of the government’s own making. The long list of failures include the actions and inactions responsible for the dire situations in the over-crowded processing centre at Manston.  This week the Home Secretary was accused by Tory MP Sir Roger Gale of deliberately stopping to book sufficient hotel rooms that would have helped to avoid overcrowding at Manston. Under pressure, the Home Office then started to move hundreds of migrants out of the centre, with some of them being sent to central London where they were left stranded. These cases of neglect and sheer incompetence reflect a deeper the lack of political will in the Tory party to make the system work.

Since Theresa May’s spell as Home Secretary, which turned the ‘hostile environment’ slogan into official policy, successive Tory Home Secretaries have applied a policy that combines inhumane cruelty and disdain for the human rights of asylum seekers with a disdain for the civil service that has undermined the Public Service Bargain (in fact and in rhetoric) and thus the capacity of the state bureaucracy. As so often, here too, Brexit has made an already dire situation worse, most importantly due to the resulting souring of relationships with France that are crucial to stop small boat crossings and the UK’s decision to leave the Dublin III regulation that made it possible to return asylum seekers to the EU member state where they first arrived.

To what extent the fabricated ‘migrant crisis’ is going to help or hurt the Sunak government is an open question. With talk about a ‘migrant crisis’ all over the media, Tories may hope that fear of immigration may displace the economy as people’s main concern and thus distract them from the real issues they are facing. The rationale behind this strategy seems to be: As long as people hate immigrants, they don’t hate the Tories. This will explain why Braverman – following in the footsteps of other Tory Home Secretaries before her -  used such inflammatory rhetoric.

Yet, this strategy may start to backfire. The Tories have been in power for 12 years. Blaming Labour for the failings of the current immigration system seems increasingly ludicrous (although David Davis on the News Agent podcast still tried to minimise the Tories’ failure by comparing it to Labour’s record from 20 years ago). Sunak’s intervention at PMQ illustrates how thin the ice is Brexiters are now walking on. In a context where many firms are struggling to recruit workers, using the end of free movement of people as a defence of the government’s record on illegal immigration may simply highlighting the fact that Brexiters have failed on both accounts: Taking back control of our borders and ensuring that the UK labour market remains liquid after Brexit. Short term, vilifying refugees and fabricating new scapegoats – most recently ‘Albanians’ – may generate enough anger among certain groups in British society to continue ignoring that fact. But soon enough, they too will realise that throwing petrol bombs at migrant processing centres actually does not solve any of their problems. Indeed, as I have noted many times before, eventually, reality will catch up with all the lies. To quote once again the astute observation by Hanna Arendt in her Truth & Politics essay that I mentioned in a previous post about post-truth Brexit:

“In their stubbornness, facts are superior to power; they are less transitory than power formations, which arise when men get together for a purpose but disappear as soon as the purpose is either achieved or lost.”

Brexit, the purpose that brought the current power formation together, is all but lost. Indeed, as Chris Grey noted in his Brexit & Beyond blog this week, it is increasingly clear that the Brexit revolution has failed and the public’s attention is increasingly shifting from the wonderful promises to the ugly reality. It increasingly looks like the economic reality Brexiters are creating with their reality-denying ideology is going to be very ugly indeed.

Questionable economics

The disaster that the short-lived real existing Trussonomics has proven to be, may lead some to conclude that Sunak’s fiscal conservatism is a return to a more reasonable economic plan. To some extent that is true. Sunak and Hunt’s economic plans – to be fleshed out on November 17th – will not spark off a major financial crisis, as Trussonomics would have done had it not been for the emergency intervention of the BoE. Yet, the fact that Sunak’s economics are less bad then Trussonomics, does not mean that they are good. Indeed, as the Financial Times’ Martin Sandbu aptly puts it, we’ve gone from Truss’s “tax cuts without the spending cuts, to the spending cuts without the tax cuts.” Therefore, economically, Sunak’s government means a return to old recipes that have not worked in the past. Most importantly, austerity has been disastrous and arguably a reason why the UK has continued to struggle with productivity and economic growth after the financial crisis of 2008. Writing in the Daily Mirror, Prof. Danny Blanchflower and Prof. Richard Murphy, argue that Britain simply cannot afford another phase of austerity. Not only will it depress consumer demand due to reduced household income, but also – as the FT’s Sarah O’Conner argues – does cutting investment in public services mean they become less efficient and therefore more expensive in the long-term.

The situation is made worse by another powerful actor in the UK’s economic policy making – namely the Bank of England. It is increasingly acknowledged that what brought down the Truss government were not ‘the markets,’ but the BoE. Indeed, tensions between the BoE and Truss pre-dated her premiership, as she criticised the banks record on bringing down inflation already during her leadership campaign and questioned the Banks’ independence. Indeed, due to the incompatible goals, Trussonomics meant that there would be inherent tensions between the Treasury and the BoE. Under Truss, the Treasury was stepping on the accelerator, while the Bank was applying the brakes. That is not the case with Sunak’s orthodox economic plan of spending cuts and austerity, which is much more aligned with the BoE’s goal of controlling inflation. Yet, on the flip side, the relative alignment between government and BoE priorities means that both are now acting pro-cyclically pushing us towards recession. In other words, both the Treasury and the BoE are stepping on the brakes. Indeed, Sunak-Hunt’s plan to reduce government spending, keeping taxes where they are or even increasing them, and the banks focus on increasing interest rates to fight inflation all mean aggregate demand will be lower than it would otherwise be.

Prof Murphy has warned for a long time that the BoE’s approach to inflation is misguided.* Increasing domestic interest rates will do very little to reduced inflation in a context where the main sources of inflation are increasing global prices for gas and food, which are largely due to the war in Ukraine. To be sure, increasing interest rates – as the BoE did on Thursday (from 2.25 to 3% - the biggest hike in 30 years) – will strengthen Sterling and thus possibly reduce import price increases somewhat. Yet, overall given the external causes of inflation, interest rates hikes may proof ineffectual to combat price rises. Conversely, they will push the UK economic into a recession, which the Bank warns could be the longest in 100 years and see unemployment double.

In combination, the Treasury’s and the BoE’s economic plans may not be as reckless as Trussonomics was, but they are reckless nevertheless, because they accept the fact that thousands of people up and down the country will be struggling to keep a roof over their head, will lose their jobs, and will face further reductions in public services, while the two goals that Treasury and BoE try to achieve (balancing the government budget and reducing inflation) are of limited importance in the real world. Indeed, on the question of the so-called budget ‘black hole’ that the Treasury so desperately wants to plug, Prof Michael Jacobs convincingly shows that this blackhole in public finances is largely fictional. Similarly, while inflation above a certain level is a problem, it is much less of a problem than mass unemployment, businesses going bankrupt, and people losing their homes. Hospitality firms are certainly suffering a great deal from increased food and energy prices. But given the external sources of these price rises, increasing interest rates (in combination with austerity) will make things worse by reducing demand in a time of continuing high prices.

There are alternatives to the current economic orthodoxy incorporated by the Sunak government and the BoE. Prof. Blanchflower and Murphy mention four: The continuation of quantitative easing (i.e. printing money), the government borrowing directly from people rather than financial markets through government savings accounts, increased windfall taxes on energy companies and banks, and an increase in capital gains tax. Others include a net wealth tax.

Yet, once again, by putting the goal of reducing inflation ahead of keeping people in employment and in their houses, Britain’s economic institutions seem to make the choice of privileging finance over industry like they have done at least since the 1980s. This time, the libertarian leanings of Brexit economics reinforce the pressures to make that choice. A prominent argument for tighter monetary policy among Brexiters is that companies that can only survive on cheap credit are zombie companies that should go bust. That argument has some merit in normal times. In the middle of a multi-crisis that threatens the livelihoods of millions, however, the focus should be firmly on the reality of people’s economic situation, not on the fantasy of market efficiency.

The silver lining

If one positive thing can be said about the current trends in British politics, with the economic pain increasingly felt throughout the country, questions about Brexit promises will only grow louder and voices asking for a change of direction will become more numerous. As Chris Grey very convincingly argued this week, judged on the grounds of economic reality, the Brexit project can only be seen as an abject failure. As the gap between Brexit fantasy and people’s reality is growing, the risk of a ‘mass wish psychosis’ that I wrote about a few months ago now seems rather more limited. Eventually, the tyranny of facts may provide the British democracy a way back to reality.

 

 

 

*The BoE is not the only central bank starting to feel a push back against their prioritising of low inflation over any other economic goal.  In other European countries, similar discussions are taking place and doubts about central bank independence are being raised. This may also explains why the BoE was eager to stress on Thursday that while it announced a major increase in interest rates, going forward, it may not have to raise them as much going forward as markets had expect. This, in turn, has led some lenders to signal mortgage rates may fall again in the mid-term.

Brexit Impact Tracker – 31 October 2022 – Brexit Government Number 4: Sunak caught in the Brexit straitjacket

Last Monday I was writing about a possible ‘Thermidorian reaction’ after a phase of madness in the Brexit revolution. In other words, along with other commentators, I was expecting a clear break with the extremist approach the Brexit movement has increasingly taken since Johnson won the General Election in 2019.  The increasingly obvious noxious effects of Brexit on the UK that culminated in the Truss-Kwarteng mini-budget that nearly sparked off a major financial crisis, seem to make a break with the previous course inevitable if not for ideological, then at least for reasons of economic realism.

On Tuesday, the new PM Sunak started to reshuffle his Cabinet. Rather than a clean break with Brexit extremism of the past three years, the reshuffle reflects the disarray in which Brexit has thrown Britain’s governing party. It has become clear that the new PM remains a prisoner of those internal dynamics, which dramatically limits his political leeway. The personnel decisions imposed by the party-internal logics – as it is already becoming clear now – imply that the chaos that marked the Johnson and Truss governments will continue under Sunak and that real issues will be difficult to solve in this constellation.

Sunak blows his chance

PM Sunak promised to run a government that shows competence, compassion, and integrity and talked about accountability and professionalism. The actions that followed the promises were to (re)appointed people like Dominic Raab, Nadhim Zahawi, and Therese Coffey, and most controversial Suella Braverman, to his cabinet. The new cabinet is a mixture of Johnson’s Cabinet– including Michael Gove and Dominic Raab – and bits of the short-lived Truss cabinet. Rather than a clear break, Sunak therefore opted for a continuity with the past two governments. This included keeping Northern Ireland Secretary Chris Heaton-Harris and NI minister Steve Baker in charge of the Northern Ireland dossier. Most spectacularly, however, only one week after her departure, Sunak reinstated Suella Braverman as Home Secretary.

Some of these appointments can be explained by political pragmatism and debts owed especially to various factions in the party. Indeed, despite a relatively large parliamentary majority, Sunak’s position in the party is weak. In particular, the hostility of the Party’s right-wing to anyone who may show a hint of pragmatism about Brexit is a constant threat looming over Sunak’s premiership. Indeed, Steve Baker had already two weeks ago threatened to bring down the new PM if they were to adopt a softer approach to the Northern Ireland Protocol. This pressure from the right will explain why the new PM kept some hard-line Brexiters, like Baker and Braverman, on board. Rather than an error of judgment, politically Sunak may not have had a choice if he wanted to become PM.

Another appointment, however, may more directly reflect Sunak’s own lack of judgement not only in terms of integrity but particularly in terms of competence. Indeed, the reappointment of Dominic Raab as deputy PM and justice secretary is difficult to understand. Raab, does not seem to possess the necessary stature and seriousness required from someone holding a significant office of the state as he has proven during the fall of Kabul to the Taliban. As such, he hardly is an appointment that signals that Sunak is serious about professionalism and competence. One way of explaining why Raab made a comeback is that it reflects what Sunak deems he requires to appease various factions inside the Tory party and amongst its electorate to stay in power. Here, Raab’s appointment may serve the purpose of building capacity for an electorally effective ‘culture war.’ Raab, more than anyone else, symbolises the right-wing Brexiter obsession with the rejection of the international legal order and the definition of sovereignty as not accepting any rules and norms emanating from international bodies. His return to office is expected to lead to the relaunch of the absurd Bill of Rights bill, which constitutes a purely ideological attack on the European Human Rights Convention (EHRC) that serves no practical purpose, but will make relationships with the EU more complicated for no reason other than ideological opposition to international law.

Michael Gove’s appointment as Secretary of State for Levelling Up, Housing, and Communities, on the other hand, also signals continuity with the Johnson government and spells the return of the ‘levelling up’ agenda, which Truss had scuppered. This may indicate that despite a strong ‘southern’ bias in the Cabinet (which in itself is somewhat ironic given that Sunak is the first MP from a Yorkshire constituency) and Sunak’s evident distain for the substance of the levelling up agenda, he may still harbour some hope that the Red Wall seats the Tories conquered in the 2019 General Election may not yet be lost. What exactly levelling up will look like now that we are back to austerity is unclear. It may well be that some big-splash investment projects and house building plans will be announced and marketed, while with the other hand the government will cut benefits and public services.

Overall, the new Cabinet reflects just how riven with divisions the Tory party is and it is already becoming clear that this is not basis on which to build a more stable government and regain the trust of the public, foreign governments, and the markets. Just how unstable the Sunak government will be is debateable, however. Prof Tim Bale pointed out that Sunak is wrongly seen as a centrist or moderate. Rather, he was an original ‘Brexiteer’ and small state libertarian, Party’s far right may therefore cut him more slack than they did converted Brexiter Truss or turn-coat Johnson. Prof. Bale writes ‘If he is more sensible than Truss and Johnson, both of whom rewarded loyalty rather than talent, and instead reaches across the party when choosing his frontbench team, that could come across an immediate improvement.’ According to Prof. Bale, he may hence be the person able to hold together the divided party.

Clearly, Sunak did reach across the party by reappointing former members of the Johnson government as well as keeping on some from the Truss cabinet and genuine centrists like Hunt. As such there is continuity and a certain breadth that Truss’s cabinet certainly did not have. However, these appointments clearly are the result of internal and external pressures and necessities – keeping the ERG as well as the markets happy – and not based on ‘talent.’ This is the cabinet Sunak needs to stay in power. It is not the cabinet the country needs to solve its problems. As such, we are not that far from the Johnsonite Egocracy. Indeed, I would disagree with Prof. Bale’s characterisation of most Tory MPs as ‘bog-standard Thatcherites.’ There is something distinctly 21st century about the current leadership of the Tory party, which is Thatcherite only in terms of hagiographic references to their most successful recent PM. In substance, they are adhering to a much more sinister libertarian political philosophy of amoral selfishness and ruthlessness whose only goal is to justify one’s personal quest for power. In that sense, whether centrist or not, Sunak is primarily just another egocrat, which means he will put his own career before anything else. Such an approach to running a government is dangerous, because it leads to bad choices. Braverman’s reappointment – possibly necessary for Sunak to become PM in the first place –, already proves to be such a bad choice implying that Sunak’s government is not only a continuation of the Johnson and Truss governments in terms of personnel, but also in terms of chaos.

Is ‘Leaky Sue’ the right person to make our borders tight?

In normal times, appointing someone as Home Secretary who senior Tories have nicknamed ‘Leaky Sue’ due to alleged multiple breaches of the ministerial code only six days after she resigned (or was sacked) from that very same post due to such a breach seems like an astonishing thing to do. Even more astonishing is if that decision were made against the explicit advice of senior officials. In a sign just how much Brexit has eroded the standards of public life in our country, Sunak’s choice makes some political sense. It is a necessary concession to the far right that has taken hold of the Tory party and the media that support it. Conversely, the public outcry over the outrageous disregard for standards in public life is limited, possibly because – having been presented with uncountable examples over the past years – people may start to accept that adherence to standards of integrity set out in the ministerial code or norms of decency applying to the rest of society are optional for those in power. The Braverman reappointment may hence be less surprising in 2022 Brexit Britain than it would have been in normal times.

Still, the decision to reappoint Braverman may come to haunt Sunak very soon. His first week in office was marked by reports about Braverman’s resignation from the Truss government. The official explanation was that Braverman had to step down due to a security breach that constituted a violation of the ministerial code. Over the following days, various – partly contradictory – details of what happened emerged. What we know is that the Home Secretary used a private e-mail account to send a classified document containing information about a ‘growth visa plan’ to a backbench Tory MP, who did not have the relevant security clearance and had business interests that might be affected by the information. It then emerged, that contrary to her own account, that the e-mail was not sent by mistake and that she did not raise the issue with the relevant instance when discovering the mistake. Rather the incident only came to light, because she accidentally copied a person who then referred the matter to the Chief Whip. There are also two slightly different versions of how the incident led to her resignation from the Truss government. One account states that Braverman was in denial about her forced resignation, while a more favourable account suggests she resigned mostly in disagreement with PM Truss about the softening of immigration targets. Regardless, Labour leader Kier Starmer, during Wednesday’s first Prime Minister’s Questions (PMQ) with Sunak, suggested that Braverman’s reappointment was part of a ‘grubby deal’ that involved Braverman agreeing to back Sunak rather than Johnson in the leadership race.

Whatever the reasons for the resignation and her re-appointment, the fact is that Braverman’s reappointment means that Sunak’s government is immediately drawn into the same murky waters in which the Johnson government dabbled for most of its existence. Already on Wednesday SNP leader in the Commons Ian Blackford asked for Braverman to be sacked. Labour has asked for an urgent investigation into the case – something which the government immediately rejected. PM Sunak,  Nadhim Zahawi, and Michael Gove had to publicly defend the decision, saying Braverman deserved a second chance.

The Braverman case takes on an even more delicate complexion following another major revelation over the weekend. The Daily Mirror revealed that during the summer Liz Truss’s mobile phone had been hacked and sensitive information stolen (presumably by Russian secrete services) when she was Foreign Secretary. Worse still, the reports suggest that Johnson had ordered a complete media blackout so as not to compromise Truss’s chances of becoming party leader and hence PM.

Taken together these events show in shocking fashion that despite all the jingoism and nationalism that currently dominates the Tory party, when it comes to the reality of running our country, the Tories are simply not serious about issues of national security. This was illustrated by the government’s refusal to take Russian interference in British politics seriously. The new revelations add to that and show that even when it comes to very concrete cases of sensitive data, the interests of the politicians involved are put above the national interest.

For Sunak, the Braverman case means that his government is immediately on the defensive having to defend grand claims about professionalism, integrity, competence, with what increasingly looks like reckless decisions and poor judgement spilling over from the previous governments into the new one.

The Braverman reappointment has another downside for Sunak, namely that it highlights more than would otherwise be the case the failures of the Tories in what is considered a key policy area for them, namely immigration. During PMQ, Sunak defended his decision to reappoint Braverman by arguing she should not be judged on her integrity, but on her ability to reduce crime and ‘defending our borders.’ Yet, on the latter at least, events of the past weeks will cast doubt on her suitability for the job even on the Tories’ own terms. Indeed, the old and new Home Secretary increasingly faces questions about increasing numbers of small-boat crossings of the English Channel, the worsening conditions at immigration processing centres, which were made worse still yesterday by a petrol bomb attack on one centre in Dover. Especially the latter horrific incident may reflect the fact that with the new Home Secretary we have a person in charge who is likely to make all of these issues worse rather than better. Her hateful blustering about sending asylum seekers to Rwanda is the sort of symbolic policy that guarantees her the support of right-wingers, but is impractical and has absolutely no effect on the actual problem, while stirring up popular resentment against the most vulnerable people in our society. As such, Braverman is not only an ethically questionable choice, but it is also very doubtful whether she will be able to deliver on what her right-wing backers expect her to deliver on. If she does not, the soundness of Sunak’s judgement not just in terms of integrity, but also in terms of competence will come under scrutiny.

Pragmatism or fanatism?

That said, there were also some early signs that in some respects, Sunak will indeed constitute a departure from the Truss and possibility even the Johnson governments by showing more pragmatism when it comes to key Brexit-related issues.

Thus, Sunak reintroduced the ban on fracking that the 2019 Tory manifesto promised, but that Truss had scrapped. Sunak repeatedly referred to the 2019 Manifesto during his first week in office, signalling awareness of the fragility of his legitimacy. As the third PM of this parliament, Sunak seems keen to stress the long chain of legitimacy that stretches back from his leadership across Truss and Johnson, to the latter’s 2019 GE victory. The need to prove the legitimacy of his government despite the absence of a General Election, constitutes another constraint on the Sunak government, which limits what he can do – at least if he cares about the popular mandate stemming from that election.

He also undertook steps that signal a willingness to try and establish a more cooperative relationship with the EU. Thus, one of his first actions in office was a phone call with EU Commission President Ursula von der Leyen. He also showed pragmatism when it comes to the retained EU laws bill, which former senior civil servants say may create a major chaos when existing EU laws in UK legislation will expire by default due to a ‘sunset clause.’ Sunak seems willing to tune down that bill and also decided to abandon the idea of a new Brexit delivery unit, which he promised during the leadership campaign in the summer, but now considers would take up too much of the civil service’s resources.

Could it therefore be that deep down, Sunak is indeed a pragmatist who will seek to move Brexit Britain into a direction where some of the key issues caused by the UK’s exit from the bloc may finally be solved? In other words, is Sunak a reasonable pragmatist who is being forced by the Brexit ultras in his party to behave like the madman they want him to be?

During PMQ, there were several moments where Sunak sounded just like Johnson – wading into culture war territory, by dissing Starmer about North London and making baseless and unrelated claims about number of police officers. Whether this is out of personal conviction or a result of playing to the gallery is not clear. However, when it comes to some of the most pressing issues – most importantly climate change – Sunak seems just as ideologically blinded as many on the fanatic right of the Tory party. Thus, he has announced that he will not participate in the COP27 climate summit in Egypt and has not changed Truss’s advice to King Charles not to attendalthough pressure is mounting from within his own party that he does attend the summit. On the question of whether Sunak the pragmatist or Sunak the ideologue will prevail during his time in office, the jury is out.

Between water and hay

By trying to square the circle of party-internal needs to shore up support within the party, the need to claim democratic legitimacy by tying his leadership to the 2019 manifesto, the need to show pragmatism to solve key Brexit issues and address the UK’s economic woes, and his own ideological biases, Sunak’s government already seems to have manoeuvred itself into a corner.

Nowhere does this become clearer than regarding Northern Ireland and the question of the Northern Ireland Protocol (NIP). This week, the deadline for the different Northern Irish Parties to form a power sharing executive at Stormont elapsed without the Democratic Unionist Party (DUP) committing to returning to the executive. It is now up to the UK government to decide whether a new election to the Stormont Assembly should be called or whether direct rule from London will be imposed. It was widely expected that London would call a new election on Friday, but the decision has now been delayed and is expected early this week.

Unless such an election dramatically changes the power relations in the Northern Ireland Assembly, it seems difficult to see a way out of the imbroglio. Indeed, the dilemma Sunak faces is the same that prevailed in Northern Ireland since the UK decided to leave the EU’s single market. Chris Grey summarises the impasse perfectly when writing “either there will be no deal, the NIP Bill will pass and be used, causing a crisis in relations with the EU, and with serious implications for relations with the US; or a deal will be done with the EU, the NIP Bill abandoned or its powers not used, and there will be a political crisis within the Tory Party.”

Northern Ireland is not the only Gordian knot the new PM is facing. Another one concerns immigration, where the appointment of the hardliner Braverman means that the economically necessary loosening of immigration policies seems all but impossible given Tory-internal political pressures.

In more than one policy area, then, the PM is stuck in a situation where economic realism requires him to take actions that political realism does not allow him to take. Like Buridan’s ass, torn between water and hay, between the need for political support and for economic pragmatism, Sunak may soon find himself paralysed by the choice whether to starve to death or die of thirst.

The end of a taboo

The Sunak government turns out to be a less clear break from the chaos that has befallen the governing party since the 2015 General Election. The necessity to reconcile the various factions of a deeply divided party seems to put anyone in charge of leading it into a straitjacket that condemns them to fail. The reason for that division and the paralysis of the successive Brexit governments is without a doubt Brexit itself. The Tory party is held hostage by the Eurosceptic fringe which makes it impossible for whoever is in charge to solve any of the issues Brexit has created.

Yet, outside the Tory party and the Brexit bubble, in the real-world things are changing. Last week brought a considerable amount of media coverage on the impact of Brexit on the UK’s economy and society. Thus, the News Agents dedicated an episode to the question ‘how damaging is Brexit?’ This follows various recent commentary and editorials that saw people who are far from sounding the alarm bell over the damaging impact of Brexit. Thus, Tory donor Guy Hands penned an article decrying the Brexit lies and already a couple of weeks ago Telegraph columnist Jeremy Warner argued that Project Fear was right all along. Most importantly perhaps, this week the BBC reported extensively on the negative impact of Brexit on the UK economy.

I have written about the end of the ‘Brexit omerta’ three months ago. After the Trussonomics disaster, that movement seems to be gathering pace and widening. In the real world there are fewer and fewer voices who try to convince the public that Brexit has been or can be a success. The PM still made a passing reference to Brexit opportunities in his inaugural speech; and Brexit ultras like Briefings for Britain still try to convince their readers that the past weeks were not a failure of the deeply flawed and reckless economic policy making that is inherent to the Brexit project, but the result of a ‘Remainer coup.’ These voices will not go away, however clear Brexit’s failure will become to the people outside the bubble, because they are based on conspiracy theories that can attribute any real world damage Brexit does to the country to external factors. The fact of the matter is however, that the public will grow tired of Brexiters’ insistence that we need to be patient to see Brexit’s positive impact to materialise. Indeed, the polls have been showing for a while that the majority of British people have long lost faith in Brexit. Currently 54% think it was a mistake to leave, only 34% think it was the right decision. As the cost-of-living crisis starts biting, as interest rates – including on mortgages – are on the way up and may very well hit 6% next year, as businesses will close down and people become unemployed, it is unlikely the public’s judgement of how Brexit is going will change. The verdict will be clear: Whatever the reasons, what we were promised six years ago has not happened, while things have happened that we were told would not happen outside the EU. Eventually the Brexiters will have to take responsibility for what they have done to the country. The recent return of coverage of Brexit in major news outlets of all colours is crucial to make sure that point comes earlier rather than later.

Brexit Impact Tracker – 24 October 2022 – Britannia Unhinged: Project Lazarus and the Thermidorian reaction

I know I have written this before, but what a week it has been! On Thursday, after just 44 days in office, PM Liz Truss was forced to resign after a meeting with the chair of the backbench 1922 Committee Sir Graham Brady. She thus becomes the shortest serving PM in history. Today at 2pm it was announced that Rishi Sunak has been chosen by – according to BBC estimates – around 193 Tory MPs (.00028 % of the population) to be our next Prime Minister. It is not entirely clear on what platform Sunak was elected. Yet, based on what he had to say during the leadership campaign over the summer and based on what happened since, we can expect an orthodox economic policy. It is quite likely Sunak will keep Jeremy Hunt as a chancellor who will present his fiscal plans on October 31st as planned. Compared to a couple of weeks ago, the markets have steadied somewhat as a result. Following the announcement of Sunak’s selection, the pound traded higher against the US dollar.

On the flip side, we can be pretty certain that we will now be facing a new phase of austerity, which some commentators expect to tougher than the one Osborne imposed on the country from 2010 onwards.

It is also not clear how long the relative stability will last. There was a certain show of unity around Sunak’s candidature over the past few days. Thus, Kemi Badenoch and Suella Braverman backed Rishi Sunak rather than Boris Johnson. Braverman justified her choice by arguing that it was no time for ‘indulge in parochial or nativist fantasies,’ which seems like an astonishingly honest and cleareyed summary of the policies she normally stands for. Yet, the fundamental divisions in the party remain and nothing suggests it has become any more unleadable than it was a few months ago. In this context, it is interesting to try and understand what new phase Sunak’s premiership may imply for Brexit Britain.

 The end of the reign of terror?

Interestingly, various commentators were trying to make sense of what was happening to the Tory party by likening Brexit to a revolution. Thus, German public broadcaster ARD’s London correspondent Annette Dittert talked about the ‘the Brexit revolutionaries in the Tory party.’ Former Tory MP Rory Stewart considers the Tory party as a whole – purged of any moderates – to have become a ‘revolutionary party.’ The Telegraph’s Jeremy Warner wrote last week of the ‘revolution in the British economy’ that Leave campaigners promised, but that now goes the way of every revolutionary movement by ‘eating itself.’ Andrew Marr, writing in the New Statesman agrees. The Financial Times’ Martin Wolf considered that Trussonomics marks the point where “the Brexit Revolutionaries over-reached.”

To be sure, each revolution is unique, deeply grounded in its historical context, and contingent on a myriad of unpredictable and unrepeatable actions by historic figures. But if we accept the Brexit revolution analogy for a moment, one may wonder whether the current phase of Brexit could be seen as equivalent to the beginning of the Thermidorian reaction during the French Revolution. In the latter case, the revolutionary movement arguably culminated on 9 Thermidor, year II (July 27, 1794). That day, the National Convention had Maximilian Robespierre and other Jacobins’ arrested and then executed, thus ending the ‘Reign of Terror’ that had seen the Revolution become ever more extreme and paranoid over the previous eleven months. What followed was the so-called Thermidorian Reaction that ended the grip of the Jacobins and the working class ‘sans culottes’ on the Revolution.

On Thursday – for a few hours – it seemed like the prevalent mood was that Brexit had reached its 9 Thermidor. Indeed, Truss’s resignation was followed by a short period of fairly wide-spread agreement that her downfall may spell the end of the most extreme phase of Brexit. Anette Dittert wrote that Truss’s failure to deliver on the “pure right-wing libertarian doctrine” the “Brexit revolutionaries” wanted her to deliver might spell the ‘beginning of the end of Brexit [GER]’. The Guardian’s Jonathan Freedland too, expected Truss’s demise – and thus according to him the biggest humiliation of Britain since the Suez Crisis in 1956 – to sound the death knell of the ‘delusion of sovereignty’ that drove Brexit. Brexit, he writes ‘broke the link between governance and reason, between policy and evidence,’ which made ‘the current great unravelling a political death foretold.’

Truss and Kwarteng’s ERG-supported and Tufton Street-inspired economic extremism having crushed the British economy in less than a month, the appointment of Jeremy Hunt as Chancellor ten days ago already foreshadowed that more moderate (or reactionary) forces would now take over control; announcing a more boring and unspectacular phase of the revolution. As such, Truss’s short premiership may indeed be the Brexit-universe equivalent to Robespierre’s reign of terror. Like Robespierre’s reign of terror, Truss’s reign of extreme libertarianism ended up turning public opinion against the revolution. In Truss’s case shifting the public’s preferences away from the utopia of free markets, towards a longing for stability (of prices and mortgage rates for starters).

Project Lazarus

Yet, any short-lived hope on Thursday that Truss’s demise would lead to a phase of stability were quickly dashed when Boris Johnson’s voice made itself heard from his Caribbean holiday resort suggesting that he was keen on having another go at running the country. While still dismissed by Paul Goodman – the editor of the Conservative Home – on Thursday, over the following days it increasingly looked like Johnson might still enjoy a significant amount of support among Tory MPs. Indeed, the slogan Bring Back Boris (BBB) started trending very quickly. For a few days, it became doubtful whether bookmakers’ favourite and runner up in the summer leadership contest Rishi Sunak would have a clear run on the leadership, or whether Johnson would be able to find enough supporters to force an election by the party membership.

Amazingly, supporters of BBB included some who only a few months ago considered him unfit to govern. Most strikingly, Nadhim Zahawi, who only three months ago wrote to PM Johnson, imploring him to resign, now decided to back him in the new leadership race. On Sunday, the Telegraph published an article online penned by Zahawi entitled ‘Get ready for Boris 2.0 the man that will make the Tories and Britain great again.’ In another twist, minutes later on Sunday night, Johnson announced that he would pull out of the race!

While the BBB movement has ultimately been unsuccessful, we should not normalise what happened this week with Johnson’s averted comeback. In his statement announcing his withdrawal from the contest – full of the usual Johnsonite bluster – he claimed that he had the backing of 102 MPs and would probably win a members vote. The first part of that statement most probably was not true (incidentally, it seems quite fitting that Johnson’s comeback attempt should end with another lie). But even serious sources speak of 57 backers amongst Tory MPs, which given the fact that Johnson by any standard is unfit for high office is flabbergasting.

The fact that a former PM who had to leave office only a few months ago in utter disgrace – a man that observers can openly call a liar and lawbreaker, because that is established beyond doubt – was considered by many conservative MPs a viable option to become PM again shows the utter moral bankruptcy of the Tory party. Worse still, some voters in Johnson’s Uxbridge constituency seemed to seriously consider to vote for Johnson again in a next election.

One MP called the possible return of Johnson as PM – the greatest comeback since Lazarus. I remember a passage from Swedish literature Nobel Prize laureate Pär Lagerkvist’s novel ‘Barabbas,’ that describes the moment when Barabbas – the thief who according to the legend was spared the cross instead of Jesus Christ –  visits Lazarus of Bethany in his house after he has been resurrected by Jesus. Barabbas describes the encounter as creepy, and Lazarus as having an unhealthy skin colour and accompanied by a smell of death. Had Johnson indeed managed to return as PM only a few short months after his disgraceful departure from office, it would have stunk to high heaven.

By setting the bar for leadership nominations at 100 MPs – a very high bar compared to this summers’ contest when the backing of only 20 MPs was needed for a nomination the party averted a possibly disastrous second Johnson premiership.

Indeed, very senior Tories including former party leader William Hague and many relatively moderate Tory MPs consider a Johnson return the worst possible idea. Around a dozen Tory MPs had threatened to resign the whip if Johnson were to return. Moreover, the ongoing partygate investigation by the Privileges Committee could mean that even if he had been elected leader for a second time, he could still have been suspended from the House of Commons and hence forced to step down as PM again. Paul Goodman on the Conservative Home web page wrote that “conservative members may not grasp the extent to which their party is becoming a joke – here and abroad” for “[…] forcing out Johnson, replacing him with someone worse and then bringing him back again […]”. 

The Thermidorian reaction

By setting the bar at 100 MPs for leadership nominations, the party sought to make sure only one candidate would reach the required number, thus making a vote by party members unnecessary. This was important to shorten the process and also avoid that the public eye turned on some of the procedural issues related with the selection of a new Tory leader, such as the possibility of foreign interference in a likely online vote or the exclusion of a large number of Tory members without access to online voting. In the end, Sunak reportedly achieved the backing of 193 Tory MPs, while Penny Mordaunt’s number of backers was said to be around 24, leading her to drop out minutes before the 2pm deadline for submitting nominations today, thus leaving only one candidate and making a members vote unnecessary.

With Johnson’s comeback averted and Sunak now PM, it may indeed look like we have reached 9 Thermidor in the Brexit revolution. Sunak will bring some stability and reassurance to the markets. Despite the fact that he is a leaver, given the economic pressures the country is under, his premiership is widely expected to be marked by more pragmatism including regarding the UK’s relationship with the EU. But it will also mean that the fiscal orthodoxy of balanced public finances that returned with Hunt is here to stay, implying also that the return of austerity is inevitable, inflicting more pain and suffering on households already struggling to pay their bills. Indeed, it is hard to see how Sunak’s expected economic plan will lead to anything else than massive popular discontent. Austerity has been tried before and does not work. There is no money left for ‘levelling up’ – leaving large parts of the country fending for themselves during one of the direst economic situations the country has experienced in decades.

Recoupling not rejoining?

The simplest and most obvious way in which some of the economic pressures could be eased would be to abandon the hard Brexit strategy and rejoin the Single Market (SM). Indeed, as Geoff Hodgson puts it aptly, hard Brexit is a form of self-imposed austerity. Rejoining the Single Market would be an obvious way to ease some of the pressure. Yet, such a policy - if Sunak the leaver could bring himself to adopt it out of pragmatism - would immediately lead to tensions with the hard right in the Tory party assembled in the European Research Group. Rejoining the SM would mean accepting free movement of people, opening up the government for devastating attacks from the anti-immigration Tory right or from a revived anti-immigration party led by Farage.

Rejoining the SM – let alone the EU – not an option, an alternative might be a less obvious rapprochement with the EU; a form of progressive and selective ‘recoupling’ rather than a more ambitious rejoining. Here the negotiations around the NIP could become a catalyst to achieve that.

Northern Ireland Protocol

Earlier last week, Mujtaba Rahman of the Eurasia Group wrote that the chaos in Westminster might have an unexpected beneficial effect, namely that even to the UK government it must now be obvious that the UK simply cannot afford to continue its confrontational approach and thus risk a trade war with the EU. While Rahman’s comments were made with Truss as weakened PM in mind, it is even more likely that a less ideological PM like Sunak will want to work towards a solution. Especially with rejoining the SM not an option, finding solutions to reduce non-tariff trade barriers that Brexit is imposing on UK companies may be even more important.

Here it is conceivable that Sunak may be eager to solve some of the issues that are purely ideological, e.g. the UK’s refusal to accept an agreement on sanitary and phytosanitary (SPS) rules that would imply dynamic unilateral alignment with EU rules. Such an agreement would very considerably reduce the need for border checks between the UK and Northern Ireland – but would also reduce trade frictions at other UK borders. At the same time, an SPS agreement would also make exporters’ and importers’ lives much easier at no real cost – other than the fact that we are not ‘sovereign’ to decide our own SPS rules. The more the economic situation worsens, the less the British public may care whether the SPS rules that apply to UK imports and exports are the same as the EU’s or our own.

Yet, here too, the ERG’s maximalist claims may constitute a stumbling block. Indeed, Steve Baker – currently still Northern Ireland minister – threatened on Sunday to ‘implode’ the government if the next PM did not continue the current hard-line approach to the protocol. Sunak will face a tough choice between adopting a more pragmatic approach and risking the wrath of the ERG, or continuing a confrontational approach with the EU, which would risk a trade war and thus further economic pain to keep the ERG (and Unionists) on board.

This indicates that whatever relative stability Sunak will bring, will be fragile and most likely only temporary. Since the Brexit referendum, Britain has become unhinged and is experiencing a rolling political and economic crisis. It seems very unlikely that another unelected Tory PM will be able to put an end to that.

No regrets, no remorse, nothing learned

Still, we can expect relative calm for a while now, given that Tory MPs are probably as exhausted as the rest of us by the absolutely shambolic past few months. There may be a genuine feeling that things need to calm down if Tory MPs want to stand any chance of keeping their seats in the next election. Beyond pure self-interest, however, there is little evidence that Tories have learned the lesson from disastrous past choices and are ready to question the path the party has gone down since the 2015 General Election.

For instance, in their attempt to pretend that the economic mess Trussonomics has inflicted on the country is not their fault, even moderate, One Nation Tories still seem to let the Truss wing get away with the notion that her economic plan was merely ‘too far and too fast,’ rather than fundamentally wrong. Few Tories seem willing to reject unambiguously the libertarian economic strategy she sought to implement. Few openly say that the plan was simply wrong, no matter at what pace it was delivered. There is no acknowledgement that the problem was the direction, rather than the distance and the pace. While this may seem like a moot point now that she is gone and discredited, it does leave the door open for a comeback of those toxic economic ideas once the dust has settled and people start forgetting what happened after the mini-budget.

Similarly, Sunak’s economic plan most likely will reveal very clearly that nothing has been learned from a decade of austerity and the havoc it wrecked. Given his track record and past statements on ‘levelling up,’ it also seems likely that whatever is left of the ‘levelling up’ agenda is bound to be sacrificed on the altar of ‘sound public finances.’ The political outcome will be more anger and grievances in the poorest parts of the country. Inflicting austerity on already stretched public services and on people who are already struggling with rising living costs will have a much more devastating effect on the country than Osborne’s austerity of the 2010s. Tories seem perfectly happy to accept that price to satisfy ‘the markets.’ Countries around us, however, observing Britain from a distance, are increasingly worried about political instability in the UK. Sunak’s austerity will not solve that problem. Indeed, just like Osborne’s austerity, which – as Geoff Hodgson argues in a recent blog post – did not achieve its goals of reducing national debt and increasing growth, so will Sunak’s austerity only make things worse. It will spur further discontent which will make a Johnson or Farage comeback more likely, thus keeping the UK trapped in political instability and turmoil.

The Thermidorian reaction during the French Revolution managed to put a halt to the madness of the Reign of Terror, but it did not solve any of the underlying issues. Rather, it led to further disillusion with the First Republic and the Revolution and paved the way for the rise of Napoleon Bonaparte and thus the demise of the French Republic. Sunak would do well to heed that cautionary tale…but he won’t.

Brexit Impact Tracker – 15 October 2022 – Chaos, Chaos, Chaos, Don’t Give a Toss: Andrew Bailey versus the Government versus the people

All week, I had this song stuck in my head.  It is a song by the East London Oi! band ‘The 4-Skins’ and the chorus is ‘chaos, chaos, chaos, don’t give a toss.’ It seems like the perfect theme song for this week in British politics! I would describe it as ‘extraordinary,’ were it not for the fact that such extraordinarily chaotic weeks have become the rule rather than the exception since 2016.

The week started with us having a Chancellor Kwasi Kwarteng, a plan not to rise corporation tax, and a plan to cap energy bills without resorting to a windfall tax on energy company profits. It ended with us having none of these things.

Another string of spectacular U-turns by PM Truss meant that her bold and radical economic policy is in tatters, and she now exclusively focuses on saving her job. By Friday, the only way to do that seemed to be to throw her closest alley and Britannia Unchained co-author Kwasi Kwarteng under the bus. In an attempt to reassure the markets, she instead appointed former Health Secretary Jeremy Hunt as the new Chancellor. Hunt is expected to adopt much more orthodox economic and fiscal policies than Kwarteng, Truss, and their libertarian backers would have liked.

I will freely admit that part of me is full of schadenfreude about the mess the Tory party is in and the fact that their libertarian policies have failed the tests of markets so spectacularly (and I’m clearly not alone, as this tweet by Ed Miliband illustrates). The problem, of course, is that the economic fall-out of the Tory-induced chaos will not hurt Tory politicians or Tory party members most, but rather it will inflict years of economic pain on the rest of us. Worse still, what we have witnessed this week was not a fight between ‘good’ and ‘bad’ (economic policies) in which ‘good’ prevailed in the end. It was a fight between two bad economic philosophies and bad prevailed over worse. Nothing illustrates that better than the clash between the government and the Governor of the Bank of England (BoE) Andrew Bailey.

The bad, the worse, and the ugly: HMG v. BoE

His Majesty’s Government (HMG) is not the only venerable UK institution that seems completely out of its depth in the self-inflicted economic chaos that has descended on Britain. In the shadow of the high-profile chaos taking place in Downing Street, the governor of the BoE too made a mess of stabilising the financial markets.  On Tuesday, Andrew Bailey announced that – contrary to the wishes and expectations of the pension fund industry – the BoE’s bond-buying programme would not be extended beyond Friday 14th of October and Pension Funds therefore had three days to sort out their positions.

As a result, the whole week became a rollercoaster for the BoE and the pension fund industry. After announcing the end of the bond buying scheme, Bailey tried to calm the markets announcing a short-term borrowing facility for banks to support pension funds that require more cash once the BoE bond purchasing programme ends. The Bank also increased the daily limits on its sovereign bond purchases from £5bn to £10bn to be able to double down on its attempt to stop gilts yields from increasing further. Yet, neither of these measures worked and gilts prices continued to plummet and yields continued to rise. Partly, perhaps because the BoE – despite rising the daily limit for government bond purchases to £10bn ‘only’ bought £853m on Monday, suggesting to the markets that the BoE was not serious about its intention to stabilise prices and yields.

Pension investors, in turn, reacted to the three-day deadline – which reportedly they did not expect – by selling off more bonds still, leading to the BoE buying more of them in one day on Monday and Tuesday than in the first nine days of the programme. This may have been the intended outcome of Bailey’s announcement, but the upshot is that rather than stabilising markets the BoE’s approach to quantitative easing generated more volatility.

The London Stock Exchange resorted to the highly unusual step of allowing market makers to quote a wider-than-usual spread in prices on gilts until further notice. This step followed other highly unusual steps by the BoE intervening in the bond market twice in two days (on Monday and Tuesday) to buy up literally all bonds and to buy even inflation-linked gilts, i.e. government bonds that are linked to inflation, which showed very unusual drop in prices not justified by inflation expectations and not common for developed economies.

While some conservative commentators defend the Governor suggesting this was not a gaffe, but rather the only reasonable thing to say given the circumstances, others ask whether it is time to sack Bailey over the mixed messages he sent to pension funds about a possible extension in public and in private.

This was a textbook example of a phenomenon that critiques of central bank independence have been criticising for years. Namely, that unelected technocrats at the central bank impose their economic policy preferences on an elected government. Indeed, people like Prof. Richard Murphy of Sheffield University were very critical of the governor’s actions. Not only because Bailey did not follow internal procedures by reportedly not consulting the monetary policy committee, but also his policy of increasing interest rates to target inflation is seen as a conscious choice to sacrifice the interests of workers to satisfy the interests of financial markets.

Indeed, already in February Bailey asked workers to moderate their wage demands, despite declining real incomes, so as not to further spur inflation. That is a shoddy argument. The risk of a wage-price spiral – where increasing inflation drives up wage demands, which then contribute to higher inflation – is real. However, in the current situation inflation is very largely caused by supply shocks resulting from the Covid19 pandemic and the impact of Russia’s war on Ukraine on energy prices. Therefore, most likely, wage restraint will not do much to rein in inflation. Rather, decreasing real wages will lead to decrease domestic demand, thus increasing the risk of a recession.

For the BoE, the latter does not seem to be a particularly worrying prospect. To the contrary, central bankers not just in the UK, but around the world have recently argued that a recession is needed to bring down inflation. That again, is a conscious choice to sacrifice working people’s and homeowners interests in the name of the fight against inflation, which mainly benefits employers and investors. Indeed, the Financial TimesMartin Sandbu argued last week that central banks around the world are trying to ‘ease’ the pressures ‘tight’ labour markets put on employers by artificially inducing a recession through interest rate increases. Not only will this lead to increased unemployment and less disposable income for both wage earners and homeowners, but also will it reduce incentives for firms to use labour more productively in face of shortages in labour supply. Lack of productivity increases are of course one of the UK’s main economic problems at least since the Global Financial Crisis in 2008-9. Here, the worker-friendly labour market would constitute one of the best tools to make sure firms invest in productivity increases rather than just paying out excess profits to shareholders. By ‘deflating’ the strong labour market the BoE, like other central banks, is squandering this golden opportunity to solve the productivity problem. Instead, the orthodox low inflation policy will heap further misery on the population.

This week’s action by Andrew Bailey were clearly aimed at signalling to market participants that the lax monetary policy the Bank has adopted following the mini-budget will end and that interest rates will increase as was the plan before Truss became PM. By doing this, Bailey has further constraint the government’s leeway in terms of its fiscal policy. Given the tight monetary policy, a lax fiscal policy becomes unaffordable, and Bailey is thus de facto imposing austerity on the government. The new Chancellor Jeremy Hunt – whose economic policy views are much more closely aligned with Bailey’s than Kwarteng’s – has already hinted that the government will oblige and cut public spending.

This leaves the PM in a very precarious position. By sacking Kwarteng – who hours earlier had reassured journalists he would ‘be going nowhere’ – and appointing Hunt, she has essentially caved to market and BoE pressure and abandoned her economic strategy. The News Agent podcast rightly asked: What is the point of Truss then? Already during Prime Minister’s Questions on Wednesday had it become clear that her libertarian economic strategy was dead in the water. It was beyond ironic that the one thing that Truss insisted on when challenged by Starmer on what he called her ‘Kamikaze budget,’ was the cap on energy prices. Indeed, she answered every question about the mini-budget – including whether she agreed with Business Secretary Jacob Rees-Mogg that the market turmoil had nothing to do with the mini-budget – by referring to the energy price cap as the most important part of her mini-budget. That is beyond ironic, because the price cap is literally the only part of the mini-budget, which did not conform with Truss-Kwarteng’s libertarian ideology. It was adopted in the first U-turn of her premiership, breaking promises made during the leadership campaign.

She is now faced with a Chancellor who does not share her economic extremism, but adheres to a more orthodox conservative economic policy. His first public interventions clearly show that his economic strategy will directly contradict Trussonomics. Thus, he announced tax increases and spending cuts, when still on Wednesday the PM herself promised there would be no such cuts. It seems obvious that Hunt is now the person in control in the government. Indeed, various observesr treat Hunt as the caretaker PM in waiting, after Truss’s imminent demise next week.

Indeed, the damage Truss did to the UK’s and her own reputation are such that even her dramatic U-turns do not steady markets anymore. While the news that there may be a U-turn on the tax cuts led to a short-lived rally in UK government bond prices, Truss’s decision to sack Kwarteng and what she had to say about her plans in the press conference actually saw another hike in gilts sell offs, indicating that her government has lost any credibility.

Be that as it may, critiques like Prof. Richard Murphy – rightly – point out that from a democratic point of view, the unelected governor of the BoE preventing the government from carrying out its economic policy is highly problematic.

Except, of course, that in the case of the Truss government the story that a ‘bad’ technocrat prevents a democratically elected government from delivering an economic policy that the people have voted for does not hold. In fact, given that we have an unelected Prime Minister who pursues a radical economic strategy that none voted for, the government’s alternative policy preferences are no more democratically legitimated than Bailey’s. Neither is Truss’s alternative much better – and certainly not more worker-friendly (at least in the long-term) – than Bailey’s conservative drive for austerity.

Indeed, what we have witnessed playing out this week was a clash of two contrasting but equally bad economic policy visions. The BoE’s is an orthodox economic policy focusing on price stability and a balanced government budget. This approach includes the willingness to sacrifice economic growth and even force the economy into a recession to stabilise prices. Conversely, the government’s economic policy focusses on low taxation, and supply-side reforms and deregulation, but is relaxed about high public debt – at least in the short term – and accepts relatively high inflation to keep interest rates down with a hope to stimulate economic growth.

This week, markets have made it clear that they do not trust the latter vision in any shape or form and the government is little by little forced into one humiliating U-turn after the other in order to reassure markets. While that may be seen as a problematic dominance of markets over the political realm, the fact is that in this instance Truss’s vision would not have been better for the people in the UK than Bailey’s (and most probably Hunt’s) austerity vision. Indeed, what happened this week is that the waves of the financial markets have dragged the British people away from Truss’s pro-rich deregulation rock and smashed them right into Bailey’s austerity hard place.

TINA?

What is particularly worrying in the current context of bad economic policy making is that the dominant discourse in the media is still dominated by ‘there is no alternative’ (TINA) thinking. Thus, even the very moderate ex-Tory MP Rory Stewart defended on the Rest is Politics podcast Osborne’s austerity as the only option, even though we now know that it is literally a deadly economic policy. His key argument is that the only alternative to cutting public spending would be to borrow more, which he argues is not sustainable even when interests rates are low. That is a false dichotomy. There are of course alternatives.

The most obvious ones are tax increases. That option has become all but impossible for a politician to seriously suggest outside of a crisis situation (like the one we are facing). Ultimately, however, as Prof. Jonathan Portes has argued for years, we will have to get real about the need for tax increases if we want to maintain our public service. This may imply the need for a fundamental change to our tax system. Indeed, the current arrangement of relatively low taxes on corporate profits, on wealth, inheritance, and capital gains, but relatively high levels of tax on consumption (TVA) and incomes should be seriously discussed.

Similarly, in the discussion about inflation, unorthodox ways of fighting inflation need to be seriously discussed. These may include things like price controls, that Isabella Weber argued for in a Guardian column last year. Mainstream economists like Paul Krugman reacted furiously to that article, branding the idea ‘stupid.’ While I do not feel qualified to have an opinion on whether or not – and under what circumstances – price controls could work, the time for orthodox economists to confidently reject anything that’s outside the box should be truly over given the mess we find ourselves in.

Fear the Project

From a Remainer perspective, one positive outcome of the chaos of the past weeks is that it has now become all but undeniable what an utter shambles Brexit and everything it caused has been.

The best illustration comes from the Telegraph. While in September 2019 it still titled that the ‘success of Brexit has left Project Fear on its deathbed’ and in June 2021 trade figures were cited to show ‘just how wrong Project Fear really was,’ by July 2021 the tone started changing. While project fear was still declared to be wrong, readers were now told that the rewards of Brexit would take time to materialise. In an astonishing sign of how the worm has turned, a headline in today’s Telegraph read Project Fear was right all along. The Author Jeremy Warner writes:

“Downbeat predictions by the Treasury and others on the economic consequences of leaving the EU, contemptuously dismissed at the time by Brexit campaigners as "Project Fear", have been on a long fuse, but they have turned out to be overwhelmingly correct, and if anything have underestimated both the calamitous loss of international standing and the scale of the damage that six years of policy confusion and ineptitude has imposed on the country.” 

Indeed, after years where Brexit was treated as a taboo by many, there seems to be an increasingly wide-spread consensus that the economic impact of Brexit has been an unmitigated disaster. This consensus not only includes academics and left-leaning journalists, but increasingly also bankers – e.g. Citibank’s Chief Economist.

 The disaster is bound to get worse for the Tories, as the unorthodox economic policies adopted by Truss’s cabinet has wiped out one of the key bases of Tory electoral support, namely homeowners. Indeed, the looming mortgage cost crisis will leave millions of people saddled with massively increased mortgage payments. According to Resolution Foundation’s Torsten Bell for some families these increases could be up to 10% of household income by late 2024. These are millions of people who were more likely than the average to vote Tory before the mini-budget. Add to that the fact that according to the IMF inflation is expected to be higher and longer-lasting in the UK than in other countries, the situation is really dire for the Tories. Worse still, it is entirely self-inflicted. Not just because of the mini-budget, but more fundamentally because of David Cameron’s brilliant idea to hold an ‘in-out referendum’ on EU membership without the slightest plan about how Brexit would be achieved in practice.

 The fabrication of a stab-in-the-back myth

Given the utter chaos and humiliation of the Tory party, it comes as no surprise that the usual Tory backers and especially its libertarian fringe are running for cover. The Spectator’s Kate Andrews defends the libertarian ideology underlying Trussonomics, and blames its obvious failure on ‘miscalculation and hubris’ on the part of those who implemented the ideology. Yet, I think Andrews‘ fears that Truss might drag free-market libertarianism into the abyss with her are unwarranted. We can already see a ‘stab-in-the back myth’ emerging around Truss’s bold attempt to put Britain on a libertarian economic course. Interestingly, Andrews finishes her article with a reference to the staple socialist defence of real existing socialism, which consist in insisting that real socialism has never been tried and all attempts so far were just perversions of the real thing. Andrews argues that defenders of Trussonomics may resort to the same type of argument. However, I rather get the feeling that it is the libertarians who disown Trussonomics now that it has so spectacularly failed, when only a few weeks ago they were still raving about how promising a start Kwarteng’s mini-budget was for the Truss premiership. Thus The Telegraph’s Alistair Heath still praises the wonderful mini-budget and argues that everyone else is responsible for its failure.

The libertarians may very well succeed in convincing enough people that the problems is not the prophecy, but the prophet and thus keep their corrosive ideology alive. At the same time, there has hardly ever been a better opportunity for those of us who strongly reject libertarian fantasies, to push and move economic thinking out of the realm of fantasy and wishful thinking into the realm of reality. For that to happen, however, we need the opposition parties to become more confident in the alternatives that they propose. If that happens, perhaps Britain can arise from years of chaos stronger and healthier than before.

Brexit Impact Tracker – 10 October 2022 – CPC 2022: A new enemy, a new realism, but no new dawn yet

The week started very badly for our new PM and her Chancellor. Last weekend, Truss and Kwarteng still insisted that they would not budge on their signature “mini-budget” despite its disastrous impact on the UK economy and financial system. By Monday morning it became clear that the government would have to drop the planned scrapping of the 45p tax rate in order to avoid a defeat in the House of Commons that could have spelt the end of Truss’s premiership. Worse still, the announcement of the climb-down came during the week where all the media attention was on the Conservatives who congregated in Birmingham for their annual Conservative Party Conference (CPC). The U-turn – in no small part orchestrated by Michael Gove and Grant Schapps – then led to more demands for changes to the government’s plans, including keeping Johnson’s promise of benefits rising in line with inflation, which Truss refused to commit to.

Things did improve somewhat for Truss after that shock start to the CPC2022, with her party speech deemed unspectacular but less bad and better delivered than expected by commentators like Alistair Campbell and Rory Stewart. By the end of the week, it seemed like she had bought herself some time with her MPs, but clearly a rebellion against her is smouldering just below the surface. More importantly, perhaps, recent polls indicate a dramatic turn against the Tories under her leadership. The most recent polls indicate 24% voting intensions for the Tories compared to Labour’s 51% and her personal approval ratings at an abysmal -47%. She may have staved off an early revolt against her premiership (but not against her policies), but clearly her troubles are only just beginning.

In the shadow of all the political tohubohu and turmoil – amplified by the CPC2022 – three interesting Brexit-related things happened, which may indicate that the tide is slowly changing.

NIP

Firstly, the tone around the UK-EU technical talks over the Norther Ireland Protocol (NIP) has markedly changed. Talks have resumed on Friday and to some extent the atmosphere seems to be more constructive than it was back in February when the previous round of talks faltered. On Monday, in a surprising move, arch-Brexiter, European Research Group (ERG) member, and Northern Ireland minister Steve Baker apologised to Ireland and the EU for his and Brexiters’ attitude during the Brexit process. He also said that “[w]e need to be very, very practical, move this conversation forward, and come up with a deal that works for everyone.” While he stopped short of saying that the decision to push for a hard Brexit and against Theresa May’s deal was a mistake, he went as far as calling the UK Northern Ireland Bill – which would unilaterally tear up the NIP – a ‘wish list’ rather than a ‘red line.’ This contrasts considerably with the government’s previous approach of arguing that only if you can credibly threaten that you are willing to ‘push the red button,’ would the EU listen. Whether or not this is a genuine and permanent shift in approach by the Northern Ireland Office and the UK government remains to be seen. The PM herself sent some contradictory signals, initially saying that Baker spoke for the government, but at the same time – in an interview with the Belfast Telegraph; so probably with unionists in mind – stating he was speaking for himself when apologising.

The relative détente did seem to bear fruit. On Friday, the Northern Ireland Secretary Chris Heaton-Harris and Ireland’s foreign minister Simon Coveney stroke an optimistic note over the chances of reaching an agreement. While no deal will be signed before October 28th, 2022 – the deadline for the Stormont Executive to reconvene before triggering a new election for the Northern Irish Assembly – both politicians suggested that a big step forward was possible, which might convince unionists to return to the power sharing executive they left in February.

Much will depend of course on the Democratic Unionist Party (DUP) whose decision to withdraw their ministers from the Executive in February has led to the current situation. The DUP met this week for its annual conference for the first time since 2019. Its leader Jeffrey Donaldson warned the PM that if the unionists’ demands are not met over the NIP they would not re-enter the Stormont Executive and thus trigger a new election. It may very well be that, under pressure from activists, these demands are interpreted in a maximalist way, i.e. that nothing short of getting rid of the NIP entirely would be acceptable. Indeed, various unionists are cited as considering the government’s conciliatory stance as a betrayal of their commitment to scrap the NIP.

EPC

Secondly, UK PM Truss attended the European Political Community (EPC) inaugural meeting in Prague this week. The EPC emerged from an initiative by French President Emanuel Macron. It constitutes a new forum attempting to bring together European countries beyond the EU in the face of increasing external threats. While some observers are sceptical about the need for another inter-governmental organisation on the continent, the establishment of the EPC is an important development, because it may indicate that perhaps some in the EU starts understanding that it needs new ways of dealing with ‘third countries.’ Indeed, as I wrote a while ago in relation to the Swiss case, the EU’s relationships with third countries are notoriously complicated, often fraught with tensions and threats. Creating a new forum that is not dominated by EU institutions, focuses pragmatically on a narrow set of issues without an expectation to move towards closer integration, may provide a starting point for the EU to develop a more productive model for managing relationships with countries who do not want to become member. Such a forum may obviously be good news for Brexit Britain.

It is significant that the UK government seemed more interested in engaging with this initiative than the isolationism of the past years may have led us to expect. Indeed, Eurasia Groups’ Mujtaba Rahman interprets the UK’s participation in the summit as a sign that the “days of permanent Brexit revolution and aggression toward the EU appear to be over.”

Truss’s participation in the meeting seemed to bear fruits immediately. Her childish and ill-advised jibe against the French President during the Tory leadership hustings had reportedly derailed an agreement with France on preventing migrants crossing the English channel in small boats. The meeting in Prague has allowed Truss and Macron to mend their relationship and issue a joint statement committing to collaboration on energy, immigration, and the two countries’ support for Ukraine.

Perhaps this is a sign that it starts dawning on Brexiters that the UK remains part of Europe and needs to somehow re-establish a functioning relationship with its closest neighbours. The EPC as a new forum that the UK can contribute to shaping from the beginning may provide the political space to do that without Brexiters losing face by reintegrating existing European institutions.

Creating a new enemy

A third development this week reinforces the view that we may be turning a corner in terms of Brexit. The PM’s CPC speech was much less focussed on Brexit than Johnson’s speech at last year’s CPC, which was all about alleged Brexit benefits. Truss did mention that the Conservatives ‘got Brexit done and we will realise on the promise of Brexit’ and she referred to European judges, but here too it feels like Brexit may no longer be seen as the one vote-winning slogan that keeps the Tory party together. Importantly, there was very little Remainer or Rejoiner bashing in Truss’s speech.

That said, while Truss’s government may have shed most of Johnson’s levelling-up populism, it remains fundamentally a government whose ideology is deeply rooted on populist division to survive. Therefore, as this week provided early signs that the Brexit divide – which has proven so useful to the right-wing ideologues who have taken over the country – may not do the trick anymore, the Truss government is proceeding to create a new enemy. Of course, Home Secretary Braverman still seeks to play the Brexit-related immigration card with her despicable comment about dreaming of deporting people to Rwanda. But Truss herself is more relaxed about immigration and is taking the Tory politics of division in a slightly new direction by fabricating a new enemy: The anti-growth coalition.

Who are the people in this coalition? In her speech, Truss mentioned explicitly Labour, the Lib Dems, and the SNP, as well as “the militant unions,” “the vested interests dressed up as think-tanks,” “the talking heads,” a new species called “Brexit deniers” (what exactly that means is unclear – probably those denying that Brexit was a good idea), Extinction Rebellion, people living in North London townhouses, those working in BBC studios, and people doing broadcasts and podcast.

Conversely, Truss claims as her allies those “who make things in factories,” those “who get up at the crack of dawn to go to work,” “the commuters who get trains into towns and cities,” as well as the “white van drivers, the hairdressers, the plumbers, the accountants, the IT workers.” It is the latter, who in Truss’s universe, suffer from the “enemies of enterprise [who] don’t know the frustration you feel to see your road blocked by protesters, or the trains off due to a strike.”

 

Whether the ‘anti-growth coalition’ slogan will catch on is doubtful, given that a few road blocks to draw attention to the fact that humanity is facing an immediate existential threat in the form of climate change, probably causes a limited amount of disruption to enterprise compared to the costs imposed on them by new trade barriers with the EU, new Brexit red-tape, duplication of regulations, the uncertainty caused by Brexit, and anti-immigration induced labour shortages. Indeed, Channel 4’s Krishna Guru-Murthy rightly asked Tory PM Edward Agar whether Brexiters are the real anti-growth coalition. Even the not exactly ‘far-left’ CityAM editorial board sees Truss’s talk about the new enemy as ‘bizarro fifth-column paranoia.’ Together with the fact that her economic strategy over her first weeks in office has managed to alienate the Tories’ most crucial electoral base – namely home owners –, this does not bode well for her chances to win the next General Election.

 

Apocaliz Now: The beaver in the room

The eventful week that just passed should not make us forget one thing though; namely, that above anything else, the Truss government is mainly a very unfortunate distraction from the real problems we are facing. While her ideology clearly does not catch on with the public and even with Tory MPs and usually Tory-supporting groups in society, she does have the power to shape the agenda and the way we speak about things. Her, ‘growth, growth, growth,’ rallying cry has promoted criticism, but mostly because of (legitimate) doubts that tax cuts and borrowing are the right strategy to deliver growth. Indeed, the claim that Trussonomics is what will deliver growth is questionable in itself, as I argued before. But even worse – and almost completely neglected – is the fact that Turssonomics is based on the wrong idea that economic growth – defined as growth in Gross Domestic Product (GDP) – in itself will solve any of our problems. Given that trickle-down-economics does not work, economic growth necessarily needs to be combined with some form of redistribution to have any positive effect on the less well-off strata of the population. More fundamentally, the fetishising of GDP as an indicator of well-being needs to be debunked, but Truss’s unapologetically pro-growth discourse has made it dangerous for any group in society to suggest they are anything else than pro-growth themselves.

Even if we accept that, given the world we live in, economic growth is necessary – but clearly not sufficient - to increase living standards across the board, the fact is that there are many different ways in which you can grow GDP. I remember our ‘Econ 101’ professor at uni illustrating what an ambiguous measure GDP is by explaining that a car crash increases GDP.  In this sense, one way of generating GDP growth is by radically cutting regulations, lower taxes, and attract all sorts of dodgy investors to the country. That will increase GDP, but create asset price bubbles rather than jobs. That is essentially Kwarteng’s car crash plan with his Big Bang 2.0 strategy or the government’s car crash idea that companies with fewer than 500 employees will be exempt of regulations (Although, this week has also shown that the PM’s deregulatory zeal has limits, as she reportedly quashed a ‘half-baked’ labour market reform proposed by Business Secretary Rees-Mogg).

Another way to growth GDP would be to invest in the inevitable changes that all economies will have to go through in order to increase our chances of surviving the looming climate catastrophe. Indeed, once the resistance of vested interests will be broken, low-carbon goods and services will inevitably become the growth industries of the future. Shifting to a low carbon economy will require massive investments but also have the potential to deliver large numbers of new jobs and economic growth. That sort of growth is different from Truss’s ‘growth, growth, growth,’ which is based on the old absurd ideas of unlimited natural resources and endless expansion of human industrial activity at any cost.

Despite the timid signs of realism regarding Brexit, when it comes to the ecological catastrophe we are facing, Truss has not shown any pragmatism, but instead shows her most childish and petulant self. This week, for instance, the PM opposed a plan by Business Secretary Rees-Mogg to encourage British households to save energy and she advised King Charles III not to attend COP27 climate summit. Such decisions are hard to explain with anything else than ideological denial of reality. It is striking to see that her attitude towards the natural environment is more reactionary and reality-denying than that of her predecessor who – in spite of his many faults and two-facedness – used last year’s CPC speech to promise rewilding 30% of the UK’s country side and gave a special mention to the return of beavers and otters to UK rivers. More evidence that even by recent very low standards the current government must be the most reactionary the UK has ever seen.

Overall, then, this week has provided some hopeful signs that there may be a change in the Tory’s approach towards Brexit and that at last the Brexit divide may start losing its prominence in British politics. Yet, the bad news is that if realism is returning and perhaps preparing the ground for a less ideological approach to Brexit, in the area of the environment Truss and her far-right gang remain deeply stuck in their denial of reality. The good news is, that this approach places her firmly on the wrong side of history, as denying the ecological emergency we are facing may be just about viable for another few years, soon enough the looming catastrophe will be too obvious for anyone to deny. By trying to please her far-right libertarian backers, Truss is in the process of alienating another group who are aware of that and potentially could provide her with important electoral support, namely rural communities and people who care about nature, as the backlash against her policies from the National Trust and the RSPB indicates. As Chris Grey noted this week, the government’s hopelessness is our best hope at the moment.

Brexit Impact Tracker - 2 Oct 2022 – Staring into the Abyss: Fairytale Economics & Wrecking Ball Politics

“Unbelievable,” “unheard-of,” “unprecedented,” were some of the words commentators, journalists, market participants, and politicians used to describe the havoc Truss and her government had managed to wreck in less than a month in government. But I feel these superlatives do not fully capture just how abysmal the government’s handling of the economy has been so far. I am not sure it is clear enough to UK citizens how very close we came this week to a major financial crisis. Indeed, had the Bank of England (BoE) not stepped in on Wednesday with a £65bn injection into bond markets, we would have witnessed the mass insolvency of pension funds followed by a system-wide financial crisis. Indeed, market insiders consider that we were close to a Lehman Brothers moment in reference to the bank whose failure sparked off the Global Financial Crisis of 2008.

This is extraordinary for many reasons, but most importantly because this is purely and simply and straightforwardly –  no ifs no buts – an economic crisis entirely fabricated by the UK government that has started to implement its fairytale economics into actual policy. The Chancellor’s mini-budget from last week was the first ‘live bullet’ – to use Jon Sopel’s term – that the libertarian free market fringe of the Brexit movement fired since gaining complete control over the government. The result was a historic sell-off of UK government bonds – until recently seen as low-risk assets that pension funds could hold with a view to long-term returns.

The market reactions that we saw this week is what happens when Britannia Unchained hits reality. Brexit has often been described as the dog, against all expectations, catching the car it was running after and then not knowing what to do with it. It feels like we now get a taste of what happens when a dog actually decides to try and drive the car it caught!

Equally extraordinary, however, was the Truss government’s reaction to the situation. Part of me thought that this sort of market turmoil is what it would take to shake up the Brexiter cult and make them come to their senses. Far from it! The – by now familiar processes – set in whereby Brexiters first deny that anything is happening at all, then – when it becomes impossible to do that – blame everyone else (the media, Remainers, the EU, and now even the markets) for what is happening, while refusing to take any responsibility, and finally claiming that what is happening was part of the plan all along.

From denial to ‘part of the plan’

Truss’s strategy in dealing with the crisis was first to deny that there was one. She reportedly held various meetings on all sorts of issues but not the market reaction to the mini-budget. She – and others in her government – then went on to argue that what was happening in Britain was part of a global problem, blaming it on Putin and the war in Ukraine, and to Japan where the central bank intervened to prop up the Yen. Yet, if global sources of financial instability cannot be denied and pushed the EU financial markets regulator last week to issue an unusual warning, denying that the fall in sterling and the value of gilts and the increase in yields were a direct result of the mini-budget can only be seen as post-truth economics. Also, the global sources of financial instability do not explain why the UK is hit harder than other countries and the UK’s borrowing costs are now higher than those of countries like Italy and Greece.

After days of complete silence, on Thursday, Truss went on an interview marathon around local radio stations, which some conservative MPs called a ‘shitshow.’ Indeed, the PM had nothing much to say in her defence – several of the interviews being notable for the long silences rather than what she said. It became quickly clear that the market reaction to her economic plan have not shaken her or her Chancellor’s belief in their plan. Hence, the turmoil must be someone else’s fault.

On Tuesday night, in an unusual move, the International Monetary Fund (IMF) openly criticised the government’s tax plans, arguing that it will lead to increased inequality and higher prices. Unsurprisingly, Tories hit back at the IMF while trying to defend Truss’s plan. Andrew Bridgen, on the Today Programme blamed the BoE for not putting up interest rates last year. Crispin Odey – the notorious hedge fund manager –, in turn,  blamed the ‘historic rout on the pound’ (the Telegraph’s words) on Remainers in the City who ‘just hate this government.’ The list of people, institutions, or things to blame for the mess goes on and include HS2 and fracking. Yet, first prize for shifting blame for a house-made financial and currency crisis onto someone else must go to Daniel Hannan who seemingly in all seriousness blamed it on the prospect of Labour forming the next government. So, it would seem that after 12 years of blaming the previous Labour government for the Tories abysmal record in power, they now turn to the future and start blaming the next Labour government!

 

After there was none left to blame, the conservative strategy in defending their indefensible economic plan started to change again. Increasingly, Brexiters came out to say that what was happening was nothing unusual, but just the markets doing their work; Anyone thinking otherwise was simply an idiot. Over the weekend the PM then started taking some responsibility for what has happened, acknowledging that the tax cuts were responsible for the turmoil. But again, that of course did not mean her policy was wrong, merely that the world did not understand them and she should have laid the ground better.

As the week went on, more and more voices emerged interpreting the turmoil and backlash as a good sign. In a familiar move of ‘bellicose victimhood’ to use Chris Grey’s term, people like Shanker Singham started spinning the market reactions and the criticisms of the policy as an effort to frustrate the libertarian reform efforts. What had to be done, then, is to resist the objections of feeble and fearful Remainers who are afraid of the PM’s visionary reforms.

Indeed, Trussonomics is working as John Longworth epxlaind on Twitter: “The economy is growing rather than contracting” (presumably referring to the fact that contrary to expectations, the UK economy grew by .2% rather than shrinking by .1% in the three months to June, i.e. long before Trussonomics was even a word and still leaving the UK as the only G7 country with a smaller economy compared to before Covid), “the pound has jumped in value” (after a massive BoE emergency intervention and from a historic low, and despiterock bottom confidence’), and “we have relief for now from energy bills” (which will still lead to energy bill levels that will be unaffordable for many). So, in Brexitland, all is going to plan and anyone saying the opposite – especially “the media” – should ‘grow up’ and the PM hold their nerve just like Thatcher did.

Into the bunker

The way in which the government’s and its Brexiter backers’ arguments have evolved over the past week are remarkable, but by now quite familiar. Reinterpreting economic and political reality to turn them into proof that Brexit is going according to plan has been a key strategy of Brexiters since 2016. Remember, for instance, the short period in November 2021, when the Johnson government tried to spin wage rises resulting from Brexit-induced labour shortages into part of a plan to move the country towards a high skill, high wage economy.

More worrying, Brexiter ideology has increasingly traits of a cult that is impenetrable to reason, argumentation, and unable to evolve by learning from feed-back from the real world that indicates that the theory may be wrong.  To the contrary, as Chris Grey astutely observes “every piece of evidence that proves their claims wrong is re-interpreted as proof that they are right.”

This sort of ideology has set in motion a spiral of division that continuous to tear the country apart – with Brexiters now in control of the Conservative party, inexorably drifting to the right (not just in political but also economic terms, as John Burn-Murdoch shows in an excellent article), unable to face reality or acknowledge anyone else’s legitimate concerns. Several observes refer to the Tories’ bunker mentality, where only those who agree with the Brexiter ideology are listened to – everyone else’s opinion discarded as treason.

With the governing party so entrenched in fantasies and policies that are disconnected from people’s everyday life, the only way to stay in power is to completely shut out reality. That can only lead to one thing, namely that increasing numbers of dissenting voices need to be shut up. Robert Shrimsley may be right that direct comparisons with Turkey may be overblown at this stage. But only just. Like Erdogan in Turkey, whose unorthodox economic policy jeopardises his political survival, the Conservatives will soon be in a position where the havoc they wreck with their absurd economic policies means that they simply cannot afford democracy anymore. Due to the increasingly chaotic running of the economy, the list of people who dissent and therefore have to be shut up grows by the day.

Regular readers of this blog will know my concerns about what this will do to the country in the long term. Indeed, as much as I want to believe that these pernicious dynamics will eventually be stopped by a fundamental solidity of the UK’s democratic institutions, the libertarian takeover of our government and its incompetent handling of the economy will lead to a situation where abolishing democracy may be the only thing that can keep them in power. This may seem unthinkable to many readers, but so was a few years ago the idea that an US president may not accept the results of a presidential election and instigate his supporters to storm the Capitol. There is no place for complacency especially given that the Johnson government has already laid the ground for a fully-fledge assault on our democratic institutions.

Doubling down & the A word

Given Brexiter bunker mentality and their fanatism, it is perhaps no surprise that the only answer to the crisis was doubling down on their policies. Already last weekend Kwarteng promised more unfunded tax cuts – as it has become clear since possibly to please some of the hedge fund managers he met after the announcement of the mini-budget. Similarly, Truss’s willingness to be unpopular seems unlimited given her attempt to imitate Thatcher’s ‘the Lady’s not for turning’ approach to the crisis (except that in her unlimited opportunism of course she is).

The government did make some compromises this week. On Friday, in another unusual move, Truss and her Chancellor met with the Office for Budget Responsibility (OBR) whose analysis of the planned mini-budget they previously had rejected. The meeting did not, however, lead to a fundamental change of course by the government. While agreeing to ‘work closely’ with the OBR and finally accepting that it carries out a fiscal forecast, the government insists that the Chancellor’s announcement of plans to bring down government debt in the mid- to long-term will not be brought forward from the November 23 date.

That announcement is almost certainly going to constitute another doubling down on the government’s economic plan, by bringing back austerity. Several events this week already hint at that. Thus, the government persist with its intention not to increase benefits with inflation in order to reduce government spending. Similarly, Chief Treasury secretary Chris Philip has announced that the government will stick with its spending plans set out in its Comprehensive Spending Review of 2021, which means government departments will have to find further ‘efficiency savings’ to be able to deliver services on a de facto shrinking budgets.

This all contributes to the overall strategy of ‘starving the beast,’ i.e. deliberately reducing the government’s income through tax cuts and then imposing austerity to shrink the state. Simon Clarke, secretary of state for levelling up, explicitly stated this goal this week "I think it is important that we look at a state which is extremely large, and look at how we can make sure that it is in full alignment with a lower tax economy”. In other words, after 2010 another phase of devastating age of austerity is about to start. Contrary to Osborne’s decade of austerity between 2010 and 2019, this time austerity will hit an already fragile country where people are desperately trying to pay their bills. The previous decade of austerity has plaid a crucial role in the Brexit vote. Another period of austerity, rather than stimulating economic growth, will lead to further political turmoil. Brexiters seem to be willing to accept that turmoil, as knocking down the current system with a wrecking ball is something they think will allow Britain to flourish. As Chris Grey rightly pointed out, no government is reckless enough to fabricate a crisis like this intentionally. At the same time, as long as they survive it politically, its consequences are not something that will overly worry the ‘wrecking ball politicians’ in charge of the country.

The silver lining

Perhaps the pain that Truss, Kwarteng and their government are inflicting on us will be a price worth paying in the long run. Not because their ‘reforms’ will work, but because their incompetence and cultism finally expose the Brexit project for what it is – a project that has allowed an extremist fringe of the right wing of the political spectrum to grab power.

Its many contradictions and damaging effects on British society, politics, and the economy are now so clear that Labour leader Kier Starmer felt confident enough to mention Brexit in his speech at the Labour conference, stating that people had not voted for Brexit to ‘slash workers’ rights[,] lower standards on food, animal welfare or the environment[, or] wanting to end redistribution’ to conclude that ‘[w]hether you voted leave or remain, you were let down.' While – wisely – not deviating from the ‘making Brexit work’ slogan, this is perhaps one of the clearest statements to date by the leader of the Opposition about everything that’s wrong with Brexit, indicating in and of itself that it becomes increasingly easy to criticise the government for the Brexit it delivered.

If conservatives like Phillip Oppenheim – former conservative exchequer secretary who wrote a scathing letter in the FT – are right, Truss may be the last Conservative PM in our lifetimes. Even if the damage Truss is inflicting on the Tory party is just large enough for it to be unelectable for a generation, then it may well be a price worth paying. Getting rid of the anachronistic monstrosity from a different age that prevents Britain from flourishing in the 21st century, may then allow more modern political forces to fill the space vacated by the Tory party on the centre-right of the political map. That may then finally permit the crucial electoral reform that cannot happen as long as Conservatives and Labour take turns monopolising governmental power. Changing the electoral system seems like a pre-condition for halting the spiral of division that is tearing the country apart, as even conservatives acknowledge. Thus Philipp Oppenheim writes that the FPTP system no longer delivers stability, only division and decline. Once the nightmare is over, maybe we will thank Liz Truss for her wrecking ball politics.

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

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

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

Mini-budget, major consequences

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

Income

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

Debt

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

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

Growth: Corporation tax and energy bill cap

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

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

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

The reactions

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

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

Wealth trickling down south

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

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

Migration

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

Trade

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

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

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

Northern Ireland Protocol

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

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

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

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

Punching down: The environment

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

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

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

What’s the point?

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

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

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

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

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

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

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

Bonus caps: symbolism or substance?

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

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

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

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

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

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

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

Flexibility

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

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

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

Peanuts & Monkeys

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

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

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

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

Regulatory fatalism

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

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

The bigger picture: economic structure and inequality

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trussonomics: Dropping the conservatism from fiscal conservatism

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

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

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

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

Energy Plan

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

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

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

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

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

Dangerous optimism

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

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

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

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

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

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

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

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

Inflation and the battle between Treasury and BoE

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

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

Towards 2024

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

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

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

 

 

 

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

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

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

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

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

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

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

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

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

Mounting Brexiter anxiety

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

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

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

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

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

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

Trussonomics: A new economic plan

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

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

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

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

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

Reality

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

Johnson’s legacy – The Partygate inquiry

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

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

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

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

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

Post-Truth Brexit and the eternal blame game

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

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

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

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

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

 

 

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