I’m sure we have all been told at some point in life not to ask the question if we don’t want the answer. This timeless message ultimately did not stop the Commons Brexit committee prying away the ‘real’ impact assessment of leaving the EU from the Government’s callus grip, and publishing for all the world to see. And the answer to the question, “how will the UK economy fare after Brexit?” is in so many words: not well.
The “Cross Whitehall Briefing – EU Exit Analysis” was belatedly published by the Brexit Committee on Thursday, after an exchange between committee chair Hilary Benn and Brexit Secretary David Davis had initially withheld any useful analysis from the public on the basis of market sensitivity. Benn said yesterday that “allowing this information to be considered in its full context, rather than selectively quoted, will help properly to inform public debate.”
The debate is likely to centre on the finding that economic growth will suffer under any of the three broad potential models for a future relationship with the EU. GDP is predicted to decline by 1.6% over 15 years under a Norway-type deal (which won’t happen); by 5% with a free-trade agreement (more likely); or by 7.7% in a ‘no-deal’ scenario (scary, but still possible…).
There are, of course, some caveats for pro-leave advocates to focus on in the aftermath of this publication. For instance, the Financial Times notes that the EU draft negotiating guidelines propose something sweeter than a standard free-trade deal, including tariff-free trade “covering all sectors”. This should lessen that predicted 5% GDP reduction – or £60 billion yearly hit to public finances – that is likely to get us all hot and bothered in the coming weeks and months as the nation watches negotiations from afar.
About those predictions…
Another element of the impact assessments that should give us pause is the trend of predictions and estimates turning out to be reliably unreliable. In this instance, the authors warn that the forecasts are highly uncertain, given the “unprecedented” nature of the deal the UK Government is seeking to reach with the remaining EU 27. Indeed, the future relationship could eventually look like something very different to any of the three scenarios the Whitehall officials have modelled in this report.
It is significant that, when compared to George Osborne’s pre-referendum “project fear” predictions, the impact on public finances is so different: the impact assessment finds £60 billion, versus the £36 billion estimate of 2016. This shouldn’t surprise: Economic forecasts are frequently off the mark, particularly when utilised by politicians. Has anyone noticed how governments jump at the chance to exploit rosier-than-expected growth forecasts to display their firm handle on the economy, only to revert to fiscal conservatism months later when the forecasts are proven to have been incorrect?
Recent events have befuddled political and economic analysts. At this stage, It’s hard to argue that the total impact on the economy has reflected the complete doom and gloom predicted to envelop the UK following the leave vote. Perhaps we should keep in mind that no one that was listened to predicted the global financial crisis; that very few believed we would be experiencing Brexit in the first place; and that the inexplicable ‘leader of the free world’ has this week voluntarily decided not to annihilate, but have a chat with the leader of the not so free world. The point is: anything can happen.
British governments have long been at pains to protect the City’s interests and London’s position as the European centre of finance. Negotiations with other EU member states and the institutions invariably focused on this priority long before the UK’s membership of the Union was even in question. Nothing much has changed with Britain about to depart, as Philip Hammond this week called on the EU to include financial services within a trade agreement. The Chancellor said, “it’s hard to see any deal that did not include financial services can look like a fair and balanced deal”.
Unfortunately, this appears to be a no-go for the European side. European Council President Donald Tusk rebuffed the demand, noting the need to ensure common rules, supervision and enforcement in the service sector, and saying that “when it comes to financial services, life will be different after Brexit.”
The Chancellor has calmly labelled Tusk’s comments a “very tough” negotiating position and warned that the beneficiaries of the loss of market share in financial services from London is less likely to be another EU capital, and instead the likes of “New York, Singapore and Hong Kong.” The problem is that the EU does not appear to take seriously either the threats or opportunities highlighted by Hammond’s demand. France has long been waiting in the wings to prosper from any loss to the City, with finance minister Bruno Le Maire claiming this week the great migration in financial service to Paris will include “several thousand jobs, not hundreds”.
Before we get to the future of services, or the long-term economic impact of various potential outcomes of the Brexit negotiations, a very large impediment is standing in the way for the UK: namely, the Island of Ireland. While Theresa May was praised at home last week after her Mansion House speech for her most detailed and grounded comments on Brexit to date, EU leaders continue to apply pressure on the UK Government to produce a “specific and realistic solution to avoid a hard border” between the Republic of Ireland and Northern Ireland. Not usually known for simple Trump-esque phrasing in his public statements, EU Council leader Donald Tusk made it clear on Thursday during his trip to Dublin that it was “Ireland first” for the EU in Brexit negotiations.
Theresa May has expressed frustration with the European position on the Irish border, after the EU’s negotiating guidelines stated that Northern Ireland could stay in the Customs union in the event of no deal for the UK. The Prime Minister’s frustration, however, pales insignificance to the reaction of the DUP and leader Arlene Foster, who has said that the proposal was “utterly unacceptable” and an “overreach” by Brussels into the Good Friday Agreement.
Donald Tusk has emphasised that the issue is a matter of “European solidarity to Ireland”, saying that “in times of trouble, families come together”. The problem at the heart of the Irish border issue is that there are many different stakeholders, with multiple ‘families’ to cater for. The DUP wants to protect Northern Ireland’s position in the UK, while the EU seeks to protect the rights and benefits of the Irish people within Europe; The Conservative Party wants to protect its fragile coalition agreement with the DUP, while the Irish Government is seeking to protect both its finances and the peace settlement between republicans and unionists. All the while, Irish republicans can see the situation offering a path towards reunification between the North and South.
The Nobel committee bestowed two prizes on key players in the peace negotiations in 1998. It’s starting to feel like an award could be coming the way of anyone able to navigate a clearing through this particular maze.
Battle of the ‘Elites’
The most head-scratching Brexit story to come to light over the past week is almost certainly Jacob Rees-Mogg’s statement about John Major being a member of the “European elite”. Predictably, Twitter has largely provided the necessary response to this particular jibe, so I will resist the temptation for sarcasm, but it’s worth reading Nesrine Malik’s analysis of the use of the word “elite”, which like so many slurs has seemingly lost its meaning altogether through overuse by an array of different characters.
Worse than the confusion over what words like “elite” actually mean, is the ongoing reluctance of some commentators to debate the content of the issues at hand, particularly within the context of an incredibly complicated issue like the impact of Brexit. Malik responds in the extreme, calling it the “degradation of British culture”, and while others bemoan the decline of Prime Minister’s Questions – a forum beset by petty name calling and unconstructive point scoring for many-a-year – we can perhaps at least hope that the conclusion of the Brexit negotiation process will inspire some introspection from our political leaders, an maybe even an effort to address what lies behind this toxic and confrontational culture.
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