Tuesday, 30 January 2018

Brexit: The (un)civil war continues

It has been clear all along that Brexit has little to do with economics and everything to do with a view which a certain group within the Conservative Party has of the UK and its place in the world. It is also not news that the form of Brexit which this group intends to pursue is not one which large parts of the electorate voted for – even those who voted in favour of leaving the EU. But it is increasingly evident that this is becoming an obstacle to the smooth running of government as the fissures within the Conservative Party threaten to split it apart.

Last week, Boris Johnson again broke ranks with his cabinet colleagues via a series of pre-briefed news articles by calling for additional NHS spending, with newspaper reports suggesting he was pushing for an extra £100m per week (£5bn per year) after Brexit. Recall that Johnson was one of the prime supporters of the claim that the UK would be able to save £350m per week after leaving the EU, a large proportion of which could be channelled towards health spending. Whatever you think of Johnson as a politician, his call for additional NHS spending is well made. According to the OBR’s projections, total health spending is set to decline from 7.2% of GDP in FY 2017-18 to 6.8% by 2019-20. Simply to hold spending constant as a share of GDP implies increasing funding by £166m per week by 2020. But as is often the case with Johnson, there is usually more than meets the eye and the rest of his cabinet colleagues clearly did not think much of his attempts to hijack the political debate.

Meanwhile, Chancellor Philip Hammond is the focus of ire from the Leavers following his speech at the World Economic Forum in which he called for a soft Brexit that would result in only “very modest” changes to the UK’s relationship with the EU. The prime minister has been called upon to sack her Chancellor as concerns mount amongst pro-Leave MPs that the UK is “diluting Brexit” and that it may become an EU “vassal state” during the transition period. This comes at a time when leaked reports prepared for the government suggest that in the absence of a trade deal with the EU, output would be 8% below the pre-referendum baseline over a 15 year horizon. A free trade agreement with the EU – the current favoured option – would result in a 5% decline in output whilst the soft Brexit option (i.e. continued single market membership) would result in a 2% decline in GDP. All of which comes after Brexit Secretary David Davis refused to release impact assessments covering 58 sectors of the economy when requested to by parliament, claiming they did not exist.

All this is, to be sure, a deeply unsatisfactory state of affairs and it highlights the weakness of Theresa May’s position. Despite Boris Johnson’s constant flouting of collective cabinet responsibility, such is the strength of his grassroots support that the prime minister is unable to remove him without jeopardising her own position. If she were to bow to the minority group of hardline MPs calling for Hammond’s departure, the other half of the party would similarly revolt. There is thus mounting concern that there may be a challenge to May’s leadership – a procedure which requires the support of just 48 MPs – although since most Conservatives believe this would hasten their exit from government, this is not anybody’s favoured scenario.

But the Conservatives only have themselves to blame. It was their party that called the referendum, and their government which decided the terms on which they would seek to leave despite being warned of the dangers. Theresa May has compounded the problem by not offering any leadership on the Brexit issue. She has not articulated what she wants from the EU, other than the closest possible relationship, and in the words of FT commentator Philip Stephens, “Mrs May, it is obvious, has no organising vision of the shape of Britain’s post-Brexit relationship with its own continent ... As things stand, history will remember her as an accidental prime minister who foolishly squandered a parliamentary majority in an election she had no need to call — the worst prime minister of modern times with the exception, of course, of her immediate predecessor, David Cameron.”

Former LibDem leader Nick Clegg, also writing in the FT, noted that as it currently stands the proposed transition period which will run beyond the end of the Article 50 period in March 2019, will leave the UK powerless; a member of the EU in all respects but one – the ability to have any say in writing EU legislation. This is very much the position Norway finds itself in now. Why this comes as any surprise to anybody beats me. I pointed out in 2015 that such a Norwegian outcome “would appear to be even less optimal than that which the UK faces today.”

There is increasingly little faith in the government’s ability to square this circle. It clearly appears that Theresa May gambled on the UK’s ability to quickly achieve a deal with the EU without thinking through the implications of what this might entail. In that sense, she is very much in tune with those elements of her party who have spent much of their political career either ignoring or misreading European issues. And now she is their prisoner.

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