No plan and even less of a clue

"Kein Plan” is an expression used particularly by younger German speakers to indicate that they don’t know the answer to a question. It is a perfect description of the current status of Brexit negotiations. For the second time in a week, industrialists have issued a plea for clarity to the British government with regard to their Brexit preparations, which appear to be going nowhere. The FT reported last week that a delegation of executives from big international companies met prime minister Theresa May and Brexit secretary David Davis and highlighted the difficulties involved in making planning decisions under current levels of uncertainty. According to one delegate, “we are not going to invest in the UK until we see what the outcome is.” The Guardian picked up on a similar theme this morning following a meeting of the prime minister’s business advisory council.

At the heart of the matter is the nature of future customs arrangements with the EU. With a major EU summit looming on 28-29 June, the government assured us that it would release a white paper in advance, which would detail how it plans to treat customs issues and form the basis for an agreement with the EU27. We are not going to get it until after the summit, primarily because the government remains at odds over the future plan. It has been obvious for a long time that the Brexit process is not going well, but there is a sense that with each month that passes the sense of frustration is growing. Business has been remarkably patient so far but with less than 10 months until the UK is due to leave the EU it is time to stop pussy-footing around.

Two weeks ago, the Campaign Director of Vote Leave, Dominic Cummings, wrote a long blog piece highlighting the government’s failures since the referendum (here). Cummings pointed out two key problems: (i) triggering Article 50 without due preparation was “stupid” and (ii) implementing it without prior discussions with the EU27 “and without a plan would be like putting a gun in your mouth and pulling the trigger.” As he put it, “the Government effectively has no credible policy and the whole world knows it.” Cummings is dead right on all counts: The difference between us is that I (and many others) were saying this BEFORE the referendum. And just because Cummings now sees the downsides of leaving does not excuse him from his role in the disinformation campaign that he oversaw prior to the referendum. His testimony before the Treasury Select Committee in April 2016 was a fake news masterclass that has to be seen to be believed (here).

To compound the increasing sense of surrealism around the whole Brexit debate, the head of HMRC, the body charged with collecting taxes on the government’s behalf, recently suggested that the “max fac” customs arrangement favoured by Brexiteers which relies on technical solutions and trusted trader schemes, could cost up to £20bn per year. The additional costs, which arise as a result of the extra bureaucracy associated with the scheme, would amount to roughly double the UK’s net annual contribution to the EU budget. Naturally, it was dismissed by the Brexit side as another element of Project Fear. Even supposing that the costs are exaggerated by 100%, the scheme would still swallow up an amount equivalent to the UK’s annual EU budget contribution. There goes the £350 million per week that Vote Leave promised that we would be able to spend on the NHS. Still, we will now get blue passports!

More seriously, the longer Brexit drags on without any resolution in sight, the more likely it is that a cliff-edge Brexit could imperil the economy. According to reports drawn up for DExEU, a "doomsday" style Brexit could see the country grind to a halt within a fortnight. One of the key concerns is that without a deal on customs, ports will become so clogged that it will be virtually impossible to get goods into or out of the country. The Freight Transport Association was quoted today as saying that “the industry’s frustration with the lack of progress is building daily … Of the eight demands in FTA’s list of essentials to ‘Keep Britain Trading’ . . . not a single one has been progressed.” To compound the problems, ports on both sides of the channel cannot build infrastructure to implement a system that has not yet been agreed upon.

All this may be a bit melodramatic and we would hope that these represent extreme outcomes which have a low probability of occurring. But low probability, high impact events have huge ramifications as we saw during the market collapse of 2008.  It is not part of Project Fear to concern ourselves with what might happen: We simply cannot afford to trust to luck. As it is, on the assumption that the transition deal is implemented we will have a little more breathing space until end-2020. But even that is not yet signed, sealed and delivered. In any case, we are only 30 months away from that date and if we make as much progress in the next two years as we have done in the last two, we may merely be postponing the cliff edge rather than avoiding it.