It is now less than seven weeks until we reach the end of 2020 – a year that many of us will be only too glad to see the back of. It will also mark the point at which the UK exits the Brexit transition period. You will need no reminding that as of now the UK has still not reached a trade agreement with the EU. This means that businesses have less than seven weeks to scramble together a business plan allowing them to cope with the changed border arrangements for EU trade. Although the government has increasingly tried to blame the business community for its lack of preparedness, this argument wore thin many months ago. Irrespective of whether there is a deal or not, exporters need some certainty on the nature of the arrangements to which they are expected to transition. The only certainty is that everything remains uncertain.
Last month the National Audit Office released a report that concluded “preparations to manage the border at the end of the transition period remain very challenging … [However] there remains significant uncertainty about whether preparations will be complete in time, and the impact if they are not. Some of this uncertainty could have been avoided, and better preparations made.” The last sentence is an understatement. In 2019 the government complacently assumed that leaving the EU on WTO terms would be no big deal. By September 2020 it was using statutory powers to allow it to build lorry parks wherever it wanted, irrespective of objections by local councils. We are now hearing a rising number of reports from industry groups increasingly concerned that their business will suffer as a consequence of the lack of transparency on the arrangements for 2021.
A trade deal is possible but it comes at a cost
I maintain that some form of trade arrangement will be agreed between the UK and EU before year-end. This may yet prove overly optimistic: Time is after all running out. Moreover, the best that can be achieved at this late stage is a deal covering a narrow range of goods. The fact that the service sector has been largely ignored reflects wilful neglect since the UK runs a large surplus in services trade which partially makes up for the shortfall in goods trade. At a bare minimum, any deal agreed with the EU this year should be the first step in a long-running series of negotiations designed to fill in the many gaps in trade negotiations.
As it is, whilst the BoE’s forecast released last week assumes that a free trade agreement is reached before the end of 2020, it will still imply the introduction of customs, rules of origin and some regulatory checks on goods trade. In addition “some cross-border provision of services is also likely to be affected by new barriers to trade” and as a result “trade and GDP are temporarily lower in the near term as firms adjust to the new arrangements.” All in all, the BoE forecasts that net trade will subtract almost three percentage points from GDP growth next year. In a “normal” year when GDP growth might be expected to run at around +1.5%, this would imply a rate closer to -1.5%. Were it not for the distortions to GDP posed by Covid which will hide much of the statistical impact, serious questions would be asked of a policy which causes such economic damage.
Whatever happened to "they need us more than we need them"?
Looking back four years, this is not what Brexit proponents promised. Recall we were told that doing a trade deal with the EU would be the “easiest deal in human history”; that we would have the “exact same benefits” that we have now and that we could “have our cake and eat it?” Many of us pointed out that none of these statements were true and that those making them were deceiving the electorate. Anyone who voted for Brexit on the basis that cross-border arrangements would remain largely the same has reason to feel cheated and the survey evidence continues to suggest that the electorate has changed its mind.
An excellent essay in Prospect Magazine by Anand Menon and Jill Rutter looks at the factors which have caused the Brexit promises made in 2016 to morph into today’s confrontational negotiations in which the UK government prioritises sovereignty above all other considerations. None of the points come as any surprise – indeed, I have covered them all at one time or another over the years – and the authors conclude with a point I made long before the referendum that a soft Brexit was always the worst of all worlds, “where you are locked out of the room but still locked into most of the rules.” They also highlight that a “soft Brexit always carried within it the seeds of its own destruction.” That being the case, none of the economic promises made in 2016 was ever achievable (again, no surprise). But it does raise the question of what exactly is the point of Brexit? (Hint: It isn’t about the UK gaining the fictional degree of control over its laws that the ultras believe).
Removing an obstacle
At this stage in the proceedings, a rational government ought to conclude that when a policy promise becomes undeliverable it should rethink the basis of its strategy. This is not necessarily to say that Brexit should be reversed (although that would be nice) but at least the clock should be stopped in order to give both sides time to work out what is realistically achievable. Either way, something has to give and the announcement that Boris Johnson’s senior adviser, Dominic Cummings, has left his position suggests something is afoot. Indeed over the past couple of days, a number of Brexiteers on Johnson’s backroom staff have left their posts (not all willingly). The fact that the composition of the Downing Street team is changing is an indication that the government realises its approach up to now has not worked and that a change of tack is needed.
Cummings’ departure has garnered the most headlines. Recall that he was the campaign director of Vote Leave and is a hardline proponent of Brexit, and the fact he is no longer in post has given rise to suggestions that Johnson is preparing to offer more concessions to secure a deal with the EU. Naturally the government insists that it is not going to back down in negotiations but that should be viewed as the smokescreen that it undoubtedly is. The breakup of the Brexiteer cabal at the heart of government can only be a good thing for it ought to allow more rational voices to be heard.
But the damage they have caused in the last 16 months should not be forgiven or forgotten. From proroguing parliament to breaking international law in order to achieve their aims, theirs has been a scorched earth policy devoid of compromise and it has failed. Perhaps now Johnson will finally accept the reality of the position he finds himself in and sign on the dotted line to avoid a no-deal Brexit at the start of January. However, it will still be a bad economic deal. Once upon a time the government used to tell us that no deal is better than a bad deal. Once upon a time, people also believed the Earth was flat.
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