The big day dawns

We are less than a day away from the triggering of the Article 50 process which will signal the UK government’s determination to leave the EU. It is the equivalent of serving the divorce papers, and like most divorces it is unlikely to run smoothly. It was thus rather depressing to watch the BBC’s pre-Article 50 debate (here for those in the UK, and those outside the UK may have to be content with this). Having watched with increasing despondency the debates in the run up to the June referendum, I took no comfort from the fact that the country is still as divided on the issue as it was nine months ago and continue to believe that the government’s public position on its negotiating stance is naïve.

After the UK government communicates its desire to leave the EU, everything changes. The UK no longer has any control over how the negotiations will proceed and the ball will be very much in the court of its (soon-to-be erstwhile) EU partners. Although Theresa May has set out her 12 key negotiating points, I maintain that they are little more than a wish list. And if the key issue at the heart of the Brexit campaign was immigration, the UK government does not appear to have developed a clear strategy on how to proceed from here. Brexit minister David Davis yesterday confirmed that the government will not seek to cap the number of EU migrants working in the UK after Brexit, but expects that the government will eventually meet its target of cutting net migration to the “tens of thousands.” Short of redefining the migration statistics to exclude students, it most certainly will not be able to do so. I won’t bore you with the economic arguments about immigration again – suffice to say many people have it wrong about the balance of costs and benefits.

There are those who argue that the weakness of the EU is a good opportunity for PM May to press hard for a deal which will benefit the UK. Allister Heath in the Telegraph argues that “the rise of populism on the continent, the strength of Britain's economy and Europe's fear of terrorism all make a good deal for the UK more likely.” I’m not sure I agree that the EU is as weak as he makes out. The Dutch election earlier this month showed that Geert Wilders’ brand of populism was decisively rejected and latest polls put Emmanuel Macron ahead in the French election, suggesting that he will breeze the second round. The EU is not, in Heath’s words, “on the verge of the abyss.” It is weakened, for sure. But Brexit may even act as a catalyst to force it to rethink its strategy.

For those Brexit supporters who claim that it is not curbing immigration which is the real prize but the opportunity to strike new trade deals, Gideon Rachman’s recent column in the FT nicely skewers some of that thinking. Rachman argues that the UK establishment suffers from collective amnesia in which the national story is centred around the war against the Nazis rather than focusing on Britain’s imperial past. In Rachman’s words “Most British people, including leading politicians, are profoundly ignorant of the country’s imperial history. This imperial amnesia … means that leading Brexiters and advocates of “Global Britain” … speak warmly of returning to Britain’s historical vocation as a “great trading nation”, when it was actually a great imperial nation. That important distinction leads to overconfidence about the ease of re-creating a global trading destiny, in a world in which Britannia no longer rules the waves.”

In the first Brexit presentation I made, back in 2013, when I shared a platform with former Europe Minister Denis MacShane (before his conviction for expenses fraud), I recall making a similar point. Those who believe that the UK will be able to rely on our Commonwealth partners, claiming special historical ties, clearly do not see the imperial position through Indian (or Pakistani or Kenyan etc) eyes. The former British colonies have emerged from the shadow of their imperial past and have no desire to return to it. Indeed, Theresa May’s efforts to conduct a trade deal could be threatened by her refusal to reform visa restrictions for Indian citizens (here). 

For the 48.1% of us who voted in favour of Remain in June, the decision to trigger Article 50 will signal another step on the path away from the common Europe of which we hoped to remain part. I would like to think that whatever deal is struck, it will not inflict too much pain on the UK. But much will depend on the magnanimity of the EU, for what I have heard so far gives me little confidence in the UK’s negotiating strategy. When our own prime minster reckons “no deal for Britain is better than a bad deal for Britain” you really have to wonder what we are letting ourselves in for.

Just another day in Brexit Britain

As the self-imposed deadline for triggering the Article 50 legislation draws nearer, it has been a fascinating day of political developments in the UK. First, we had the spectacle of Scottish First Minister Nicola Sturgeon issuing a demand for a second referendum on independence following the plebiscite in 2014. This was followed by the House of Commons voting against any amendments proposed by the House of Lords to the Brexit bill. It thus looks set to be passed into law tonight which in theory will allow the prime minister to formally launch the UK’s departure from the EU tomorrow. One of these events is historic enough, but the prospect of both coming to pass will irrevocably change the nature of the UK. No more United Kingdom, more Little Britain.

First, the Article 50 legislation. Regular readers will know my views: Leaving the EU is a leap in the dark which no amount of breezy confidence from politicians can conceal. Anyone who has ever done a parachute jump will know that for all the pre-jump training, nothing compares to that moment when you leap out of the aircraft for the first time and hope that nothing goes wrong with the chute. So it is with Article 50. If the EU does not play ball on the terms envisaged by the UK government, we could hit the ground with a big thump.

A fine article in The Times today by Clare Foges (here, although apologies for the fact it is behind a paywall) reiterated a point which I have long made, that far too many British politicians hark back to the way which Margaret Thatcher dealt with the tricky subject of UK-EU relations more than 30 years ago, and misinterpret what happened. Thatcher may have thumped the table in order to get her “money back” at the Fontainebleau Summit in 1984 but she did so knowing how far she could push German Chancellor Kohl and French President Mitterrand. She well understood that both Kohl and Mitterrand needed something in return which they could sell to their domestic electorates. In fact, Thatcher got less than she wanted – she was forced to settle for the minimum rebate – and she subsequently became a passionate advocate of the Single European Market. Moreover, as Foges points out, the UK was in the club looking forward to a future in Europe, and although the path was rocky the UK was broadly travelling in the same direction as other EU members.

Fast forward more than three decades to the tin-eared politicians braying that Theresa May should remember the spirit of Fontainebleau. The prime minister can recall the spirit of Nikita Khrushchev to her heart’s content by banging one of her many pairs of shoes on the conference table, but the EU will not listen to threats. The experience of Greece, which tried to dictate terms to the EU over its bailout package in 2015 but was humiliatingly forced to accept austerity conditions worse than those previously rejected, should serve as a salutary reminder that a confrontational approach will not work – even if the UK is not in quite the same position as Greece.

It is against this backdrop that Nicola Sturgeon has reactivated the prospect of another referendum on Scottish independence. Sturgeon’s position appears to be motivated by the fact that the Scottish people overwhelmingly voted to remain in the EU and they are certainly not keen on the hard Brexit option being driven by Westminster. In Sturgeon’s words, “all of our efforts at compromise have been met with a brick wall of intransigence.” And whilst many people will have sympathy with Sturgeon’s view on Brexit, there is also a sense that she is using this as a device to push for what the Scottish National Party really wants – and all it has ever wanted – which is independence from the rest of the UK. But under the terms of the Scotland Act, a referendum can only be held with the consent of Westminster – it is not in the gift of the Scottish government to call it. And with Whitehall likely to be completely preoccupied in dealing with Brexit, it certainly will have no appetite for a referendum within the next two years, as Sturgeon is demanding.

As for what the people of Scotland want, there appears to be no great appetite for independence amongst the electorate at present, according to recent polls. Nor is Scotland’s economic position any better than in 2014 – arguably it is worse (I will deal with the economic situation another time). But just like 2014, any referendum will ultimately not be fought on the basis of economic logic. Already up to a third of voters retain an open mind on the prospect of independence and it will likely to be an easier sell than it was the first time round, so it could yet gain a great groundswell of support.

All in all, Brexit threatens to turn the UK political scene into an unholy mess (if it has not done so already). There is a sense that the government only cares about the views of the 52% who voted for Brexit; the Labour Party, which is nominally the opposition holding the government to account, has gone missing in action, and the SNP wants only to distance itself from the whole show. There is nothing United in the Kingdom nor Great about Britain, and if we get the politicians we deserve, what does that say about the voters?

Rules are rules

All social and economic systems are based on rules. Some are necessary, some merely irksome, but they are all designed with a purpose in mind. All advanced societies live by a code designed to preserve social order, which is a prerequisite for economic advancement. Anarchic systems tend not to last long.

I was struck by this thought yesterday, following the UK Supreme Court’s ruling that parliament must be allowed to vote before the Article 50 legislation triggering Brexit is enacted. There are those who may disagree with the court’s ruling. Others may question whether it was necessary that the whole episode should have required legal involvement in the first place. After all, it would have been simple enough for the government to have acquiesced to demands for a vote, whilst preparing a pared down bill which parliament would find very difficult to reject – something that the government will now have to do anyway. But it is important to recognise that under English law, the courts exist to enact the law which is designed in parliament. The judgment handed down yesterday made it clear that the Supreme Court has no wish (or indeed, power) to rule on whether Brexit is a good or bad thing for the UK. It merely ruled that legislation put in place by parliament can only be repealed by parliament.

It was thus extraordinary to hear Iain Duncan Smith, a prominent eurosceptic MP – indeed a former leader of the Conservative Party – say in a radio interview: “There’s also the issue about who is supreme – Parliament or a self-appointed court ... I’m disappointed they've tried to tell Parliament how to run its business. They've stepped into new territory where they've actually told Parliament not just that they should do something but actually what they should do. I think that leads further down the road to real constitutional issues about who is supreme in this role.”

Rarely, if ever, have I heard a more crass statement from a British politician. It demonstrates a lack of understanding of how the UK judicial process works, which in itself is worrying from a lawmaker. As the writer of The Secret Barrister blog noted on Twitter “There's no issue about who is supreme between Parliament and Supreme Court. It’s Parliament. The Court expressly did not tell Parliament how to run its business. It clarified what it could not do unilaterally. The Supreme Court is not self-appointed. It was established by Parliament by section 23 of the Constitutional Reform Act 2005.” My own reaction was to question in what way a parliament, that his government wanted to be kept out of the process in the first place, was being told how to act? And the irony must have escaped him that somehow allowing parliament to demonstrate its sovereignty was a means of taking control that surely his Brexit campaign had been about all along?

But this goes to the heart of a deeper economic, and indeed social, problem. There is often a fundamental misunderstanding of the rules which are in place; why they are in place and the consequences of not adhering to them. To give a simple economic example, many people know that the Maastricht Treaty of 1992 specified that members of the single currency should ensure that their public deficit on an annual basis be kept below 3% of GDP. Fewer people know that this apparently arbitrary figure is based on the desire to stabilise the long-term debt-to-GDP ratio at 60% under the assumption that nominal GDP grows at a rate of 5% per annum (60% x 5% = 3%). Fewer still realise that if GDP growth slows, governments have to run an even tighter fiscal stance to stabilise the long-run debt ratio at 60%. Thus if growth were to permanently slow to 4%, this would require maintaining a deficit ratio of 2.4% (60% x 4% = 2.4%). Alternatively, governments will be required to run higher debt limits (a 3% deficit limit and 4% growth would allow governments to stabilise debt ratios only at 75% of GDP). Either way, the 3% deficit threshold has become an article of faith to be adhered to at all times, even though it is no longer appropriate in the current low growth environment.

As it happens, the consequences of failing to adhere to the fiscal targets are not particularly dramatic. But the fact that they are believed to be so has prompted EMU countries to embark upon a damaging round of fiscal austerity. The consequences of IDS’s failing to understand the nature of the English legal system are manifestly more worrying. Like a series of Chinese whispers, they are repeated until they become an article of faith which begins to undermine the basis of the legal framework and erodes trust in experts and institutions. This is how post truth societies emerge and gives rise to the series of untruths (or alternative facts) upon which the case for Brexit was made.

They say that rules exist for the obedience of fools and the guidance of wise men. But both fools and wise men need to know why the rules are there in the first place, or we all end up looking like fools.

A Spaniard in the works

It is ironic that the legal challenge to the government's handling of the Article 50 process was brought about by one domestic resident, one Spanish hairdresser* and a British expat, only one of whom would have had the unambiguous right to vote in the referendum. Unsurprisingly, the High Court ruling that the UK parliament be given a say before Article 50 is triggered has evoked strong reactions across the political spectrum. The Leavers see it as an attack on the democratic process, despite the fact that the referendum result was advisory and not legally binding, and that whilst the electorate may have voted for Brexit they did not vote on the terms on which the divorce should take place.

Contrary to the hopes of some fervent Remainers, it is unlikely that parliament will try to prevent Brexit from occurring. For one thing, this would be perceived as highly undemocratic and would lay government open to the change of ignoring the will of the electorate. This in turn would lay it open to additional legal challenges, which would slow the process of working towards EU exit and threaten the constructive working relationship between the executive, legislative and judicial arms of government. And before we all get too carried away, let us not forget that today's ruling has yet to be ratified by the Supreme Court to which the government has appealed. For all these reasons, the predictable howls of outrage from the usual suspects in the media will likely prove misplaced.

Rather than seeing the process as an attack on democracy, I prefer to see it as introducing a firebreak which will give the government more time to think about the nature of the divorce which it wants from the EU. A commitment to trigger Article 50 by end-March does not allow the government sufficient time to conduct the requisite preparatory work on issues such as the future of financial services. Moreover, it potentially gives the UK enough time to postpone the  trigger point until after the French and German elections, which will allow them to become more engaged in the process rather than focusing their energy on domestic political issues.

The spirit of the challenge to the government was based on the notion that if Brexit has to take place, it should at least be on terms which are favourable to the British people. Nothing I have heard so far gives me much confidence that ministers such as David Davis and Liam Fox are capable of making such a decision. Indeed, their views appear to be based on ideological, rather than economic, considerations. It has crossed my mind in recent weeks that perhaps this is the outcome that Theresa May wanted all along. It has long been suggested in legal circles that the government's case was based on flimsy evidence and that its team was not particularly high powered in the field of constitutional law.

That might be a Machiavellian view. But surely the PM is smart enough to realise that if the UK goes "naked into the debating chamber" without a coherent plan of what it wants, and with negotiating partners who are distracted by other issues, the outcome is likely to prove less than optimal from the UK's standpoint. Winding up other EU partners is not the way to get the deal which Davis, Fox et al think they can deliver. Postponing the Article 50 process might allow some of the heat which has built up in recent weeks to dissipate. Trade negotiations are best conducted in a cool and rational manner. Maybe we all need a little space to allow us to get to that point. 

* Update 13 November: Confusion exists as to the exact nationality of the hairdresser I identified as being Spanish. In many instances, they have been identified as Brazilian but other reputable sources have claimed they are Spanish, including the FT (here) and the  BBC (here).

May for March

Yesterday’s speech by PM Theresa May, which outlined that the UK will begin the Article 50 proceedings no later than March 2017, left me feeling rather uneasy. It was a speech straight out of Conservative Campaign Headquarters casting, designed to give a reassuring feeling to the assembled masses at the party’s conference, but short on substance. There was a lot to be concerned about: Her statement that “The referendum result was clear” was a case in point. No one denies that the Leavers won the referendum, but it was by less than four percentage points. It was not at all “clear”, as the Leavers would agree had the result gone the other way. And unlike a parliamentary election, where you get a chance within five years to change the outcome, that is not possible on this occasion. So if there is to be a Brexit, it is absolutely vital to get it right, and I have many reservations that the government is going about it the right way. 

The prime minister also made it clear that “it is not up to the House of Commons to invoke Article Fifty, and it is not up to the House of Lords. It is up to the Government to trigger Article Fifty and the Government alone.” There are many lawyers who would dispute that, and indeed next week the High Court is due to give a ruling on this issue. May accused those who sought to challenge the referendum result of “not standing up for democracy, they’re trying to subvert it. They’re not trying to get Brexit right, they’re trying to kill it by delaying it. They are insulting the intelligence of the British people.” Some might say in response that a Leave campaign which blatantly lied about issues such as the cost of EU membership, and how the money saved could be used to fund the NHS, brought the process of democracy into disrepute in the first place. And whilst we’re at it, prime minister, your mandate as leader of the Conservative party was obtained with far fewer votes than Jeremy Corbyn when he won the Labour leadership contest. A little bit more humility regarding the nature of democracy would not go amiss. 

Even dangerous Daniel Hannan has admitted that the referendum result was so narrow that it is necessary to ensure that a peaceful coexistence can be maintained between the sides. We got no sense of inclusivity from PM May yesterday: Had she not (allegedly) been a Remain supporter, I could have sworn that we were listening to the victory speech of a prominent Brexiteer. The general tone of the speech suggested that the UK is on course for a ”hard” Brexit, a notion which May rejected: “there is no such thing as a choice between “soft Brexit” and “hard Brexit”. This line of argument … is simply a false dichotomy. And it is one that is too often propagated by people who, I am afraid to say, have still not accepted the result of the referendum … I know some people ask about the “trade-off” between controlling immigration and trading with Europe. But that is the wrong way of looking at things.” Again, we will have to agree to differ on that one. There clearly is a form of trade off, and to pretend otherwise is simply to ignore what other EU nations are telling us. 

The prime minister’s grasp of the economic realities of Brexit was, in my view, rather shaky. She suggested that “the referendum … was a vote for Britain to stand tall, to believe in ourselves, to forge an ambitious and optimistic new role in the world … And there is already abundant evidence that we will be able to do just that. Important foreign businesses – like Siemens and Apple – have committed to long-term investments in this country. With the Japanese purchase of ARM for £24 billion, we have seen the biggest-ever Asian investment in Britain. Countries including Canada, China, India, Mexico, Singapore and South Korea have already told us they would welcome talks on future free trade agreements. And we have already agreed to start scoping discussions on trade agreements with Australia and New Zealand.” 

Where do we start? How about the fact that the sale of ARM means that the intellectual capital, and the profits which flow from it, are no longer UK owned? Or that Nissan is delaying new investment in its Sunderland plant until the UK has concluded Brexit negotiations with the EU? Or that Australia has said that any trade deal will also have to wait until after the UK-EU deal is concluded? Or that there was no mention of any deal with the US?

However, May’s speech was of a piece with a lot of the statements out of Westminster in recent weeks. As one EU diplomat suggested, “she seems to be saying that regaining sovereignty is so valuable, she is willing to pay a price in terms of economic disruption.” Missing from the speech was any sense that this is a two way bargaining exercise. If the EU refuses to negotiate with the UK before Article 50 is triggered, and its demands are immediately rejected by a French or German government which is deeply involved in its own election campaign, the whole strategy falls apart. Moreover, once Article 50 is triggered, the UK loses any influence over the EU. The best we can say about the prime minister’s speech is that it was designed for domestic consumption only. It’s naïve to think that our EU partners are going to roll over and play ball and I suspect that this sunny optimism will not last beyond the first contact with Realpolitik.

Aftermyth

There is no real sense that the Brexit dust is beginning to settle. As I warned all along, there never was a Plan B and that if Johnson, Farage et al were to carry the day, they would have to think clearly about what they wanted to do with their new found power. And they haven’t. We have been treated to the spectacle of Johnson backsliding on some of their initial promises and Farage grandstanding from the Brussels bully pulpit.  Meanwhile, the EU leaders try to close ranks and carry on as before and this is where things might get dangerous. The Leavers might have been able to carry off their shtick at home, but it will be whole different set of negotiations to get the EU to cut any sort of deal without triggering Article 50 and I rather think the Brexiters are out of their depth.

Short of actually remaining within the EU there is no alternative deal which offers anything like the same advantages as the one we have now. The so-called Norwegian solution offers most of the costs and all of the benefits bar one – the ability to set the rules of the game, which is by far the most important of the lot. The Swiss option, which involves making a series of bilateral agreements with the EU on a range of subjects, is cheaper (around 40% of current UK levels on a per capita basis) but less efficient, because each subject area has to be dealt with separately, and in any case excludes financial services. Perhaps the UK could do a deal in this area but the costs would likely rise correspondingly. In any case, both of these options would require the UK to keep the borders open to an extent which many voters thought they were voting against. Whilst many people argue that the Norwegian option is economically the best, it would be the height of stupidity to take that deal. Why would any government accept not being to influence the rules and still pay costs which are 90% of current levels? It just defies logic. 

As for what the Leavers are trying to sell at home, they are apparently convinced that they can trade with the EU as before and control borders. But it is not in the gift of any British government to make that promise. The single market belongs to those who remain in the EU and they will determine who trades in it and on what terms.

So what happens now? The EU seems convinced that Britain should do what it promised and trigger Article 50 of the Treaty of the European Union. In other words, start a process of negotiation with the EU on the terms of the post-membership trading arrangements. Naturally, the British don’t like this prospect because they don’t know what the outcome will be and are holding fire. Legally the British have to make the first move. And let’s not forget that since the referendum was not binding on the UK government in the first place, it is rather difficult to envisage the EU being able to railroad the UK into triggering what is an unstoppable process. One you pull the trigger, this baby is well and truly armed.

So what to do? From my perspective the best option would be to not start the exit countdown clock. It may be a live hand grenade but the pin is still in, so put it in the cupboard and forget about it. That, however, is not what the electorate think they voted for. But they will soon realise that the longer the government leaves it, the more they have been taken for a ride. There has been speculation that a new election should be called, which would act as a proxy second referendum. We’ll skip the details but suffice to say it opens up a whole new can of worms, notably a surge in support for fringe parties such as UKIP when the electorate realises that the established parties don’t really want to leave the EU after all. 

Undoubtedly, the other EU countries want to make Britain squirm. It is after all, only natural that after a bitter row during which one threatens to storm out that the other one says “off you go then.” As an exercise in bluff calling, it never fails. But if the Brits don’t really want to go, then you can be pretty sure that the rest of the EU does not want the UK to go either. 

So how about this for a plan: Sack Jean-Claude Juncker and reset relationships. After all, he is a hard liner whose views do not seem to chime with those of Angela Merkel. He is apparently not well liked in parts of central and eastern Europe and he and Cameron famously do not see eye to eye. Thus, for the greater good of the EU, the big nations conspire to get rid of him (don’t forget that the whole Commission was forced to resign in 1999). They find a more emollient candidate who offers Britain most of what it wants; the Brits sell the deal at home that it was Juncker’s fault all along and Article 50 is quietly shelved. Everyone saves a bit of face, the EU is preserved and we move on.

As Peter Cook put it in the famous Beyond the Fringe sketch, The Aftermyth of War:

“I want you to lay down your life, Perkins. We need a futile gesture at this stage. It will raise the whole tone of the war. Get up in a crate, Perkins, pop over to Bremen, take a shufti, don't come back. Goodbye, Perkins. God, I wish I was going too.” 

Jonathan Miller: “Goodbye, sir — or is it — au revoir?” 

Cook: “No Perkins.” 

Sometimes sacrifices are necessary for the greater good, and this may be one of those times.