Five years and two referendums later

I was reminded today of the fact that it is exactly five years since the Scottish electorate voted by a majority of 55% to 45% in favour of remaining in the United Kingdom. Those were what have now come to be seen as the good old days. The decision came just two years after the 2012 Olympics when it felt like the country was pulling together. Despite concerns about the direction of economic policy, the Scottish referendum outcome reflected a decision to bury differences as the country looked to the future with some optimism.

Looking back at what I wrote at the time, I noted: “This may not be the end of the story. For one thing, given the significant swell of support for the pro-independence campaign it cannot be absolutely ruled out that they will push for a second referendum. This will add further fuel to a nascent English nationalist movement led by UKIP, which will thus set the tone for the May 2015 General Election. Once the election is out of the way, the next big item on the political agenda will be the prospect of a UK referendum on EU membership. The main lesson from the Scottish campaign is that it will cause a lot of bitterness.” I could not have foreseen in 2014 just how right that would prove to be.

It is extraordinary to think that less than two years separated the Scottish independence and EU referendums, such was the change in political sentiment during this period. The long-awaited publication of David Cameron’s memoirs, which have been splashed all over the newspapers in recent days, suggests he is deeply saddened by how the EU debate played out and he is scathing about the behaviour of colleagues such as Michael Gove and Boris Johnson during the campaign. But just as Tony Blair could never admit that the UK’s involvement in the Iraq War was a mistake, so Cameron cannot accept that he made a mistake in calling the EU referendum. He believes that a public vote was “ultimately inevitable.” But he is wrong. In early 2016, only 10% of voters believed relations with the EU were a pressing issue for the UK. It was well documented at the time that Cameron was trying to spike the guns of UKIP and I have consistently expressed the view since early 2013 that his call for a referendum was a gamble with the national interest.

Arguably, Cameron’s success in securing the "right" result on the Scottish referendum emboldened his decision to hold an EU referendum. With the benefit of hindsight maybe if the Scots had voted for independence Cameron might not have been so gung-ho about the EU plebiscite, and although UKIP would have continued to be an irritant, the rest of the country may not have torn itself apart over the EU issue. As it is, we are now in a position where the UK is only 43 days away from crashing out of the EU without a deal.

The release last week of the summary Operation Yellowhammer documents make clear the scale of the economic risks facing the UK if it does crash out without a deal. The document notes that “When the UK ceases to be a member of the EU in October 2019 all rights and reciprocal arrangements with the EU end. No bilateral deals have been concluded with individual member states [and] public and business readiness for a no-deal will remain at a low level, and will decrease to lower levels, because the absence of a clear decision on the form of EU Exit (customs union, no deal etc) does not provide a concrete situation for third parties to prepare for.” These are the outcomes that government told us not too long ago were unthinkable and now we find they are government policy.

Just to highlight the specific nature of some of the Brexit-related risks, “the reliance of medicines and medical products' supply chains on the short straits crossing make them particularly vulnerable to severe extended delays. Any disruption to reduce, delay or stop supply of medicines for UK veterinary use would reduce our ability to prevent and control disease outbreaks, with potential detrimental impacts for animal health and welfare, the environment, and wider food safety/availability and zoonotic diseases which can directly impact human health. Certain types of fresh food supply will decrease.”

In other words, the UK government’s inability or unwillingness to accept the deal negotiated with the EU last November poses potential health risks to the country’s population. These are not the hysterical ramblings of desperate Remainers – this is what the government has been forced to admit might actually happen. To further highlight the collapse in effective governance, far from preparing to meet the challenge, the government has suspended parliament in case it asks too many inconvenient questions and is now fighting a challenge to its actions in the Supreme Court. Nor does the madness stop there. For all the obvious shortcomings of Boris Johnson as Prime Minister, opinion polls suggest the Conservatives are actually extending their lead over Labour. To counter this, the Liberal Democrats have now adopted a repeal of the Article 50 notification as their official policy which is (a) unlikely to happen; (b) not particularly wise and (c) not the threat to democracy that the foaming-at-the mouth brigade would have us believe because all you have to do is not vote Lib Dem.

We live in febrile times and the anger that the Brexit debate has stirred up is not going to dissipate once the UK is out of the EU (or not). To put this into some form of historical context I have combined the post-1998 Baker, Bloom and Davis policy uncertainty index for the UK with their index covering the period 1900 to 2008 (based on a smaller sample so there are some comparability issues). Nonetheless, it shows that policy uncertainty spiked to its highest ever level in the wake of the EU referendum and even now is at levels consistently exceeded only in 1919, 1939 and 1946 (chart above). The UK economy is not merely suffering an economic shock: It is being subject to repeated convulsions which will not easily be healed. I fear it will take a generation to heal current wounds. The apparent civility characterising the Scottish referendum in 2014 seems like a lifetime ago.

Another one bites the dust

The news today that David Cameron is to stand down with immediate effect as an MP probably should not surprise me. He gambled on the Brexit vote, lost, stood down as prime minister and has nothing left to achieve in domestic political terms. But I was immediately transported back to his final day as PM on 13 July when he was asked by former Chancellor Ken Clarke, now a backbench MP, whether he will “still be an active participant in this House as it faces a large number of problems over the next few years?” Cameron replied, “I will watch these exchanges from the Back Benches.” So we’ll take that as a “yes” then?

However, as James Kirkup pointed out in the Telegraph, “he fought the EU referendum campaign promising not to quit if he lost, then quit when he lost.” In fact, Kirkup’s article sums up pretty well, I thought, the issues surrounding Cameron’s premiership. “Flouncing out of Parliament in this way is so telling: it speaks to something fundamental about Mr Cameron's character and his approach to politics: a lack of seriousness, the absence of real commitment.  Yes, he wanted the job and yes he put the hours in, to the cost of his family. But he would never die in a ditch for his political beliefs … It was always enough to get by, to do just enough to get the top grade and do better than the rest [although] Mr Cameron's just-good-enough performance was, in fact, pretty good, and probably better than any of the others who might have done his job at the time. Yet that lack of commitment, the sense that he never anything more than a gentleman amateur trying his hand at governing out of a combination of duty, boredom and vanity will stay with him when the histories are written.”

In some ways, perhaps, Cameron was a throwback to an earlier political age, the era of the gentleman amateur. And at a time when we criticise our politicians for being too professional and for not having had experience outside politics before entering parliament, it may seem hypocritical to criticise Cameron for not being cut from this cloth. But running away from a problem of his own making really takes the biscuit. It is one thing to quit as PM but then to disappear from politics altogether because he does not want to be seen as a “distraction” simply does not wash. In his view “leaving parliament is the right thing to do.” In what way, exactly? Although Johnson, Gove and Farage were the arsonists in chief who set the Brexit fire alight, let’s not forget that it was Cameron who supplied them with the matches. This was a problem of his creation and he owes it to the country he claims to love to help fix it.

As Cameron heads for the political exit, questions will continue to be raised about his political legacy. But in order to answer this question forces us to ask what he stood for in the first place. He came to office in 2010 promising to detoxify the Conservative brand. Arguably, he made matters worse. After conceding in 2006 that the party had alienated voters by "banging on" about Europe, he reaped the whirlwind with his Brexit promise. Promises to build a “Big Society,” designed to “generate, develop and showcase new ideas to help people to come together in their neighbourhoods to do good things” were quietly dropped. His Chancellor’s austerity policy, which Cameron failed to rein in, did the Tories more harm than good and efforts to devolve regional government are being scaled back by Theresa May’s government.

As I have suggested previously – and as James Kirkup’s article indicates – Cameron at his best was a very effective political performer. But he was always a more effective tactician than strategist and once the tactics on the EU referendum went wrong, the game was up. Prior to the 2009 election, former BoE Governor Mervyn King privately criticised Cameron and George Osborne for their lack of experience and tendency to think about issues only in terms of their electoral impact. As both men fade into political history, it is hard not to think that Cameron’s government will go down as one in which the winning of small victories was more important than getting the bigger picture right. Following his Bloomberg speech in January 2013 I concluded that it was difficult to avoid the view that Cameron was playing fast and loose with the national interest for uncertain political gains. For that, he deserves to be judged harshly.

All change

It has been a momentous day, to be sure. No sooner did David Cameron depart the scene than Theresa May became the 54^th person to occupy the role of prime minister in a line stretching back to 1721. We also have a new Chancellor of the Exchequer, Home Secretary and Foreign Secretary (Boris Johnson of all people). There are thus new incumbents occupying all the so-called Great Offices of State. But on a day such as this, it pays to pause and reflect.

My own view is that the end of David Cameron’s career in front line politics is a waste of good political talent. He certainly comes across as a decent man who is a great communicator. Yet historians may reflect that the balance of his achievements did not weigh too heavily in his favour. Admittedly the economy has recovered nicely over the past three years, but it has been a slow haul and the austerity inflicted by his Chancellor did a lot to stir up the passions which culminated in the Brexit vote. For a man who apparently believed in one nation Toryism, Cameron managed to sow domestic divisions with his ill-judged referendum in Scotland and the disastrous referendum on EU membership. Foreign policy has not been a raging success either, backing intervention in Libya which served only to cause the country to implode. For some, his biggest mistake occurred even before he came to office when he removed Conservative MEPs from the centre-right faction in the European Parliament, thus damaging attempts to form decent relationships with key European allies.

But now he’s gone, and in his place comes a prime minister who has inherited what might appear to be a poisoned chalice. Mrs May certainly has her work cut out. Her speech in Downing Street this evening was described by a friend whose judgement I trust as one which sounded more Labour-like than any current Labour politician could credibly deliver. It was, as the journalist Polly Toynbee tweeted a “devastating analysis of UK social injustice.” It was a clear recognition that the economic policy of the previous regime has helped to exacerbate many of the social tensions which exist outside the London bubble, and it is why George Osborne is no longer Chancellor of the Exchequer.

Osborne was committed to balancing the budget. He failed. Public borrowing in the last fiscal year was almost four times what had been predicted at the time of the June 2010 budget, and whilst not all of this was his fault the Chancellor promised too much too soon. There was a general failure amongst all politicians to recognise the severity of the crisis which hit in 2008 and that it was always going to take at least a decade to try and fix the public finances. But instead of trying to take it slowly, the government frontloaded a significant amount of austerity in the form of a squeeze on public spending. Unfortunately this was insufficient to get the deficit down as rapidly as desired, and Osborne was forced to continue asking for more. By the time the 2014 Pre-Budget Report was released, the OBR’s projections suggested that the share of government spending in GDP was set to fall to its lowest level since the 1930s.

It is notable that Ireland introduced a savagely tight fiscal policy following the financial crisis, which at least succeeded in eliminating the public deficit. There was widespread unrest, and it did result in a backlash following the 2016 election, but Fine Gael remains the largest party in the Dáil, and the government has taken the foot off the brake now that the job has been done. In the UK, there is a sense that the job is far from done. So the government must stick or twist: try harder to eliminate the deficit and risk further unrest, or ease off and accept that the current timetable of achieving a current surplus by 2020 is unrealistic. All the noises we have heard so far suggest that the latter will be the most likely course of action.

But this raises another problem: If the government scales down the tightening in a bid to heal some of the divisions which have occurred recently, what was the point of the last six years of austerity? It appears to have achieved very little: Yes, the deficit has been reduced but by far less than planned, and at the cost of widespread dissatisfaction with the thrust of policy which prompted the electorate to stick up two fingers on 23 June. As I wrote in October 2010, ahead of Osborne’s first Comprehensive Spending Review, “Spending cuts are a gamble which must work. It is not the rating agencies which the government has to fear: It's the electorate.” It proved to be far more prophetic than I could ever have imagined.