Look who's back

A couple of years ago I suggested that Nigel Farage had passed the high point of his influence and that history would judge him as a useful idiot for those pushing to get the Brexit referendum over the line (here). It looks like I was wrong. The latest opinion polls put Farage’s new Brexit Party at over 30% – well ahead of either the Conservatives or Labour, with a double-digit lead. He has brilliantly tapped into the dissatisfaction with the main political parties, telling his supporters that they have been betrayed over Brexit and that the establishment is out to crush them. As is always the case with Farage, there is a tiny grain of what almost passes for truth in his argument surrounded by bombast and obfuscation. He remains what he has always been – a political irritant, a rabble-rouser and a liar. But underestimate him at your peril.

The fact that he is back on the political stage at all is because he is right about one thing – the political establishment has played a bad Brexit hand in the worst possible manner. Both the main parties are split and there is no indication that the two parties which together hold more than 85% of the seats in parliament will be able to agree on a Brexit deal. Since the autumn our TV news bulletins have featured late night parliamentary sittings which have shown that the only thing MPs agree on is to disagree. In this febrile atmosphere, almost 100% of MPs’ time is taken up with Brexit-related issues with no substantive progress on the things that matter to most people’s lives (the health and education systems, environment, transport and housing to name but five). Farage’s Brexit Party has grown because it feeds on popular discontent with the political establishment – a concern even felt by members of the main parties, with large numbers of Conservative members reportedly ready to vote for Farage’s party.

Try as people might, it is very hard to lay a glove on Farage who is a brilliantly elusive operator. Last Sunday, for example, Farage went on the BBC’s main weekend political show (here for the full interview) where he was confronted with some of the things he said – and we saw the clips – but when faced with those issues that he would rather not be reminded of, Farage responded with denial followed by bluster and anger. He went on the offensive to accuse the BBC of being “in denial” and later justified his response by saying “The idea was to use up all the time talking about irrelevances and inaccuracies, rather than talking about a major election taking place next Thursday. That's why I took the attitude that I did.” Arguably, there was a good reason for holding him to account in this way because his party has not actually produced any form of manifesto. Farage is the party and the party is him and in order to understand something about the issues on which they are standing it is right to pose the questions.

His response split viewers, with roughly half suggesting that he got a grilling from which he did not emerge well whilst the other half thought he gave more than he got. In short, it had no impact on the debate. Farage is undoubtedly a charismatic politician and an effective media performer but he has no answers to any of the questions about how Brexit can be made to work. More importantly, people do not want to hear them. It has become an article of faith amongst people who support the Brexit Party that it can be made to work. As Farage put it “we can be better than anybody if we just believe in ourselves.” There is no sense that the economic damage resulting from leaving the EU can only be minimised if some form of accommodation can be reached with the EU.

And this is where things start to get dangerous. Farage and his ilk do not believe that they have any duty to deliver Brexit – their role is merely to demand that government delivers it for them. When the policy proves impossible to implement, the hard core Brexiteers cry betrayal, thus further whipping up public resentment. This is not the conventional evidence-based policy which many of us have grown up with. It is dog-whistle policy designed to appeal to a core group of supporters to serve whatever purpose the leader has in mind. And it is not just a UK problem. Donald Trump dismisses inconvenient facts as fake news and populist leaders across Europe are similarly capable of ignoring facts in favour of lowest-common denominator politics.

But Farage is a league apart. Unlike Trump, who at least had some family money to fall back on (though quite how much is disputed) Farage never made a huge amount of money before going into politics. He now earns between €147k and €197k per annum from his media work alone, according to records covering the first four years of the current European parliamentary session and in the year to May 2018 he reportedly earned almost £400k. In an interview two years ago, Farage claimed to be “53, separated and skint … there’s no money in politics.” Whatever else he might be, he is not short of money.

Of course, Farage is not the only representative of the people whose financial interests have improved during his term of office. But more than most, he is a snake oil salesman posing as a man of the people when his background and lifestyle suggest he is anything but, and who peddles a policy he has no idea how to implement. But large numbers of people don’t care. They see him as a refreshing antidote to the political establishment, telling it as it is. Consequently, his party will almost certainly do well in next week’s European parliament elections.

But the real problem is less Farage than how the establishment responds to his success. The government will almost certainly interpret it as a strong case for delivering Brexit (despite the fact that his party is unlikely to take much more than 30% of the vote share). As we saw in 2014, when UKIP took 27% of the vote in the EU elections, this might panic the government into a wrong move, such as drifting towards acceptance of a hard Brexit. But the lesson of 2014 is that the EU elections are not a good guide to anything. A year after the Conservatives came in third in the EU election, they won their first parliamentary majority in Westminster for 23 years. The only lesson to be drawn from the European parliamentary elections is that they are a useful way for the electorate to register a protest vote. Perhaps that is why Farage has been so successful in them, despite having failed seven times to be elected to Westminster.

Skirmishes in the Brexit phoney war

It is increasingly evident that Theresa May’s July comment that “Brexit means Brexit” was simply a device to buy some time over the summer in order to allow some heat to go out of the fractious debate. Today’s return of parliament following the summer recess marks the point at which the government has to get down to some hard thinking about how it wants to implement any sort of plan.

Today’s domestic highlight was the speech by Brexit minister David Davis outlining the government’s position on Brexit. I use the word “position” because plan is too grandiose a word to describe what we know so far. The key message from Davis was that it is “very improbable” that the UK will remain a member of the EU single market. This comes a day after the US and Japanese governments warned PM May, in China for the G20 summit, of the consequences of Brexit for trade and investment. The US indicated that securing a trade deal would not be a priority for the US, which is seeking to conclude negotiations with the far larger EU, whilst the Japanese government issued a 15-page report outlining the problems which Brexit could cause for Japanese firms. It pointed out that “a number of Japanese businesses, invited by the Government in  some  cases,  have  invested  actively  to  the  UK,  which  was  seen  to  be   a  gateway  to  Europe.” In other words, you invited us in and took the money we brought but you have changed the rules of the game. The thrust of the document was a plea for business conditions to remain broadly as they are now, otherwise “this could force Japanese companies to reconsider their business activities.”

It is, of course, still very early days, but the events of the weekend highlight what many us pointed out all along: first, that changing the economic rules will have consequences for UK jobs and, second,  that the rest of the world was not necessarily going to jump at the chance to negotiate a special deal with the UK. If you can do a trade deal with a market of 500 million people, it is likely to yield far bigger benefits than negotiating one with 65 million. All this throws Davis’s comments into stark relief and highlights the rock and hard place dilemma facing the government. In order to make a success of not taking part in the single market, the UK has to secure trading relationships with non-EU nations – a process which has not got off to a good start. If it proves difficult to build these relationships, the government will find that it is in its best interests to maintain closer ties with those EU countries which it just spurned than many people might find desirable.

A curious element of PM May’s speeches in China was that she ruled out the adoption of a points-based system to manage immigration flows, despite the fact that this was a key element of the Leave camp’s plan, and left her open to the charge of backsliding (though she never advocated it, so that charge seems rather spurious). She argued that they are not an effective means of controlling migrant inflows. I am less sure about that – as a means of controlling absolute inflows they have their uses. But they do have other shortcomings, as even the Australian government admits. For one thing, many of those coming in on such schemes often tend to be under-employed which drives them down the value chain to compete for unskilled jobs, and for another they allow government to dictate labour supply rather than the needs of employers.

But by torpedoing one of the key planks of a policy advocated by Boris Johnson and Nigel Farage, PM May is sending a signal that some of the simple ideas put forward by the Leavers will not be implemented. Maybe this is clever politicking designed to restrict the Brexiteer’s options in a bid to expose some of the fallacies inherent in the case for leaving the EU. It will certainly make life harder for David Davis as he puts together his plan to take the UK to the next level. However, much that we have heard so far tells us only what the government is opposed to, not what it is in favour of. Brexit may indeed mean Brexit. But it may also end up being a slogan designed to hold the Conservative party together in much the same way as David Cameron’s pledge to hold a referendum in the first place.

The economic costs of Nigel Farage

What is it with the current generation of political (so called) leaders? Following last week's abrogation by Boris Johnson of his responsibilities, UKIP leader Nigel Farage has today followed him into the political wilderness. The mass resignation of Brexiters smacks of a political movement that having achieved its aim of winning the referendum, has no idea of what it wants to do next. It is rather like watching a bunch of children who, having screamed at the top of their lungs to get what they want, suddenly decide they are no longer interested. Whilst I have no truck with the policies of Farage, surely he owes it to the Brexit camp to figure out how his plans should be implemented?

It seems not. For an alarmingly large number of Brexiters, the referendum itself was the prize. Like the bunch of screaming kids, they now have to leave it to the adults to clear up the mess they created. 

One of those who must wade into the mess is BoE governor Mark Carney who tomorrow will present the biannual Financial Stability Report. This will be the first official report on the health of UK banks since the referendum. Although we can expect the Bank to say that the measures it has put in place have held up well so far, there are significant downside risks. Today's news that Standard Life has suspended trading in its property fund is perhaps the first indication that investors are beginning to get cold feet regarding their UK investment strategy.

The UK economy is going to need all the help it can get in the weeks ahead. If the BoE does not cut rates next week, it will almost certainly do so in August. Just when you thought they could not fall below their already record lows, the referendum result has wrong-footed us all. And the bad news is that this puts further downward pressure on the investments which form the backbone of our pension income. One of these days Nigel, Boris et al might like to explain to those whose pension income they have effectively robbed, exactly what the economic benefits of Brexit are. I am struggling to figure it out.

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.