Imagine ...

The morning of 24 June 2016 dawned bright and fair as British voters awoke to the news that they had voted by a margin of 52% to 48% to remain in the EU. It was a close run thing but was broadly in line with pre-referendum polling that had given the Remain camp a narrow lead. As the political establishment breathed a sigh of relief, Nigel Farage vowed to fight on to try and extricate the UK from the EU whilst influential Conservative figures such as Justice Secretary Michael Gove and charismatic backbench MP Boris Johnson – both of whom had campaigned for Leave – promised to abide by the result.

But the big story of that Friday was David Cameron’s surprise resignation as prime minister. He  justified his action on the basis that he had prevailed in holding the Union together after the September 2014 Scottish referendum, and had successfully managed to keep the UK in the EU whilst lancing the boil of Euroscepticism within the Conservative Party. As he said in his resignation speech, “I was absolutely clear about my belief that Britain is stronger, safer and better off inside the European Union … and as such I think the country requires fresh leadership to take it in this direction.” The pound soared on the news that the political slate was being wiped clean, giving cover for the BoE to begin the process of raising interest rates that had been postponed during the referendum campaign.

Meanwhile, the process of finding a new Conservative Party leader got underway. Chancellor George Osborne was the runaway favourite but he had made many enemies within his party in the preceding six years. Surprisingly, the parliamentary party began to coalesce around Ken Clarke, the 76-year old Europhile who had stood unsuccessfully for the leadership on three previous occasions and whose time in front line politics was assumed to be over. Clarke and Osborne were the last two candidates standing before Osborne pulled out of the contest, with the result that a ballot of party members became  unnecessary and Ken Clarke walked into Downing Street unopposed as the oldest first-time appointee to the job of prime minister.

Nine years older than opposition leader Jeremy Corbyn, Clarke’s tenure marked a switch towards a more mature style of politics. He reappointed Philip Hammond as Foreign Secretary whilst Home Secretary Theresa May swapped jobs with Chancellor George Osborne, and there were promotions for prominent Remain supporters such as Amber Rudd, Justine Greening and Jeremy Hunt. Admittedly, the Conservatives still had a sizeable minority of MPs who backed Leave but many of them had given up the fight after the referendum, promising to abide by the “will of the people.” But Clarke took the UK in an unexpected direction at the October 2016 Conservative  Party conference, promising a UK application to the Schengen Area and most radically of all, membership of the European single currency. As Clarke said in his conference speech, “we  are all citizens of somewhere and the referendum result has made it clear that the British people have voted categorically to align themselves with the values and institutions of the European Union.”

It was a controversial move, to say the least, and the government’s plan to apply for euro membership without parliamentary approval was only halted by the intervention of James Dyson, the businessman and prominent Leave campaigner, who sought a legal ruling as to whether parliamentary approval was required. In the event, the Supreme Court upheld his challenge prompting the Daily Mail to ask why these “Enemies of the People” should stand in the way of further European integration. But fearful of acting against the “will of the people” parliament voted through the government’s plan despite serious reservations amongst backbench MPs.

In March 2017, the government announced a formal bid for euro membership and appointed Education Minister Nicky Morgan as the lead negotiator, backed up by her new department DEnMU (Department for Entering Monetary Union).  Barely had negotiations begun than Prime Minister Clarke decided to call an election for June 2017 in order to extend his wafer thin majority of 12 seats. It turned out to be a bad call, with the Conservatives falling 9 short of a parliamentary majority and requiring the support of the 12 LibDem MPs in a rerun of the 2010-2015 coalition. It transpired that voters were not quite as enthused about further European integration after all, but the real vote loser turned out to be the ongoing austerity promised by Chancellor Theresa May. Had the Tories won the expected thumping majority, it was widely believed that Clarke would have sacked her but in the event he could not afford more disruptions to his team.

From then on, the going got really tough as the UK began to understand the restrictions which membership of the single currency would entail. More fiscal discipline would be needed in order to reduce the debt-to-GDP ratio, which was now heading towards 90% compared to an entry threshold of 60%. Having raised rates by a  total of 100 bps since summer 2016, the BoE was now under pressure to reduce them in order to converge with ECB levels and thus ensure a smooth transition to EMU membership by 2019 (the ECB’s main policy rate at this point stood at -0.4% versus 1.5% in the UK). There were widespread fears that this would give the economy an undesired boost which would push GDP growth above  3% – way in excess of the estimated trend of 2¼% – and in turn push wage growth above 4%.

Against this backdrop, domestic political opposition to the government’s plans mounted. The Great Integration Bill made its torturous passage through parliament, with backbench MPs trying – and failing – to thwart its progress. Negotiations with the EU also became more tricky as the UK began to ask for more concessions with regard to the EMU fiscal targets whilst calls for a permanent UK representative on the ECB Governing Council met with resistance. By March 2018, it was evident that EMU entry in 2019 was an unrealistic option and a transition period was agreed in principle that would postpone entry until end-2020. The government White Paper of summer 2018, which detailed the logistics of swapping the euro for the pound, was a brave effort but the timetable was far too tight to be realistic and the ECB objected to the five-year transition plan in which sterling and the euro would continue to operate as legal tender in the UK.

As of now, the process is deadlocked with parliament split on the issue of further EU integration. It is evident that the wounds caused by the EU referendum have not healed, whilst the government’s plan to join the single currency is increasingly regarded as unrealistic. As one prominent government minister remarked just ahead of the parliamentary recess, “Clarke’s plan will never fly and he only remains as PM due to a lack of alternative candidates. You know, I sometimes wish Remain had never won the referendum. The Leavers would never have produced an omnishambles of this magnitude.”

No steps forward, two steps back

As politicians go, I have a lot of time for former Chancellor Ken Clarke. Anyone who can survive the rudderless Major government of 1992-97 with their reputation intact, never mind enhanced as in Clarke’s case, is a person of substance. Clarke is also a prominent Remainer, who described himself on a Twitter account as a one-nation Tory. He is, in other words, an old-fashioned centrist who is loyal to his party but is not averse to working across party lines on issues of major importance. Indeed, Clarke was the only Conservative MP to vote against the bill triggering Article 50. This is ironic, since his constituents voted to leave the EU in last year’s referendum whereas many of his party colleagues represent areas which voted Remain yet who still voted to initiate the Article 50 process. If you are half as confused as I am by the “will of the people” argument, then I am twice as confused as you.

I had originally planned to quote some of the latest tweets from Clarke’s Twitter account but the account has been suspended, which has to raise questions as to whether it was genuine (pace this week’s big debate about whether fake tweets from Russian bots had undue influence on the Brexit referendum). Nonetheless, the sentiments expressed on the account sounded sufficiently Clarke-ite to bear repeating. One thing particularly caught my eye, which was that although many people have significant reservations about Brexit, including many MPs, the government is committed to the process. It cannot easily be stopped, however much we might wish that were the case. But that does not mean that Conservative MPs should not oppose the most egregiously stupid parts of the process.

As the EU Withdrawal Bill enters the committee stage, with MPs able to table amendments to the original bill, we are now beginning to get a more clear idea of who is opposed and what they object to. As an aside, it should be noted that twelve months ago, this piece of legislation was designated as the Great Repeal Bill which was originally designed to transpose EU law into UK law whilst giving government the powers to strike out those bits they deem inapplicable. Easy, right? Except for the fact that the process is far more complicated in practice, and there is also the small matter of parliamentary accountability. As currently envisaged, the bill gives government the power to strike out EU laws without parliamentary scrutiny (the so-called Henry VIII clause) which rather makes a mockery of the claim that the British parliament will once again take control of British laws.

Having decided on a more prosaic name for the bill, the government is finding it tough to keep its legislative process on track. Brexit Secretary David Davis has promised that MPs will be given a vote on any final deal agreed with the EU. Whilst that is a concession relative to what was originally proposed, it is meaningless, particularly in view of Theresa May’s promise to put the exact time and date of the UK’s departure from the EU into the bill. For one thing, Davis offers only a take-it-or-leave-it vote, so if MPs reject the plan, the UK will leave the EU without any deal, which would be crazy. Second, if the negotiations go to the wire then MPs will not have the opportunity to consider its content before the proposed deadline. As many MPs, including Ken Clarke, pointed out this reduces the government’s flexibility with regard to dealing with any last minutes hiccups. Better to delay a week or more to allow for more discussion than maintain an artificial deadline simply for the sake of political pride.

With 15 Conservative MPs apparently prepared to block the insertion of the specific date into the bill (or, as the Daily Telegraph would have it, "mutineers"), it is likely that the parliamentary process will be far slower than the government initially expected, and the committee stage may not be completed by Christmas as planned, which could delay its passage into law beyond next spring. Under normal circumstances, the sensible option would be to allow more time for these complex negotiations to take place. But time is the one thing the government does not have. Indeed, we have just gone past the halfway point between the date of the referendum and the proposed EU departure date, and it does not feel that we are much beyond the wish-list phase.

Ironically, Manfred Weber, the German MEP who heads the European People's Party Group in the European Parliament and is an ally of Angela Merkel, today held meetings with Theresa May and David Davis and declared himself “more optimistic” about the possibility of reaching agreement with the UK than before (which I assume means she has offered more money). But he also said “the whole idea of building up the European Union, which was supported by the British governments … was to make the lives of European citizens better. We are destroying some of the things that we achieved already. We will regret it … It is a shame there is not the will to stay together.”

I happen to believe he is right, particularly when Politico reports that the UK will at best be offered a basic Canada-style trade deal on exit, and not the broader bespoke deal that Theresa May hoped for – a view which I have heard from another senior EU policymaker in the course of a conversation this week. Indeed, the same person said that a Norway style deal would not work for the UK, given the complexity of the British economy, and since a Swiss-style deal was never going to be on the table, it’s Canada or nothing.

But the most galling part is that the government does not have a coherent plan on how to leave the EU, let alone how to deal with the aftermath. It is car-crash politics, and diminishes the UK by leaving it economically weaker and politically more isolated. But sometimes the only way people learn is through their own mistakes. Unfortunately we all suffer in the process.