A rabbit in the headlights

Tomorrow evening the vote is expected to take place which will determine whether the deal which Theresa May’s government negotiated with the EU has been accepted by the British parliament. At this stage the likelihood is that it will be rejected and much ink has been spilled in determining what will happen thereafter. In the event that this is the case, what will matter for the government is the margin of defeat. A narrow margin could mean it comes back in a revised form: A wider one will have bigger ramifications. Whatever happens, the vote will not be the end of the matter – assuming the deal is voted down, it will merely mark the first stage of a process as the government tries to figure out what to do next. At the risk of sounding like a broken record, I maintain that an extension of the Article 50 period remains the best option to give the UK some breathing space and will also ease the pressure on the EU in the face of a no-deal Brexit.

In the event that the cliff edge Brexit is avoided in March, this will be no thanks to the efforts of the British government whose strategy and tactics in the wake of the 2016 EU referendum have been abysmal. Two years ago, Theresa May set out her objectives for leaving the EU in her (in)famous  Lancaster House speech. With hindsight, it increasingly looks like the hollow rhetoric of a leader who has proved unable to deal with the Realpolitik of Brexit – not that I can think of any other currently active politician who could have done a better job. As they say of the manager of the English national football team, the prime minister’s job right now is an impossible one.

Nonetheless, there is a lot in the 2017 speech that looks dated and much that was undeliverable even then. One of the things that jumped out at me was the sentence: “Unlike other European countries, we have no written constitution, but the principle of Parliamentary Sovereignty is the basis of our unwritten constitutional settlement.” It is this lack of any written rules which has made the current parliamentary debate so problematic. It explains why I am unable to give a concrete answer to many of the questions put to me by international investors, who expect the UK government to be following some kind of script (the most frequently asked question is what is the timetable for tomorrow’s process. The truth is there isn’t a fixed agenda: The vote will happen when the debates are finished). The fact that no codified agenda exists has allowed both government and parliament to make up rules as they go along (pace last week’s concerns that the Speaker of the House of Commons was able to intervene in issues of parliamentary procedure).

Perhaps an even bigger irony is that the government has tried to thwart parliamentary sovereignty at every stage. It initially tried to port all EU law into the Great Repeal Bill but was forced by the courts to allow parliament a say in the legislation. In late 2017, the government was forced to give parliament approval of the final terms of the withdrawal deal (the meaningful vote, which takes place tomorrow). It has since had its wings clipped further by MPs who increasingly demand amendments to government legislation. This is a consequence of the fact that the government is weak and rudderless and having lost its parliamentary majority in 2017, it is struggling to stay afloat.

The rest of the speech does not look good in hindsight either. Remember this gem: “we will take back control of our laws and bring an end to the jurisdiction of the European Court of Justice in Britain”? That would be the same ECJ which will have such an influence over the future relationship between the UK and EU. Or this: “A stronger Britain demands that we … strengthen the precious union between the 4 nations of the United Kingdom … And I hope that same spirit of unity will apply in Northern Ireland in particular over the coming months in the Assembly elections, and the main parties there will work together to re-establish a partnership government as soon as possible?” The devolved Northern Irish Assembly has not convened since 9 January 2017. At  a time when Northern Irish affairs are at the heart of the Brexit problems, the body  responsible for overseeing issues in the province has been conspicuous by its absence (to be fair, the government is not to blame, but the DUP which has “supported” the government since it lost its majority in June 2017 is culpable).

As I pointed out at the time, the Lancaster House speech was nothing more than a wish list. Let’s start with “Brexit must mean control of the number of people who come to Britain from Europe.”  The proposed transition agreement requires the UK to maintain free movement at least until end-2020 and those MPs pushing for a Norway-style agreement with the EU seem blind to the fact that a prerequisite for such an arrangement is acceptance of the four freedoms. The PM went on to demand that “I want us to have reached an agreement about our future partnership by the time the 2-year Article 50 process has concluded.” Not going to happen! The best the UK can hope for is that the status quo is maintained post-29 March. And of course the 2017 speech was famous for the phrase “no deal for Britain is better than a bad deal for Britain.” Never was so much nonsense talked to so many by so few. If no deal is such a great idea why has the government done so much to prevent the UK falling back on WTO rules?

More than anything, May painted so many red lines in the January 2017 speech that it created a number of hostages to fortune. The charitable explanation is that she was unsure of her position at the head of her party and had to throw scraps of red meat in order to keep the Brexit ultras onside. But because she made so many undeliverable promises, from which she was forced to backtrack, May has given the impression that she has been chasing events rather than setting the agenda. If her vote is defeated tomorrow night, it is hard to see where she goes from here. If she fails to deliver Brexit on 29 March, the whole premise of her term in office will be called into question. Even Jose Mourinho’s past record did not prevent him from being sacked as Manchester United manager, and Theresa May’s track record is far less impressive.

May's day turns out OK

 

To say that this has been a tumultuous week in UK politics is like saying you can get a good suntan in the Sahara. It is a statement of fact that simply does not do justice to the magnitude of events. At least we did get one meaningful vote – just not the one planned. Following the postponement of the parliamentary vote on the Withdrawal Agreement, we were treated to the spectacle of the civil war within the Conservative Party being fought in the open as rebellious Tory MPs tabled a motion of no confidence in Theresa May. Although her margin of victory was widely viewed as insufficient (200-117), she obtained 63.1% of the vote which is a larger share than in any of the 8 contested ballots in the past 43 years, bar John Major’s 66.3% when he challenged backbench rebels to unseat him in 1995 (chart).

Nonetheless, the impression remains of a prime minister who is in office but not in power. But Brexit is quite simply an undeliverable policy. Worse still, it has been hijacked by various interest groups seeking to further their own interests, all of whom have irreconcilable positions. Brexiteers simply refuse to accept that it is impossible to leave the EU on the terms that they desire, despite all the evidence to the contrary (see here for the journalist James O’Brien’s coruscating denunciation of their views). Remainers don’t always give the impression that they fully took on board the message of the 2016 referendum. Then there are the opportunists in the Labour Party who are simply using the chaos of the current situation to push their call for a general election.

Meanwhile, the world looks on aghast as the extraordinary events in UK politics continue to unfold. It has not been an edifying experience for a nation which prides itself on its constitutional stability and I have lost count of the number of times I have been asked what is going on in your country. I cannot explain it, but it was perhaps best summed up in a letter to The Times yesterday by Robert Blackburn QC, Professor of Constitutional Law at Kings College London, who wrote: “The political class has brought the present crisis over Brexit on itself by continuing to ignore the now urgent need to repair the creaking Victorian infrastructure through which our rulers continue to govern the country ... The use of an ad hoc referendum on a constitutional policy question of immense complexity, with no detailed prior examination and public dissemination of its implications across UK public life … and no parliamentary process for its approval, has exposed to the world the curiosity and embarrassment of a post-imperial unwritten political and governmental structure in turmoil.” In other words, a governmental system that is not fit for purpose.

He concludes that we need to enact the recommendations of a House of Commons Committee which “set out the case for a written codified constitution, one fit for the modern democratic era with a process through which popular deliberation and constitutional change should take place.” At the very least such an approach might act as a pressure vessel to contain the worst instincts of anti-EU populists who have infected the Conservative Party.

But now that the genie is out of the bottle it is difficult to see where we go from here. The leadership election has not resolved anything apart from drawing attention to the kindergarten antics of the inaptly named European Research Group which: (i) hates all European political ideas; (ii) clearly does no research and (iii) is a collection of disparate individuals rather than a coherent group. It is thus likely that we will continue with the plan announced by Theresa May on Tuesday in which parliament will be allowed to vote on the Withdrawal Agreement sometime before 21 January 2019. But in the absence of any significant amendments – and there is no sign that the European Commission is in any mood to reopen negotiations – MPs are likely to reject it.

But whilst nothing good will come out of Brexit, nor is there anything to be gained by calling for a second referendum any time soon let alone withdrawing the Article 50 notice. All three policy options will be hugely divisive, which is why I maintain that an extension to the Article 50 period is the least worst option. One complication which gets little airplay is that an extension of the deadline will cut across the European Parliamentary elections, scheduled for May 2019. It has long been assumed that the UK would be out of the EU by this point and will not be required to send MEPs to Brussels. If the UK is technically still a member of the EU this could cause some problems, though I can envisage a scenario in which the EU and UK arrange a fix whereby the UK is assumed to leave before the end of the parliamentary term and would thus not be required to elect MEPs.

Such a policy will buy time. But how much time will the UK need in order to pull itself together? Probably a lot more than the EU27 is likely to grant. However, I recall suggesting some time ago that one option would be to keep EU associate membership without actually leaving until public opinion has changed sufficiently to suggest that a second referendum is clearly winnable either way, thus decisively confirming or rejecting the Brexit decision. It is more than evident that politicians cannot decide what to do and unless Brussels comes to Westminster’s aid I am struggling to see how else this plays out.

Unless the Conservative Party can sort itself out, however, this issue is likely to periodically erupt every few decades. Thirty years ago, when Labour was in thrall to the left wing of the party, a series of leaders embarked on a modernisation programme which resulted in the expulsion of many of those viewed as extremists. The policy was successful in as much as Labour tacked to the centre ground and laid the groundwork for Tony Blair to claim three successive election victories with handsome majorities. Despite the current vogue for extremist policies, elections are largely won by capturing the centre ground. The Conservatives would do well to have a similar root-and-branch reform and rediscover the brio which allowed them to set the political agenda.

Persuading BOB

Theresa May's open letter to the electorate in support of her Brexit deal has been roundly criticised on social media. I can certainly see why: It was riddled with more than a few distortions and untruths.

But we need to see this appeal for what it really is: An appeal to those members of the public bored of Brexit (or BOBs) to put pressure on MPs to make it sound like she has achieved the best possible deal. In one sense, of course, she has. The EU was never going to give the Brexit brigade what they wanted, which was essentially membership of the EU without paying any of the costs. Given that starting point, the PM can justifiably say that she has concluded a deal that minimises the risks to the UK economy, which is what we have wanted all along. The question is whether she has paid too high a price.

I suspect the answer is yes. The UK is locked into various aspects of the EU that Brexiteers wanted to get away from. It is still largely beholden to the product standards of the single market and therefore to the rulings of the ECJ. Britain cannot unilaterally leave the backstop customs arrangement which prevents the imposition of a hard border with Ireland. And worst of all, there was little to nothing in the agreement that covered the non-tariff barriers that govern services trade. Financial services, for example, continue to be given short shrift with last week's political agreement suggesting that future arrangements would be based on some form of equivalency. Just as a reminder, the current equivalency arrangements effectively allow the EU to pull the plug on third country institutions with 30 days’ notice.

But for all the shortcomings of the deal, what is particularly irritating is the tone of the PM's letter. It reminded me very much of the speeches May gave in 2016 and 2017, in which her inner school mistress was evident, telling us that she was doing all sorts of terrible things for our own good.

"From my first day in the job, I knew I had a clear mission before me - a duty to fulfil on your behalf: to honour the result of the referendum and secure a brighter future for our country by negotiating a good Brexit deal with the EU." Never mind the fact that 48% did not vote for this. And no acknowledgement that things have changed in the interim. The electorate was only asked whether it wanted to leave the EU - not about the terms on which it will do so - and there is a mounting sense that a plurality of voters believes the June 2016 option to have been the wrong choice.

"We will take back control of our borders, by putting an end to the free movement of people once and for all." An end to free movement cuts both ways, of course. It means Brits will find it harder to work and travel within the EU (and it will in any case continue during the transition phase). "Instead of an immigration system based on where a person comes from, we will build one based on the skills and talents a person has to offer." Having last week accused those EU citizens taking jobs in the UK as queue jumpers, the PM again fails to acknowledge that the majority of those entering the UK are non-EU citizens.

The next sentence was just a downright lie: "We will take back control of our money, by putting an end to vast annual payments to the EU. Instead, we will be able to spend British taxpayers' money on our own priorities, like the extra £394 million per week that we are investing in our long-term plan for the NHS." The extra money committed to the NHS came from a windfall gain that the OBR found in UK public revenues that has been blown in one fell swoop - it has nothing to do with EU budget commitments. If we are going to pillory the Leave campaign for making the kind of misleading statements they made in 2016, we should also give the prime minister both barrels for the same kind of lie.

"And we will take back control of our laws, by ending the jurisdiction of the European Court of Justice in the UK. In future, our laws will be made, interpreted and enforced by our own courts and legislatures." As noted above, they will not. The UK will be bound to the ECJ for a long time to come.

"Outside the EU, we will be able to sign new trade deals with other countries and open up new markets in the fastest-growing economies around the world." Really? What if the UK is still bound into the customs union? Legally it is not permissible to conduct trade deals with third countries so long as the UK remains inside. "With Brexit settled, we will be able to focus our energies on the many other important issues facing us here at home." Brexit settled? Don’t make me laugh.

The letter ends with a call for national unity suggesting that 29 March "must mark the point when we put aside the labels of 'Leave' and 'Remain' for good and we come together again as one people. To do that, we need to get on with Brexit now by getting behind this deal." Why should we? The PM is selling out the half of voters who oppose Brexit and despite the untruths contained in the letter, it comes nowhere close to giving people the kind of Brexit they thought they were voting for.

Up to now, I have suggested that the withdrawal compromise cobbled together by the UK and EU27 was the least worst option. But having read the dishonest way in which the PM is selling it, I am tempted to change my mind. This is snake oil of the worst kind - a tissue of lies all the way through, and frankly deserves to be rejected by parliament on these grounds alone.

As a final twist, I noted that May ended her letter with the comment that "I will be campaigning with my heart and soul to win [the parliamentary] vote and to deliver this Brexit deal, for the good of our United Kingdom and all of our people." I recall that David Cameron also promised to campaign with all his heart and soul to remain in the EU back in 2013. And look what happened to him.

Tactical genius or reckless gambler?

Many moons ago I did wonder whether Theresa May’s plans were an elaborate attempt to strangle Brexit or whether she had become a convert to the Brexit cause. I subsequently concluded that she was determined to deliver Brexit, irrespective of the cost to the economy. Over the last week, I have found myself revisiting the question once again. The PM has basically presented a plan which will put the UK at a significant disadvantage vis-à-vis the EU compared to its current position, with the only alternative being no deal. The “my way or the highway option” is really no option at all, which makes me wonder whether May is a strategic genius trying to manoeuvre the idea of a second referendum back onto the agenda or whether she really means it.

If MPs thought that these really are the only two choices on the table, they clearly have to accept the draft Withdrawal Agreement because the option of a no-deal Brexit is unthinkable. We have been told by Brexit supporters that because the economy remained afloat following the June 2016 referendum, despite suggestions to the contrary, that all will be well on 30 March 2019 even in the event of no deal. I do not share this optimism. The fact that the UK will no longer be a member of EU institutions such as the European Aviation Safety Agency, for example, means that aircraft parts or indeed whole aircraft made in the UK would not have legal clearance to fly in international airspace. Imagine for a minute what that means: Something like 750,000 people who travelled in and out of British airports on March 29 would be unable to do so on March 30. Around 6,660 tonnes of freight will also be grounded. Public frustrations that well up around holiday periods when flights are delayed will have nothing on this.

And that is just air travel. What about the ports? Some simple calculations suggest that 297 lorries arrive at the Port of Dover each hour. Let us assume that half of them travel from the UK to continental Europe and that WTO customs checks require them to be processed at a rate of one per minute. In other words, 60 per hour cross the Channel towards France rather than the current flow of 148. Assuming that each lorry is 15 metres long, within six hours the traffic jam will extend back 8km and it will take 9 hours for lorries joining the queue to get onboard a ferry. After 24 hours the tailback will extend for 32 km and it will take 36 hours to escape. After 3½ days the tailback will extend all the way to London (115km) and it will take more than five days to get across the Channel. Naturally, this is a stylised example but it serves to highlight that, given the extent to which the UK depends on free movement with the EU, even small obstacles can quickly gum up the works.

It is for this reason that economists fear a no-deal Brexit will have big effects on the economy. In practice we can only ever guess at the magnitudes, but some of the analysis I have conducted using a gravity model of trade suggests that losing easy access to the EU single market will incur a one-off reduction of 8% in exports and 5% for imports, implying a reduction of 1.5% in GDP relative to the case where access is maintained. Running the numbers through a structural macro model to assess the feedback effects on the domestic economy produces a loss of output equivalent to anywhere between 3% and 8% of baseline after a five-year period (chart). It might be possible to limit the decline in output to 3% of GDP if the BoE steps in with a huge liquidity injection. But if there is little to no additional monetary support in the event of a no-deal Brexit, as the BoE has recently hinted, I fear that the worst case outcome could materialise. Indeed, the threat to raise interest rates to counter an exchange rate-induced inflationary spike in the no-deal case strikes me as a hollow threat when the rest of the economy is likely to be in such dire straits.

To return to the political calculus, any MP who votes for a no-deal Brexit would have to be crazy given the economic risks. Equally, however, it is clear that the Withdrawal Agreement is such a sub-optimal piece of legislation that I can understand why MPs would want to vote it down. But a second referendum would also be such a hugely divisive tactic (as I pointed out here) that it is difficult to see how this resolves anything in the near-term. Consequently, I still favour an extension of the Article 50 period.  It has the advantage of postponing many of the hard choices (although not indefinitely) and would permit the government to continue testing public opinion.

Of course Theresa May does not publicly favour this option – as she said yesterday, “the British people want this settled.” But she has said many things over the course of the last two years from which she has been forced to backtrack. The Brexit debate is far from over. Like kabuki theatre, it just goes on and on.

DExEU's Midnight Runners

Today has been another one of the momentous days in British politics which appear to have become all too frequent as a result of Brexit. Yesterday’s cabinet meeting was an ominous sign that all that was not well: Whilst the Withdrawal Agreement is a large document, and was always going to take a long time to digest, it was evident that a five hour meeting hinted at major disagreements. And so it proved when Brexit Secretary Dominic Raab tendered his resignation this morning.

This comes just four months after the previous incumbent, David Davis, resigned when it became clear he could not support the Chequers Plan. To misquote Oscar Wilde, to lose one Brexit Secretary is unfortunate but to lose two is careless. To be charitable, the job of Brexit Secretary is a thankless task for a Leaver when the process is being controlled by the prime minister’s office. But it is also an indication of how difficult it is to deliver the kind of EU departure that would satisfy Brexit supporters. In addition to Raab and Davis, we should not forget that junior minister Steve Baker, another prominent Brexit supporter, also left DExEU in July to form the trio we should name DExEU’s Midnight Runners. As was the case in the wake of the referendum in summer 2016, it is another example of how Brexit supporters tend to run away from the mess they have created. And when they have been given ministerial responsibility, they have not exactly covered themselves in glory with Boris Johnson widely regarded as one of the worst Foreign Secretaries of all time.

But it is not just Brexiteers who object to the Withdrawal Agreement, as Theresa May’s session to parliament indicated this morning. Many MPs will vote against the EU agreement for a variety of reasons – perhaps because they are opposed to the terms of the deal, or simply because they oppose Brexit. Or, in the case of the opposition Labour Party, because the leadership sees this as an opportunity to force a general election. Despite the mounting opposition, Theresa May is doggedly determined to put the Withdrawal Agreement to parliament. And as I noted yesterday, it can still pass depending on the number of Conservative dissenters. But the risks are rising.

The first problem is the position of the prime minister herself. Jacob Rees-Mogg was the first MP to send a letter of no confidence in the PM to the backbench 1922 Committee and up to 12 others have confirmed they have followed suit. Recall that it will take 48 such letters to trigger a leadership contest. JRM has no chance of becoming leader himself and of the others known to have sent letters, the likes of Brexiteers Steve Baker, Nadine Dorries and Andrew Bridgen have as much chance of becoming PM as I do of winning the Nobel Prize for physics. Indeed, the latter two characters belong to the category of politician characterised by Irish journalist Fintan O’Toole as “the genuine hallmarked, unadulterated, slack-jawed, open-mouthed, village idiot variety.” As O’Toole pointed out “the Brexiteer MP Nadine Dorries admitted in effect that she didn’t know what a customs union is. Her comrade Andrew Bridgen said last month: ‘As an English person, I do have the right to go over to Ireland and I believe that I can ask for a passport. Can’t I?’” (Don’t believe it? Listen here.)

Whatever the PM’s personal position, we now have to reckon with the real possibility that the Withdrawal Agreement may not pass through parliament. What happens if it does not? The first recourse would be to go back to Brussels and secure a minor concession on the pretext of being able to put the bill before parliament for a second time. If that fails then Theresa May is in real trouble. The sensible strategy at that point would be to extend the duration of the Article 50 process, which is possible if there is unanimity on all sides. But May explicitly ruled out that option this morning (again).  So either she reneges on her commitment or is forced to resign whilst another Conservative prime minister is installed who is prepared to extend the Article 50 period. Politicians at this stage appear more likely to ask for an extension than push for a second referendum. In any case, given that time is short, it is likely that an extended Article 50 period is a prerequisite to enable a “people’s vote” because it almost certainly cannot now take place before 29 March 2019.

None of this will satisfy the “slack-jawed, open-mouthed, village idiot” brigade which believes that no deal is better than compromise. But they are losing ground in the war to deliver their form of Brexit. A poll conducted today by Sky News suggests that whilst only 14% of respondents support the prime minister’s deal, 54% would prefer no Brexit versus just 32% for a no deal outcome. We know how reliable polls can be, but this is not a one-off result. And whilst Theresa May gets a pretty low approval rating of just 31% in  terms of those most trusted to lead the country through the Brexit process, she still leads Jeremy Corbyn and is well ahead of Boris Johnson and JRM.

For politicians who set so much store by delivering the “will of the people” it seems that many of them have lost touch with it. The electorate is becoming fed up with the political posturing and any politician prepared to gamble with the country’s economic future ought to think twice, for the electorate may yet wreak its revenge.