This morning a deal has been struck in Brussels. But will the Tory ultras buy it? And will Labour gain ground if they don’t?
The breakthrough deal that was supposed to happen on Monday (04 December) was supposedly scuppered by the Ulster Unionists. In fact, much opposition to Mrs May’s original deal was from inside the Conservative Party. Mrs May’s version of Brexit is a “Declaration of Dependence” according to Charles Moore[i] (the official biographer of Lady Thatcher) last weekend. Meanwhile, the City has just woken up to the prospect of something even more menacing than Brexit – a Corbyn government.
Blue rosettes and red lines
A veteran Tory MP – an ultra-Brexiteer – told a private audience in the Palace of Westminster in which I found myself last week that he thought that a clean Brexit probably has only a 40 percent chance of actually happening. His reasoning was as follows.
Firstly, this House of Commons is majority Remain. There are fifteen or so Tory MPs who will do all they can to sabotage the Great Repeal Bill as it goes through parliament by adding endless amendments, each of which requires parliamentary approval. These Tory Remainers are now referred to as “Quislings” by the staunch Leavers. Secondly, the Labour Party, which campaigned in this year’s general election on the platform that the will of the British people – as expressed in the Brexit referendum – must be upheld, has suddenly become pro-Remain. Thirdly, the Lords are 80 percent pro-Remain and will do all they can to scupper Brexit – even if that results in a constitutional crisis as in the invocation of the Parliament Acts of 1911 and 1948. Fourthly, Mrs May’s government is, he thinks, essentially a Remain government.
The mood amongst the Tory ultras is sombre. Those who have campaigned for many years for Britain’s withdrawal from the EU have now drawn three red lines in the sand. Any deal the government signs up to which crosses those red line will result in extreme recrimination – and probably revolt.
The first red line is the jurisdiction of the European Court of Justice (ECJ). Any deal that permits the ECJ to rule on essentially domestic British legislation is anathema. Judicial sovereignty is a pre-condition of political sovereignty. The second is the issue of free movement: they insist that Britain must be allowed to determine its own immigration policy by means of a system of work permits granted to desirable foreign nationals who wish to come to work in the UK. (They envisage more favourable access to Commonwealth citizens going forward). This entails that Britain must leave the Single Market and the Customs Union. The third red line is that Northern Ireland must be given the same deal as the UK as a whole and that there should be no internal border between Northern Ireland and the UK. In this respect the Tory ultras are entirely aligned with the DUP who effectively de-railed a prospective agreement in Brussels on 04 December on precisely this issue.
The divorce bill
While the ultras – most notably John Redwood MP – have generally taken the view that Britain does not owe the EU a penny and that the Brexit Bill or Divorce Bill is an affront, surprisingly perhaps, the exact amount of the Brexit Bill is not regarded as a red line. This is because any figure which is conjured by the media will be an approximation. The final bill will be paid in numerous instalments over time and will be entangled with ongoing payments to institutions and programmes to which the UK will have enduring commitments – the Erasmus Programme, The European Space Agency (ESA), EURATOM and so on. Moreover, many items on the Brexit Bill will be contingent liabilities which will only be invoked in certain circumstances.
So, pace Mr Redwood, most of the ultras do not regard the precise headline figure for the Brexit Bill to be a deal-breaker. The song that the Tory ultras now sing is that the most expensive option for the UK will be not to leave the EU at all. Britain should just sign up for what we can get away with and be done with it. If the EU is costing Britain £10 billion a year in net contributions, then we shall be in the black by 2024.
The stalwart Leavers believe that, regardless of the exact shape of the final deal, the EU and the UK are accelerating away from one another. Since the Brexit referendum in June 2016, the Federalist cause in Europe – now led by President Macron while Frau Merkel is inhibited by domestic German politics – has advanced. A European Army and a European Ministry of Finance – things that were denounced as propaganda by the Remain campaign during the referendum – are now in prospect. Herr Schultz even said on Thursday (07 December) that states that do not want to merge into a federal Europe should leave – like the UK.
To abandon Brexit now would not be to return to the European Union we voted to leave, the ultras say. They are also adamant that there is no need for a transition period since we are currently in the transition period leading up to 29 March 2019. Britain must leave the EU on that day.
The ultras see themselves as a heroic band of brothers battling against the odds. The media and the establishment are overwhelmingly pro-Remain. The BBC in particular, in their eyes, presents opinion as fact so that all the advantages of Brexit are outweighed by its risks. In PMQs on Wednesday (06 December) two of the ultras fired shots across the Prime Minister’s bow… How people such as Messrs Redwood and Rees-Mogg respond to the deal announced this morning will be critical for the future of Mrs May’s government.
Meanwhile, as the Tories tussle with one another and agonise about red lines, the Labour Party has pulled into the lead in the opinion polls.
The City sees a ghost
Last week Morgan Stanley (NYSE:MS) warned that the chance of a snap UK election by the autumn of next year was currently above 60 percent. The investment bank also warned that a Labour government under the leadership of Mr Corbyn posed as much a threat to Britain as Brexit[ii].
Now you might have thought that Mr Corbyn, being spoken of as a future Prime Minister, might want to put the nervous bankers at ease and disavow their fears – especially given that the UK financial services industry paid an estimated £72 billion in taxes last year. Not a bit of it. Mr Corbyn used the warning as an opportunity to attack the banking industry as a whole. The Square Mile, he said, was “full of speculators and gamblers” and he promised the bankers “punitive taxes” when he comes to power. If those City types, staring into flickering screens all day, had not got the message before – they’ve got it now.
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There are now rumours that major financial institutions are moving key assets out of London – not because of Brexit, but because of the fear of a Corbyn-McDonnell-Abbott take-over. Even the normally prim Bank of England has chipped in, like Lady Violet giving one of her faces in Downton. On 30 November Richard Sharp of the BoE’s Financial Policy Committee warned that allowing Britain’s debt to explode could cause a Venezuela-style economic collapse. This was a clear reference to Mr McDonnell’s economic programme – and his admiration for Hugo Chavez. He was hinting that Labour could precipitate a gilts strike – which I wrote about during the summer.
Labour wants to hike corporation taxes at precisely the moment that they are being slashed in the USA (on that – more next week) and prospectively in Europe too. And it wants to squander the potential Brexit dividend that will enable the UK to plot a course in international trade. There are now fears that Mr McDonnell would immediately impose exchange controls in order to stave off a sterling crisis. Ironically, that would be something he could do once the UK is out of the EU.
One of the MPs at the private meeting to which I referred above – a veteran Brexiteer – told us how Messrs Corbyn and McDonnell used to accompany him through the Nay lobbies during the Maastricht Treaty rebellion under John Major (1993-94). They have always hated the EU which they consider a capitalist conspiracy. Yet they have now decided that a pro-EU stance is progressive because it stands in contrast to the Tory nationalist agenda. They have flip-flopped over membership of the Single Market and the Customs Union but have now delegated EU policy to Sir Starmer, another human rights lawyer by background (like Mayor Khan), who seems to believe that the British people voted for ever closer union last year…
This might almost be forgivable as a cynical tactical change of direction were it not for the real Corbyn-McDonnell-Abbott agenda which is to follow in the footsteps of their Marxist idol, Hugo Chavez. There has been a spate of articles on the general theme of the consequences of a Corbyn government of late and I do not intend to alarm my readers by regurgitating their content here. I do note, however, that Money Week’s normally ice-cool Merryn Somerset Webb appears to be having a panic attack about Mr Corbyn in this week’s issue.
The pro-market Remainers are waking up – at last. Brexit is not the problem – the real threat is that of a Labour government. And how refreshing that Neil Woodford, the fund manager, recently told the Financial Times in an interview that the newspaper had gone “a little bit mad” over Brexit.
No border at all, at all…?
The DUP has always proclaimed that any deal which puts regulatory distance between the UK mainland and Northern Ireland would be entirely unacceptable to Unionists. They have been entirely consistent about this – as have their friends on the mainland.
Let us recall some facts. There was freedom of movement between the Irish Free State and the UK within two years of Irish independence in 1922. The Irish erected customs posts because they imposed tariffs on agricultural goods coming South from Northern Ireland until their accession to the EU (along with Britain) in 1972. The Republic of Ireland never joined the Schengen Area in recognition of their unique access to the UK – long before the Belfast Agreement of 1998. There have been no passport controls between the Irish Republic and the UK since then.
Today, when one crosses the border on a country lane between County Armagh (North) and County Monaghan (South) – or between County Londonderry/Derry (North) and County Donegal, one crosses a currency and juridical border – but one doesn’t notice. (Except that speed limits are in miles per hour in the North – and in kilometres per hour in the South.) One state is a monarchy and one is a republic. The functioning of this border owes much more to the Belfast Agreement than the EU Customs Union.
The North and the South have bilateral arrangements that go well beyond intra-EU trade provisions. There are common standards on animal welfare – a lot of Southern Irish beef is shipped to the North to be slaughtered and packaged and is then sent back to the South. There is a common electricity tariff – again nothing to do with the EU. It is surely not beyond the wit of man to agree a cooperative policy between North and South which assures the current dispensation once the trade arrangements between the EU and the UK have been determined. It is impossible to resolve the issue of the Irish border in fine detail until the Phase II trade negotiations have been concluded.
The issue foundered last Monday on the interpretation of words. The Sir Humphreys came up with a phrase – regulatory alignment – which provided exactly the right degree of constructive ambiguity. For those who are not diplomats that means that you configure a form of words on which both sides can project their desired meaning, even though, in practice, they have no intention of doing what the opposing interpretation suggests. Such verbal ballet ensures the smooth functioning of commerce in the modern world.
A sombre Unionist, David (Lord) Trimble, put it succinctly in The Spectator last Friday:
The real reason why the border has become such an issue is that Sinn Fein is trying to exploit Brexit to break up the UK. And the whole reason Sinn Fein collapsed in Northern Ireland’s assembly is that if they were serving in British institutions – and the NI Assembly is a British institution – it would be much harder for them to do this.
The concerns of the Unionists cannot be dismissed. If the DUP were to withdraw support from Mrs May in the House of Commons there could be another election next year – as Morgan Stanley fears…
The Tory Party on the ground: Dad’s Army
Even if there were to be another election, the Tory Party on the ground is just not up for the fight. And since I touched on this issue two weeks ago a number of Tory activists have got in touch: they are a disillusioned bunch.
The Tory high command is out of touch with its activists. Incredibly, Conservative Central Office, which has always had a tight control of candidate selection, is not selecting Leavers to run in safe Tory seats. In fact most of the new 2017 Tory intake were Remainers according to the FT[iii]. Almost all of the new Tory Scottish influx is Remain-inclined while the man who took back Clacton-on-Sea (a nest of Leave support) from UKIP in May is a Remainer.
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Conservative Party Chairman, Patrick McLaughlin MP – who is supposed to run the party machine nationally – has come in for a lot of private scorn of late. Media relations and the development of the youth movement are weak; the interaction with the membership is downright poor. One senior Tory activist told me this week that the Tories couldn’t even hold a leadership election right now – even if they wanted to – as the membership list is not yet centralised on the Central Office computer. Meanwhile membership is plummeting and there is no discernible initiative to reverse that trend.
Meanwhile Labour – or at least Momentum – is on a war footing.
Warnings from history
The ultras understand Brexit in the perspective of la longue durée – the perspective of the great French historian, Fernand Braudel, for whom the history of nations could only be gauged in terms of very long term trends. For them Brexit is just the latest skirmish in our one-thousand-year war with the French. To remain in Europe now – or to leave on unfavourable terms – would be to hand victory to our ancient adversary.
George Osborne told his staff at the Evening Standard in October that he would not rest until Mrs May was sliced up in pieces in his freezer. The ultras return the compliment by pointing out that the Evening Standard has become an unreadable rag under its new editor. That would all be inconsequential if the stakes were not so high. The ultras know that a full-scale rebellion could damage the May government fatally, with possibly catastrophic consequences – which is why they will hold back…for now.
In the 1840s the Tory Party split over the repeal of the Corn Laws – a deep argument about free trade in agriculture. It is difficult for us moderns to understand why the protection of the landed interest aroused such passions. In the Oxford College where I was once an undergraduate there are still obscure aristocratic graffiti, carved in woodwork, directed against Sir Robert Peel. Those same groves of academe now pullulate with youthful Corbynistas.
Brexit, of itself, is the least of our worries – the real threat comes from Mr Corbyn’s onward march. The City, at last, understands that. Even if the people don’t.
[i] Daily Telegraph, Saturday, 02 December 2017.