What the polls say
Three years ago last Tuesday (31 January), the UK left the European Union, though it remained in the single market until the end of 2020. The general election of 12 December 2019 was an impetus to “Get Brexit Done” after years of vacillation since the referendum result of June 2016. Boris Johnson’s Conservatives were returned to power with a majority of 80 seats. A free trade agreement was struck with Europe. Europhile Labour supporters and Liberal Democrats retreated to lick their wounds.
But the polling guru, Professor Sir John Curtice of the University of Strathclyde, has been warning that support for Brexit has been seriously undermined of late by the UK’s cost-of-living crisis. Living standards are in freefall as inflation outstrips wages in a way that most people have never experienced. He wrote recently:
“In October the average level of support for staying out of the EU fell below 45 per cent for the first time – and it has not recovered since. The last half dozen polls put the figure at just 42 per cent, while as many as 58 per cent say they would now vote to rejoin the EU…In contrast, as many as 80 per cent of those who in 2016 voted Remain say they would vote to rejoin, a figure that has largely held steady over the last two years. The oft-made suggestion that most Remainers have come to terms with Brexit receives little support in the polls.”
Curtice thinks that the main reason for the change of mood is the economic fallout from Brexit. There is no doubt that the economic weather has worsened in the past three years. But many would say that this is largely due to the consequences of the pandemic and of paying people to stay at home for nearly two years. The fallout from Vladimir Putin’s war on Ukraine, of soaring gas and grain prices, is a factor too.
It’s interesting to remember that the UK’s entry into the European Economic Community (EEC), the forerunner of the European Union, on 1 January 1973 was followed by a period of rampant inflation and social dislocation not dissimilar to what is unfolding today (as I discussed last week). Against the backdrop of that turmoil, UK voters voted two to one in favour of remaining in the EEC in the first UK-Europe referendum of June 1975.
The evident change in sentiment is partly demographic. In the 78 months since the Brexit referendum, a significant number of Leave voters have died − only to be replaced on the electoral roll by Remain-inclined ‘Zoomers’ (members of Generation Z/people born between 1997 and 2012).
So, the Brexit debate is by no means done and dusted. Unless the Brexiteers come up with sound reasons to remain outside the EU there will be sustained pressure to rejoin. And I’ll sketch out the mechanism by which that might come about. But first – let’s catch up with the prevailing debate.
What the Remainers say
Guy Hands, founder and chief executive of private-equity giant Terra Firma thinks that Brexit has been a “complete disaster.” Trade between the UK and Europe has fallen precipitously, he says. It is no consolation that Europe, collectively, may have been more economically damaged than us. Economists estimate that productivity growth in the UK – lacklustre since the first decade of this century – has been crippled by Brexit.
Alistair Campbell, formerly Tony Blair’s chief henchman, thinks that the Labour party’s official policy of engaging with Europe without rejoining the EU is “behind the curve”. He thinks the country is “in denial” about Brexit. The amount of paperwork faced by exporters to the continent is “mind-blowing,” he says.
What the Brexiteers say
Brexiteers like Edi Truell who ran Duke Steet Capital and now runs Disruptive Capital says that the UK has simply not taken advantage of Brexit by ripping up the red tape. The City should have stepped up to the challenge − and to some extent it has pivoted its focus beyond Europe, with the result that it is now generating about 10 percent more revenue than in 2016. Those who want to trade with us openly – including the US and Switzerland – are doing more trade with the UK. Those who do not wish us well – EU member states – are doing less trade with us.
For Daniel (Lord) Hannan, the real cause of our current malaise is not Brexit but Covid-19 and the enforced lockdowns that ensued. That said, we had a much faster vaccine rollout than if we had still been a member of the EU.
The prospect of our becoming a member of the Trans-Pacific Partnership (TPP) is a very exciting one given that region’s growth potential. Seventeen new trade deals have been agreed – although the promise of trade with the US is still not imminent. During the negotiations, the UK decided to go for regulatory autonomy and was therefore required to leave the single market. Staying inside the single market would have eased the transition and would have obviated the need for the problematic Northern Ireland protocol. What makes no sense though, says Hannan, is to opt for regulatory autonomy and not use it. Therefore, we must push for a more open regulatory system and a more liberal trading regime.
David (Lord) Frost – who was Boris Johnson’s chief Brexit negotiator − says that the UK’s trade account has worsened since Brexit but that our future economic potential is yet to be realised. Jacob Rees-Mogg MP thinks that we do not realise how much autonomy we have recovered. Standing orders come before Parliament which can now be voted down, whereas previously MPs just had to accept them if they were a product of EU law. Rees-Mogg points out that with the abolition of MIFID/ Solvency II (which requires insurance companies to put up reserves) about £100bn will be made available to invest in our economy. A new gene-editing regime – to be enacted under the Genetic Technology Bill, now going through Parliament − will enable British agribusiness to advance in ways that were restricted by the EU.
He says that the trade outcomes are nowhere near as bad as the Remainers have claimed, with the negative economic impact coming from the long-term effects of the pandemic lockdowns. Being out of the EU gives us more autonomy in our foreign policy too – the AUKUS defence pact could never have happened if we had remained in the EU. We have already saved £191bn by not being obliged to contribute to the EU’s €2trn post-Covid bailout fund. He laments that we are still members of the EU’s Emissions Trading Scheme (ETS) which is making UK-produced steel more expensive.
The principle of sovereignty has been upheld even if CBI Director General Tony Danker admits that it is pointless to deny the economic impact of Brexit. Despite Brexit, we are still unable to control our borders and yet there is a shortage of skilled labour.
Brexiteers like Claire (Baroness) Fox think that the promise of Brexit has not been realised, and that a great opportunity has been “squandered”. Our borders are still porous. The promise of a “new kind of politics” was a chimera: more people are disaffiliated from the UK political system than ever. She thinks that the UK productivity crisis long predated Brexit.
What the food industry says
Grocery-price inflation is running at 16.7 percent in the UK, according to Kantar.
Clearly, food prices have been impacted by Covid-related supply-chain bottlenecks plus the spike in gas and fertiliser prices due to Russia’s war on Ukraine. As I have written here before, farmers are beholden to the ‘three Fs’ – fuel, fertiliser and feedstock – which have all soared in price. But Brexit has also had a profound impact in at least two domains.
The first is the supply of short-term flexible labour such as fruit pickers. This has been accelerated by the depreciation of the pound – from €1.43 in June 2016 to €1.12 this morning. The UK is no longer an attractive destination for eastern Europeans to work – and they can now get regular, reasonably paid work in their home countries.
The second factor relates to cross-border trade – and indeed in the trade of foodstuffs between Great Britain and Northern Ireland. Richard Davies, professor of Economics at the University of Bristol, published a paper last year which argued that Brexit accounted for at least six percent of current food-price inflation.
We still import a lot of pork and dairy produce from our EU neighbours – not to mention luxury food products such as chocolate and wine. English wine is good − and getting better; but it is not nearly abundant enough to slake our national thirst – and it remains expensive compared to continental analogues for reasons that I shall discuss here in future. Don’t expect the Europeans to start drinking English wine anytime soon.
Notwithstanding the free trade agreement with the EU, these goods have all seen price hikes due to invisible non-tariff barriers, which involve checks for pesticides and forbidden additives amongst others.
Northern Ireland remains within the EU single market. In order to move foodstuffs from Stranraer (Scotland) to Larne (Northern Ireland) suppliers must use heat-treated (pasteurised) pallets designed to deter the transfer of tropical insects – just as for foodstuffs shipped from Tangier to Algeciras. This kind of unnecessary regulation adds costs to the supply chain.
Northern Ireland has a vital role to play in UK food security – a topic which regular readers will know is close to my heart. The province, with a population of about 1.9 million sends enough food to the mainland each year to feed six million people. If the UK were to acquiesce to aligning with the EU on veterinary and phytosanitary certification then most of the issues concerning the implementation of the Northern Ireland protocol would vanish overnight, says Michael Bell, executive director of the Northern Ireland Food and Drink Association.
But therein lies the rub. Having struggled to be free to devise our own regulatory framework, why would we slavishly adhere to EU regulations that we have no say over? At the moment, food industry standards are diverging here as between the UK and the EU. For example, last summer the EU banned the food colouring titanium dioxide – and the UK did not. Immediately, about 60 food products could no longer be sent from Great Britain to Northern Ireland. This means that there will never be a final settlement to the Northern Ireland protocol – negotiations will have to continue indefinitely as trading standards diverge, says Bell.
Seafood producers have been stymied by Brexit. It is virtually impossible to export mussels from the UK to Europe now. This affects producers from Devon to Suffolk to Scotland. A lot of mussel farms have gone out of business as a result.
Europe is still the biggest market for UK agricultural produce – and exceeds those countries with which we have signed trade deals (Japan, Australia and New Zealand) by a wide margin. Possibly, trade deals with big countries such as Brazil and India would be good for UK farmers. But they are not realistically in prospect. Trade negotiations with India have got bogged down concerning the immigration rights of Indian nationals. Good luck with that, Suella Braverman.
The truth about trade
Some Brexiteers have advanced the argument that UK-EU trade has actually gone up since 2020, despite all the undoubted new frictions arising since the Trade and Cooperation Agreement came into force − bearing in mind that trade was conducted in accordance with EU rules during the transition period, which lasted till 31 December 2020.
An article in The Spectator compared UK exports to Europe in September 2019 with exports to Europe three years later. The figures used – gleaned from the ONS – show that the cash value of both imports and exports between the UK and the EU increased over that period. Exports rose from £14.3bn to £16.8bn. These figures were put under the microscope this week by BBC R4’s More or Less – a radio programme chaired by the Financial Times journalist Tim Harford.
The problem is that looking at trade figures for a single month can be misleading since they fluctuate over the year. Furthermore, the figures are for goods at current prices, meaning that there is no adjustment for inflation. The figures are also distorted because, as we know, gas prices rose dramatically between September 2019 and September 2022. When adjusted for inflation, we are doing less trade with Europe in terms of both imports and exports.
According to Dr Thomas Sampson of the London School of Economics, the key question is the counterfactual: what would the UK’s trade have been with the EU if there had been no Brexit? What he discerns is that following the coronavirus pandemic, the UK’s level of trade has grown more slowly than in other leading economies. This is partly due to the fact that the UK’s economic growth has been lacklustre over the period since we left the EU – with a massive downturn in the economy due to lockdowns in 2020 from which the UK was slow to recover. If the UK had grown at the same rate as its peers, its trade would be about 10-20 percent higher than it was last year, says Sampson.
Sampson then compares the direction of the UK’s trade with the EU with the UK’s trade with non-EU countries. What transpires is that there has been a drop in UK imports from the EU relative to imports from the rest of the world, which have risen. On the export side of the equation, UK exports to the EU (in nominal terms) have grown in line with our exports to other countries. The conclusion is that some EU firms have given up trying to export to the UK while larger UK exporters have largely mastered the additional red tape of exporting to Europe – even though the costs of doing business there have risen.
At least the UK’s trade deficit with the EU seems to have fallen somewhat.
It’s also worrying that the UK’s future as a producer of electric vehicles (EVs) is under threat, now that the EU is in a “subsidy war” with the US, pursuant to President Joe Biden’s $430bn Inflation Reduction Act (2022). This favours production of EVs in the US with subsidies and tax incentives – and Europe envisages something similar. Arrival, a UK electric-van producer announced plans to move some of its production to the US this week, with the loss of 800 UK jobs. I’ll have more to say about this issue in the near future.
The period of analysis since the end of the transition period is short and during that time there were at least two momentous events – the pandemic and the Ukraine war with the attendant spike in gas prices. Therefore, Brexit optimists still argue that the upside is better than the downside – that deregulation will confer competitive advantages on the UK over time, and that joining the TPP will turbocharge our export industries. Although thus far, the Tory government has made the country less competitive by putting up corporation tax to pay for the cost of lockdowns.
This may be wishful thinking. As I shall explain soon, the US-UK trade deal (the “beautiful deal” envisaged by Donald Trump) will never happen. The powerful agribusiness lobbies on both sides of the Atlantic bitterly oppose it – though for differing reasons. I’m not convinced that the US would welcome the UK as a member of the TPP. The UK may have some fancy aircraft carriers – but that doesn’t make us a Pacific power.
What Labour says
Tellingly, this week Michel Barnier MEP (remember him?) lavished praise on Sir Keir Starmer. He told LBC Radio that the EU would be open to a deal with the UK if Starmer, as prime minister, wanted closer alignment with Brussels: “The door is open”, Barnier said.
Before the 2019 general election Starmer wanted to remain in the EU customs union and to accept the supremacy of the European Court of Justice (ECJ). In his campaign to succeed Jeremy Corbyn as leader of the Labour party in early 2020, he pledged to bring back free movement of people between the UK and the EU. But he has since distanced himself from that position – presumably in the hope of winning back Brexit-inclined seats in Northern England’s “Red Wall”.
Sadiq Khan, the Labour mayor of London expressed the view this week that “Brexit isn’t working.” The reception of Starmer and Shadow Chancellor, Rachel Reeves, in Davos confirms their newly won status as darlings of the globalist elite. What’s more, a rumour began to circulate this week that Starmer intends to appoint Sir Ollie Robbins, Theresa May’s chief Brexit negotiator, as his chief of staff.
Labour’s pro-EU mojo is propelled by the europhile (or is that anti-Brexiteer?) deep state. People who work in the civil service, the teaching profession, the BBC and the medical profession are overwhelmingly Rejoiners. The SNP has made the EU a talisman of its case for separation. The overwhelming majority of these people will vote Labour or SNP next time round in the hope and expectation that Labour will take the UK back into the EU’s embrace.
What the Tories say
Johnson, who is rarely off the front pages despite his official status as a mere backbencher, wished us all a “Happy Brexit Day”. In classic Boris style, he said: “Let’s shrug off all this negativity and gloom-mongering that I hear about Brexit”. The former prime minister thinks that the sectors that are likely to benefit most from Brexit are financial services, pharmaceuticals and life sciences.
Prime Minister Rishi Sunak vowed that the benefits of Brexit would “empower communities and businesses.”
How Rejoin might happen
We can assume that Labour will oppose departing from all EU technical standards. To date, the “Brexit Freedoms Bill” which proposes to abolish about 4,000 articles of EU legislation which were adopted as domestic law in the UK after our withdrawal from the EU, has effectively stalled. This is due to an alliance of Remainer MPs, noble lords and disobliging civil servants who claim too much work is involved.
There is already an impetus to join new EU initiatives. There are reports this week that the UK is likely to rejoin the EU’s scientific Horizon programme – which we were forced out of previously by the EU’s strong-arm negotiation tactics.
It should be said that many attempts to discard EU standards will prove controversial. One example is the recent move by DEFRA to license the use of nicotinoids − toxic pesticides particularly harmful to bees. Any attempt to relax anti-pollution or animal-welfare legislation will only convince more people that Brexit has been a misadventure.
Once Labour comes to power – probably towards the end of next year – it will progressively argue that since we cannot deviate from EU standards without damaging our trade relations further, we might as well agree to follow EU standards automatically. As such, the argument will gain traction that Great Britain may as well join Northern Ireland in the EU customs union. That would invalidate any bilateral trade deals that we may have concluded – but there is a good chance that the EU will have concluded its own trade deals with Australia, New Zealand and others by then.
Once back inside the customs union, pressure will mount to rejoin the single market – complete with freedom of movement, the abolition of which is much resented by the young. From thereon in, formally rejoining the EU as a member state will seem inevitable. That said, the UK will never be able to rejoin the EU that it left. There will be no budget rebate second time round, and the UK will have to promise to join the Schengen Area and to sign up for the euro. That may not be as popular as the Rejoiners imagine.
What the people think
The UK has a very different history from most of our European neighbours. Our political traditions – habeus corpus, constitutional monarchy, the rule of law, freedom of the press, universal suffrage and fair play – run deep. That was why a majority voted Leave in June 2016 and why people voted in such numbers to “Get Brexit Done” in December 2019. The UK is almost the only European country where extreme populist parties are not represented in the national parliament – and that is down to our distinct political culture.
We are making a mess of Brexit so far − and there is every prospect that this will continue. One reason is that our mandarinate has been hollowed out after 47 years of outsourcing policy-making to a supranational institution. We have lost the governance skills in which we were pre-eminent until the late 20th century. It will take time for these skills to be redeveloped.
In the meantime, the Brexit rumpus will continue.
Victor will be appearing the Master Investor Show on the 18th of March. Get your free tickets here.