Brexit roundup – short-term problems; longer-term potential?

With Parliament  still in the Easter recess, things have been a bit quieter than usual on the Brexit front. However, the well-supported fishing protests last Sunday suggest that we are going to be entering a  period in which the Government will face ever-mounting pressure to try a different approach to securing some sort of workable short-term post Brexit arrangement.

The long term is not looking promising either. Given how readily Mrs May and David Davis rolled over, what is the likelihood of their resisting demands from Michel Barnier that the UK sign a “non-regression” clause in any long-term agreement, which would force the UK not to undercut EU standards on tax, health and the environment to poach investments. He has also insisted that access for EU fishing vessels must be included in any long-term deal. The “environment” issue is a red herring as many EU environmental laws owe their existence to UK influence, but why should we not determine who fishes in our waters? Why should we be denied the freedom to cut tax? The state in the UK is horrifically bloated, as in most other Western nations.  It needs to be shrunk drastically and were this to be undertaken, taxes would inevitably undercut those in many EU member states.

Going back to the transitional arrangements, a report from the House of Commons Brexit Committee has confirmed that if a “deep and special partnership” with the EU proved unsuccessful, EEA/Efta membership was an alternative that could be implemented quickly. Although the Committee is looking at EEA/Efta as a long-term solution (which it isn’t)  it would be a better alternative than the current proposals for the short term, which poses the question as to why Mrs May and her team are pursuing such a damaging alternative. Maybe they still believe that it’s worth enduring 21 months of humiliation because  there will be a marvellous deal at the end – a hope which is unlikely to be fulfilled. Barnier’s comments make it clear that he wants to deny us as much long-term freedom as possible.

A number of Commonwealth countries have been discussing a future trade relationship with the EU. The Canadian Prime Minister Justin Trudeau has said that it would be “fairly easy” to negotiate “an improved approach on trade between Canada and the UK” after Brexit. The same article claimed that India is becoming less enthusiastic, no doubt due to  the recent statement by Theresa May that she still intended to reduce annual net UK migration to less than 100,000, meaning that India’s desire for more of its citizens to come over here as part of a new trade deal is unlikely to be fulfilled. Australia is also keen to start negotiations with the UK on trade, but pointed out that  if we stayed in the EU’s customs union after Brexit, we wold become “irrelevant”.

Meanwhile, disgruntled remoaners are still seeking to over turn Brexit by demanding a second referendum.  For all her failings in other areas of Brexit, at least Mrs May is standing firm on this. “Regardless of whether they backed Leave or Remain, most people are tired of hearing the same old divisive arguments from the referendum campaign, and just want us to get on with the task of making Brexit a success. And they’re right to think that. The people of this country voted to leave the EU and, as Prime Minister, it’s my job to make that happen.” she said in a recent speech to mark one year until Brexit day.

Mrs May is most definitely right in claiming that most people have had enough of Brexit controversy. Claims that some 44% of voters want a second referendum do not tally with real-life experience.  Given that the poll was conducted by a pro-remain group, Best for Britain,  a healthy degree of scepticism is justified. Mrs May has the support of Jeremy Corbyn in opposing a second referendum and it is doubtful whether those activists on both sides of the argument who spoke in debate after debate, criss-crossing the country and having to suspend anything resembling a normal life for three months would want to go through it again.

The clamour is coming from those who wouldn’t have to do the donkey work. The latest addition to the ranks of these good-for nothings is David Miliband, who called Brexit “the humiliation of Britain.”  Well, Mrs May does seem to be trying to do this at the moment, but a decent Brexit would be the absolute opposite – a chance to stand tall as a sovereign nation once again. there’s nothing humiliating about this.  One after another, the fears stoked up by remoaners are being debunked. The UK economy has performed well since the vote and only today, Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, stated that despite attempts to lure parts of the finance industry to Paris or Frankfurt, London would remain Europe’s financial hub after Brexit.  A mass exodus from the City was always a concern during the referendum campaign, but such fears are unfounded.

In many ways, a healthy debate on how we leave  – i.e., the relative merits of the current transitional proposal versus EEA/Efta as a holding position will take the wind out of the remoaners’ sails and would cut their media exposure in favour of more important issues. However, one cannot overstate the importance of winning this debate. Brexit must mean Brexit (to quote Mrs May). Surrendering to the EU’s demands for a transitional deal would prevent us fully achieving the separation for which we voted in June 2016. This must not happen.

Project Fear Mark 2??

The Buzz Feed website has obtained a leaked copy of the leaked Government analysis of different Brexit scenarios which claims that over the next 15 years, the UK would be poorer by 8% under “WTO rules”, 5% poorer under a Comprehensive trade deal with the EU and 2% poorer if we re-joined EFTA, which would allow us reasonably frictionless access to the EU’s single market.

However, this is hardly Project Fear Part 2.  Labour may be pushing for the Government to publish the findings, but they are wasting their time. The report matters not one iota.  Forecasting likely economic developments as far ahead as 2034 is an utter waste of taxpayers’ money.

I can say this with some confidence without having seen the report because government bodies and indeed many distinguished economists – especially if they carry the label “Keynesian” – have terrific form when it comes to making economic predictions which turn out to be utterly and completely wrong – even over a much shorter timescale than 15 years.

We recently pointed out that David Cameron had been caught on camera admitting that the first 18 months since the Brexit vote had not been anything like the disaster he had anticipated.  You don’t need long memories to recall Gordon Brown’s claim that there would be no more boom and bust – only a few years before the Great Recession erupted during his premiership. Going back to 1981, no fewer than 364 economists wrote a letter to the Times stating that Sir Geoffrey Howe, the then Chancellor of the Exchequer,  would cause mayhem if he raised taxes in the middle of a recession. It turned out that the controversial 1981 budget, far from exacerbating the recession, laid the foundation of the UK’s economic recovery under Margaret Thatcher.

What is more, it is asking the moon to expect civil servants to come up with a study showing Brexit to be beneficial. Steve Baker MP found himself in trouble for claiming that Treasury officials are conspiring against the government on Brexit, but like it or not, the Treasury has been reported on good authority as being keen to keep us in the Customs union, even though Civil servants are meant to implement, not decide policy.

John Mills is therefore correct in sharing our scepticism when commenting on the claim in the new report that “Officials believe the methodology for the new assessment is better than that used for similar analyses before the referendum.” He says  “The whole piece rests on the above assertion. There is no description of the previous methodology or of the changes that make this analysis better. Is the methodology different from the one used previously to “prove” that the UK economy would tank if it did not join the Euro?”

Let us apply a bit of common sense to the UK’s economic prospects instead of listening to the so-called “experts”. In the shorter term, a slight dip in economic growth is likely in the post-Brexit period as things settle down, even if a satisfactory exit solution is agreed with the EU. Fisheries and agricultural  products are not covered by Single Market legislation and trade with the EU may be reduced here (although the fishing industry can begin its revival as soon as we leave, assuming Fishing for Leave’s proposals are eventually accepted by the government.) The delay in providing any guidelines about what deal the Government is expecting is causing firms to hold back on investment decisions and some firms in the City are already contemplating relocating staff to other locations. The City of London may see a slowdown in growth given the EU is none too keen to strike a trade deal involving financial services.

There is also the question of trade with those countries with whom the EU has negotiated trade deals. The EU is most reluctant to let the UK continue to participate in these deals post-Brexit and if new deals are not negotiated in time (or the countries in question do not agree to continuing to trade with the UK on the same basis), the economy may suffer here. As it happens, most of the UK’s most important trade partners outside the EU, including the USA, China and Japan have not negotiated a full-blown trade deal with the EU, although the EU has made more limited mutual recognition agreements with these countries, which we may need to replicate quickly.

All these factors do suggest that even the smoothest of Brexits could well see a slowdown in growth in early 2019, although this is a long way from saying a recession will occur. The UK economy has proved far more resilient than the promoters of “Project Fear” expected. Of course, if we crashed out of the EU, the consequences could be far more serious.

In the longer term, however, there is every reason to expect the UK to perform at least as well outside the EU as if we had remained a member state – if not better.  It will be far easier to reorientate our trade away from the sclerotic EU to the up-and-coming economies of Asia from outside the EU.  The massive deregulation advocated by some Brexiteers in the run-up to the referendum vote is not realistic, given how many  regulations originate from global bodies such as the WTO or the ILO, of which we will still be members. Some regulations could be scrapped or re-written if they originate from Brussels and are not in our national interest. We would also have the option to cut taxes to boost the economy in a way which would not be possible as an EU member state. VAT could be scrapped, for example.

Then thee is the issue of freedom. A strong correlation exists between freedom and prosperity. Freedom is a relative term, but being able to make our own laws, being able to remove those people holding real power via the ballot box if we don’t like them and our common law legal system will put us higher up the freedom index once we leave the EU. How tyrannical the EU is likely to become remains to be seen. Vladimir Bukovsky, the former Soviet dissident, said of the European Union, “I have lived in your future and it didn’t work.”  We are, of course, a long way from the gulags, the persecution of Christians and the extreme censorship of the former USSR, but a number of EU officials have made clear their disdain for real democracy. To quote one example, when the European Constitution was rejected in two referendums in France and the Netherlands,  Valéry Giscard d’Estaing, the former French Prime Minister, said “Let’s be clear about this. The rejection of the constitution was a mistake that will have to be corrected.”

Given that we will be free from all this, it is inevitable that Brexit will have a positive effect our prosperity. It is ironic that the young people, who were the strongest supporters of remaining in the EU, are likely to be the biggest beneficiaries of our leaving it. Mrs May has insisted that, in spite of these government studies, we will indeed leave the EU.  Mind you,  it would be a serious cause for concern if she had been influenced by it for, as one government minister said “It also contains a significant number of caveats and is hugely dependent on a wide range of assumptions which demonstrate that significantly more work needs to be carried out to make use of this analysis and draw out conclusions.”

In other words, it isn’t worth the paper it was printed on.

 

A call to Brexiteers to fill the void on the economic effects of Brexit.

I think that we Brexiteers can be very grateful to Michael Gove for his sparky performance on Sky TV. Apart from having to defend the rather silly figure work of the UK paying £350 million per week to the EU, which we all know to be misleading, he was hung out to dry on his lack of supporting evidence for his assertion that the UK could prosper outside the Single Market.

As the Vote Leave campaign have decided to go for the `nuclear option’ of freeing themselves from the clutches of the Single Market and not embracing the Norway option /EEA route (probably because of the worries about the attendant problems of free movement of people) they must somehow build a firm foundation for this view. At the moment there is a generally held view that evidence for a good outcome is lacking, one which John Major hammered home on the Marr Show on Sunday.

Luckily, there is a group of well-known economists which calls itself Economists for Brexit and which shares Vote Leave`s view. The group has produced a pamphlet which is available on the internet.

This body of erudition can be found here and the summary of their views in the leaflet is that Brexit will result in a better economic outcome than remaining in the EU. Economic forecasts (based on proven financial modelling by Patrick Minford) show that on leaving the EU:

  • Output grows 2%
  • Competitiveness rises 5%
  • Real disposable wages up 1.5%
  • Exchange rate falls 6%
  • Inflation and interest rates rise to 2-3% range
  • Current account improves to -1.5% of GDP
  • Unemployment reduced by 0.2% (75,000 on benefit count)

It also points out that:-

  • The UK does not need to do a trade deal to trade. It already trades extensively with many countries across the globe under the rules of the WTO and can continue to do so with EU countries in the future (in the same way that the US, Japan and China does). Leaving the EU will decrease prices and boost GDP.
  • The City of London will retain its role as the world’s leading financial centre outside of the EU.
  • The UK is a net contributor to the EU budget and those funds could be utilised far more efficiently elsewhere.

To quote from their pamphlet, which is downloadable, they state that: “The Economists for Brexit is a group of eight independent, leading economists who are convinced of the strong economic case for leaving the EU. To date, debate on the economic merits of whether the UK should remain in the EU has become overwhelmed by the Government’s Project Fear campaign. Each of the eight economists have become exasperated by the scaremongering and often economic illiteracy of this campaign.

At the same time, the group believes that whilst there are a substantial number of economic arguments to support Brexit, they are yet to be made in public. The purpose of this group is to explain the very clear economic arguments in favour of Brexit, offering voters – who are crying out for clarity on the economics of Brexit facts based on proven economic models, as opposed to speculation.

It is a useful and insightful view on the way forward if we break loose from both the EU and the EEA and do our own thing. There is even a short but detailed post-Brexit forecast to be found towards the end of the report by Patrick Minford.

Whilst one can understand that were the Leave campaign to link itself to such a document it is then open to the opposition mercilessly to analyse it, tear it apart and use portions of it against them. However, here is a body of professional opinion which is robustly positive for the economic outlook after Brexit and which has some realistic opinions on the excessive burdens which are placed on business by the regulatory zeal of the EU.

The Leave campaign must now ‘up its game’ and use the supporting information which is out there to form a compelling case for life after Brexit. It should also make more use of the information which points to the very real dangers of remaining in a failing, ove- regulated customs union which contains a host of countries whose economies are in a precarious state.

 

Photo by HowardLake

Could Ireland follow us out of the EU exit door?

Our Chairman, Edward Spalton, spotted this piece in the Irish Times – a paper known for its strong pro-EU stance.  Obviously, it’s only speculation at this stage, but Mr McCoy’s comments do suggest that  Brexit may well cause some other member states to review their stance. He also qustioned the fear tactics being used by David Cameron and his supporters and pointed out that similar tactics were used about the Single Currency – and proved to be unfounded. In view of the number of Irish citizens resident in the UK who are eligible to vite in the referendum, a relatively upbeat assessment of the prospects for an independent UK from an Irish source is very welcome.

The boss of Ireland’s largest business lobby group has said an Irish exit from the EU might become “inevitable” if Britain leaves the union.

Danny McCoy, who has led Ibec {the Irish Business and Employers. Confederation} since 2009, told Germany’s Frankfurter Allgemeine Zeitung in an interview that Ireland’s departure from the EU could not be ruled out in a “Brexit” situation.

After his election victory last year, British prime minister David Cameron promised an in/out referendum on EU membership by the end of 2017.

“If Britain should decide on an exit, there will definitely be a debate in Ireland on whether we should not do the same,” Mr McCoy told the German paper.

“I can imagine circumstances in which that might become inevitable.”

Mr McCoy’s intervention comes amid a deepening Irish debate on the implications of the looming referendum in Britain.

‘Brexit’ impact on Ireland

He told The Irish Times today that Ireland would have to assess its own position if the referendum in Britain leads it out of the EU.

“The notion that the calculus for Ireland remains unchanged regardless of the decision Britain makes on ‘Brexit’ is ludicrous,” he said.

“If they go, circumstances have changed as a result of that. Keynes said: ‘When circumstances change, I change my opinion. What do you do sir?’”

In the FAZ, Mr McCoy said Ireland could suffer “potentially enormous” damage if Britain post-exit became a magnet for foreign direct investment on the back of lower business taxes and economic deregulation.

Such moves could lead multinationals based in Ireland to relocate to Britain, calling Ireland’s EU membership into question.

“We would prefer if the British remained in the EU. But after a Brexit, Britain could become a very attractive location for business,” he said.

“We would then be in a totally new situation. I’m not so sure if EU membership would be all that important for Irish multinationals,” he said.

Speaking to The Irish Times, he questioned automatic assumptions that the best option for Britain was to stay in the EU.

“Everybody says Britain will lose out by leaving – all based on the assumption that somehow Britain’s decision to leaves would be very costly for them,” he said.

“There’s only one concrete example of this kind in the past. That was in relation to Britain’s decision to stay out of the euro. Britain was told: ‘If you don’t go into euro, London as a financial capital would be diminished.’

“This never materialised and the City of London financial market had strengthened in the period since the single currency was introduced.

“So why should similar threats in relation to Brexit be as clear?”

Photo by Alex Zanutto

More nonsense rebutted.

Thatcher letter re maastricht

If anyone still believes the “remain” side will play fair, a couple of newspaper headlines in recent days should be sufficient to dispel such illusions.

Firstly, Charles Powell, Lady Thatcher’s private secretary during much of her time in Downing Street, claimed that she would have backed David Cameron’s renegotiation and voted to stay in.

Bill Cash MP has rebutted that claim by producing a letter she wrote to him making it clear she would not have signed the Maastricht Treaty (See above), which meant that she therefore would have taken the UK out of the EU. If Maastricht was a step too far for her, therefore it is inconceivable that she would have supported keeping the UK in the EU under the terms agreed by David Cameron and Donald Tusk, which accept the further integration to which successive UK governments signed up with the Amsterdam, Nice and Lisbon treaties.

Now David Cameron, following in the steps of Hilary Benn, has raised the spectre of the Russian Bear. Mr Putin would be delighted to see the UK leave the EU, so we are to be warned. It would “weaken Europe”.

If Benn and Cameron’s alleged fears are based on military concerns, they are unfounded. Firstly, let’s be clear: we are wanting to withdraw from the EU, not Nato. It’s the all-important alliance with the USA which has helped maintain stability in Europe and given the reluctance of most EU member states to spend much on defence, it’s the organisation including a country prepared support its military that will count in the years to come if Mr Putin needs to be kept at bay.

Furthermore, within the EU, the UK has been the biggest foot-dragger when it comes to the EU’s Common Security and Defence Policy. It’s the usual story. While our leaders insist they want our country to remain an EU member state, they disagree with the other member states over the question of defence, just as they don’t want us to join Schengen or adopt the Euro.

Only today, French Finance Minister Michel Sapin expressed his enthusiasm to proceed with further integration within the Eurozone, declaring our country will get “no veto, no mechanism” – in other words, no special deal to protect the City of London. On so many issues, they want to go one way, we want to go another. Although the other countries don’t want us to go, our presence actually makes the EU weaker. Our departure is therefore likely to delight Mr Putin far less than the scaremongers would have us believe; in fact, it probably won’t bother him one way or other.

Britain’s global leadership – the positive future for a UK outside the EU

The Bruges Group firmly believes that we need to reframe the debate to focus on the positives that Britain poses, in particular our excellent global links, higher education, to the City of London and technical brilliance in manufacturing. The UK, when freed from the restraints of the EU, has numerous attributes. Quite simply we do not have to be governed by Brussels to secure our prosperity, in fact far from it. This research, by Ewen Stewart, makes the positive case for independence.

• Inside the EU we are punching below our weight and should do better. Self-belief coupled with a hard analysis of the nexus of power and strategic advantage will lead to this being addressed but that can only be so once we are outside of the EU.

• The Eurocentric orientation of the UK is misplaced. Emerging markets, by 2018 are expected to account for 45% of world GDP and the European Union’s share will have declined from 34.1% to 20.2%, with the Eurozone representing an even smaller 14.6%. China’s share is predicted to surpass the entire Eurozone by 2018.

• Nations that can address this extraordinary shift in global growth will capitalise most effectively on these new trade flows. The attractive European trade bloc, of the 1970’s does not look so attractive in this light, given the Eurozone’s inexorable decline of the share of global GDP. The UK is uniquely well placed to exploit these shifting trading patterns given its global links and its service and financial sector bias.

• Britain is uniquely positioned globally in terms of economic, cultural and soft and hard power assets. The UK is home to the world’s global language, the world’s most global city and many of the most notable global universities and research institutes. British legal ideas and the common law approach is admired the world over. It is the basis of our stability. These advantages would continue irrespective of our membership of the EU.

• British manufacturing remains comfortably within the top ten, in terms of output, globally. The UK is now a net exporter of motor cars with four out of every five cars produced in Britain exported. Britain is the world’s second most significant aerospace manufacturer, possesses two out of the top ten global pharmaceutical companies while also having strong positions in marine, defence systems, food, beverage and tobacco manufacture, off-shore engineering and high-end engineering and electronics. British design, be it in fashion or sports cars, continues to be world beating.

• The UK retains a key skills base and has developed a high-end, high-margin capability. Membership of the EU, with its cost pressures has almost certainly done more harm than good to this capability. Industry has little to fear from withdrawal.

• The UK is a world leader in sport, media and culture. Higher education is also a great strength with British universities ranked amongst the best in the world. This coupled with the growing strength of the English language and our traditional excellent global links gives the UK real influence in world affairs. This will not change once we are outside the EU.

• While the US is the pre-eminent power accounting for 39% of all global defence expenditure and an even greater technological lead the UK’s defence expenditure remains in the global top 4. Technologically too Britain’s forces, while numerically modest, are highly advanced. Technology generally trumps numbers. The UK is perhaps one of only 5 or 6 nations that can still project power across the globe.

• As the world’s 5th largest economy Britain will not be isolated by leaving the EU. On the contrary British power would, in some cases, be enhanced. For example we would swap our 12% EU voting weight at the World Trade Organisation for a 100% British vote.

• The UK is currently estimated to be a member of 96 different international governmental organisations so the loss of one such organisation, albeit a very important one, is unlikely to be damaging. To read the paper on-line, click on the link below:-

BritainsGlobalLeadership