No-deal? What are the options?

How likely is no-deal, and what will happen next? Economist and businessman John Mills, founder of Labour Leave, goes through the possibilities. This article first appeared on Birmingham City University’s Centre for Brexit Studies blog and is reproduced with their kind permission.

It is clearly impossible at this stage to predict with any confidence what the outcome of the current Brexit negotiations will be. Reflecting on some of the constraints operating on both the UK and the EU27, however, may be more helpful and illuminating.

While nearly everyone in both the UK and the EU would like there to be a deal maintaining mutual access, if not membership, for trade within the Single Market and perhaps “a” customs union, there are quite lot of people in the UK and the EU27 who would prefer no-deal to one shaped around the Chequers proposals. With members of the Conservative European Research Group (ERG) minded to vote against the sort of deal that the Prime Minister might recommend, Theresa May is likely to have to depend on at least some Labour support to get her proposals through Parliament.

Will this be forthcoming in sufficient volume to offset ERG opposition? It is very hard to tell, but it may not be. An important objective for the Parliamentary Labour Party is to bring down the government and to trigger a general election, even though not all Labour MPs may be happy with this approach.  This may lead to heavy pressure being put on Labour MPs to vote against the PM’s deal, lessening the chances of it going through. Labour will also be mindful of a backlash from its erstwhile working-class Leave-voting supporters in Wales, the Midlands and the North if it is seen to be supporting the government’s very poor deal for the country.

The timing and sequence of events is also crucial. If there is going to be a deal, this will have to be agreed and voted through by Parliament this side of Christmas 2018, to provide anything like enough time for it to be implemented by the end of March 2019. But to get there, apart from a deal on trade, Parliament will also have to agree a legally enforceable Withdrawal Agreement with – as things stand at the moment – two crucial commitments from the UK.

One is to pay £39bn to secure the go-ahead for negotiating a trade deal, without any firm commitment from the EU27 as to what this might turn out to be. The other is for the UK to abide by the EU27’s interpretation of what would be acceptable to them on the Irish border issue. Leaving aside any consideration to do with an overall trade deal, it is not at all clear that Parliament will accept these specific conditions.

Parliament is thus very likely to be faced with a highly unenviable choice: voting through a deeply unsatisfactory deal almost certainly by a very narrow majority, or facing a no-deal scenario, for which the UK – and the EU27 – are patently relatively ill-prepared. What will happen then?

Again, predictions are very difficult. Good and bad outcomes lie along a spectrum, depending very much on the extent to which – when it comes to the crunch – the UK and the EU27 are prepared to co-operate with each other to avoid a cliff edge, with aircraft not flying, ports jammed with lorries, and food and medicines running short. The most likely outcome may be some reasonably manageable disruption, especially initially, until matters slowly settle down, but there is a wide dispersion of outcomes either side of this scenario which might materialise.

This is why fear of the worst is likely to push both the UK and the EU27 into avoiding a confrontation, with the way to do this being some temporary agreement which maintains enough of the status quo to give everyone time to broker longer-term solutions. How long “temporary” would be would then remain to be seen. Norway voted not to join what was then the EEC in 1972, leading, via their membership of the European Economic Area (EEA), to the Norwegians still being half in and half out of the EU 46 years later.

It may, nevertheless, then be possible either to negotiate a free trade deal along the Canadian CETA lines, although there is no majority for this in the UK Parliament at the moment. It is also just possible that there could be a second referendum which would lead to the UK re-joining the EU, although this option is fraught with so many problems that it is also unlikely to get through Parliament. More likely, it seems, is that the temporary arrangements will drift towards becoming more permanent, as has happened in the Norwegian case.

Among all these uncertainties, however, one prediction can be made with some confidence. This is that it unlikely that the UK’s relationship with the EU27 is going to reach any satisfactory conclusion in the near-term. The UK will remain deeply divided, making any resolution of the conflicting visions as to what our future relations with the EU should be as difficult to bring about in years to come as it is now.  The EU as a major element of UK politics will run and run.

Labour Party Conference report: Is Labour becoming the ‘Remain Party’?

Labour Leave’s John Mills reports for CIB on the Labour Party Conference. Is the Labour Party in danger of becoming the ‘Remain Party’?

Perhaps the most crucial issue for the Labour Party at the moment is its attitude to Brexit, as was evident at its recent Annual Conference.

The problem can be simply stated. Probably 90% of the delegates at the Conference were Remain supporters, most of whom, while cheering on Sir Kier Starmer, would like the UK to stay in the EU. Not far short of this percentage of Labour MPs are Remain orientated as well. This enthusiasm for the EU is not, however, reflected to anything like the same extent among Labour voters.

Of the 9.3m people who voted Labour in the 2015 general election, polls indicate that almost 3.5m voted Leave in 2016. This had a lot to do with the fact that almost 70% of the seats held at the time by Labour had Leave majorities.

The risks of Labour alienating these Labour leaning Leave voters were amply demonstrated again in the 2017 election. Although the vote for Labour rose by about 4m compared to 2015, increasing from 29% to 40% of the votes cast, Labour only gained four more seats while 130 Labour held constituencies had swings away from Labour to other parties. Remain votes piled up in London and other university cities, such as Canterbury, but drifted away in Wales, the Midlands and the North of England where Labour holds marginal seats crucial for the Party if it is ever to become the government again.

The key lesson for Labour to learn from these figures is that for it to become the Remain party is fraught with problems. This prospect may keep Conference delegates happy, but it risks Labour haemorrhaging votes in key areas of the country which it needs to win. This is why Labour Leave and others campaigned before and during the Conference for Labour not to commit itself to a Remain leaning second referendum.

We in Labour Leave are evidently not the only people who are aware of the dangers of Labour adopting too Europhile a stance. The Labour leadership is clearly conscious of the risks that this entails, which is why, in the end, the line was held. Labour is committed to keeping all options open, but not to campaigning for Remain.

Of course, no-one knows how events ae going to pan out over the coming crucial months, running up to the end of March 2019, when we are due to leave the European Union. In the meantime, however, keeping the Labour Party aware of the dangers of committing itself to policies generally to do with the EU which may make look totally inappropriate when the time comes to implement them, must make sense. High on this list is committing the Party to supporting having a second referendum which the pubic do not want, which would be highly undemocratic, and which may turn out to be impractical for a variety of political, timing and administrative reasons, especially if it could not be held before the date when we leave the EU,

In the difficult months ahead, Labour needs to think a lot more strategically than just pandering to the Remain sentiments of the delegates who were at the Labour Party Conference.

Economic Forecasting and why we should remain optimistic

As we all know, before the 2016 EU referendum took place a series of projections on the likely impact of a Leave vote were made by the UK Treasury, the Bank of England, the OECD, the IMF and others. Almost without exception, they forecasted dire results.  The Treasury predicted that in short order there would be a 500,000 increase in unemployment, whereas actually unemployment fell and the total number of people in work rose by 400,000. We were told that the UK economy might experience a 3.6% drop in output– as much as the fall in 2008. Actually, the UK economy grew by 1.9% in 2016 and by 1.7% in 2017.

It was not, however, just prestigious organisations which got their predictions so wrong. It was also the bulk of professional economists. No doubt there was some interaction here between their pre-conceived predominantly Remain views and their belief that the economy would falter if there was a Leave vote. Because they generally favoured Remain rather than Leave, most economists seem to have been predisposed towards believing – perhaps almost hoping – that the economic consequences of a Leave vote would be a disaster.

Why, however, even allowing for this, did such big mistakes get made? Economic forecasts are notoriously unreliable, but if you stick your neck out and make them, you need to try to get them right. The explanation for what went wrong, which in turn has a substantial bearing on what we can reasonably expect the outcome of Brexit to be, is that nearly all the gloomy forecasts almost certainly had a built-in bias towards being much too negative.

Why did this happen? It is because economists are used to using data from the past to predict what is going to happen in future. The problem with the Brexit vote was that it took everyone into unchartered territory. No-one had relevant past data on which to rely when forecasting what the economic impact of a Leave vote would be. All sorts of assumptions therefore had to be made which could not be supported by relevant past econometric data.

This is when a crucial bias then crept in.  It was much easier for economists to identify what downside problems there might be than it was to foresee what new opportunities might be created. The result was a tendency for all projections to be too pessimistic. This was because the result of feeding in the costs of all the problems which it was relatively easy to anticipate, while leaving out the relatively unknowable benefits of new opportunities, was bound to tend to conclusions which were too gloomy.

It is, however, not just economists who seem to be suffering from this bias. It appears that many businesses may be caught up with the same syndrome, reinforced by the relatively negative projections coming from organisations such as the CBI. What is actually happening, however, is that new opportunities are materialising as quickly as new costs are incurred, which is why the economy is holding up so much better than the experts predicted it would.

What this tells us is that the UK economy will very probably continue to expand, albeit relatively slowly, whatever the result of the Brexit negotiations. There are side-effects to be expected from both a soft Brexit or a clean break but, absent a last-minute breakdown for which inadequate preparations have been made, a significant deviation from current trends seems unlikely.  Businesses should then plan accordingly and those who voted Leave and who support Brexit as the negotiations proceed should be thankful that they have not been swayed by the bad advice provided by those who might have been expected to know better.

Forecasts always depend on the assumptions fed into the models used to provide them.  If you only see problems ahead, but not opportunities, your guesses at the way the future unfold are not likely to be right – as indeed we saw,   Rubbish in – rubbish out – and this is why those of us who take an optimistic view of Brexit are much more likely to turn out to be right than those who predict doom and gloom.

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Impressions of meeting with Michel Barnier in Brussels – John Mills

ON WEDNESDAY, 10TH JANUARY 2018

    Michel Barnier is an impressive person, tough and charming, who is evidently well on top of his Brexit brief and thus a formidable person to have on the other side of the table as the Brexit negotiations take place. He wants to get a deal completed but not at any cost to the EU27.

    His primary aim is to secure the integrity and security of the Single Market and the Customs Union rather than to search for a deal which is necessarily in the overall best interest of both the UK and the EU27. The notion that the EU27 may make substantial concessions to avoid economic pain is therefore very probably misplaced.

    While the best outcome from both the UK’s and the EU27’s point of view has always seemed to be for the UK to be outside the Single Market and the Customs Union but with a free trade deal in place covering goods and as many services as possible, this now looks as though it may be difficult to achieve. This is despite the fact that this is substantially the relationship the EU27 has with other countries as varied as Israel, Peru, Mexico, South Korea, Canada and the Ukraine.

    There are at least four major reasons why this is the case, these being:

1. The UK is starting from a radically different position from these other countries – essentially looking for a divorce rather than marriage, with all the baggage that this brings with it.

2. The UK is a much larger player in EU trade terms than any of these other countries, and thus potentially more disruptive if derogations are needed from the existing carefully balanced EU acquis.

3. The UK’s negotiation position has been gravely weakened both by the sequencing insisted on by the EU27 – dealing with money, Ireland and citizenship before trade – and by the result of the recent general election which has left no majority in Parliament for the WTO option which – although not the optimal outcome – is the only realistic fall-back position for the UK to have, without which the EU27 is left with all the cards in its hands.

4. Time is running short, although some extension of time by suspending Article 50 to create the proposed transitional period may help.

    In these circumstances, the most likely offer to the UK from the EU27 seems be free movement of goods and some concessions on services with the UK formally outside the Single Market and probably the Customs Union too but with the UK having to continue to accept nearly all the legal and regulatory obligations currently in place. These will almost certainly include substantial annual net contributions to the EU budget, free movement of people, significant jurisdiction by the ECJ, constraints on the UK’s capacity to negotiate trade deals on its own, and continuing membership of both the Common Agricultural Policy and the Common Fisheries Policy.

    An offer to the UK along these lines would probably be supported by all the EU27, led by Germany and France, but may not be acceptable to Parliament, let alone the British electorate. In these circumstances, preparing for the UK to fall back on WTO terms appears to be essential both to safeguard the position if no acceptable deal is presented to the UK, and to stiffen the UK’s negotiating position in the meantime.

    There may well be calls in circumstances where no acceptable deal is offered to the UK, for a second referendum on the UK’s EU membership, although probably only by a small minority of diehard Remainers. Even in the unlikely event of another referendum being held, current polls indicate that it would be unlikely to produce a different outcome from the one held in June 2016, thus confirming that Brexit is some form is likely to be inevitable.

    If the EU27 wants a deal with the UK it is therefore essential that this takes account of the political realities exposed by the 2016 EU referendum and current polls, which is that – if push comes to shove – the UK electorate would very probably be willing to opt for a clean break with the EU rather than finishing up being in a worse position than we were before Brexit started – with all the obligations against which people voted still in place, but with the UK having no say in how the EU develops in future.

John Mills 11th January 2018

The latest Labour Euro-Safeguards Campaign bulletin has just been published

John Mills, a long-standing member of the Committee of the Campaign for an Independent Britain, is also the Secretary of the Labour Euro-Safeguards Campaign, which produces a bulletin every two months on the Labour Party’s approach to Brexit.

The latest bulletin has just been published and can be downloaded here and previous bulletins are available from this page of our website.

Labour’s Brexit dilemma

Before the EU referendum, many people thought that the outcome, whatever it might be going to be, was going to cause far more problems for the Conservative than the Labour Party. At least up to now, this is far from what has happened. Only one Tory MP, Kenneth Clark voted against Article 50 on 2nd February 2017 while 47 Labour MPs voted that way, showing how deep the divisions within the Labour Party over Brexit are at the moment.

A number of key statistics tell the story. Of the 230 odd constituencies held by Labour at the time of the EU referendum, 70% had Leave majorities. If London and a small number of university cities are excluded, the ratio rises to about 90%. Some of these Leave majorities were very substantial. In Stoke on Trent, where one of the recent bye-elections was held, the Leave majority was close to 70%. Among Parliamentary Labour Party members, however, the picture is very different. There is still only a comparatively small minority of committed Leave supporters, and most of the seats with the largest Remain majorities had Labour MPs.

This is what has caused the Labour Party such huge difficulties. Clearly there was a democratic vote in favour of leaving the EU on 23rd June 2017 which needs to be respected. Many Labour MPs who were both personally strongly for Remain and who had substantial majority support for this position among their constituency electorates, however, thought that they had good reasons, in their judgement, for voting against Article 50.

The danger then is that the Party as a whole loses out heavily in the country at large because of its ambivalent stance on Brexit – and more polling evidence emphasises the scale of this risk. On the one hand, of the 9.3m people who voted Labour in the 2015 general election, just short of 3.5m voted Leave in the EU referendum and half of these people, about 1.7m of them, say that they do not intend to vote Labour again at least partly because they are unhappy with Labour’s policies towards the EU. At the other end of the spectrum, fervent Labour-leaning Remain voters are concerned enough about Labour supporting Article 50 to desert the Party and to vote for the Lib Dems, which is clearly what happened in the recent Richmond by-election at the beginning of December 2016, where Labour finished up with only 4% of the vote.

Labour is thus threatened with losing large numbers of votes both among its industrial heartland blue collar erstwhile supporters, because it is not Eurosceptic enough, as well as from metropolitan middle class people, many of whom do not want to leave the EU at all.  Of course, issues to do with Brexit are not the only reason why the Party is in difficulties, but Brexit is currently dominating political discussion in the UK at the moment, and Labour cannot afford to call this issue wrongly. So what can it do?

The by-elections held on 23rd February 2017 provide some guidelines. In both Copeland and Stoke Central Labour’s share of the vote fell. Obviously, other factors were in play apart from Brexit but both the loss of the seat by Labour in Copeland and the low turnout in Stoke suggest that many Labour-leaning voters away from London and university cities are upset by the Labour Party’s lack of enthusiasm for Brexit.

Furthermore, even though there was some good news from a Labour perspective, this needs to be treated with caution. The threat from UKIP turned out to be much weaker than might have been expected, no doubt mainly because the Conservatives have promised to do much of what UKIP supporters want. Nor did either the Lib Dems or the Greens do well. The problem Labour faces, however, is that, as the main opposition party, it has to win support back from the government and this is not what is currently happening. Instead, it seems that the Conservatives have been much more successful on Brexit in positioning themselves where the country wants to be.

What, in these circumstances can Labour do? Really, there is only one way ahead on Brexit which has any realistic chance of helping it to recover the electoral support it needs to become an effective opposition, let alone the party of government. It cannot afford to disregard the result of the EU referendum both for democratic reasons and because the Party stands to lose much more support from those alienated by Labour backing off supporting Brexit than it is likely to lose by failing to obstruct the Brexit negotiations, which has to be Lib Dem and not Labour territory.

What Labour needs to do, therefore, is to recognise that it has to accept the referendum result and then to play as constructive a role as it can on the Brexit negotiations. This will not be secured by tactical manoeuvring against the government. It will be achieved by supporting the government wherever it is acting in the national interest, while no doubt carving out a distinctive Labour position where there is genuine difference of view, for example of social legislation. 

Brexit is all too likely to dominate the political horizon for all the period running up to the next general election in 2020. Labour needs to use this period to rebuild the electorate’s trust in the Party on the EU – as well as much else.

Photo by DavidMartynHunt