Brexit: still a conundrum

As the UK hurtles towards an economically damaging Brexit, Covid in confirming the PM’s questionable attachment to Parliamentary democracy has revealed the fragility of the UK’s economic model.   The underlying trend of economic growth has never recovered to its pre-financial crash rate and it has slowed further since the 2016 referendum.   Despite Mr Johnson’s vaguery, bluster and irrational optimism it is now clear that recovery from the pandemic will not return the UK to even the post referendum rate of growth any time soon, if ever.   The ‘bare-bones’ EU trade deal that the government has knowingly constrained itself to accept will amount to a long term drag on growth.   And in the event of a ‘no- deal’ Brexit there is a high probability that the UK will struggle for many months to escape from recession.

The UK’s economic model has consistently failed to generate the investment and create the skills needed to restore economic growth to its post-war historical rate.   The government’s highlighting of employment growth downplays the fact that it has been largely in low-skilled, low pay sectors such as hospitality, leisure and retail.   These are the sectors hardest hit by the government’s bumbling response to the pandemic.   Unemployment in these sectors has been rising but will take-off with vengeance once furlough is phased out next month.  

The government’s inability to plan has yet again been laid bare by the Chancellor’s scrapping, at short notice, his autumn Budget as he scrambled to roll out new emergency schemes to reduce widespread redundancies as the economy heads towards a bleak Covid/Brexit winter.   As the best performing member of the government by far Rishi Sunak’s shine – polished by his generous and successful furlough scheme – is likely to fade as the unemployment restricting furlough scheme is replaced with a much less generous wage subsidy scheme.   In effect the Chancellor is shifting the burden of supporting jobs affected by the pandemic away from the government and on to employers.   But many of the businesses that took advantage of the furlough scheme are still struggling to survive and in no position to fund additional employment costs.   The inevitable result, according to the highly respected director of the Institute for Fiscal Studies, Paul Johnson, is that unemployment will rise sharply over the winter.

Mr Sunak’s concern to reduce government expenditure appears at odds with Mr Johnson’s justification for dragging the country’s reputation down to one of untrustworthy.   According to Mr Johnson his internal market bill, which overrides elements of the Northern Ireland protocol he signed with such fanfare last October – let alone presented to the country at the general election – is necessary if the UK is to have the flexibility to intervene with public funds to support new and emerging industries as well as protecting jobs.   As ever, Mr Johnson, no doubt driven by his Svengali Mr Cummings, is being disingenuous.   The EU permits state aid and as a matter of fact Britain has spent far less on state aid as a percentage of GDP than France and Germany.   More to the point, with his panglossian approach to serious matters, Mr Johnson may not have understood the implications of what he signed up to, but the protocol includes a mechanism for dealing with divergent interpretations, and ignorance can never justify unilaterally legislating to break a legally binding international agreement – a point made forcibly by all living ex-prime ministers.  

To what extent the reputational damage arising from the government’s catastrophic decision to flout international law might adversely influence not only a UK-EU trade deal but also future trade deals with third countries as well as the UK’s standing with third countries must be a matter of speculation.   Mr Johnson’s recklessness will surely harden the EU’s reluctance to accept assurances regarding post-agreement behaviour as well as compromising the UK’s ability to seek to hold to account other countries for failing to respect international law e.g. Putin’s Russia, Xi Jinping’s China.  

Sadly, the debacle appears to confirm Johnson’s ignorance of the implications of the Good Friday agreement as well as the US special relationship.   History shows – despite the unsubstantiated claims of the Brexiters – that the EU does not roll over on issues central to its ‘European project’ e.g. the single market, whereas Mr Johnson did just that in his much touted Brexit withdrawal agreement, returning to the deal Mrs May had negotiated which he said he could never accept.   For all his blowhard rhetoric, Mr Johnson desperately needs a trade deal with the EU.   If the transition ends without even a bare bones deal, Brexit will be seen for what it is, a disaster, and sooner or later the government would be forced back to negotiations.   .

As for a US trade deal.   Did Mr Johnson’s obsequious relationship with Mr Trump blind him to the fact that any trade deal would have to be ratified by both Congress and the Senate?   If may come as a shock to Brexit nostalgists, but on Capitol Hill there is a special relationship – between the US and Ireland.   Put simply, a future US-UK trade deal is dependent on the Irish border being resolved to Dublin’s satisfaction.   This is the Brexit conundrum.   In leaving the single market and the customs union, deal or no-deal, there has to be a meaningful border with border checks between the UK and the EU.   That border either divides the island of Ireland, threatening a return of the conflict ended by the Good Friday agreement; or it falls in the Irish Sea.   Mr Johnson’s mendacity is now coming home to roost.   He will have to accept a border between Britain and Northern Ireland if he wants a US-UK trade deal.   In so doing, the Leave movement he thoughtlessly led to victory has sown the seeds of not only Scotland ceding from the Union – the internal market bill has only added to the unhappiness of the Scottish and Welsh devolved administrations – but also by popular vote, the absorption of Northern Ireland into a united Ireland.