Collapse of a fantasy

by Sean Rickard

Shout it from the rooftops, the maelstrom launched by Liz Truss’ premiership can be traced back to Brexit, or more precisely the 2016 referendum.   The right-wing zealots who by guile and deception manufactured an ill-informed, slim majority for a vague notion of Brexit must have thought that their dream of a low tax, deregulated post Brexit nation had arrived with Ms Truss and her arrogant, fleeting Chancellor.   But their fantasy that Trussonomics would deliver (undefined) post Brexit opportunities lasted just days.   Moreover, while the ultra-zealots probably remain blinded, the spectacular failure of their post Brexit illusion has I hope altered the perceptions of those who until this moment had failed to grasp the calamity of Brexit.   True the new Prime Minister – already in hoc to the zealots with his ill-judged reappointment of Suella Braverman – felt the need to utter that he would ‘embrace the opportunities of Brexit’ but few now believe that mantra – I wonder does he?   The fantasy of Brexit has ended in abject humiliation for the zealots, the Tory party and the country and set in train a process that in the coming years will I believe see steadily mounting economic and political pressures to reverse the shameful Brexit debacle.

Given a career characterised by jumping on fashionable wagons it is difficult to know what Ms Truss really believes or for that matter understands.   We know that prior to embracing the delusion of Brexit she had enthusiastically adopted the delusion of ‘trickle-down economics’.   The common factor in these positions appears the disparagement of credible empiricism and a conviction that private desires coincide with reality.   Over the past 40 years academics and institutions have demonstrated the paucity of trickle-down economics.   As recently as 2020, a study by the LSE’s International Inequalities Institute, using five decades of data from 18 OECD countries concluded that reducing taxes on the rich creates inequality but has no significant effect on economic growth.   The final irony of the zealots’ delusion was that the markets they believed would respond positively rebuffed them: investors fled sterling and gilts forcing the Bank of England to intervene.

The Truss debacle not only demolished the zealots’ deluded economic theories but also it shattered their fallacy of unfettered sovereignty.   Voters were told by a deceitful Leave campaign that by ridding themselves of the shared sovereignty inherent in EU membership and ‘taking back control’ they would have the freedom to adopt policies that would deliver a higher standard of living for all.   Leaving aside the fact that all northern EU Members States, including Ireland, have a higher per capita income than the UK, the lesson – as brutally administered – is that as an isolated, middle sized economy the UK can only act in a manner that financial markets will accept.   The more so as our chronic post-Brexit trade deficit ensures that the UK – as succinctly stated by a recent Bank of England governor – has to rely on the ‘kindness of strangers’ lending us billions of pounds to keep the economy functioning.   Rather than being the sole master of its destiny, post Brexit the UK is now in a weaker position when it comes to deciding its fate.   The EU never demanded the removal of a chancellor.  

Contrary to our new prime minister’s utterances there has never been and will never be Brexit opportunities that get anywhere near offsetting the costs.   A recent poll by the think tank ‘Made Here Now’ found that a vast majority of British private manufacturing businesses regard Brexit as a ‘disaster’.   Ms Truss’ desire for annual rates of economic growth typical of our time as a member of the single market had been rendered impossible by the Brexit that brought her to power.   Economic growth is the product of the numbers employed and the average growth of productivity per employee.    The government’s official forecaster – the OBR – estimates that post-Brexit net inward migration will lower participation in the labour market.   As regards productivity it estimates that compared to remaining in the EU, the adverse impact of Brexit on business investment and trade barriers will reduce long-run productivity by 4 per cent.   A separate study by the London School of Economics, King’s College London and the Institute for Fiscal Studies has suggested that Brexit could leave the UK economy some 5.5 per cent smaller in a decade’s time i.e. an annual reduction of about £120bn at current prices on where it might otherwise have been.   This is in line with an estimate by the highly respected National Institute for Economic and Social Research that the government’s Brexit deal will cost the UK £100bn per year at today’s prices by the end of the decade.  

We now have a government desperate to fill a fiscal deficit of some £30-£40bn per year.   Our new Chancellor’s solution is to resort to austerity – something the 2019 manifesto which Sunak says he is adhering to promised there would be no return to.   After 12 years of austerity, food banks proliferate, poverty is endemic, the health service, education system, police forces, courts and prisons are at breaking point.   We are trapped by a government that would wreak further havoc on what is left of a once proud welfare state rather than admit its disastrous Brexit error.   Voters are being failed by an opposition that dare not speak this obvious truth.   It may be politically infeasible just now for a political party to campaign to reverse Brexit but re-joining the single market and customs union might now be viewed by a majority of voters as preferable to austerity.   Indeed, such are the costs of Brexit, I would not rule out a Rishi Sunak government opening negotiations for a ‘closer relationship’ with the EU.   Re-joining the single market and customs union would offer the probability of rapidly offsetting the fiscal deficit as trade, investment and employment recovered – a prospect that would delight the financial markets.   Moreover, it would solve the Northern Ireland issue at a stroke and avoiding austerity would boost the Tories’ electoral chances.