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Sean Rickard - Independent Economic Analysis
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Will the Tory Party never learn?   The toxic influence of its Eurosceptic wing yet again threatens to rip it asunder.   While the majority of the Tory party’s circa 100,000 ageing membership remain heavily in favour of a ‘hard’ Brexit it is unlikely that like minder MPs eg, Liam Fox, Ian Duncan-Smith, Jacob Rees-Mogg and their fellow zealots now command a majority amongst Conservative MPs.   The one indisputable fact emerging from Theresa May’s opportunistic attempt to avoid Parliamentary scrutiny of her Brexit negotiations is that she failed ignominiously.   She looked at the opinion polls, saw a chance to cast herself as the Iron Lady of Brexit, and blew it.   Failure was snatched from victory by the arrogance of offering an un-costed manifesto and a catastrophic election campaign.   Like Mr Cameron before her, pandering to Tory Eurosceptics not only resulted in another unnecessary and reckless national vote but also trashed the Tories’ claim to be the party of stable and responsible leadership.   Moreover, her approach to Brexit has weakened the Conservative’s appeal to younger and educated voters thereby eroding its electoral prospects in the future.

 

For those of us who favour remaining in the EU the election result is good news.   The chaos of a hard Brexit ie, ‘no deal is better than a bad deal’ is no longer an option; ruled out by the post- election parliamentary arithmetic.   There is now a majority in both the Commons and the Lords for a ‘soft’ Brexit eg, continued membership of the single market.   Moreover, the economy is moving against the zealots.   Over the past year the government has disingenuously used the short-term benefits of the pound’s depreciation to play down the economic threat of a hard Brexit.   But with slowing economic growth and inflation rising faster than wages, living standards are being squeezed and business confidence has plummeted.   To date Mrs May has ignored business concerns regarding Brexit, choosing to place the control of much needed immigration above the business needs.   This was foolish and demonstrated how the Tory party’s exaggerated fear of Ukip has been elevated above the national interest.    

 

Theresa May had a personal message for the JAMs when she stood on the steps of Downing Street in July 2016 but post the election she has joined their ranks – struggling to survive.   Despite the claims of the Tory zealots the relatively small referendum majority for leaving the EU did not express a preference for a particular form of Brexit.   Insofar as they have given an opinion since, it has been to reject Mrs May’s prescription.   In her election campaign she put immigration controls and a simplistic view of sovereignty above prosperity and security.   The result amounts to a rejection of this position by a majority of the electorate.   A distasteful electoral pact with Northern Ireland’s Democratic Unionist party makes little difference.   The government still lacks the numbers to legislate for a clean break.   Nor does it have the time or administrative capacity to negotiate a bespoke arrangement by March 2019.   Thus, this minority government has no choice but to accept a policy reset.   All the signs are that the reset will be led by the newly invigorated Philip Hammond supported by Ruth Davidson – the Tory’s popular Scottish leader.   In his Mansion House speech the Chancellor not so subtly dismissed the fantasy peddled by the zealots that Britain could simply walk away from the EU, adopt WTO tariffs and non-tariff barriers with little or no economic and reputational cost.   Hammond is clear, ‘no deal with the EU would be a very, very bad outcome,’ and he reminded his City audience that when voting to leave the EU people (presumably in ignorance) ‘did not vote to become poorer, or less secure.’  

 

Notwithstanding her shabby deal with the DUP, Mrs May is now fatally weakened and revealed to be unfit to guide the Brexit negotiations.   As long as she remains prime minister she will never regain her authority.   Despite her own and the zealots’ intransigence she must now embrace the options of remaining within the single market and the customs union or, if the costs of a new relationship with the EU prove unacceptable, staying in the EU.   Moreover, she must involve other parties, at the very least fully consulting them and ideally formalising a cross-party negotiating team.   A cross-party team would command the Parliamentary authority to negotiate a two-stage process.   The first would last several years beyond 2019 during which the UK would remain in the single market and customs union by means of a European Economic Area (EEA) agreement similar, though not identical to that enjoyed by Norway.   A transition of this length would be necessary to negotiate the details of a longer term preferential agreement embracing security and foreign policy as well as trade.

 

The zealots are very disapproving of such a transition and for precisely the same reason that drives me to favour it.   It would, I believe, become increasingly apparent to rational voters that the costs of Brexit vastly outweigh any potential gains.   The transitional arrangement would indicate the balance of costs and opportunities outside the EU.   Any long term UK-EU preferential agreement is likely to require the UK to make annual payments in return for enjoying the full benefits of the single market but at the cost of losing influence in shaping European affairs.   Outside the EU the UK would gain only a relatively small measure of autonomy and find it impossible to negotiate trade arrangements with third countries that enable its service businesses to come close to the freedoms currently enjoyed within the single market.   Moreover, the UK economy would contract without high levels of immigration.   The outcome would be slower growth, stagnating living standards and under-funded public services.   If we choose a transitional agreement rather than remaining a full member of the EU it will bring into sharper focus the catastrophe of Brexit and as reality dawns so public support for leaving the EU would wither.  

J U S T  A B O U T  M A N A G I N G

30th June 2017

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