Brexit is finished - but post-Brexit politics...

I stopped writing a weekly comment on Brexit when Brexit was done. Brexit is done. The UK is no longer a member of the European Union. There can be no argument about that fact. 

But some will say, Brexit is not done. Look at the ongoing dispute about the Northern Ireland Protocol. Look at the issues surrounding visas for, say, British musicians to tour Europe, or the uncertainties surrounding short-term business trips and whether visas or work permits are required for such trips. The UK has still to impose border controls on goods coming from the EU into the UK. UK scientists are shut out of the €80bn Horizon research program. 

When people say “Brexit is not finished, it is not done” what they are really talking about, it seems to me, are “post-Brexit” politics in the UK which touch on two things. ,

First, how should the UK order itself politically and economically now that it is not an EU member. What path should it take? Should it become Singapore-upon-Thames, a low-tax, low regulation, free booting economy? This is an imagined Singapore, not an accurate description of the real Singapore, which is a highly regulated society. The short-lived Truss government gave “Singapore” a go. Look where that ended up. If not Singapore, what are the other options for a UK outside the EU? What are they?

Second, what relationship should the UK have with the EU? Remember, many Brexiteers believed that when the UK left, the EU would implode and that the now “liberated” UK would soon be leading a new grouping of free-trading European countries as others followed it out. (SEE here )

Because there would be no EU after Brexit, little thought was given to how the UK would relate to the EU in the future. As is now obvious, the EU did not implode, and no other country followed the EU out or looks likely to do so, though many commentators argue that there is a case for what they see as the increasingly undemocratic and authoritarian Hungary being kicked out. On the contrary, the EU has grown more cohesive and stronger, with deeper integration across a range of policy areas being the order of the day.

I decided to write this piece because over the past few weeks Brexit has suddenly hit the headlines again with a recent Sunday Times article reporting that the current UK government is interested in moving to a “Swiss-style” relationship with the EU. Were this to happen, what might it mean for business?

No sooner was the story published than hardline Brexiteers in the Conservative party were crying “betrayal” and the prime minister, Rishi Sunak, was forced to issue a denial. 

Nonetheless, it is clear that senior figures in the Conservatives have concluded that the post-Brexit relationship with the EU is not delivering for the UK and needs to be revisited. The Times article came after the chancellor, Jeremy Hunt, told the BBC: 

 … that he had “great confidence that over the years ahead we will find outside the single market we are able to remove most of the trade barriers that exist between us and the EU. It will take time.

For his part, the Labour leader, Keir Starmer, appears to have concluded that the “Swiss” rumour has given him an opportunity to position himself as more “Brexity” than the Tories. Last Sunday, he told a national newspaper:

“I’m worried that there are senior members of Rishi Sunak’s Government who don’t seem to understand that and are going round saying they want to open up the Brexit debate again … Ripping up the Brexit deal would lead to years more wrangling and arguing, when we should be facing the future.

A Swiss deal simply wouldn’t work for Britain. We’ll have a stronger trading relationship and we’ll reduce red tape for British business – but freedom of movement is a red line for me. It was part of the deal of being in the EU but since we left I’ve been clear it won’t come back under my government. We will always seek a close relationship with our neighbours but reiterated that will be about the single market, the customs union or freedom of movement.”

Quite how Labour would look for a closer relationship with the EU with all those red lines is difficult to understand. I suspect that when members of an incoming Labour government turn up in Brussels and are told the terms of any “closer relationship” it will come as quite a shock to them. As had been obvious for some time, there are very few frontline UK politicians who have any real understanding of how the EU works. Cherry-picking did not work for the Tories. It will not work for Labour, even if the cherries are of a deeper red.

UK politicians ruling out a “Swiss” arrangement with the EU leaves many who do understand the EU scratching their heads in wonder as the EU would never have offered the UK such a deal in any event. 

The EU is simply not interested in a Swiss-style relationship with the UK. The EU does not even like the current relationship it has with Switzerland. There is no one EU-Switzerland agreement. There are at least 120 agreements. It is this fragmentation that the EU does not like. It is not about to go down the same road with Brexit Britain. A life of endless negotiations with a country that has left the EU and is now trying to cherry-pick the best bits of what it left behind. Looking for all the benefits with none of the obligations. Not going to happen. 

How did we get here?

Freedom of Movement

In her speech to the 2016 Tory conference, the then prime minister, Theresa May, made it clear that whatever else Brexit meant, it meant the end of Freedom of Movement, the right of EU citizens to move from one country to any other EU country to live and work there. Freedom of Movement is not absolute. There was and is no right to move from one country to another to simply live on social security payments. Belgium, for instance, requires EU citizens to leave after three months if they have not found gainful employment, or cannot support themselves independently of the State. 

Freedom of movement is one of the four fundamental pillars of the Single Market. The others are freedom of movement for goods, services, and capital. It is a package. A country cannot pick and choose. It is all four or nothing. And if you choose nothing you cannot be a Single Market member.

There is some debate about whether May knew exactly what she was committing to when she made her 2016 speech. She may not have fully realised that in being so definitive on ending Freedom of Movement she was automatically excluding the UK from any future participation in the Single Market. Whatever the truth of the matter, her speech was to frame the Brexit debate from there on. The UK would be out of the EU and out completely. No halfway house in the European Economic Area, such as where Norway is, even though many Brexiteers had extolled the “Norway model” as the alternative to membership. 

Ireland

Slowly, May began to realise that her position was going to put the unity of the United Kingdom at risk. From the outset, all interested parties, the UK, the EU, and Ireland, agreed that Brexit could not result in the return of a hard border on the island of Ireland. The common Irish and UK membership of the EU’s Single Market and Customs Union had done away with the need for an economic border between Ireland and Northern Ireland. The Good Friday/Belfast Agreement, which brought an end to thirty years of violence, did away with the need for a security border. The Common Travel Area between Ireland, Northern Ireland, and the UK, dating back to the 1920, meant there was no need for passport control between Ireland and Northern Ireland. 

Brexit put all this at risk. If the UK was outside the EU and Ireland was in the EU, then there needed to be a border between the UK and the EU somewhere. If that border was not to be on the island of Ireland, then there was only one place it could be. In the Irish Sea, between mainland Britain and Northern Ireland. But that meant a border within the United Kingdom of Great Britain and Northern Ireland. This was completely unacceptable to May, who believed deeply in the Union. She twisted and turned to find a solution, but she could not find one that was acceptable to both the EU and the hard Brexit wing of the Tory Party. She was ousted and replaced by Boris Johnson.

Enter Johnson

Whether Johnson was ever a committed Brexiteer or whether he saw Brexit as the way to become prime minister is irrelevant, though it was probably the latter. Whereas May has sought to resolve the Irish problem through a “backstop,” a framework that would only apply to Northern Ireland if the UK and EU could not reach a trade deal that would make it unnecessary, Johnson opted for a “frontstop.” The UK would leave the EU’s Single Market and Customs Union completely, but Northern Ireland would remain in the Single Market and Customs Union for goods to avoid a hard border on the island. 

To “Get Brexit Done” Johnson agreed to do what May would not do, put a border in the Irish Sea. No sooner had he agreed to it than he began to deny that it was what he had agreed to and started to try and unpick it. 

It is worth pointing out that Northern Ireland, like the rest of the UK, is out of the EU completely when it comes to services, because borders for services are invisible, especially so in an era of digital globalisation. Johnson’s deal gave rise to the Northern Ireland Protocol, part of the overall UK’s Withdraw Agreement with the EU.

With Brexit “done,” a two-year transition period came into force in which the UK was legally out of the EU but remained in de-facto, subject to all relevant EU laws and procedures. During these two years, the UK opened negotiations with the EU with a view to concluding an agreement on future trade relations. 

There negotiations resulted in the Trade and Cooperation Agreement (TCA), described by the Financial Time’s Peter Forster as follows: 

The EU-UK trade deal is a basic “Canada-style” free trade agreement that leaves the UK outside the EU’s customs union and single market. It is a “zero tariff, zero quota” deal.

That means that goods that are sufficiently “made in the UK” to qualify can enter the EU tariff-free. But they have to prove they qualify for this access and also comply with myriad EU rules and regulations, for example on food safety rules or industrial standards. This adds cost and delays to EU-UK trade. 

The TCA also ends the “free movement of people”, which presents challenges for some UK businesses, such as hospitality and construction, that relied on access to flexible labour from the EU.

When the TCA came into effect on January 1, 2021, the EU immediately imposed all necessary and appropriate border controls on goods from the UK entering the EU. The UK still has not reciprocated as it simply does not have the IT or physical infrastructure to do so. Today, there are no post-Brexit border controls on goods entering the UK from the EU.

New restrictions on UK service providers also kicked in. The problems created for UK artists and musicians who has previous freely toured Europe but now faced mountains of paperwork and the need for work permits has been well documented.

The ending of Freedom of Movement has hit many industries, particularly hospitality and construction, hard. The EU’s border controls on goods means detailed and complex paperwork for UK suppliers if they want to sell into the Single Market. Large companies have the resources to be able to handle the paperwork. Medium and small companies struggle. Many have given up. 

Johnson, and his negotiator David Frost, now Lord Frost, prioritised absolute sovereignty over pragmatic business considerations. Britain, alone, would be “world beating” once freed of the shackles of Brussels was their claim. It hasn’t happened. As Bloomberg reports: 

Brexit resulted in a “substantial negative impact” for trade in both directions between the European Union and the UK, according to Ireland’s Economic and Social Research Institute.

Trade from UK to the EU dropped 16% while there was a 20% decline in trade from the EU to the UK, compared to a no-Brexit scenario, the ESRI said in a working paper published Wednesday. The analysis looked at product-level data on goods trade flows for 2021 -- the first full year of the UK’s withdrawal from the bloc.

According to the Financial Times: 

Brexit is not, to be sure, the primary cause of the dismal outlook. That is the income shock bequeathed by the pandemic, amplified by Vladimir Putin’s weaponisation of energy, after years of weak productivity growth. But Brexit is an exacerbating factor and damaging UK trade performance in a way that is not happening in other advanced economies. It is one reason why the OECD reckons the UK economy will be the G20’s worst performer bar Russia in the next two years. The Office for Budget Responsibility forecasts that barriers with its biggest trading partner will lead medium-term GDP to be 4 per cent lower than it would have been.

See this from the Observer’s William Keegan. 

Being free to cut trade deals, heralded as one of the main reasons for Brexit, does not seem to have worked out too well as this Guardian article reports. And, as Martin Wolf dryly comments in the Financial Times: “Meanwhile, “Global Britain” has evaporated as hopes of closer trade relations with China and the US have vanished.”

The UK also seems to be far away from bringing immigration under control, one of the key drivers behind the Brexit vote. In the past year, net immigration hit over 500,000, with a million people coming to the UK, and half a million leaving. While these figures are open to some interpretation, the leave the perception among voters that the Conservative government is failing to control the UK’s border, a fact highlighted daily by the small boats cross the English Channel from France, packed with migrants.

Hence the growing calls for the UK’s relationship to be revisited. See, for example, this  Twitter thread from a former senior Conservative cabinet minister. A recent opinion poll showed that, as of November 2022, 56 percent of people in Great Britain thought that it was wrong to leave the European Union, compared with 34 percent who thought it was the right decision.

Where next?

For now, UK politics arrear gridlocked. The Conservatives have a notional majority in the mid-70s, but party discipline has broken down and the government benches are so faction riven that the ability of the government to pass any piece of significant legislation is highly problematic. There would appear to be no circumstances in which it could reset relations with the European Union, even if it wanted to do so. The continuing dispute over the Northern Ireland Protocol is a festering sore, while a piece of legislation going through parliament which would tear up all remaining EU laws, estimated at around 4,000, threatens to create regulatory chaos at the end of 2023. It will also put the TCA at risk because the destruction of EU-derived laws would run counter to the agreement’s “level playing field” provisions. 

When it comes to the European Union, expect no change in relations before the next general election, which must be held no later than January 2025, two years from now. However, given the indiscipline among Conservative ranks, an earlier election cannot be ruled out. 

All current polling data points to Labour winning the next election. But two years is a long time in politics, and nothing is ever foreordained.

Given the remarks of the Labour leader, Keir Starmer, quoted earlier, which underscore the lack of realism on his part on what can be achieved outside the Single Market and Customs Union, leaves little room for any major UK/EU realignment anytime soon. The best that can be said is that Labour does not have a “hard Brexit” faction like the Conservatives, so as reality bites, a Labour government may have more room for manoeuvre that the current Conservative one has. But it will be a slow, learning process, and it will be painful. Economic pressures have a habit of overwhelming political calculations. To borrow from Hemingway, illusions die slowly at first, then suddenly.

For business, nothing is likely to change anytime soon. Business is stuck with Johnson’s “sovereignty above all else” deal.

There is a further matter that needs to be taken into consideration. The debate in the UK leaves the impression that all the UK must do is to decide what it wants, turn it in Brussels and ask for it, and it will be given to it on a plate. Nothing could be further from the truth.

The is no great desire on the part of EU Member States to have the UK back. It was a major disruptive influence when it was a member, forever demanding special treatment and opt-outs. What’s to say that if a Labour government eventually, agreed closer terms with Brussels, those terms would not immediately be torn up by a future Conservative government? EU Member States do not want, to use Denis McShane’s term, “Brexiternity,” a forever, mind-numbing negotiation with an argumentative UK. 

All of which leads me to believe that it will require a new generation of UK politicians without “Brexit Wars” baggage before UK-EU relations find a new harmony. 

My views on Brexit were always clear. I thought it was the wrong decision for the UK to make. I still do. I authored a little book on Brexit. It can be downloaded for free here.

Think of the UK in the EU as Humpty Dumpty, always awkward, but a member none the less. Brexit was the great fall. Humpty Dumpty cannot be put back together again. The UK will need to become a new character before it can get back in again, or even get close.