Is Brexit working?
I don’t think I will surprise any of you if I cut to my conclusion straightaway. Yes Brexit is working. We have no cause for regrets about the decision the country has taken and the solutions to the remaining problems are not to be found in going backwards, but in completing the process and following through on its logic.
More interesting, perhaps, is why I think this. In setting this out I want to make five points.
First, and crucially, Brexit is fundamentally about democracy. It’s about ensuring decisions for this country are taken in this country after proper debate. That is now beginning to happen.
Second, although most of the hard work is done, Brexit is not complete yet and there are things still to do, most obviously in re-establishing arrangements in Northern Ireland which support the Belfast Good Friday Agreement – but not only there.
Third, the view that Brexit is hitting us from an economic and trade perspective is generated by those with an axe to grind and cannot be supported by any objective analysis of the figures. The UK has grown at much the same pace as other G7 countries since the referendum and, as the ONS points out, our goods exports to the EU are at the highest level ever.
Fourth, Brexit is not a thing in itself but a necessary gateway to a project of national renewal. The Government needs to get on with defining and implementing that project.
And finally I ask the question, what about our partners? Does the EU want Brexit to work? Can it rise above the current frictions and work with the UK as a trusted partner, or will it continue to hassle and lecture us?
First, then, Brexit is about democracy. That is a crucial test. The few reliable polls about the drivers of the referendum result show that the most important was ‘to ensure that decisions about Britain are taken in Britain’. However, since obviously every country is affected by external forces, especially a very open one like Britain, I would phrase this more precisely: “to ensure that decisions about the laws in force in Britain are taken in Britain, that decisions about international commitments are made with the consent of the UK Government, and that British institutions are sovereign within the UK.” That is what we sought to achieve in delivering Brexit and it is, I believe, what the Government is still intending to do.
That is, of course, a description of the legal regime prevailing for most countries in the world. Only in Europe is it regarded as an eccentric thing to think that countries can manage their own affairs and relate in a constructive and open way to others without depriving themselves of self-government, without sharing their sovereignty, or without accepting some degree of formal supervision from outside the borders.
That is a pity – because my view is that national democracy and the nation state are not just the normal way, but the best way, of organising a country’s affairs. Where people have political debates and talk openly and honestly about the trade-offs between different options, you get greater levels of engagement in politics generally and greater buy-in to the results. We are beginning to see this in Britain – look at an area like trade policy, hitherto highly technocratic and run by lobby groups focused on Brussels, but now much more the subject of debate in our own Parliament and with more discussion about the trade offs and the options.
Moreover in Britain we can now change everything by elections. We can change things for the worse or the better, and it is the job of politicians to win arguments and stand by results. In EU countries many things can’t be changed by elections, especially if a country is in the Euro – trade policy, monetary policy, much of fiscal policy, employment policy, much of environmental policy, and so on. It is not surprising that we see such churn in the European party structures, or that we see such high votes for anti-system parties as in France last weekend. Democracy counts. Brexit automatically delivers democracy. So it is working.
Second, unfortunately Brexit is not fully complete yet. We are still paying the exit bill, though it must be said that the sums involved, large though they seemed in 2019, seem dwarfed by the subsequent cost of the pandemic. We are still subject to CJEU jurisdiction until 2024, not only in Northern Ireland but also in the rest of the UK for any infringements before our exit – and the EU has already begun one such case for, in my view, transparently political reasons. It is only really at the end of 2024, when the money is paid and the Court role has largely disappeared, that the last relics of the EU system will have disappeared – though even then we are committed to supporting a so-called Independent Monitoring Body for citizens’ rights until at least 2028 and even then can only wind it up with EU agreement.
But of course the biggest problem is in Northern Ireland, where the delicately balanced compromise that we put in place in 2019, recognising that we were running high levels of risk in doing so, has come apart much more quickly than most of us thought. It is unfortunate that, given all the sensitivities, the EU has refused to look at that compromise again and helped us put together something that would properly support the Belfast Good Friday Agreement and enjoy cross-community consent. In these circumstances the British Government has no choice in my view to act as it is doing – its responsibility for the integrity of the country and for the Belfast Good Friday Agreement must be paramount.
Third, on the economics, there is a lot of noise around at the moment. It is unfortunately quite difficult to have a reasonable and rational debate about what the statistics are telling us – if anything – because of the determination of a small group of people such as the European Movement to latch on to any number, usually out of context, and to treat it as evidence that Brexit is “failing”. Only when this culture war has abated will we be able to have sensible discussion. But meanwhile let’s do what we can, looking at the trade and the broader economics.
On trade first, the crucial point to make is that a decline in trade numbers is not the same thing as a decline in GDP, although you could be forgiven for missing this when listening to some anti-Brexit campaigners. It is of course true that some academic work has sought to establish a clear linkage between trade, productivity, and growth – work that underpinned the 2018 GES report and whose zombie figure of 4% GDP decline is still quoted by the OBR and others as if it were an actual fact. In my view – and not only my view, that of other economists – the link is overplayed. Those studies primarily looked at the effect of opening up badly run ex-Communist and ex-authoritarian autarchic economies in which opening up was producing huge improvements to the policy regime more generally, and in which the gains came from these broader improvements not just from trade. It is in my view much more questionable, and far from established, whether small changes in trade make any meaningful difference for advanced economies at the production frontier.
And we are talking about small changes. There is a huge amount of noise in the figures because of the pandemic, supply chain disruption, trade diversion, the ONS measurement changes which mean there is a discontinuity between this year and earlier figures, and now the war in Ukraine which has brought significant changes to oil and LNG flows via the UK. So it is hard to be confident what if any changes in UK trade are due to Brexit. This will of course become much clearer over time, but meanwhile anyone who draws firm conclusions from the figures is not really being honest with the data. What we can be confident about is that it doesn’t bear the catastrophism that some seek to attribute it. As the ONS said this month, “EU exports have increased for the third consecutive month in April 2022 and are at the highest levels since records began.” They also note that our trade in services surplus is actually increasing despite all the predictions.
Overall, it’s obvious that leaving the customs union and single market will have some transitional impact on trade. For what it is worth I think it is reasonable to assess the figures as plausibly showing that our goods exports are around 5% lower than what they would otherwise have been, but that the performance is continuing to improve, and this figure may well change further as the figures normalise. I do not think this will have any measurable impact on our GDP one way or another.
As for GDP, the study produced by the CER again last month has had a lot of attention. Unfortunately I don’t believe its “Doppelgänger” methodology is particularly sound or a reliable basis on which to draw conclusions. Graham Gudgin of Policy Exchange has produced a lengthy analysis of the problems with it which I won’t repeat, but I will note that the fact that it changes the “doppelganger” group for different purposes in the study (and has changed it compared to the previous version) makes one doubtful about its predictive powers, as does the fact that it does not properly factor in differences in the cyclical positions of different economies or huge differences in the policy regime such as the Biden stimulus. In my view the only sound conclusion to be drawn is the one that Policy Exchange do draw, which is that “A more straightforward comparison with the major economies of the G7 reveals that there is no obvious Brexit-related lag in the UK’s economic performance measured by per capita GDP. In short, the UK economy has grown at much the same rate as the G7 average since the Brexit referendum in 2016.”
Fourth, Brexit should be just the beginning of a broader project of national renewal for this country. It is a gateway we have to go through, not a thing in itself. The crucial thing is what it frees up by way of choices and agency for this country.
In my view one of the harmful effects of EU membership was that it gradually deprived our policy-makers, politicians and civil servants alike, of agency. It fostered a belief, not always or even often acknowledged, that we were not capable of solving our own problems on our own. Every policy initiative had to be Brussels-proofed because of the reach of the principles of EU law, non-discrimination and so on. The creep of EU law in areas like citizenship squeezed the area of discretion. There was a strong habit of consulting Brussels on many issues because of the potential impact on competition law, the possible state aid effect, and so on.
I believe we can see the effects now we have left. Our policy elites have lost the habit of defining goals, creating strategies to deliver them, and crafting policies that support the strategies. They have found it very difficult to draw up genuine proposals for liberalisation and change of policy regimes now that we have left, even on pieces of legislation that we opposed when we were members. It is as if we have forgotten how to govern.
I have no doubt this will change over time. Where there are immediate pressures we are already showing we can and do act differently. That was true on vaccine policy, where although we may have had the formal right to forge our own way as an EU member I have no doubt we would not have done so. But it is even more obvious at the moment on Ukraine policy. We always said that outside the EU our ability to act quickly and decisively, to lead and set a policy agenda, would be more important than having a one eighth share in the policy of a larger entity. And so it has proved.
But the task now is to devise a meaningful programme of supply-side reform, focused on boosting the productive capacity of the economy, and to drive it through. I’ve made no secret of my view that the Government has not tackled this anything like energetically enough so far, and if Brexit is to produce a visible economic payoff then it needs to raise its game massively. I hope that the process Jacob Rees-Mogg launched yesterday will kick off a different approach, and I hope too that his Brexit Opportunities Bill which will follow will have a robust “sunset clause” provision that really changes the incentives and makes a real difference.
And finally – my final point – does the rest of the world want us to succeed? Most of the world seems blithely unbothered about Brexit one way or another and certainly does not see it as any sort of difficulty, for them or for us. In the US, the party split on Brexit is I think gradually waning, despite the noise over Northern Ireland. We have heard less sniffiness from Democratic party elites and think tankers since the war in Ukraine, which has made them realise our value as an ally and our capacity to shape events independently.
The question is of course really about the EU itself – by which I mean the policy elites, not the average European citizen. Their observed behaviour is not encouraging. It is of course open to the Commission and their allies to insist on every word of the NIP and to take us to the ECJ if they want. We could of course open arbitration ourselves for the refusal to deliver on the commitment to join Horizon – but we don’t behave in the same way to the EU as they do to us. It is of course open to them to police UK goods trade as if it had not come from a neighbour with a highly reputable and transparent policy regime – even though we don’t do the same to them. It is of course open to them to treat every UK tourist as a potential overstayer, to refuse any change to standard Schengen and future ETA terms, to forbid use of e-gates – even though we don’t do the same to them.
And through all this we have to take lectures about “trust” and “international law”, while at the same time the EU Court of Justice asserts its superiority over international arbitration rulings and the EU itself ignores WTO judgements when it suits them – and when it has been German policy to ignore warnings about Russia for many years and as a result major EU member states continue to pay large sums to Russia for energy which help finance its evil war in Ukraine.
The question the Commission and their EU allies have to ask is whether any of this is in their strategic interest. Do they want the UK as a friendly and collaborative neighbour or a disgruntled one which is looking elsewhere? Do the Commission and key EU member states see it as in their interest to sustain a UK trade policy which is a massive preference scheme for the EU, or do they want to actively encourage us to look elsewhere? Would Poland and France (to take two examples) give the same answers to those questions?
The EU may feel it is stronger if Brexit “fails” in the sense that further secession will look less attractive. But in reality it will be weaker, because it will have shown itself to the world as an entity that lacks self-confidence both in its ability to reform itself and to find collaborative relations with its neighbours. In that sense the West overall will be weaker, not stronger, if the EU goes down this road.
And that bigger picture for the West matters. It’s so important that we find resolution to the issues that divide us. In my Churchill lecture in Zürich in March I set out areas where we could find, if you like, a new Entente Cordiale, with the EU being more open to changing the Protocol, us being more willing to look at foreign policy collaboration with the EU, and some mutual de-escalation on various border and visa issues. That still seems a possible way forward to me – but it takes two.
It’s really up to the EU how it wishes to proceed. For our part, our destiny is in our hands. We can, and I hope will, succeed whatever the EU does – it will just be more difficult for all concerned if the EU insists on being difficult and confrontational rather than collaborative. It would be much better to put the history behind us – on both sides – and concentrate on making this new relationship work. There is absolutely no reason why that can’t happen. It just takes vision – it just takes will.