Brexit is irreversible but we must strengthen economic ties with EU
Taking up his new position as Prime Minister last week, Rishi Sunak said he was committed to delivering on the 2019 manifesto and “building an economy that embraces the opportunities of Brexit”.
A noble ambition, no doubt, if also a somewhat unremarkable one; this is after all only what he was elected to do. Yet he needs to get a move on – and indeed articulate precisely what those opportunities are – for six years after Britain voted to leave the European Union, all we’ve got to show for it so far is political, economic and financial chaos.
From an economic perspective, there has been zero payback, and particularly in the area of international trade and reputation, considerable harm.
Some of the more realistic architects of Brexit have admittedly partially acknowledged these downsides. Sunak has conceded that leaving the EU has been disruptive for trade, while Lord Frost, who negotiated the Withdrawal Agreement, insists that he always said there would be a cost.
Nigel Farage likewise never sought to diminish the likelihood of economic impairment, but believed it would be a price worth paying for sovereignty, a view shared by many Brexiteers.
Also true is that it is virtually impossible to disentangle the negative economic effects of Brexit from the far more devastating, if time limited, consequences of lockdown and the current energy crisis. These latter implosions are global in nature, providing convenient cover for the politicians to hide behind.
In doing so, they delude themselves over the scale of the challenge faced. There is a conspiracy of silence on these matters, for beyond flag-waving patriotism, it is hard to point to really any form of economic gain that is both politically and fiscally deliverable. Liz Truss and her then chancellor, Kwasi Kwarteng, tried and they lasted little more than a month.
Sometimes slowly but often in great leaps and bounds, many of those supposed Brexit opportunities are being abandoned or quietly shelved, the latest example being the promise to review or repeal all remaining 2,400 EU laws.
On the campaign trail, Sunak said he would do this within his first 100 days in office, a pledge backed by a video of a man feeding the offending legislation into a shredder to the sound of Ode to Joy, the European anthem.
It is as if much of what passed for government these past 50 years – a period that includes, by the way, 26 years of Tory-led government – counts for nothing.
And I suppose that is indeed one way of looking at it. Yet meeting this ambition even by the end of next year, let alone the first 100 days, is now seemingly deemed too much of a stretch. There are more important things to worry about, apparently.
Out too goes fracking, much of the planned bonfire of red tape and, at least for now, any notion of a low-tax economy. In terms of the broad envelope of policy, it’s increasingly difficult to see the difference between Sunak and Sir Keir Starmer, leader of the opposition.
We’d hoped for a fresh start after the mayhem of Truss’s reign, but already the new Prime Minister seems more preoccupied with the internal struggles of his own party than delivering a nationally unifying plan that might plausibly get the country out of its mess.
Sunak’s Cabinet, supposedly bringing together all elements of the unruly coalition of interests and ideologies that is today’s Tory party, only makes sense in terms of the sordid backroom deals needed to ensure the Prime Minister’s own coronation.
Why else would you include the likes of Private Pike (aka Gavin Williamson) and the gloriously named Suella Braverman, whose protectionist instincts in the latter case seem diametrically opposed to the globalist, free-trade ambitions of many of her colleagues? Do we want a free-trade deal with India, or don’t we? In any case, it is very hard to see how this Cabinet can work in the cohesive way promised. Sunak is said to have had constructive talks with France’s President Emmanuel Macron on the telephone last week over small-boat migrants and other issues of shared concern, but hopes of a rapprochement with Brussels over the Northern Ireland Protocol, a prerequisite to establishing a wider relaxation in European trade barriers, seem again to be receding. On this, Sunak answers as much to his own hardliners as he does the needs of the UK economy.
Worse, the fiscal quagmire the UK has got itself into requires that Britain makes itself less internationally competitive at just the point it needs to become more so to compensate for loss of access to the single market.
Up goes the headline rate of corporation tax from one of the lowest in the OECD to one of the highest. Windfall taxes on energy and possibly banking will only further tilt the playing field against the UK as a worthy home for investment.
Some kind of an intellectual case can no doubt be made for windfall taxes on oil and gas, and on renewable and nuclear forms of power generation. It is hard to argue that today’s fuel prices are anything other than anomalous.
But banking? And at a time when the Government is trying to bolster the City as an international financial centre with its “Big Bang 2.0”? There is already an 8pc “banking levy” charged on top of normal corporation tax.
The effect of the increase in corporation tax to 25pc is therefore to raise the rate of tax on banking profits to 33pc, which is way beyond internationally competitive levels.
Non-remuneration of Bank of England reserves, effectively a backdoor method of similarly feeling the banking industry’s pocket, would likewise act as a major deterrent to investment in the UK banking sector, as well as undermining one of the main transmission mechanisms for monetary policy. Banks would either shift the deposits overseas, or in chasing better returns, unleash a boom to bust lending spree.
Yes, interest rates are rising, and with them banking profits, but come on; only by the surreal standards of the past 12 years can a Bank Rate of 2-5pc be described as abnormal and therefore a justification for windfall taxes.
The rejection of tried and tested analysis, or “experts”, that lay at the heart of the economic case for Brexit reached its logical conclusion in last month’s mini-Budget, which was so offensive to established “orthodoxies” that it threatened to blow up the entire economy.
Yet there is no turning the clock back on Brexit now. Even if a majority could be established for such a nationally humiliating course, Britain could not rejoin on the half in, half out terms once enjoyed. Next time, it would have to be all in, including the euro, and there is little appetite for that even among unrepentant Remainers.
Even so, more harmonious economic relations with our near neighbours are no longer simply a desirable goal, but a matter of urgent necessity. Splendid isolation is proving a far from happy disposition.
‘More harmonious economic relations with our neighbours are no longer a desirable goal, but a matter of necessity’