Tuesday, 23 July 2019

How can the UK's new PM resolve the Brexit conundrum?


On June 24 2019, the third anniversary of the Brexit referendum, the party responsible for gifting the referendum to the UK was enjoying a tortuous process of electing its second post-referendum leader with a mandate from 160,000 party members to be Prime Minister.  

In the interim, the Conservative Party had been spooked by the electoral consequences of missing two exit deadlines (29 March as well as the 12 April extension).  It suffered substantial losses in English Local Government elections (2 May) and again in elections to the European Parliament (23 May).  Another failure to meet the exit deadline is seen as potentially calamitous for the party of Government. 
For this reason a General Election is low on Conservative MPs’ priority lists.

Will Boris Johnson’s new Administration succeed in divorcing the UK from the EU at Hallowe’en 2019, “come what may” “do or die?”  
Will he deliver on his campaign pledges on public expenditure?  And will he deliver on the objectives of Brexit, whatever they are, more than three years after the mandate to get out?

Other crucial questions remain unanswered regardless of the weeks of leadership campaigning and pledging.
How can “the party of business” justify divorcing the UK from the EU when the authoritative research still predicts negative consequences?  What evidence does the new PM have to rebut the plethora of data which show that leaving the EU will be bad for the UK?

As the nation begins a fourth post-referendum year still a member of the EU, Parliamentary democracy has laboured in a quagmire of resignations, political indecision, and electoral rebuff at local government and EU polls for Labour and Conservative Parties; compounded by business anxiety, community division and speculation over the spectre of constitutional break-up.

This analysis is supported in recent polling by think-tank Britainthinks.  It suggests that “bitter political debate over leaving the EU has shattered public trust in the way the nation is governed.[i]
Voters on both sides of the argument – the general public - feel frustrated and alienated from the political system as the public discourse has affected the UK’s self-image and reputation abroad.  Where has it all gone wrong?

Answers are needed if Government has any chance of resolving the discord about a “red white and blue Brexit” that wracks “the precious union.”  It’s arguable that Brexit has been flawed from the start - a combination of poor leadership, non-evidence-based policy-making, ignoring expert analyses, illegal electoral activity, telling lies, and the absence of a strategy to implement and to monitor the process of divorce.

The time is opportune to brief the new PM, to give him time to take stock of facts - to remind him firstly how we got to where we are, and secondly, to present recent evidence of Brexit’s impact on the UK economy,  impacts on Northern Ireland, and finally the impacts on Ireland.

1.    H.M Parliament’s lead role

·         In stark contrast to the unbridgeable division which has dominated Parliamentary debate subsequently, the European Referendum Act was passed in December 2015 overwhelmingly.   In so doing, its elected law-makers set no threshold for a victory or for a minimum turn-out.  In practice, therefore, a simple majority which comprised of less than 2/5 of the nation’s voters sufficed as the legal basis for the UK’s constitutional change. The vaunted figure of 17.4 million people who voted in June 2016 to leave represents 38% of the UK’s total electorate of 46.5 million.  Some 29.1 million people did not vote for Brexit. 

·         The validity of the referendum result remains open to dispute because of the Electoral Commission’s finding in July 2018 of electoral fraud.  Exactly one year on from the breaking of the Cambridge Analytica scandal by a UK newspaper, we were reminded[ii] in March of the Electoral Commission’s conclusion that Vote Leave broke UK electoral law in funnelling money to the data firm Aggregate IQ.  Consequently Vote Leave was fined and referred to the police.

·         Whereas the Scottish Government published a 650-page report[iii] informing its electorate about the prospect of independence prior to its referendum, no such detail was published by Westminster to inform the Brexit campaign. 

·         Post-referendum the same approach has prevailed. The Department responsible for the UK’s departure from the EU carried out no economic impact assessments on any sector of the UK economy.  The then Secretary of State for Brexit David Davis admitted this to a House of Commons Select Committee in December 2017.[iv]  Is failure to base policy on evidence maladministration or incompetence?

2.    Impacts on the UK economy – recent analysis

·         The evidence published during the last nine months suggests that the citizens of the UK will be worse off economically as a result of Brexit, whether the divorce is hard or soft.  In November 2018, the UK Government’s own analysis[v] reported that Brexit will cause adverse impacts ranging from 3.9% shrinkage of the economy after 15 years to 9.3% under a no-deal exit.   In similar vein, the CBI warned in January 2019 that the risks of a no-deal are unmanageable.[vi]   In February 2019 the Bank of England[vii] produced data indicating the UK’s lowest growth since 2009. The Bank Governor spoke about the sharp fall in business investment in the “fog of Brexit.”  The Office of National Statistics endorsed[viii] the Bank’s research saying that adverse impacts are already happening in February 2019 before Brexit happens.  For example, in the final three months of 2018 production of cars, steel products and construction fell sharply; and the UK’s GDP shrank by 0.4% in December. 

·         Also in February 2019, a no deal impact assessment published by Government [ix] said that no deal could leave the UK economy 6.3-9% smaller after 15 years than if it remained in the EU, and that no deal would affect the viability of many businesses in Northern Ireland some of which might relocate to the Republic of Ireland.   It repeated HM Treasury’s assessment of November 2018 that the overall impact of no deal is expected to be more severe in NI than in GB and that it will last longer.[x]  In addition, it said that the Northern Ireland agrifood industry is particularly vulnerable because of its reliance on cross-border supply chains.

·        On 5 March 2019, it was reported that manufacturing investment in the UK’s motor industry has slumped by 80% since 2016.[xi]

·         Evidence of the detriment which Brexit is producing prior to divorce emerged from Government plans to protect the shipping of medical supplies in the event of a no deal.[xii]  Not only has the Government had to pay £33m, but it appears that the award of contracts to three companies (one of which had no ferries) dispensed with requirements for competitive tendering.  In Government Audit parlance, this is maladministration.  It inspires little confidence in Government administration of Brexit.  Lord MacPherson of Earls Court, a former Permanent Secretary to the Treasury described the payment as “the latest example of systemic abuse of the taxpayer.”  The botched RHI scheme in N Ireland could be another example of abuse of British taxpayers. 

·         Further recent evidence of a downturn in the national UK economy shows that in May 2019 manufacturing output as measured by the PMI (purchasing managers index) slipped to its lowest level since July 2016.[xiii] Clients in Asia and Europe are reported to be diverting supply chains away from the UK.

·         And on 18 July 2019, the Office of Budgetary Responsibility spelled out the damaging economic impacts of a no-deal Brexit.[xiv]  It forecast that no deal would plunge Britain into recession with 2% shrinkage of the economy, unemployment would exceed 5%, and house prices would fall by 10%.[xv]  As a result instead of the £29bn of borrowing required by leaving with a deal, almost £60bn of borrowing would result from leaving without a deal.

3.    Regional impact – Northern Ireland, recent evidence

·         The CBI report in January 2019 showed that a no-deal Brexit would cost Northern Ireland £5 billion over the next 15 years.[xvi]  In February 2019, Northern Ireland’s largest bank, Danske Bank, expressed grave concerns about the impact of a hard Brexit, warning that no-deal Brexit posed the greatest threat to Northern Ireland’s economy for a generation.[xvii]  

·         And the business consultancy EY warned that Northern Ireland could slide into recession losing 11,400 jobs in 2020 alone as a result of a no-deal Brexit.  EY added that in the event of a trade deal being reached between the UK and EU, growth in the UK as a whole and in NI will still be outpaced by the Republic.  It forecast Ireland’s growth for 2018 at 8.3%, reduced to 3.9% in 2019 and 3.2% in 2020.  Its NI forecast is for economic growth in 2018 of 1.5%, slowing to 0.9% in 2019 and 1.2% in 2020.

·         More recent evidence of Brexit’s adverse impacts both on the regional economy of Northern Ireland and on the national economy has been produced by the National Institute of Economic and Social Research in May 2019.[xviii]  NIESR’s report finds that a soft Brexit with the UK being part of a Customs Union arrangement will shrink Northern Ireland’s economy by 3.3% over a decade; that the UK economy would shrink by 3% per year; a no-deal Brexit would double that impact; and “there will be fewer resources to pay for public services.”[xix]
 
·         In June 2019, a report [xx] commissioned by NI’s Department for the Economy[xxi] from WTO officials provides “sobering” evidence of the detrimental impacts of, among other things, EU tariffs on food exports to Ireland and the ability of small enterprises with no experience in customs procedures to continue to export to Ireland. The report also states[xxii] that border inspection posts would be necessary on the Irish side to meet EU requirements in the event of a no-deal Brexit.

·         The journalist Tony Connolly[xxiii] takes account of authoritative briefings, including the warning in March 2019 from the Head of the NICS of “severe profound and lasting consequences...and no available mitigation against severe consequences of No Deal,” and explains why the NICS commissioned the WTO report.  Thus he articulates the calamitous impacts on NI should the new PM divorce the EU without a deal.

·         On 10 July 2019 the Department for the Economy published a report described by the BBC’s NI’s Economics and Business editor as the most strident warning yet about Brexit.  It says that[xxiv] a no-deal Brexit could put 40,000 jobs at risk in Northern Ireland especially in agri-food and haulage; it warns that exports to Ireland could fall by 11-19% including the danger that most agri-food trade, valued at £832m, would stop; and many businesses will no longer be able to export to Ireland.

Given the DUP’s “Confidence and supply” support for the Conservative Government, much of this empirical evidence listed above has been sent by this correspondent to his DUP MP seeking the evidential basis for that party’s hostility to the EU.[xxv]  A reply is still awaited. 

Do the Conservative Brexiteers, their DUP allies and Labour Brexiteers know more than HM Treasury, the Bank of England, the Office of National Statistics, the National Institute of Economic and Social Research and the Office of Budget Responsibility combined?  And where is their counter evidence?

With the DUP’s consistency in voting against the Withdrawal Agreement, one might speculate whether their overriding priority of defending “the precious union” is reciprocated by UK taxpayers.  A Kings College London opinion poll[xxvi] in April 2019 indicated only one-third of people in Britain hope that NI would vote to remain in the UK.  And a YouGov poll of Conservative Party members in June 2019 shows that 59% would prefer to see Northern Ireland split from the UK if it secured Brexit[xxvii] and 63% prefer to see Scotland independent.

4.    Impacts on Ireland – recent evidence

Little serious account seems to have been given in Great Britain of Brexit’s impact on its neighbours.  In March 2019 a report by the Economic and Social Research Institute quantified the scale of disruption that Brexit will create in Ireland in all cases, deal as well as no deal.[xxviii]  Ten years after Brexit the cost to Ireland’s economy would range from E8 to E15 billion. The report predicted that agriculture and food processing will receive the worst impact.  Given that these industries operate on an all-island basis, the impact on Northern Ireland is self-evident.

One loss for the UK, however, seems to be an advantage for Ireland’s economy.  A report in March 2019 shows the detrimental business impact of Brexit on the UK as hundreds of companies relocate to the EU[xxix], with Dublin “the clear winner.” 

Despite the varying claims from the long list of aspirant leaders of the Conservative party about their plans to resolve the UK/EU border problem – in particular claims that the border can be managed through some kind of new technology, the Government’s own expert (the head of the “UK Border Delivery Group”) informed NI business[xxx] in April 2019 that new technology is not a solution in the short to medium term.


The contradiction between the inviolable pledge that won the Brexit campaign - to take back control of the UK’s borders - and the sacrosanct promises emphasised at Prime Ministerial hustings by Boris Johnson - to keep the UK’s only European land border open - is not lost on the Irish public, north and south of the UK/EU border.




©Michael McSorley 2019


[i] Observer 16 June 2019 “Divided, pessimistic, angry: survey reveals bleak mood of pre-Brexit UK”
[ii] Observer 17 March 2019 Carole Cadwalladr The Cambridge Analytica Files
[iii] Scotland’s Future. Your Guide to an independent Scotland. 648pp. November 2013
[iv] The Independent 6 Dec 2017 https://www.independent.co.uk/news/uk/politics/david-davis-brexit-impact-assessments-uk-economy-sectors-industry-eu-withdrawal-mps-select-committee-a8094481.html
[v] BBC News 28 November 2018 “EU Exit: Long-term Economic Analysis” https://www.bbc.co.uk/news/uk-politics-46366162
[vi] BBC News 30 January 2019 https://www.bbc.co.uk/news/business-47054439
[vii] BBC News 7 Feb 2019 Bank forecasts worst year for UK since 2009  https://www.bbc.co.uk/news/business-47155537
[viii] BBC News 11 Feb 2019 https://www.bbc.co.uk/news/business-47196387
[ix] BBC News 26 Feb 2019https://www.bbc.co.uk/news/uk-politics-47379308
[x] BBC News 26 Feb 2019 https://www.bbc.co.uk/news/uk-northern-ireland-47379948
[xi] BBC News 5 March 2019 https://www.bbc.co.uk/news/business-47457219
[xii] The Times 2 March 2019 p4 “Incompetent Grayling urged to resign over £33m Eurotunnel bill.”
[xiii] Belfast Telegraph 3 June 2019 https://www.belfasttelegraph.co.uk/business/brexit/uk-manufacturing-plunges-into-decline-after-brexit-stockpiling-drive-ends-38174121.html?utm_source=newsletter&utm_medium=email&utm_campaign=BT:DailyNews&hConversionEventId=AQEAAZQF2gAmdjQwMDAwMDE2Yi0yMjJiLWJkZGYtYzk4ZS0zNjE2M2VhYjRmOTPaACQ2ODY4YTI0Mi0yZDllLTRiMGMtMDAwMC0wMjFlZjNhMGJjZWLaACQ3YzFkZDZlNy04Y2RiLTRiOTktYjM0Yi1hMjVhOWI1NDJlNjchxLT37SjyxJ8Ilypo9iqlk_gBuU6OWKlR00ufVdBChQ
[xiv] BBC News 18 July 2019 https://www.bbc.co.uk/news/business-49027889
[xv] Observer Toby Helm 21 July 2019 pp 6-7
[xvi] Irish Times  22 January 2019 https://www.irishtimes.com/news/ireland/irish-news/no-deal-brexit-could-cost-northern-ireland-5-7bn-over-15-years-1.3765874
[xvii] Belfast Telegraph 1 Feb 2019 https://www.belfasttelegraph.co.uk/news/northern-ireland/bank-warns-nodeal-brexit-biggest-risk-to-northern-ireland-economy-for-generation-37773679.html
[xviii] Belfast Telegraph 10 May 2019 https://www.belfasttelegraph.co.uk/news/northern-ireland/customs-union-to-cost-ni-900-a-year-for-every-person-report-38096786.html
[xix] NIESR 8 May 2019 “The Economic Impact on the United Kingdom of a customs union deal with the European Union.”
[xx] WTO report June 2019 The Irish Land Border: Existing and Potential Customs Facilitations in a No-Deal Scenario, drawn up by Eric Pickett, a German lawyer specialising in EU customs and WTO law, and Michael Lux, head of unit in the European Commission’s customs division for 25 years
[xxi] Belfast Telegraph  12 June 2019 Mark Bain  https://www.belfasttelegraph.co.uk/news/brexit/sobering-brexit-report-lays-bare-perils-for-northern-ireland-firms-of-nodeal-38210851.html
[xxii] https://www.bbc.co.uk/news/world-europe-48602075
[xxiii] RTE News 14 June 2019 https://www.rte.ie/news/analysis-and-comment/2019/0614/1055418-double-whammy-a-no-deal-brexit-and-northern-ireland/
[xxiv] BBC NI news 10 July 2019 https://www.bbc.co.uk/news/uk-northern-ireland-48934706
[xxv] https://michaelmcsorleyeconomy.blogspot.com/2019/03/brexit-briefings-to-dup-mp-jan-feb-2019.html
[xxvi] Belfast Telegraph 3 April 2019 https://www.belfasttelegraph.co.uk/news/brexit/survey-only-third-of-britons-want-northern-ireland-to-stay-in-uk-brexit-pressure-on-union-37979514.html?sfns=mo
[xxvii] Belfast Telegraph 18 June 2019 https://www.belfasttelegraph.co.uk/news/brexit/poll-most-tory-members-would-sacrifice-northern-ireland-for-brexit-38229896.html
[xxviii] RTÉ News 26 March 2019 https://www.rte.ie/news/ireland/2019/0326/1038584-esri-brexit/
[xxix] Irish Times 11 March 2011 “The Brexodus: Dublin attracting big business from the City of London” https://www.irishtimes.com/business/financial-services/the-brexodus-dublin-attracting-big-business-from-the-city-of-london-1.3821678
[xxx] Belfast Telegraph 17 April 2019 https://www.belfasttelegraph.co.uk/business/uk-world/technology-cant-prevent-hard-border-in-ireland-if-brexit-means-customs-controls-firms-told-38021795.html?utm_source=newsletter&utm_medium=email&utm_campaign=BT:DailyNews&hConversionEventId=AQEAAZQF2gAmdjQwMDAwMDE2YS0yYWY5LTFkNmItYTczYi0yZTE2M2U4MDgxYTXaACQxZmU0NTFlNi03ZmY0LTQ4MDYtMDAwMC0wMjFlZjNhMGJjZTXaACRjNjc5YmNkYS0yZDg1LTQ2NDEtYWMyYi0zZTMwMzUyMDQwYjgQ_ts5GBbPTnh8ZaYVs9RLfCQfX22d8FbG4seQEPGhVw

2 comments:

  1. Comprehensive analysis Michael

    ReplyDelete
    Replies
    1. Thanks EC. Two matters arising.
      Firstly, a propos my reference to Cambridge Analytica, paste this link into your browser - “surveillance capitalism” out of control; imposition of a $5bn fine on Facebook the previous week by the US Federal Trade Commission etc as Carol reviews a Netflix documentary “The Great Hack.”
      And secondly,from 27 July 2019 The Times:- report about fall in sterling saying that “investors have been rattled by Mr Johnson’s appointment... amplified by his insistence that he will take Britain out of the EU on Oct 31 with or without a deal. Oxford Economics predict that this would “increase asset price volatility with sterling likely to weaken further ahead of Oct 31.”

      Delete