MICHAEL WHITE on the Brexit impact papers and the Chancellor’s spending sleight of hand.
Be careful what you wish for. After months of campaigning for publication of Brexit impact assessments which Whitehall is supposed to have produced for 58 sectors of the UK economy, MPs finally got 850 pages of paperwork on Monday night.
Were they pleased? Of course not. For one thing they only got 39 sectors worth. There never were 58 assessments, officials insisted, even if David Davis once claimed there were ‘about 57’. For another thing, members of Hilary Benn’s DExEU select committee protested, the pages were heavily redacted to exclude commercially or politically sensitive material that might undermine negotiations with Michel (‘Ticking Clock’) Barnier.
Mr Davis had promised those redactions too. But Stephen Kinnock, Seema Malhotra and the SNP’s Pete Wishart, warned the DExEU secretary’s black pen might put him in contempt of a parliamentary vote. Even ‘Jake’ Rees-Mogg, the people’s champion, agreed. So did former public prosecutor, Labour’s Brexit spokesman and straight arrow, Keir Starmer QC. Davis has been summoned to explain himself.
Very little of this drama made Tuesday’s front pages, which were dominated by Prince Harry’s engagement to Meghan Markle. In this moment of tabloid joy neither side suggested that the Brexit vote deserved either the blame or credit for the successful courtship – though the church wedding of a senior British royal to a divorced American career woman of mixed race shows how far and fast Britain is changing anyway.
Whether the nuptials will bode well for a future US-UK trade agreement may depend less on Liam Fox than on whether You-Know-Who gets invited and if he makes it a pre-condition that he gives the bride away. Pundits braced for the White House Wedding Tweet faced an unnerving silence.
In any case, by lunchtime on Tuesday, the restless media caravan had moved on (‘Budget? What Budget?’), as it always does nowadays. Is Jeremy Hunt plotting a leadership bid if Theresa May falls under the Barnier Bus? Sunday’s papers said so and the health secretary grabbed headlines for a speech promising better responses to fatalities or life-changing injuries which occur at birth.
Hunt is a decent man, holding down a difficult job for six austerity-driven years. Is he a game-changing Tory leader in waiting? No he is not, he would be a soggy compromise between those who want to block Amber Rudd and those who fear a hardline Brexiteer. Hunt is a minister who has flip-flopped on Brexit, switching sides because of ‘EU intransigence’. What is it about people called Jeremy?
So what if Health Jeremy is on manoeuvres? May is staying put. So is her Chancellor, Philip Hammond, whose unheroic Budget was deft enough to frustrate his would-be Tory assassins. When the US bank, Morgan Stanley, warns its investors that there might be another destabilising UK election in 2018 it fails to tell them why there won’t be. It merely provides a clue. A Corbyn-led government might be even more damaging than Brexit, the bank’s analysts says. Alas, that bit remains correct.
Most of this is 24/7 roller-coaster media stuff, surface froth while the real work is done in the diplomatic equivalent of David Attenborough’s Blue Planet ocean depths. Is the Irish border dimension of Barnier’s three tests – money, citizenship rights and the border – the new Gordian Knot, the one which cannot be untied, not without customs posts or UK concession on the single market or an all-Ireland customs union that Whitehall has deemed unthinkable?
Some suddenly say so. Calmer voices point to mere political froth. Ulster’s dominant DUP has been in conference, its leaders threateningly accusing Dublin of threatening them, so parochial that they ignore the fact that the province voted Remain by 56% to 44%. May depends on the DUP’s 10 ‘confidence and supply’ votes at Westminster. But the Guardian’s Polly Toynbee urges Sinn Fein to neutralise 7/10 by abandoning its century-old republican refusal to take its seven seats – even for Princess Meghan whose dad has Irish blood. Fat chance.
Dublin has volatile politics and a minority government too, we are now reminded every day. Fine Gael’s Taoiseach, Leo Varadkar, was standing by his deputy, Frances Fitzgerald, embroiled in an all-too-familiar whistle blower smear. So Fianna Fail’s Micheál Martin threatened to withdrew his own confidence and supply deal, thereby triggering a snap election. It all sounds like Berlin where a similar election threat from Angela Merkel may pull her reluctant SPD coalition partners back into line. In Dublin, Fitzgerald blinked first and resigned. Phew.
Spain has gone quieter while Madrid and Barcelona decide what to do. But none of these national (istic) politicians are going to win votes at home by being kinder to Brexit Brits. Thus RTE’s leak of how leading members of the EU 27 privately view key UK players (‘unimpressive’) amid its government’s Brexit ‘chaos’ must have come from inside the Dublin administration which is pardonably cross at what London is doing. When not telling British businesses to pull up their home-knitted socks and export them, Liam Fox argues that practicalities of the Irish border deal can’t finally be resolved until the ‘end state’ EU/UK trade deal has been crafted. A fair point, but limited. The technicians and diplomatic sherpas who write the small print know they will be very lucky to get an outline political deal by October 2018, not the legally watertight agreement that must underpin it.
As for talk of simply leaving the 300 mile border open and tariff-free, in effect daring Dublin to erect customs posts only at Brussels insistence, would breach World Trade Organisation rules as well as the EU’s – just at a time when we’d need the WTO to be nice to us. Priti Patel suggestion that May tell the 27 to ‘sod off’ over its budget claims is also just bravura, coarse and unhelpful UKIP talk which barely registers with the Sun voters it is meant to impress.
Brexiteers are never alone in being silly. Last week’s Commons votes on the EU (Withdrawal) Bill led to erroneous misleading briefings – plus celeb endorsements on Twitter – to the effect that wicked Tory MPs had just voted to deny that animals are sentient creatures that can feel pain and would act on the impulse after Brexit. Not true and, even if it was, the idea that EU member states are kinder to animals than the sentimental Brits will surprise any tourist who has ever watched a Malaga bullfight or eaten (delicious) fois gras in the Dordogne.
They are mostly partisan shots in this autumn’s Battle of Sufficient Progress which should reach some sort of outcome at the EU’s December 14-15 summit. Despite the roller-coaster ride, optimism one day, pessimism the next, I persist in believing that ‘sufficient progress’ will be acknowledged to allow those trade talks finally to start in 2018. The cabinet’s truce around a divorce bill offer of up to 50 billion euros seems to be holding, though Michael Gove is shifty about the details, at least in public.
It is a sign that realistic choices are penetrating the brickwork of ideological convictions as Barnier’s clock ticks on. There is even renewed talk of accepting a role for the European Court of Justice (ECJ) and EU directives during the proposed transition/implementation period after March 29 2019. The cabinet met to update itself on Tuesday. No explosions were heard.
So let us cheer ourselves up by briefly turning the spotlight on two optimists in the battle for Britain’s economic future. Or rather, on one raging optimist and an optimist who’s lost heart.
The fallen optimist is Robert Chote, head of the Treasury’s Office for Budget Responsibility (OBR) of whom conscientious readers of The New European – all of them? – will have heard. The 22-carat gold-plated optimist is Barnabas Reynolds. Who? Precisely. We’ll come back to Barney. It’s enough for now to say he’s a high-powered City lawyer who writes for Brexit websites in his spare time.
But Chote was the budget’s key player, the economist who gave Philip Hammond the figures on which he based last Wednesday’s dispatch box performance. A deeply gloomy economic assessment, the Chancellor’s second budget – but not his last, we must assume – was mitigated by some low political cunning, seven jokes and a £25 billion wodge of extra spending, courtesy of UK Plc’s over-stretched credit card.
Tory MPs, even professional Hammond-bashers, were heartily relieved. This was odd. Had not Team Chote downgraded UK economic growth prospects by a third to around 1.4 % a year? Didn’t it finally abandon its belief that productivity growth would eventually recover the moderately satisfactory 2% annual rise it enjoyed before the bankers crash of 2008?
Yes and yes, it had. A sluggish 1.5% looks as good as productivity may get. In consequence the Budget statement required several sleights of hand – selling off most of the state’s RBS shares and the removal of housing association debt from the Treasury ledger – as well as increased borrowing, to justify ‘Chuckles’ Hammond producing the credit card from down the back of the Treasury sofa.
He used it to borrow for increased tax allowances – very naughty – for worthwhile infrastructure projects, to find £6.3bn for the NHS (but nothing for social care) and to ease the homes shortage a bit. In total £3 billion was found to prepare for the increased costs of life after Brexit when GDP will be 3.5% smaller than expected just two years ago. The rich were largely left alone, the young were given travel concessions.
It is highly unorthodox for a chancellor to loosen public spending immediately after (sort of) winning an election, they’re meant to save the goodies until closer to the next one. But with fiscal discipline fast eroding on his own side and a rampant ‘pays for itself’ borrowing spree on offer from Jeremy Corbyn, Hammond clearly had to inject some optimism into the pre-Christmas season, as well as boost employment, not least his own.
By shrinking its expectations for renewed growth and productivity gains, the OBR’s Chote may usefully have dampened down unrealistic expectations. Politics require him to be agnostic on how much of the problem is being caused by Brexit uncertainties – though we can all draw our own conclusions. With or without a Hard Brexit the prospects are so daunting, that doleful Hammond had to play the optimist, Eeyore masquerading as Winnie the Pooh. The FT thought he did quite well. Even the Daily Mail pretended he had found a pot of Hunny.
Far be it from me to play the contrarian. But what if Team Chote is wrong again about productivity and growth – as it has been in the recent past? Myriad authors and experts confirm what Chote also knows, that it is increasingly hard to measure productivity and GDP in an age of exponential growth of artificial intelligence in so many human activities.
The measurement problem must be exacerbated by high employment levels and lagging pay rates in Britain, the opposite of France whose ‘better’ productivity rate excludes the 10% of workers without work. Under the cosh of economic gloom we might surprise ourselves. The Brexiteers might even be a bit right on that.
But scepticism runs both ways. Which brings us back to Barney Reynolds. A London-based partner at the US law firm of Shearman and Sterling, Reynolds has made a name for himself as a Brexit legal optimist. Faced with the fear of a ‘no deal’ cliff edge which would render financial contracts – particularly derivatives and insurance contracts – illegal between Brexit Britain and customers inside the EU 27, UK negotiators are under pressure to make damaging and needless concessions.
Why? Because the gloomsters ignore the doctrine of acquired rights under international public law, not to mention the protection offered to property by the European Convention on Human Rights (ECHR) and the EU’s own laws. As long as Brexit Britain sticks to existing regulations, attempts to invoke public interest to block such contracts would fail, says Barney. So no cliff edge for the City to worry about. All that’s needed is ‘a little innovation’.
There’s plenty more like this in blogs and articles, think tank speeches, even a book or two that Reynolds has written. Even the ‘passporting’ issue which allows financial products to be sold across frontiers, the loss of which keeps bankers and their kind awake at night, is dismissed as a pin prick. Customers will still want to come to London. The mistake would be for the City to seek an equivalence regime – aping the EU’s Cartesian view of harmonised rules and red tape instead of reverting to a more pragmatic,standards-based approach which works better.
All this is way above my legal pay grade. Who knows, Barney may be right. But the CityUK lobby which advises governments on the needs of financial and professional services thinks otherwise. Without embracing a host of international agreements, even a ‘mutual market access’ deal with Brussels, the global ascendancy of English commercial law – worth £31bn in 2016 and employing 311,000 people, mostly outside London – is at jeopardy.
Perhaps both sides are a bit right. But my City pal tells me that it is Barney who is flavour of the month with Brexit ministers. ‘They prefer to listen to his wild optimism than any nuanced points or concerns.’ It’s that self-reinforcing filter bubble, isn’t it? Priti Patel, Steve Baker, Liam Fox, where do they get their own optimistic notions on the divorce bill or the Irish border issue when most experts tell them it can’t be done? From think tanks and pamphleteers like Barney Reynolds, who tell them what they want to hear. A troubling thought.