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Brexit Has the UK Traveling the Wrong Way in Time

Brexit Has the UK Traveling the Wrong Way in Time

Monday, 4 July, 2022 - 04:45

The idea of time travel is an old British preoccupation, from H.G. Wells’s 1895 novel to the seemingly immortal television series “Doctor Who,” which first aired in 1963, the year before I was born. Although I didn’t travel by Tardis or encounter any murderous Daleks, returning to my native land last month felt more than usually like a “Doctor Who” episode.


It was partly the bucolic pleasures of the Chalke Valley History Festival in Wiltshire that felt like time travel. It’s a medieval fair, complete with tents and amusements (only dancing bears are lacking), but with the main business a series of talks by historians of more or less all persuasions.


There is something uniquely British about sitting talking about the historical precedents for a war in Eastern Europe while in the background battle re-enactors march past, dressed up for the Battle of Waterloo, bearded blacksmiths demonstrate the craft of armor manufacture and a 19th-century steam-driven tractor roars into life. The verdant fields provide an idyllic backdrop. From a distance, with your glasses off, the cluster of cream-colored tents recalls Henry V’s camp on the eve of Agincourt.


“Nothing like this is possible in Germany,” said an enthused visitor from that country. Considering how much Second World War hardware and paraphernalia there was on display, that’s probably just as well. A Japanese television producer looked equally amazed to see such an unabashed celebration of a country’s past.


Yet the real time travel began even before I had set off for Salisbury, the nearest town to the festival — with the announcement of three days of strike action by the National Union of Rail, Maritime and Transport Workers, or RMT. Ah, train strikes. Nothing reminds me more vividly of my boyhood in 1970s Scotland than the cancellation of the train I had planned to catch.


I have already argued here and here that the world is being transported back to the 1970s by a combination of inflation, political polarization and war. Nowhere is this analogy more compelling than in the United Kingdom of Great Britain and (for now) Northern Ireland.


It’s not just the return of rail strikes, complete with a rare appearance by Arthur Scargill, the former firebrand leader of the National Union of Mineworkers, now 84. Nor is it just the dogged refusal of Paul McCartney (80) and Mick Jagger (78) to join Scargill in retirement. (Both were headlining the same weekend I was in Chalke Valley: the former at Glastonbury, the latter at Hyde Park.) It’s Britain’s general sense of economic gloom and political disillusionment, which goes far beyond the post-Covid hangover and Ukraine-war headache that nearly every country is enduring.


Consumers all over the world are in the grip of a massive mood swing from post-pandemic euphoria to inflation-induced sticker shock. (So much for the “Roaring Twenties” thesis. As I warned last year, we got the Roaring 2021.) But the British case stands out among developed markets. In May, UK consumer confidence plummeted to its lowest level since data collection began in 1974.


Inflation is a part of the story. Over the past dozen years Britain’s prices have indeed gone up more than America’s or Europe’s, and Citigroup Inc. expects UK inflation to be “stickier over the medium to long term.” In Britain, as in Europe, inflation is being driven by higher energy prices, the result not just of the war in Ukraine but also of unrealistic green policies that have discouraged investment in natural gas and nuclear capacity.


The Bank of England has not handled this well. In late October, its governor, Andrew Bailey, signaled that the Monetary Policy Committee would raise its policy rate at its November meeting, but this did not happen. In March, the bank surprised markets with a dovish-sounding monetary policy statement. These were unforced errors.


Government regulation can do little to mitigate the energy shock. The reset of the UK’s household energy price cap in April created a sharp upward spike in most energy-related consumer price index categories. The base effects will persist throughout summer. The cap is due to reset to a higher level again in October, which will generate another spike in the UK all-items index before year-end, as Bailey acknowledged last week. Double-digit inflation is coming soon.


The energy crisis is also a headache for Chancellor of the Exchequer Rishi Sunak. In May he announced a £15 billion package to assist households with the “cost-of-living crisis,” funded by additional borrowing (£10 billion) and a windfall tax on UK energy companies (£5 billion). The package earmarked £6 billion to help households pay their energy bills. However, the headline measure — a £400-per-household discount on bills, which would kick in from October 2022 — would still leave average energy prices paid by the lowest quintile of households £900-£1000 higher than in 2021, according to a recent parliamentary report.


The Conservative Party’s Thatcherite wing opposes Sunak’s package. It wants to cut taxes rather than increase transfers. In June, Sunak previewed a range of targeted corporate tax cuts to be announced in the autumn budget. However, the Treasury is unlikely to cut personal income taxes this year. Sunak simply cannot afford to allow debt to rise any further: It has nearly tripled relative to GDP since the 2008-9 financial crisis hit. That’s as big a jump as in the first half of World War I.


The government needs to worry not only about inflation but also about the effect of rising interest rates on its debt-service costs — not forgetting the downward pressure on sterling, which will drive inflation even higher. The UK’s current account deficit was 8.3% of GDP in the first quarter of 2022, the biggest since quarterly balance of payments data were first published in 1955. Sterling’s real effective exchange rate has not recovered from the big declines that occurred during the financial crisis and immediately after the Brexit referendum.


And that brings us to what might be called the £350 million question: How much of Britain’s current malaise can be blamed on the 2016 popular vote to leave the European Union? Clearly not all of it. It is far from easy to disentangle the effects of Britain’s leaving the European Single Market from the effects of Covid and war — not to mention the structural problems, like the chronic shortage of affordable housing in the populous southeast of the country, which has caused a striking decline in British homeownership.


“As recently as 1996,” the Center for Policy Studies pointed out last month, “65% of those aged 25-34 owned their own home. Today, that figure is down to 41%. … Britain has the fifth lowest home ownership rate in Europe, lower than 22 out of 27 EU members.” That is a shocking reflection on 12 years of Conservative government. But you can’t blame it on Brexit.


Nor, however, can it seriously be pretended that there have been no costs to Britain’s departure from the EU. The Vote Leave claim that Brexit would save the UK £350 million a week was never plausible. However, as Tom McTague recently pointed out in the Atlantic, the Leavers’ other pledges “have been largely fulfilled: Liberated from the EU’s ‘freedom of movement’ principle, Britain now operates its own border outside the EU and its own immigration system; no longer part of the EU’s trading bloc, it operates its own trade policy and manages its own internal market, governed by its own laws; and, of course, it no longer contributes to the EU budget.”


So what are the benefits of this new autonomy?


Few people choose to get divorced in order to enjoy the delights of solitude. The authors of a new report by the Center for Brexit Policy, a pro-Leave advocacy group, argue that Brexit “was a victory of self-confidence over pessimism.” Unshackled from the EU, the UK is now able to make more of its relationships with the Commonwealth and the US. And these relationships matter more than in the past, the authors argue, because of the new challenges posed by the Russian Federation and China.


I have questions. Was it not possible before Brexit for the UK to foster its historic ties to the Commonwealth and the US? True, in theory Britain can now independently strike trade agreements with them, as well as with other groups of countries, which it could not do as an EU member. But is there compelling evidence that such agreements are within reach — and on a scale to compensate for Britain’s departure from the single market? (In 2021, the EU still accounted for around half of the UK’s total exports of goods.)


If a trade deal with the US proved elusive when Donald Trump was president — he who proclaimed himself “Mr. Brexit” — is it more likely under his Irish-American successor, Joe Biden, who is manifestly no Anglophile?


The report’s authors see the UK playing a bigger role in various American alliances and partnerships: the North Atlantic Treaty Organization, of course, but also AUKUS, the new security partnership with Australia and the US, and the Quad (to which the UK does not belong, though the report’s authors would like it to join). Certainly, few NATO members can match the enthusiasm of Britain’s commitment to the Ukrainian cause. And there may be something to be said for the UK once again playing a more expansive military role “east of Suez.”


But how much real geopolitical clout can the Commonwealth wield? And how important an ally can Britain really be for the US when its defense establishment is so much smaller than it was 50 years ago? According to one estimate, “Ukraine has lost more troops, killed and wounded [since February 24], than there are infantry in the British Army.”


Perhaps it’s not coincidental that, on the 25th anniversary of Hong Kong’s handover to China, Beijing is introducing school textbooks that assert the city was never in fact a British colony but always “part of China’s territory.” You see — the British Empire was a figment of the imagination all along!


American critics of Brexit have often claimed that Leave voters were inspired by nostalgia for the days of empire. I do not remember encountering that on the campaign trail in 2016, but talk of a revived Commonwealth may lend some credibility to such claims. (After all, what is the Commonwealth if not a residue of empire?)


Yet the somewhat different claim that Brexit was a vote against immigration — for a whiter Britain — is not supported by the migration trends. Immigration from the EU is down steeply since 2016, but immigration from the rest of the world is not. Net immigration from non-EU countries totaled 250,000 in the latest year for which data are available. This spring, according to the Spectator, 19% of all UK workers were immigrants, twice the rate of 20 years ago. As the EU share falls, the British workforce is becoming more ethnically diverse, not less.


Yes, but what about the economics? Wasn’t the main rationale for Brexit to free the British economy of the cumbersome burdens of EU regulation? Asked recently to name some burdensome EU-mandated laws that had been removed by Brexit, Jacob Rees-Mogg — the minister for Brexit Opportunities — replied that now road signs in tunnels could be expressed in round numbers of yards, because they no longer had to be aligned with European metric standards. It was a risible example.


Meanwhile, the costs are all too visible to any business trading with the EU. All goods moving from Britain to France now must be checked by EU customs officials, yet hardly any are checked by the UK in return. The resulting red tape has caused a “steep decline” in the number of UK-EU trading relationships, according to a study by the Centre for Economic Performance at the London School of Economics. The number of buyer-seller relationships has fallen by almost a third since the new customs checks came into force. Other Group of Seven countries have seen a much stronger recovery of trade since the pandemic’s economic nadir in 2020.


Business investment, meanwhile, has strikingly stagnated since 2016 and clearly lags behind that of other advanced countries, despite £25 billion of “super-deductions” in corporation tax. The timing of the deviation from trend makes Brexit look suspiciously like the culprit.


Simon Kuper of the Financial Times has argued that Britain’s economic stagnation is about something more profound than Brexit. “Neither main party now offers a vision of the future,” he wrote on Thursday. “No wonder: an ageing society doesn’t particularly need one.”


Yet Kuper has just published a book about Britain’s relatively youthful political class, most of whom were my contemporaries at Oxford in the 1980s or studied there more recently. They seem an unlikely group of people to want to turn the clock back to the 1978-79 Winter of Discontent, which increasingly looks to be what they will re-live in a matter of five or six months, as the temperatures drop, heating bills rise and strikes spread.


Brexit was supposed to be a vision of the future. In the mind of Dom Cummings, the architect of Vote Leave and then of “getting Brexit done” after Boris Johnson replaced Theresa May as prime minister in July 2019, Brexit was not an end itself but the necessary precondition for a revolution designed to transform the British state into something more akin to a Silicon Valley tech company. But Cummings’s revolution was stillborn.


Without him, Johnson has lived up to his nickname (“The Trolley”), careening like an out-of-control shopping cart from one crisis to another. After the surge in popularity that propelled the Tories to victory in December 2019, they now trail the Labour Party by six percentage points in the Politico poll of polls. Two disastrous by-elections last month — one a loss to the Liberal Democrats’ candidate in Tiverton and Honiton in Devon, the other to Labour in Wakefield in the north of England — look like more than the usual difficulties of a party that has been in office too long. The Tiverton result was the third-biggest swing from the Conservatives to the Liberal Democrats in history, in a seat that has been Tory since 1841. If, in a general election, the Tories lose similar seats in the south to the Liberal Democrats and similar seats in the north to Labour, they would struggle to form another government.


As a senior cabinet minister said to me on Thursday night, the result of such a swing would not be a Labour landslide, but a close result. Yet that, he added, was just the kind of thing that happened repeatedly in Britain in the 1970s. Quite so.


The trouble about getting Brexit done, but aborting the revolution in government, is that you risk just turning the clock back to a time today’s politicians only remember from their childhoods, if at all — the time before Britain joined the European Economic Community, under the leadership of Ted Heath in January 1973.


If I had a time machine, 1972 isn’t the destination I would choose for Britain — not with so much inflation, strike action and strife just around the corner.


But then I suppose the Doctor never chooses to land just as London is falling to the Daleks.


Bloomberg


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