Some common sense from the FT
What was all the fuss about? The sun is still shining, the economy is growing and Scotland has not seceded. It is time for pro-European doomsters to admit it: Brexit was good for Britain. Now the world awaits its return as a truly “sovereign” nation. All that remains is for Theresa May’s government to step up the pace of negotiations in order to sever ties with Brussels sooner rather than later.
So says the prevailing mood nearly three months after the popular vote to take Britain out of the EU. One could quibble with the detail. The latest rises in some economic indicators reflect a reversal of earlier post-Brexit falls rather than a sign of a coming boom. There is plenty of anecdotal evidence that business is holding back on investment. The public finances are set to worsen. As for the fall of sterling, well, yes, it has made exports cheaper, but at the expense of lowering living standards. The nation once jeered when a former Labour prime minister, Harold Wilson, claimed devaluation did not hit the pound in voters’ pockets.
No matter. Hubristic denial is the order of the day. In any event, an argument about the immediate impact of the vote misses the point. The Brexiters now trumpeting a bright independent future see departure from the EU as an event. In truth it will be a long, tortuous process — a slow burn, if you like, with costs, economic and political, that will reach well into coming decades. To make such an obvious point is not to talk Britain down: the fact that things seem fine now says next to nothing about the consequences along the road.
Mrs May was reminded of this as she cut a rather lonely figure in meetings with other leaders at the G20 gathering in Hangzhou. No, the US will not put Britain at the head of the queue for future trade deals. And yes, Japanese companies will step back from investing in the UK if the government takes it out of the EU single market. Allies and trading partners are at one in concluding Britain will be diminished by Brexit. A few kind words from the Australian government are scant consolation.
To to be fair to Mrs May, word in Whitehall has it that she understands the scale and complexity of the challenge. When she tells the House of Commons that she has no intention of prematurely showing her negotiating hand, what she really means is that she does not yet have such a hand. The media fanfare surrounding a lengthy cabinet discussion about Brexit at Chequers, the prime minister’s country house, belied the absence of any substantive convergence towards strategic objectives. It was, by the accounts of those present, a less than enlightening conversation.
Among the decisions deferred were when Britain should begin formal negotiations by triggering Article 50 of the EU treaties; where it should seek to strike a balance between retaining access to the single market and regaining national authority over the movement of EU citizens; and whether it should cut cross-channel trade ties decisively by leaving the EU customs union.
My guess on the first of these is that the logic of the electoral calendar will persuade Mrs May to opt for the first quarter of the next year. The next election is due in mid-2020. Working back, the government will want to leave an interval before polling day in case of economic turbulence. This suggests a two-year negotiation ending before the summer of 2019 — the date, as it happens, of the next elections to the European Parliament.
Decisions two and three — the single market and the customs union — are much tougher. Here, the Brexiters in the cabinet continue to take an obstinately old-fashioned view of trade: the EU sells more to Britain than vice versa so Mrs May is certain to get a good deal.
We no longer, though, live in a world where products made in one country are simply shipped to another, leaving tariffs as the only thing that matters. Business is now defined by intricate, cross-border supply chains in which the finished product more often has multiple origins. What matters — as the Japanese government explained in its excellent assessment of the impact of Brexit — is that these chains are frictionless both in terms of standards and regulation as well as tariffs.
If Britain stays in the single market it has to accept free movement of labour — a political red line for the government — and if it remains part of the customs union it loses the opportunity to negotiate bilateral trade deals with third countries, putting Liam Fox, the newly appointed trade minister, out of a job. Yet stepping outside of these arrangements also takes Britain out of all those multinational supply chains with the concomitant cost in terms of trade, investment and employment.
Philip Hammond, the chancellor, has been quicker than colleagues to grasp the risks and trade-offs, particularly, but not solely, for the financial services industry. Mr Hammond is one of those unflashy and underrated politicians who rises to the top almost by stealth. Now he has the role he has always coveted.
He is struggling, though, to get a hearing for something a little more sophisticated than “let’s just leave”. Too many colleagues have been swept up in the so-called post-Brexit bounce. They are deaf to warnings from the Treasury — or for that matter from Washington or Tokyo. This is not a process promising anything resembling a happy ending.