Covid-19 and Brexit

I’m sorry, but we have to start talking again about Brexit

The horrors of Covid-19 have pushed Brexit out of the headlines. Of course, this may seem one of the virus’ few blessings. In the all-consuming Covid crisis, an attempt to reopen a discussion of Brexit risks one being characterised as an unreconciled Remainer, snatching at any and every opportunity to reopen an argument that is lost. That Britain has now left the European Union I regard as a tragedy, a historic mistake of huge proportions, but this contribution is not written in a spirit of attempting to reopen the Brexit decision. The national dilemma about Britain’s relationship with its Continental neighbours is centuries old: it has not become irrelevant, or for that matter settled for all time, because of the fact of Brexit, but for the foreseeable future, Brexit is a fact. The task now is making the best of it.

Crucial negotiations on Britain’s future relationship with the European Union are reaching a critical point. It cannot be illegitimate to raise questions on what kind of post Brexit relationship with the EU best accords with the national interest. Also, there has been very little public debate, other than airy rhetoric on the theme of Global Britain, about what our national strategy for Brexit should be, still less what is the best possible Brexit in light of the Covid crisis and its consequences.

Complacent silence on these issues is no longer good enough. The economic and geopolitical consequences of the Covid crisis require an urgent reassessment of the government’s existing approach to Britain’s Brexit future.  

The government’s current policy has Britain heading like an out-of-control train towards the Brussels buffers. For some at senior levels in government, there appears to be a cavalier disregard for the consequences. In their view, Brexit scare stories are all made up by unreconciled Remainers: were they however to contain an element of truth that there will be an economic shock resulting from no deal or a minimal trade deal, let’s get it all over and done with, at the same time as we have to overcome the consequences of Covid.  This “all in one go” strategy is profoundly mistaken. To switch to a more topical medical metaphor, we cannot allow a Brexit induced disabling stroke that looms in January 2021 to poleaxe a patient, barely recuperating from the most severe fever this country has endured in a century.

Later instalments in this series will argue this case.

Domestically we are witnessing a big expansion in the role of the state and a soaring share of public spending in GDP. These developments will prove difficult to reverse. In this context, Nigel Lawson’s concept of Brexit as “completing the Thatcher revolution”, by giving a massive new impetus towards liberalisation of the economy, deregulation and tax cuts frankly looks quaint. If it ever had a time, it has well and truly passed.

Internationally, the crisis has profound consequences for the shifting balance of power between China and the United States and the marginalisation of Europe in world affairs (of which Brexit is sadly symptomatic). A new pattern of de-globalisation, accompanied by the shift already under way from the international rules-based order of free and fair trade under the GATT and then the WTO, is likely to emerge. Trading relationships will be based on power, not commonly accepted rules. In Britain we will find ourselves living in a tougher, more brutal world, far removed from some ‘free trade’ nirvana.

Brexiteers’ fond assumptions about the potential for a more economically successful ‘Global Britain’ outside the European Union, pursuing an independent trade policy that results in fair and advantageous trade deals with other nations across the globe, look questionable at best. Many Brexit supporters are now arguing for a tougher policy toward China: yet notions that Brexit can herald a revival of an ‘Anglosphere’ that can ‘lead the world’, belong to the realms of historical romanticism. The Commonwealth for all its virtues is not a global economic or trading entity. India is one of the most protectionist economies in the world. Canada has its own painfully negotiated deal with the EU. Australia and New Zealand are far distant, with relatively small economies and increasingly part of a new Asia-Pacific economic order. As for the United States, Covid has only reinforced Donald Trump’s protectionist and ‘America First’ instincts.

The Covid crisis is exposing the increased risks of nationalism and protectionism. The rules based international order which in the wake of Soviet collapse we profoundly hoped would guarantee lasting prosperity and peace is collapsing before our eyes. Nationalism is resurgent. America no longer aspires to be ‘the leader of the free world’. The President of the United States has turned his back on multilateralism, suspending United States participation in the World Health Organisation and deliberately attempted to weaken the World Trade Organisation in which Brexiteers vest so much faith.

As for the European Union, of course it is weak and divided because of lack of cohesion among its member states. Its central weakness is that the EU is not the centralised United States of Europe of Brexiteer mythology. But the potential for united European action is not hopeless or a lost cause. In the financial crisis of 2008-9, it was still possible to construct a credible Western-led collective response. The G20 meeting that Gordon Brown chaired in London in April 2009 produced globally significant results: for a brief moment Britain took centre stage in leading the world’s multilateral effort, in particular in agreeing a coordinated fiscal stimulus in cooperation with the Obama presidency in its first heady months, but also the then leaders and finance ministers of France, Germany, Italy and Spain. Such quality of leadership is needed in the Covid crisis today. But a Britain outside the EU will be less able to offer that leadership, particularly if we continue to reject any formal institutional structures for political cooperation with our Continental friends and allies, as, extraordinarily, is the government’s present Brexit policy.

Subsequent instalments will argue that the government’s present strategy for Brexit as exemplified in its negotiating approach in Brussels is heading in completely the wrong direction in four major ways:

• on the denial of more time, through a refusal to contemplate a two-year extension of the Brexit process, which would see Britain through the worst of the Covid crisis, reflect on its very real consequences and complete a highly complex negotiation on our future relationships with the rest of Europe
• on its apparent reluctance to implement the Northern Ireland Protocol it agreed only last October
• on its ‘red lines’ for a trade deal which will end up sharply restricting British Businesses’ access to what has been for three decades its ‘home market’ – the EU Single Market
• on its refusal to plan for a ‘deep and special partnership’ with the EU across a whole range of fields of potential mutual cooperation, including vital questions of security and foreign policy.

The consequences of the ‘hard’ Brexit the government has chosen to seek will be a heavy blow to UK prospects for rapid economic recovery from the Covid recession. Supporters of the Government’s present Brexit strategy must investigate their consciences and ask themselves whether this is the right time to add the medium to long term Brexit shock to the sudden and totally unexpected Covid shock. On what basis can this be the right and justifiable course for Britain?

• Covid is administering a huge economic shock to Britain and the whole world. Uniquely in the case of the UK, Brexit will compound that shock as, on present policy, Dec 31^st, 2020 will mark the date of Britain’s sudden exit from the EU single market and customs union. The shock will be both short term and long term.
• In the short term, exporters and importers will be forced to comply with new and burdensome border and customs controls for which they will have had little time to prepare, given the government’s lack of clarity as to what the new border arrangements will be, and business’ present overwhelming preoccupations with survival through the Covid crisis.
• In the medium to long term, the damage to GDP of single market and customs exit is estimated by all economic experts to be loss of 5-7% of GDP from what it would otherwise have been. This damage would be gradual not immediate but there can hardly be a worse time to contemplate such a prospect than the midst of a possible global Depression.
• The best way to avert this looming disaster is for the transition period to extended by the maximum two years. Under the Withdrawal Treaty this has to be decided by the end of June this year. The UK will be expected to make a financial contribution to the EU in the event of such an extension. Its scale will depend on the number of spending programmes in which we wish to continue to participate. But the total amount will be small in comparison to the economic costs of a sudden, disorderly Brexit in the middle of an economic crisis.

Britain needs urgently to recalibrate its approach in accordance with a fresh expert assessment of the long-term impact of the Covid crisis on Britain’s plans for Brexit. What we need is a modern version of the Grand Strategy for Britain’s place in the world that Harold Macmillan devised after the 1959 General Election drawing on expert official advice.   This is needed because a better Brexit can still be achieved, but it will not happen without the government pausing to think.

On Covid, the government has proudly proclaimed that its policy is being driven by the expert evidence. Why then should it be so reluctant to reconsider the expert economic evidence on Brexit where the advice is clear-cut.

Finally, Britain is no longer a member of the EU, but the Prime Minister has often insisted that this does not mean Britain has become anti-European. Surely in the midst of the present crisis, the main objective of the British government’s dealings with the European Union should not be a Brexit negotiation it could easily postpone, but a step change in practical European cooperation needed this instant to meet the challenges of the Covid crisis. There should be four dimensions to this enhanced cooperation.

• The first is on Covid itself: the supply of vital hospital equipment; testing; research in developing vaccines and treatments that mitigate the devastating impacts the virus can have on the human body; and vitally necessary coordination of national policies on easing the lockdown. That such practical cooperation with our nearest neighbours has been impeded by Brexit beggars belief.
• The second dimension is macro-economic cooperation: a coordinated fiscal stimulus to prevent recession turning into depression, the safeguarding of the financial system, and debt relief to poor countries without which the virus will spread uncontrollably. It is suboptimal for nation states, however ‘sovereign’, to act alone on these questions. Collective action with our European friends should be paramount.
• The third dimension is industrial and sectoral. One of the most successful initiatives in the 2008 crisis was mutual cooperation on car scrapping schemes to maintain production in the motor industry – a repeat today could be linked to Green New Deal objectives. Another key area is airlines and aerospace: for example, Airbus is the European ‘grand projet par excellence’ and it is a vital interest of UK- based manufacturing that cuts in orders do not lead to Airbus’ collapse.
• The fourth dimension is education and research. European research programmes are drivers of the international cooperation that is needed to discover new vaccines and test new therapies. The UK should be demanding their expansion with full British participation. National efforts cannot by definition be as effective as international ones that expand the scope of research collaboration. British universities have become highly dependent for their financial sustainability on international and particularly Chinese students. Europe has a common interest in taking action to convince governments and parents in other parts of the world that Europe is a safe haven for study. At the same time Britain should continue to offer EU students access to student loans in order to maintain the attractiveness of study in the UK at a time when Covid is causing great uncertainty about the future of applications from Asia. Valuable student exchange programmes such as Erasmus should not be put in question as a result of Brexit.

By contrast the government’s present Brexit strategy is setting us on course for a major bust up with our European allies and friends: the reverse of the visionary statesmanship and the close engagement with our friends and allies that the present desperate situation demands.

In the next instalment in this series, Roger Liddle considers the post Covid world, and the UK’s place within it. It discusses the economic changes likely to be wrought by Covid in both Britain and the world economy and how these have very real and negative implications for the Brexit strategies that the most committed Brexiteers have traditionally advocated.