Thursday, 13 June 2019

No deal: thinking ahead


Before the EU released their programme of unilateral contingency measures I was among those making the direst of warnings over no deal. Without legal cover, reading the situation as was, there was every logical reason to believe that airlines would not have the necessary legal permissions to fly. Similarly, if we assumed that third country controls would be installed at Calais without a transition then there would be queues at Calais.

It would seem the EU's contingency measures are just enough to keep the worst of the impact off the front pages. I later concluded that with enough preparation, it would very well be that Brexit day turns out to be a non event with the press corps waiting fruitlessly at Dover with nothing much to report. The effects would likely be a slow burn rather than a big bang.

Except that, since then, preparations for no deal have been suspended and we now have a mere four months to get our act together. A leaked cabinet memo suggests that we are nowhere near ready and given the breadth of issues I believe it. The memo suggests "it would take at least four to five months" to improve trader readiness for new border checks.

In terms of readiness much is going to depend on actions private industry has taken for itself. Some manufacturers are well ahead of the game having started the re-authorisation process months ago, but those working in more heavily regulated sectors, coming late to the party, may run into difficulties.

Either way I'm not at all certain what will happen but it is safe to assume that without the array of peripheral instruments native to the single market, our services sector will suffer from the outset and those goods exports facing more stringent border formalities will see their overheads skyrocket.

Cynically, the ultra Brexiters have rebranded the EU's unilateral contingency measures as the basis for a managed Brexit and these measures are in fact "mini deals" which is an abuse of language but that is yet another pointless argument to have since we are dealing with a cult like belief system. What they don't say is that the contingency measures are time limited, contingent on reciprocality, and cover less than a tenth of the issues.

The issues range from waste export through to fishing, through to airline services, energy and data adequacy for which there are either no contingency measures or only rudimentary fixes in place. They are all detailed in the EU's official Notices to Stakeholders. To a large extent, new border checks are the least of our problems. In respect of that we will soon arrive at a new normal and there is every reason to believe the time limits on contingency measures could be extended, which at least provides a degree of certainty that business can work around.

The rest of it, though, will be contingent on how rapidly the civil service can address the technical and regulatory issues, and how rapidly they can adapt to a fundamental change in the way the regulatory systems operate. We may well be transposing EU regulations but that is much the same as copying and pasting an operating system from one PC to another without going through the installation process.

This is where the Tories have made a fatal miscalculation. Boris Johnson may well see off Farage and his Brexit party by leaving without a deal, but there are then two years for it all to start unravelling. Up to press the Brexiteers have been able to write off job losses in the auto industry as a result of global shifts in the sector, but at some point they will run out of excuses. The steady drip of job losses will start to snowball, coupled with a torrent of negative press as regulatory systems start to break down, coupled with procurement scandals similar to Ferrygate. 

How well this plays politically is going to depend on the competence of the civil service and the incumbent government. Now you see the problem. No government could withstand such an onslaught. The last thing places like Derby and Lowestoft need is more bleak economic news, and soon enough Tory recklessness will start to catch up with them. 

Then, of course, we cannot simply assume that the Farage Party will simply vanish. Their collective vanity prevents them from simply walking into the night. There will still be an insurgent entity that will cost the Tories seats in key marginals. As we have seen, it only takes a few hundred votes to turn a blue seat red. 

This then puts the Tories in full blown panic mode, and will revert to their comfort zone of scaremongering about Corbyn, but it's difficult to credibly do that when you've just let off an economic H-bomb. The Tories cannot cash in on their residual reputation for economic competence having bungled Brexit.

Moreover, this is not just about EU relations. Rees-Mogg et al have been promising cheaper food and clothing, but even heavily discounted goods count for little when you don't have a job. And then if the Tories do press ahead with their programme of unilateral tariff disarmament (now more likely under Johnson), there will be further bodyblows to UK manufacturing, and with the UK government giving away preferences for free, we'll have to give away more to secure those "bumper deals" we were promised by Boris Johnson.

By faking polls in the Telegraph, the Tory grassroots have persuaded themselves that Johnson is their saviour; the only man who can see off Corbyn and Farage. This is making huge assumptions all round, not forgetting that Johnson will be in the spotlight every day, affording him further opportunity to show the nation who he really is. He'll need better than bluff and bluster to explain away the problems as the economy crumbles around him. The nation can very rapidly grow weary.

This was always a problem the Tories had to think their way out of. Winning the next election was always a bit of a stretch but if the party wanted to at least survive then the withdrawal agreement was their best bet. Though the transition is assumed to be only two years, it is more than likely to be twice that since we have a long road ahead of us in hammering out the basis for a new treaty with the EU. We'll be lucky to do it in four years. That then would at least defer the worst of the impact and there would at least be a landing zone that leaves some of our exports intact. 

That, for the Tories, would be survivable, and with someone capable of winning over swing voters (ie Rory Stewart) they might stand a chance. Instead, having delivered a dog's dinner of a Brexit, they will face a pasting at the polls. My own view is that if we leave without a deal, it won't take long for the UK to realise precisely why it does need a deal, and will soon be grovelling back to Brussels to restore any kind of trade functionality. 

This, though, would be a major humiliation for Johnson, so there is every possibility he will leave us all hanging just to save face. It will take his removal for us to get back to the table with Brussels. Johnson will have proved by then that he does not win over hearts and minds in Brussels. At some point the grown ups will have to take over to pick up the pieces. In any case, neither the Tories nor Johnson will ever be forgiven.

Johnson will likely win the leadership contest not because he is the right man for the job, but because the Tories are in a full blown panic and have exhausted their talent pool. Johnson is the closest they have to a celebrity. Their calculations are entirely short termist in believing delivering Brexit for its own sake is their lifeboat, They are not factoring in what actually happens when we leave without a deal, not least because they themselves have been guzzling the WTO Kool-aid. That more than anything else is the fatal miscalculation. Johnson lacks the attention span, gravitas and integrity to lead us through such a process. This error of judgement might well be their last. 

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