Chris Johns: Chance of union break-up about same as hard Brexit
Bank of England reveals link between Brexit uncertainty, investment and productivity
With each step along the road to the October 31st no-deal Brexit, political chaos gets steadily worse. Photograph: Stefan Rousseau/PA Wire
We need to remind ourselves that Brexit hasn’t happened yet. With each step along the road to the October 31st no-deal exit, political chaos gets steadily worse, the economy is measurably and significantly smaller than it should be and sterling slides inexorably.
Just as we think it can’t get any worse, it does. The previously unthinkable becomes commonplace; the unimaginable becomes real, albeit in the form of waking nightmares. Speculation about Britain becoming a “failed state” attracts understandable criticism as being somewhat over the top but is overtaken by events within hours: columnists in recent days are drawing parallels with Weimar Germany of the late 1930s. Seriously. And Brexit hasn’t happed yet.
The Bank of England this week published a significant study that got lost in all the understandable noise around the prorogued UK parliament. It was a somewhat dry, slightly technical piece of work. Perhaps someone subconsciously decided this is the best way to do Brexit-related research these days: whatever the conclusions, someone is going to get upset and the authors will be eviscerated on social media and by the mainstream press. Hide behind actual statistics, proper research and you will, at best, be ignored or, at worst, called an expert.
Brexit has become one of those topics that most people try to ignore, at least until they know where their dinner companions stand. Everyone knows that unless the conversation is with like minded people, things can spiral out of control very quickly. And it is best not to bring the subject up. Just in case. It’s all that’s left of British diffidence.
That Bank of England study was noteworthy not just because it seemed a little nervous about expressing a clear Brexit opinion in mixed company. It was the first serious attempt to infer causality, not just correlation. That’s always a tricky thing to pull off.
The bank found a causal link between Brexit, capital investment and productivity. The uncertainty of the past three years has resulted in lower investment spending. Investment is 11 per cent less than it would otherwise have been. The level of productivity in the UK is, as a result, as much as 5 per cent lower than it should be.
The research involved going out and asking thousands of businesspeople what they have been up to since the referendum. Unsurprisingly, the researchers found that management time has, for many firms, been significantly usurped by Brexit planning. As with politics, Brexit sucks the life out of everything else.
Productivity competes with pensions as topics guaranteed to make anyone’s eyes glaze over. Yet both are about as important as each other and, economically speaking, more important to each and every one of us than just about anything else. Those dry statistics conceal tens – soon to be hundreds – of billions of pounds of lost output. Which means lower incomes, less tax revenues for social spending, more poverty, more ill-health. And, ultimately, more political instability.
Historians like Richard Evans note the role that economics – especially financial crisis – played in German politics of the 1930s. Brexit has been driven by many things but the financial crisis of a decade ago has played its part. Evans, writing in Prospect magazine, urges us not to push the parallels too hard but, equally, not to ignore them entirely.
“One disturbing aspect of the present crisis is the extent to which mainstream parties, including US republicans and British conservatives, tolerate leaders with tawdry rhetoric and simplistic ideas, just as Papen, Hindenburg, Schleicher and the rest of the later Weimar establishment tolerated first Hitler and then his dismantling of the German constitution. He could not have done it in the way he did without their acquiescence.
Republicans know Trump is a charlatan, just as Conservatives know Johnson is lazy, chaotic and superficial, but if these men can get them votes, they’ll lend them support.”
Many seem to think that once Brexit, hard or soft, is done, normal service can resume. This, it seems to me, is dangerously complacent. The UK’s unwritten constitution is being used and abused in ways that are going to lead to further trouble. Some of that stress is predictable, much of it is not. We now have to assume and plan for hard Brexit. That much is trivially obvious.
Once the initial effects of Brexit have been felt, what then? Britain has become a hostile place for immigrants. We should quietly congratulate ourselves for so successfully providing a welcome for immigrants and be careful to continue doing so: the ethical and economic reasons for doing so are compelling, no matter what our neighbours seem to think. Angela Merkel has been berated for opening Germany to immigration; history will see it as her greatest legacy.
The negative economic consequences of Brexit, so forcefully identified by the Bank of England, will continue for years. These will continue to have political consequences. The chances of, ultimately, a break-up of the union are now about the same as those for a hard Brexit. I don’t know which will be more difficult for us to deal with.