Cliff Taylor: what we see in post-Brexit Britain is chaos
Britain’s economic success is based on its openness to trade and commerce
We have been lulled into a false sense of security by the UK’s buoyant post-Brexit economic data. It has all the look of a dead cat bounce
As you watch Conservative politicians outline their vision for a post-Brexit Britain this week you see the smiling faces and the practised phrases. “Brexit means Brexit, and we are going to make a success of it,” said British prime minister Theresa May.
Her senior cabinet members talked the talk – Britain would be a “ beacon of free trade”, foreign workers should not be “taking jobs that British people would do”, while Britain’s public finances would be “ back in the black”.
It was all meant to convey a message of a government in control and in touch with the people.
But what we are looking at here is not control – it is chaos. We have been lulled into a false sense of security by the buoyant post-Brexit economic data. It has all the look of a dead cat bounce.
There are no indications that May’s government has the first clue what to do. Britain’s economic success is based on its openness to trade and commerce, and to an inflow of skilled labour to the City in particular. This lifeblood of the liberal economic model is to be cut off, or at least that is this week’s story.
Then there is the emerging position on trade which involves facing a number of ways at the same time. Trade secretary Liam Fox is painting a picture of a world where new trade agreements will be struck worldwide, opening up new markets in, wait for it, a “ post-geography trading world”. This may sound good until you think about it for 10 seconds.
If Britain leaves the Single Market and the Customs Union it will face tariffs – special import and export taxes – on goods sold to the EU and most likely elsewhere. The boss of Nissan, who employs 6,500 in Sunderland, asked why should he invest in Britain when he does not know whether a 10 per cent tariff might apply on cars he sells into Europe?
The same issue will face indigenous British exporters. Fox’s view of striking deals with Canada, Malaysia and the rest may or may not come to pass, but if you are a British company selling in Frankfurt or Paris – or Dublin – you can’t adjust overnight, or even in a few years.
Loud and clear
If Britain will not give on freedom of movement then Europe will not give on Single Market membership. And right now this is where we are.
Will the political pendulum in Britain swing back as the economic cost of this starts to become clear? Will there be a change of heart? Who knows.
Against all this economic incoherence the chancellor of the exchequer, Philip Hammond, has, perhaps sensibly, abandoned the target of eliminating borrowing by the end of the decade even though he still says that Britain is heading “back into the black” at some stage. If growth is slowing, then probably better not to hack spending or hike taxes.
But his sums could be badly thrown out by the madness of policy elsewhere. If Britain is cutting itself off from the globalised economic world via restrictions on immigration and trade then the key bedrock of growth will be removed.
Fears that this is just what is happening is why sterling is crashing. And soon enough this will feed through to the British consumer’s pocket, sharply cutting their spending power.
A sensible policy would be to leave things as they are until a new deal is struck. But the “hard Brexit” indications suggest Britain wants out quickly, and this means tariffs could apply while a new deal is being negotiated.
And no one is quiet sure how this would work either.
For Irish trade with Britain, the rules could change very suddenly in 2019. And who knows what will happen with our common labour market with Britain, with all the political and economic fallout this entails.
Our economy has had a good run, though there are signs now of growth slowing. You would have to feel some sympathy for the Government, faced with all this.
The inwardly looking nature of the pre-budget manoeuvring is a bit depressing. We will have a bland budget designed to give enough to a whole variety of audiences, and thus keep the whole political show on the road for a while.
There will be nods to Brexit. But this raises strategic questions for us which go way beyond one budget, and which will require much more fundamental decisions than we will see next Tuesday.