Another fine mess

From the outside looking in, the House of Commons has become a comedy. It is hard to pick a genre, farce, slapstick, Month Python – or is it the theatre of the absurd?

The government, even given a confidence and supply agreement with the DUP, is technically in a minority. The opposition don’t want the government but don’t want an election to replace them. Neither do they seem capable of forming a government of their own. However, they are united in opposing a so called “no deal”, yet are unable to formulate a positive message for a way ahead.

The issue is not in fact a final contract but over the Withdrawal Agreement, covering the terms of leaving the EU. This includes setting up discussions for a longer term arrangement covered by an accompanying Political Declaration. Those discussions could take many years.

It seems as though Boris Johnson will not be allowed his policy of keeping the option of honouring his promise to leave the EU on 31st October 2019. Neither can he seek a mandate in a general election.

So how did we get into this mess?

Despite a long history, the start of the crunch point was the referendum campaign of 2016. A simple binary question was presented, to remain in the EU or to leave the EU. Despite the obvious goals, there were a host of players in between them; left wingers, right wingers, strikers and defenders.

Among all of the nuances, the key question was whether decisions should be made on behalf of the British people in Brussels or in Westminster. Obfuscation came from different considerations, whether economic, immigration, trade or indeed any other policy.

A vote to remain was implicitly to accept the principle of ever closer union, exhibited in successive treaties, the future direction of travel having been outlined in the Five Presidents’ report. It is a legitimate position to confirm economic policy constraints imposed by the Maastricht Treaty and to step closer to tax harmonisation, perhaps more so now when the UK government has not been able to deliver on many promises.

A vote to leave was a vote to restore the full sovereignty of parliament, decisions to be made in the UK A former remain campaigner, Theresa May, was later to summarise on multiple occasions, the vote to Leave was to “return to Britain control of its borders, laws and money”.

It is now a matter of history that against the odds, the Leave side won the referendum. The Prime minister who had given the electorate the choice had identified that: “What the British public will be voting for is to leave the EU and leave the single market.”

Although the leaders of the campaigns were both Conservatives, the appointment of the official camps was decided by the electoral Commission. Politicians of all parties made their positions known, there not necessarily being a consistent approach on party lines. Labour, too, had leavers and remainers.

Perhaps it was the first big mistake that David Cameron’s successor chose to exclude the possibility of forming a cross party committee from what had been a cross party campaign. We may never know what was the process that led to Andrea Leadsom not standing in a leadership election run off.

Most would now accept that May also made the mistake of calling an election, making Brexit a party political issue. A third error can be argued to have isolated the DexEU department, the infamous Chequers Agreement driving us towards what has become known as the Withdrawal Agreement, sidelining the David Davies preference for a free trade agreement, also endorsed by Donald Tusk.

A catalogue of other mistakes has littered the route. Nevertheless, other mantras evolved, not least during the 2017 general election; “nothing is agreed until everything is agreed” and “no deal is better than a bad deal”. Critics from both camps of the referendum campaign would probably agree that the deal ultimately presented was a very bad deal for the UK, great for the EU.

So where are we now?

Quite naturally, organised opposition parties are doing their job of opposing a Conservative government with minimal accountability. It is open to conjecture how effective that opposition would be to a cross party consensus group.

The options have fallen into three broad groups; revoke Article 50, be prepared to leave without a deal or to take “no deal” off the table. It would seem to be generally accepted that the “people’s vote” grouping effectively support the first option, in the House of Commons if not the general population.

The election of Boris Johnson as party leader has brought things to a head. It is unsurprising that in making Brexit a party issue, factions within the governing party have ultimately channelled the course of events. The ERG group was opposed to the bad deal. Those who voted to take “no deal” off the table have had the Conservative Party whip withdrawn, or at least suspended.

Media analysis helps to shape impression an language around the issues. Of course the media are on the whole impartial in the sense that all parties will receive proportional coverage. What lies behind those positions?

Revoke Article 50 is a legitimate position. Many in that camp have genuine convictions. Indeed, for a binary question, it is probable that people made a grey decision on a black and white question. Equally, the Leave camp have genuine convictions.

It is natural that those who agree with the decision to leave, whether 100% or 55%, have left it to the government to get on with finding a solution. Of the 48% who were on the losing side, it is also natural that they should express a democratic right to influence outcomes. Inevitably, some will take to public protest.

Perhaps that is why the “no deal” camp have been portrayed as “extremist right wing” with all the associated language. “Crashing out” is far more evaluative than “leaving without a deal if a satisfactory deal can not be agreed”. It is true to say that “leaving without a deal was not on the ballot paper”. It is also true to say that “leaving with a deal was not on the ballot paper”. However, “no deal is better than a bad deal” was an electoral pledge.

By the same token, “taking no deal off the table” can be labelled as a ‘moderate’ position. Curiously, the nominal architect who introduced the anti no deal bill in Parliament is Hilary Benn, a Remainer. His late father was a key critic of a perceived democratic deficit in EU institutions and a focus for many in making their decision to vote Leave.

An amendment to reconsider the Withdrawal Agreement was proposed by another political son, Stephen Kinnock, supported largely by Labour MPs in Northern Leave constituencies. Whether by accident or design, the amendment is reported to have attracted little support in the voting lobby yet has gone through in the absence of government tellers.

So where are we now?

The “people’s vote” camp are represented by a new Lib Dem leader, calling for a second referendum yet refusing to accept a “leave” vote should it happen. Conversely, the leader of Change UK when challenged has said she would accept the outcome.

Remain arguments remain the same. However, cohorts of MPs from different parties have sought some sort of compromise, professing to respect the referendum result.

To leave without a deal is an option that is currently in the process of being removed. Nevertheless, the camp who would keep the option open insist that this is the only way to gain leverage in reopening the Withdrawal Agreement. The benefit is more immediate policy independence with the prospect of falling back on GATT Article XXIV, subject to the agreement of the EU.

Ostensibly in the middle are those removing “no deal” although parliamentary support for this route include the Remain and “people’s vote”sides. The balance that held power over the outcome of the “no deal” vote came down to 21 Conservatives no longer bound by the whip. All were against Brexit during the referendum, a majority Oxbridge graduates, four of them at Oxford with Theresa May.

There is another perspective to consider, that of the EU negotiators and leaders, who have to unanimously agree to a potential extension. If “no deal” has been taken off the table, there would appear to be little or no incentive to reopen negotiations.

The Withdrawal Agreement provides leverage. Barnier is on record as saying that the backstop allows the EU to “put permanent pressure on the negotiations about trade”. The British Prime Minister has little or no room to decline stringent conditions that the EU might impose. The only question for the EU is what terms to impose.

So what is the solution?

Boris may have been put in a position where Parliament does not allow him to honour his word. For the time being, he is also denied the opportunity of a general election. However, this is the route to a way out. If the Leader of Her Majesty’s Most Loyal opposition is to be believed, as soon as the latest bill is in force, then a poll date can be decided, provided of course that a majority of other MPs agree with their leaders on a vote of no confidence along with the old guard cum new rebel.

Under those circumstances, were Boris to win, he can claim a mandate to leave on 31st October, deal or no deal. His first act, following a Queen’s Speech would surely be to repeal the constraints prior to the EU Council meeting on 17th-18th October.

Opinion polls would tend to suggest that in order to deny a Conservative majority, opposition parties would have to come to an electoral pact, the mechanics of which would surely be beyond acceptability for all of the parties involved although a new genre of comedy could be created.

If the polls are wrong, it could take, days, even weeks to form a coalition. Boris could still be Prime Minister attending the European Council meeting despite being in a minority.

In either event, it could be an option for Boris to defy the instruction from the House of Commons

in contempt of Parliament. The last fine for this offence was imposed in 1666, imprisonment in the clock tower being in 1880 although health and safety considerations during renovations might make that penalty unlawful.

We are certainly due interesting, if not historic times. The twists and turns will be simply unprecedented.

Prorogation some perspectives

Prorogation of parliament

Boris has made the decision to seek prorogation of Parliament. Voices from all political parties, including elements of his own, have screamed outrage. Is prorogation a political necessity or are the cynics right?

History might provide some perspective.

Prorogation is the process of ending one session of Parliament in order to open another. In recent times, the tendency has been to run a session for a single year. There have been exceptions. If less than a year, typically this is due to a general election being called.

Convention has effectively been changed under the Fixed Term Parliament Act. This provides for polling days to occur on the first Thursday in May of the fifth year after the previous general election, starting with 7 May 2015. Elections can of course take place subject to other conditions, specifically following a vote of no confidence or other agreement by two thirds of the House of Commons to hold an election, such as happened in 2017.

Accordingly, it seems reasonable to prorogue Parliament soon after May in order to start the next annual process. The State Opening of Parliament then follows, last time being June 2017. A key feature is the speech by the monarch, outlining the legislative programme for the session. This forms the basis for debate over the next few days.

Looking back though history, the longest parliamentary sitting was during the English Civil War. That parliament ran from 3rd November 1640 to 20th April 1653. Unsurprisingly, this became known as The Long (and Rump) Parliament, covering 3,322 days, including the trial and execution of King Charles I, finally brought to a close by Oliver Cromwell’s forcible removal of MPs.

More recently, it was in 1927 when Stanley Baldwin announced through the King’s Speech that sessions would start in Autumn, thence typically in November. A brief recall before party conference season was implemented later. The current Spring date became effective as a result of the Fixed Term Parliament Act of 2011.

Returning to the current Parliament, a landmark was reached on 7th May 2019 making this session the longest sitting since the English Civil War and the first since to sit for over 300 days. The previous longest was from 2010-12 at 295 days, notably under the Conservative/Liberal Democrat coalition.

To add perspective, the Convention Parliament of 1688-89 sat for 250 days in the wake of the Glorious Revolution. The longest session in the 19th century was 226 days.

The current parliament has therefore broken records. It has also broken the recent convention of prorogation, State Opening and the accompanying Queen’s Speech to be an annual Spring time event. This will also be the first parliament since records began on timing of sessions, this one due to run for over 3,000 hours of sittings.

Context should be added. It was made clear at the start of the current session that it was intended to run for two years. Leader of the House, Andrea Leadsom said “The UK will spend the next two years preparing for our departure from the European Union in a way that best places us to realise the opportunities ahead and build a fairer society”.

Given that May was elected Prime Minister of a minority government, supported by a confidence and supply agreement with the DUP, many manifesto commitments were omitted from the legislative programme. Indeed, at the time, Jeremy Corbyn, Leader of Her Majesty’s Most Loyal Opposition said “This would be a thin legislative programme even if it was for one year but for two years it is woefully inadequate.”

Prorogation could therefore have been expected to occur in May 2019. Since Brexit was to be a key component of legislation, as Theresa May told us over 100 times, due to occur on 29th March 2019, it might have been understandable for her to delay, especially adding in that the agreement with the DUP was agreed for that session only.

Amid speculation of a delay in April this year, the DUP Westminster leader, Nigel Dodds,said “There is some talk around of extending this session beyond two years. Can I say on that point that I think many in this house, including on this bench, would regard that as something that is not acceptable.”

From the Labour benches, former Shadow Leader of the Commons, Chris Bryant, suggested that delay amounted to “constitutional outrage”. “There’s no point in a parliamentary session if we’ve not got anything to do”.

Combined with the appointment of a new Prime Minister there would appear to be reasonable grounds to suggest that prorogation, followed by a State Opening and Queen’s Speech are overdue. Manifesto commitments have yet to be fulfilled. A legislative programme would be expected to be announced.

Perhaps the real question should be over the new Prime Minister’s motives for seeking prorogation. He has pledged that Brexit will happen on 31st October 2019. “do or die”, “deal or no deal”.

Ostensibly, it is easy to argue that Boris has made the decision in the face of mounting opposition to the “no deal”, not least from within his own party’s ranks. Prorogation has the effect of removing a handful of days from the parliamentary calendar. Debate of the Queen’s Speech removes a few more debating opportunities.

Given that there were shouts, or perhaps whispers would be more appropriate, of “constitutional outrage” at the delay of the Queen’s Speech (therefore implicitly prorogation). Boris would have been damned if he did, damned if he didn’t.

One of the outcomes is that he has gained an element of control. Anti-Brexit strategies could have included the prospect of a vote of no confidence. That might still happen over an abbreviated period, a short sitting in September followed by a longer period in November.

Debate of the Queen’s Speech culminates in an effective vote of confidence. If that fails to pass, there is no basis for legislative programme, therefore political pressure would be on Boris to resign. If he were not to, then a vote of no confidence would be expected to follow, bringing us back to the Fixed Term Parliament Act.

 If that vote were to go against Boris, it then falls on the opposition leader to seek to form an alternative government, not a foregone conclusion since Corbyn would need the support of all other minority parties. Alternatively a significant proportion of Conservative rebels would have to switch allegiance or abstain quite openly. A general election would follow.

As well as inviting more pressure onto himself and his party, Boris has simultaneously piled pressure onto those opposing his pledge to leave on 31st October. In the meantime, it should not be forgotten that Brexit does not just involve the UK but also another party, the EU or in fact 27 other parties, the remaining states within the EU. As a potentially outgoing Prime Minister, contentiously he could still hold the power of veto.

It is worth revisiting the Brexit options.

The Boris option is of course to leave, with or without a deal on 31st October 2019. Domestic opponents of prorogation fall into two broad camps, those who seek to remain and those who seek to leave with a deal. The former would revoke Article 50. the latter group have two options, to resurrect the current Withdrawal Agreement which can be brought back to Parliament after the Queen’s Speech, if passed. Alternatively, a further extension can be sought, if the EU27 unanimously agree.

The legal default position is to leave on 31st October without a deal unless the thrice rejected Withdrawal Agreement can be passed, or an alternative deal agreed. Boris has already met with some and spoken with more key leaders within the EU. It may be that he can reopen the Withdrawal Agreement despite previous persistent protestations from EU leaders. For the EU, a key date is their Council meeting on 17th-18th October.

Prorogation restricts Parliament’s ability to come to a conclusion before the European Council meeting to a three day window, from 3rd to 5th September unless provision is made for a recall during party conference season.

In any event, those who ostensibly seek to prevent “no deal” will be under pressure to come clean on whether they really seek to remain. If a vote of confidence were to be passed in the September sitting, it would appear almost impossible to bring in relevant legislation to overturn during the period of prorogation or even logistically to agree on an alternative government. There would be no further scheduled sitting before a general election, the date to be chosen by Boris.

In the meantime, Boris has given himself some room to gain concessions from the EU. They in turn will be under pressure to consider the impact on employment in already precarious economies.

Returning to the Queen’s Speech, this will be presented to Parliament on 14th October. Boris may or may not include references to withdrawal from the EU. The legal default position still stands. There is an argument to say that this means the legislative programme should focus on other issues. Opponents may seek to propose amendments. The EU response will not be announced until the end of that week.

The range of options leads to uncertainty and pressure. Boris has invited it upon himself in a classical display of brinksmanship. He has also dispersed it to his domestic opponents and counterparts within the EU.

If he succeeds, either in achieving a new agreement, a way ahead using GATT Article XXIV or leaving without a deal, he will make his mark in history. Some will consider him a political stalwart and genius. If he fails, in any regard, his legacy will be seen much less kindly.

Why does the UK import meat?

Why does the UK import and export meat?

The world around us sparks up curiosities. Twitter is a mine for curiosity, throwing up some great questions which sometimes we take for granted. Recently, this question appeared: “Can someone explain to me why we import meat please?” Going beyond the brief, let’s look at why we export too.

In fact, the UK has rarely in recent history been self sufficient in meat. The most recent examples have been during the Napoleonic wars and during World War 2, the latter aided by rationing.

Different meats can be used to illustrate different issues and a good starting point is lamb, in which we have been technically self sufficient in four years since the 1980s.

The UK exports in the region of 100,000 tonnes of sheep meat annually, which is around one third of output. Curiously, imports have been heading to the same sort of level. Looking at the figures, imports peak around spring time for the UK, with the UK typically in deficit for the first half of the year. Thereafter, being in surplus until the end of the year. Overall, in 2017, values of imports and exports were roughly equal.

We seem to have an obvious answer, trade being seasonal which can be confirmed by looking at where imports come from. Typically, around 70% of imported lamb is from New Zealand, 15% from Australia. The gestation period of sheep is 152 days, lambing season being in Spring, the season being the opposite in each hemisphere.

So does that mean we export to New Zealand and Australia for the later half of the year? Apparently not. 95% of UK exports go to the EU, around half to France, Germany being the next biggest customer. The ANZAC producers have their own alternative markets, UK only being the 5th largest by value after USA, Germany, Belgium, Japan and France, just ahead of China. China are the largest by volume if not value.

It may be worth noting that the ANZAC countries export to China on more favourable terms than the UK, or perhaps we should say EU.

There are clearly other factors at work. It might be helpful to see what we import and export.

Drilling down into the figures, UK exports tend to be in legs and boneless cuts. Exports tend to be carcasses. We are now introduced to characteristics of different markets. Most of our trade seems to be in lamb rather than mature sheep.

It also adds interest to see where are the growth markets for exports. Significantly, China is increasingly a destination where a large part of growth is in offal. It is not clear whether this is due to the lower price or tastes in the Chinese market which is clearly not as affluent as the other markets mentioned.

As for tastes, it is clear that the UK market is towards the premium priced end of cuts. To economists, this might suggest that demand is key to what is sold. It may be that in other markets, supply is dominant, seeking to find places that otherwise unused meat might be sold, in order to maximise revenue from the stock.

So far, the answer seems simple, that consumption, therefore imports and exports meet the classical economic analysis that demand is determined by price, price of other goods, incomes and tastes, with the addition of seasonal factors around supply. We can return to other confounding issues later.

Can we learn any more by moving on to beef, a domestic market roughly three times the size of lamb?

Mince accounts for 38 per cent of our beef expenditure, with 25 per cent on steaks, 21 per cent on roasts and 13 per cent on stews. However consumers are buying more chilled ready meals and fresh pre-packed pies.

The balance of trade however is more disparate than for lamb. The UK imports around 275,000 tonnes of beef, exporting a little over 100,000 tonnes. Most imports and exports are to and from the EU, with Ireland then the Netherlands 1st and 2nd for both imports and exports, by far the larger deficit with Ireland.

Seasonal factors would appear to be less significant. Conditions for breeding and rearing cattle in Northern Europe would appear to be more consistent, particularly within the British Isles.

There may be more confounding factors, the UK having suffered from the CJD scare in around 2000, later foot and mouth in 2007. On the flip side of the coin, EU producers were hit with the beef and horse meat scandal in 2013.

Of course, until Brexit is delivered at least, the market is otherwise apparently well integrated within the EU yet perhaps those scandals may present something of a barrier to growth in trade, encouraging parochialism. Where trade takes place, the market may be more price sensitive, particularly in the 60% of supermarkets which actually stock Irish beef.

One aspect of price sensitivity might be in exchange rates. A stronger Pound against the Euro makes Irish beef cheaper, a weaker Pound increases the price. Otherwise, the EU provides a relatively well protected market from outside, beef imports from outside the EU appealing to relatively niche tastes.

Where we might learn even more is the market for pig products, having a unique place in economic thought, the hog market being the foundation of Mordechai Ezekiel’s Cobweb Theorem as well as being an easily made case for EU intervention in agricultural markets under Article 33 of the Treaty of Rome.

That all sounds fairly complicated so let’s make it simple. Ezekiel noted price volatility in commodity markets, especially in the market for hogs or pigs. The gestation period of a pig is 3 months, 3 weeks and 3 days meaning that supply can be relatively flexible.

If pig breeders see a high price, they can breed more, more quickly than other livestock. That leads to an over-supply, meaning the price plummets so pig breeders stop breeding. An under-supply leads to a high price, attracting pig breeders back into the market and the cycle continues.

Back in the real world, pig meat in Britain weighs in consuming around 1.7 million tonnes annually, roughly 60% being imported. In the meantime, the UK exports around a quarter of all pig meat produced.

Once again, we can look at cuts, domestic demand being predominantly in loin and leg meat. Imports are predominantly from EU countries, the market being protected by tariff barriers which make imports from other parts of the world more expensive.

The leading supplier is Denmark whose UK market share for imported pig meat has declined from over 40% to around 25% now, as other EU countries provide more, notably Germany since reunification and Poland. Elsewhere, the Netherlands provide the largest share of bacon imports, at over a third.

Exports paint a diverse picture. Around 40% is sow meat which is less popular. A portion of this is reimported as processed meat in a variety of sausage forms. In turn, of UK exports, around two thirds of processed pork is exported to Ireland.

Around one fifth of UK pig meat exports are to China, predominantly in cuts which tend not to be seen on shelves in the UK. These include heads, trotters, belly, liver and other offal. In fact, between them, China and Hong Kong account for approximately to thirds of pig offal exports, other South East Asian countries such as the Philippines being growth markets.

It remains to be seen how much the market will be affected by shortages caused by African swine fever, particularly in China..

In competing in global markets, at least for prime cuts, the UK is at a disadvantage through what at first sight may seem inefficiencies. At 40% a relatively high proportion of UK sows are outdoor reared. As a part of EU regulation, growth hormone is not used, as it is in the USA and some other countries.

Returning to the original question, it would be remiss not introduce an economist’s take on why such trade happens. David Ricardo developed the theory of comparative advantage, which in short is that nations will be better off by concentrating production on what they are comparatively better at. Put simply, the UK adds value in service markets better than other countries and even if we were more efficient, then other, perhaps poorer countries, may be better off diverting resource to meat output.

Future trends by definition, remain to be seen. When leaving the EU, tariff schedules may mean that exports to the EU become more expensive, similarly EU produced or processed meat may prove more costly to UK consumers. The latter may provide more profit motive to increase UK meat production, not least in processing capacity. Free trade deals may provide fresh competition but also other opportunities to export.

Finally, to summarise, why do we import (and export) meat?

As an affluent society, UK taste is for prime and premium meat products. Other countries can produce meat relatively more cheaply, albeit to different standards. In some cases, seasonal production plays a part The UK focus can be on other industries. In the meantime, we can still export low value meat to the rest of the world, even premium products in some markets where animal welfare, ethics and quality attract a value.

“No deal” or Withdrawal Agreement?

The new Prime Minister appears to be standing his ground that the backstop must go. The EU’s key players still insist that the Withdrawal Agreement (WA) can not be changed. A key Remainer, Dominic Grieve appears publicly to accept that Brexit will happen. Philip Hammond argues that Boris is asking too much. Can there still be a deal?

It is always worth remembering the process that led to the current situation.

Following the referendum of 2016, Theresa May came into power, delaying the implementation of Article 50 until March 2017. The EU put forward a negotiating sequence, to which May agreed. By July 2018 and the now infamous Chequers Agreement, options had narrowed.

The WA was finalised, for the time being at least, in November 2018, accompanied by the Political Declaration. The WA laid out terms for leaving the EU, the Political Declaration the basis for a future relationship.

The EU insists that no long term arrangements could be negotiated and agreed before the WA comes into effect. Accordingly, an “Implementation Period” would allow for final negotiation of the future legal relationships with a target date to be come into force after December 2020. The timing provides for flexibility up to two years but in theory could be indefinite.

As the old joke goes, the tourist stopping to ask a local for directions, the answer received is “if I were you I wouldn’t start from here”. It is a matter of perspective as to here we are now, which we can examine from both sides.

It is now a matter of history that the UK Parliament has failed to back the WA no fewer than three times, therefore ratification can not take place. That leaves three options; A – revoke Article 50 and stay in the EU, B – leave without a deal, C – compromise.

For the EU, there are only two options, revocation being a unilateral decision, therefore the EU can hope the UK changes its mind. The legal default position is currently that the UK leaves with no deal agreed, reverting to WTO terms, effectively option B. The EU view, in public at least, is that the WA can not be changed, therefore no compromise is forthcoming.

From the point of view of our fabled tourist, even though the direct route of option C might be the quickest, the bridge that must be crossed has washed away, bringing a further option into play; D – extend the journey and hope that the bridge can be completed. For this to happen, the EU Council, comprised of the leaders of the EU 27 must unanimously agree a further extension and the UK must request it.

Of course, some in the UK argue that option A is preferable, option D giving a chance to reflect on the journey by holding a second referendum which could yield the same result.

The net outcome is that all parties would be in the same place but with the expense of accommodation for as long as it takes, the hotelier raking in the profit from a captive market. If Grieve is right, the exercise is futile.

The stance of Boris Johnson is that the chance option B, leaving on World Trade Organisation terms are a “million to one”. This has been widely interpreted as option C, a late compromise on the WA although it could be a signal that he expects option B+ to materialise, leaving without a deal but with the promise to invoke GATT Article XXIV.

This would mean trading on current terms but expecting to agree a free trade deal with a “reasonable” time period, interpreted as up to ten years.

Putting B+ to one side for a moment, let us stay with the common assumption that the choice is option B versus C, the EU compromising on the removal of the backstop. What else is involved?

1. The so called “divorce settlement” of an estimated £39 billion. The figure includes provision for the UK to continue already committed funding until the end of the current EU budget cycle, therefore in practice can be interpreted as being less, alternatively if not completed by December 2020, potentially more. However, the House of Lords’ EU committee, taking advice from all quarters, concluded that there is no legal obligation to pay in the event of option B.

2. Looked at positively, the UK can participate in some meetings of EU bodies and agencies where relevant to the UK. Looked at negatively, the UK has no vote in decisions made that might affect the UK.

3. Looked at positively, during the Implementation Period, the UK is allowed to negotiate fresh trade agreements. Conversely, no such agreement can be implemented until the end of the IP, whether that is December 2020, whenever or indefinitely.

4. The UK would still be subject to EU law in many areas, including decisions made by the ECJ or other mechanisms provided for in the WA, including an alternative model derived from the EU’s arrangements with Ukraine.

5. Depending on political perspective, it may be a positive or negative that state aid rules still apply. In short, a Labour government would be unable to nationalise businesses where doing so might be considered in breach of EU competition regulations.

6. Foreign and security policy, where intelligence needs overlap but which is a field for enormous potential debate.

In simple terms, to agree a compromise on the backstop potentially keeps the UK bound to the EU until the end of the IP. On the reverse side, for the same duration, trade will continue, subject to new regulations, as currently. This means no new tariffs, yet potentially new regulations.

As for time scales, perhaps the EU’s own website gives some clues. Of those 21 “being negotiated”, some have been suspended since 2008. Of the 25 “pending” some have not been signed since 2009. Of those 47 “partly in place”, many have made no progress since 2008. Of the 38 “in place” many are not full free trade agreements within the strictest definition of the term, some with maintained tariffs, some reduced tariffs.

Conversely, option B would allow the UK the freedoms espoused in Brexit, to negotiate and implement trade deals from 31st October, free from the jurisdiction of the EU and ECJ but unless B+, without the option to necessarily avoid trade barriers with the EU. Fiscal and tax policies can be determined within the UK.

So what of economic prospects?

Many of the predictions of Project Fear have not come to fruition. The body of opinion created may arguably have been exposed. A tour around LinkedIn demonstrates the career paths of those whose employment takes in the circuit of the Treasury, Bank of England, IMF and other bodies.

Both businesses and consumers may benefit from the abolition of tariffs on goods which are not produced in the UK. Of those still in place, 100% of the revenue will come to the UK as compared to the 20% that is landed here. The EU will lose out on the rest. Of those that come to the UK via Rotterdam, the Dutch will not benefit from 20% of that which is passed on to UK consumers, the rest of the EU will not benefit from the 80%.

Perhaps there are more clues to the Boris philosophy when he talks about “turbo charging” the UK economy, believing in a last minute deal of sorts.

If bound by the WA, this can not effectively be done whilst in the Implementation Period. He has also signalled the end of austerity, which was in any case a commitment loosely made by Theresa May.

On one arc of the economic divides is the Keynesian school of thought, more frequently nowadays associated with Labour. The basic model is that national income, or Gross Domestic Product (GDP) is made of consumption,(C), investment, (I), government expenditure (G) and exports (X) minus import (M), so GDP = C+I+G+(X_M). X-M is effectively the balance of payments.

Injections into the economy, I, G and (X-M) have a multiplied effect on GDP. In simple terms, a new worker needs accommodation, in turn requiring bricklayers, electricians and so on.

If tariffs are reciprocated on the EU, imports become more expensive, therefore fewer goods purchased but more can be produced domestically. As has recently been announced, Muller have increased investment in Telford. This is perhaps hardly surprising since EU dairy imports may be subject to punitive tariffs.

More investment might be expected, the more recent trend being British foods being processed in Europe rather than the UK, then re-imported. The picture can be seen with Scottish salmon, British pork, lamb and beef. There is incentive to invest to circumvent those tariffs by transferring processing capability back to the UK.

On an almost opposing side of the arc of economists are “supply siders” such as Patrick Minford. This school of thought identifies access to global markets for goods we do not produce as lowering costs. The profit incentive provides for more output at lower cost.

With aspects of both schools of thought probably having some validity, it is easier to see where the concept of turbo charging may come from, particularly given the freedom to lower tax rates and encourage business mobility towards the UK.

Perhaps key to whether this can happen is down to where Minford made his name, in the field of rational expectations, originally applied in inflation and unemployment but the principles can be extended. If growth is expected, more investment takes place, according to Keynesians, accelerated.

So back to Boris. Perhaps he has a cunning plan?

The WA looks to be dead and buried from both sides. It would be an immense climb down from the EU to suddenly reopen the backstop. Reciprocal tariffs would inevitably make a huge dent in their positive (X-M) or balance of payments. The knock on negative multiplied effects of an already fragile EU economy could be catastrophic.

Suddenly, a reversion to option B+ provides an attractive proposition to the EU in terms of loss minimisation, not to mention avoiding the potential collapse of the Irish economy as their major outlet for labour intensive agricultural production, suited to British tastes, is rescued.

A last minute deal between Boris and his EU counterparts may bear no relation to the doomed WA. It can be something else entirely. Even if Boris has not grasped the detail of GATT Article XXIV, undoubtedly some of his team will have.

A different compromise on the divorce settlement can be agreed, whether in access to shared technology, information or elsewhere. They may not keep the kids but at least they can have access.

Backstop revisited

The new Prime Minister has taken the stance that negotiations for withdrawing from the EU can not start until the EU removes the back stop. The main players in the EU insist that the Withdrawal Agreement (WA) can not be re-opened, therefore the backstop can not be withdrawn. What does it all mean?

In context, the mechanism for leaving the EU was summarised in Article 50 of the Lisbon Treaty. A two year period was allowed, to negotiate the terms of leaving the EU, since extended. The interim result has been the Withdrawal Agreement (WA).

The future long term relationship was to be agreed subsequent to leaving the EU, transitional arrangements being provided for in the WA. The intent for future arrangements has been summarised in what has become known as the Political Declaration.

Crucially, the WA if ratified, becomes an international treaty, therefore is legally binding. The Political Declaration does not carry the same force.

It is now a matter of history that the WA was agreed in November 2018, originally due to come into force on 29th March this year. Despite three attempts to gain UK parliamentary approval, the WA has been rejected, the most cited reason being the backstop.

The WA document summarises the details of the backstop, firstly in Article 182 on page 295 of the 584 page document, then in the separate Protocol on Ireland/Northern Ireland from page 301 to 329, comprised of a further 21 Articles, followed by 10 annexes detailed from page 302 to 474 but let’s keep it simple.

The objective is to agree arrangements to avoid the construction of a “hard border” between both nations on the island of Ireland. Should that not happen, the UK would remain in a “single customs territory” with the EU, Northern Ireland maintaining “full alignment” with the EU Single Market.

As in any agreement, there are many perspectives. The essence of the backstop, at least ostensibly, is to recognise the Good Friday Agreement which officially brought an end to the Troubles.

The EU perspective, in public, is that to “ensure the integrity of the Single Market”. UK parliamentarians who have rejected the WA argue that this creates an internal UK border in the Irish Sea. Furthermore, since there is no firm date to conclude arrangements, that the backstop constitutes a trap. Neither is there a unilateral exit mechanism from the backstop.

A rarely viewed perspective is that of the inhabitants of the island of Ireland. The Good Friday Agreement provides a number of arrangements for cooperation between British and Irish governments. Crucially, anyone born in Northern Ireland can choose to be British citizens, Irish citizens or both.

It goes without saying that they have the right to live and work on either side of the border, or indeed both. As nationals of both, they have the right to free movement across the island. Indeed, some homes or farms might even straddle the border.

In practical terms, we can take an example in the car market. If choosing to buy a British registered car, one choice might be a new Vauxhall Astra on which would be paid for in £ Sterling at a VAT rate of 20%. If choosing to buy a republic registered vehicle, the choice would be an Opel Astra, paid for in Euros attracting a VAT rate of 23%.

The Vauxhall speedometer shows miles per hour, the Opel kilometres per hour. The Vauxhall odometer shows miles, the Opel odometer shows kilometres. Otherwise, both are built to the same international standards under the umbrella of the World Forum for Harmonization of Vehicle Regulations, formally subscribed to by 54 countries.

Supermarket food is typically labelled as to country of origin, whether that is UK, Ireland, EU or more than one country, whether bought in Belfast or Dublin in Sterling or Euros.

If working in both countries, UK taxes are paid on one side of the border, in Sterling, Republic of Ireland taxes are paid on the other side. Record keeping for purchases and sales is a matter of regulation in either country.

Clearly, two separate customs and taxation regimes are in place. If the EU and UK were to agree a Free Trade Agreement (FTA), there is no reason that anything should change.

What about alternative scenarios, specifically the “no deal” or trading under WTO rules?

It may be helpful to choose a different example, in this case Irish whiskey. Bushmills is made in Antrim in the North, Jamesons in Cork in the Republic. The EU would have to impose tariffs on Bushmills, the UK may choose to maintain a tariff schedule so that Jamesons have to pay a tariff on exports to the Republic.

In the interest of adding perspective, out of sales of £31.6 million, £25.6 million was exported to outside the EU.

As with international trade around the world, as goods crossing a land or sea border will ultimately arrive at a destination. Lorry drivers do not carry cash to pay a tariff when that destination is reached, just as cargo ship captains do not, nor is there a person to pay when a container is disembarked.

Electronic payments are triggered from distribution centres or head offices, miles or even oceans away from where the tariff is paid. Anyone who has bought golf tees from China will know that goods can be tracked from point of despatch to point of arrival, via port, customs and courier.

Policing a trade border might be better carried out at the relevant distribution centres. Consider that the internal Irish border measures 310 miles on one side and 499 kilometres on the other with 268 crossing points.

To add perspective, based on latest available data, 1.6% of exports from the Republic go to Northern Ireland, 13.8% to the rest of the UK, largely by air or sea. An economic case to build hard border installations, combined with staffing costs, would seem hard to justify.

The obvious conclusion is that the creation of a hard border would be a political move, there being no desire from either the Irish or UK governments. That leaves the EU. There seems little to justify charging those with dual citizenship tariffs on personal consumption. Smuggling can also take place in coastal waters, lakes and fields.

So we return to the “integrity of the Single Market”. Goods can be policed in other ways. As for movement of people, both the UK and Ireland are currently out the Schengen free travel area. Intelligence on those from outside is shared with reciprocal recognition of visas.

Common travel arrangements between the UK and Republic of Ireland have existed in some form or another since 1923, no fewer than 50 years before both joined the EU. To change that would demonstrate that the EU does not respect the individual nation status of its members.

So who would suffer most from “no deal”?

The obvious answer is the Republic of Ireland. If agriculture were to be subject to reciprocal tariffs, as an example, 80% of Irish Cheddar output goes to the UK. The less obvious answer is that the EU have subsidised the diversion of trade corridors from Ireland to Zeebrugge, Antwerp and Rotterdam, obviously away from the UK but also French ports.

This brings us back to the impasse. The EU seems to insist on a WA that has failed three times and will inevitably do so again and again and again if asked. Any solution means moving away from a focus on process and to the end result.

The people of Ireland can take advantage of dual nationality, British and Irish, or EU. Inevitably, employment in the Republic will decline, without other EU support. A lack of compromise on the issue further jeopardises the EU trade surplus with the UK if the latter strikes FTAs across the world, with further job losses on the continent.

A simple way ahead is to sidestep the bureaucracy for a moment, commit to the end result of an FTA and invoke GATT Article XXIV, allowing current free trade to continue with the most lucrative non EU market for many EU states. That depends on looking after people, not politics.

Brexit – the final countdown?

Are we entering the final countdown to Brexit? Logically, there are three options, to leave without a deal, to leave with a deal and obviously not to leave. The probability of each outcome depends on perspectives taken.

As things stand, there is only one deal available, what has become known as the Withdrawal Agreement (WA). It is worth considering for a moment how this has come about.

From the EU perspective, this has been put together by the European Commission, the key figures being one of the EU Presidents, Juncker, with the lead negotiator being Barnier. The negotiating schedule was constructed by the EU. The position has been endorsed by the Council of Ministers, the heads of state of remaining 27 members.

On the British side, originally a department, DExEU was created. Since the infamous Chequers meeting in July 2018, the negotiating lead came from the Cabinet Office, in the form of Olly Robbins.

The resulting WA has been put to the House of Commons three times, failing on each occasion. The most cited reason is the existence of the “backstop”. This is a device, ostensibly at least, to ensure that there is no hard border between Northern Ireland and the Republic of Ireland.

Summaries of the backstop can be expressed in many ways, ranging from an insurance policy to shifting the effective border to the Irish Sea, allowing for freedom of movement on the Emerald Isle. Although this is presented as an interim position, there is no fixed end date, nor agreed mechanism to bring it to a conclusion. In fact, the WA is designed as the basis for a future relationship between the UK and the EU.

As things stand, over the last week, many of the key players and supporting cast within the EU have confirmed their long standing position. Juncker, along with French President Macron and a pawn in the game, Taoiseach Leo Varadkar, have all reinforced the EU position that the WA can not be changed, that the WA is non-negotiable.

Whatever has gone on behind the scenes between Theresa May’s team and the EU, debate has been prolific in the single open democratic forum for perspectives to be aired, the House of Commons. After three attempts, it is clear that the WA will not pass as long as the backstop is part of it. Ostensibly, the EU not being prepared to compromise and Parliament not willing to accept, the options would seem to be narrowed.

Of course, the EU have their position and have experience in negotiations on the world stage. It may be that at this stage, there is a ploy to change the backstop at the last minute, putting pressure on the UK to accept other conditions such as the divorce payment, fishing rights and the ability to obstruct competitive British trade and taxation policies to mention just a few. Draft alternatives to the WA probably already exist in Brussels.

There is a significant cohort in Parliament that would take “no deal” off the table. In the absence of an acceptable WA, their position by default becomes to remain in the EU, revoking Article 50.This may explain opposition to “no deal” from Conservative politicians of an age not to want to sit for another 5 year term, lucrative directorships from EU based banks or conglomerates being available to those with influence, providing generous salaries on top of indexed linked pensions. Their balance of power could be crucial.

To be successful, in removing the “no deal” option, opposition parties require an element of the Conservative Party to openly confirm that they had accepted ministerial positions despite not having been committed to the manifesto under which they gained power.

Taking an alternative perspective, in his maiden appearance as the new Leader of the House, Jacob Rees-Mogg outlined the current legal default position, confirmed in a Daily Telegraph article by the Attorney General, Geoffrey Cox.

Parliament has already voted to implement the European Union (Notification of Withdrawal) Act 2017 as well as the European Union (Withdrawal) Act 2018. The combined effect, in conjunction with the extension of Article 50, is that the UK leaves the EU on October 31st 2019, unless of course the already rejected WA is brought into force beforehand.

The default position therefore becomes leaving on 31st October without a deal, unless legsilation can be changed, specifically, repealing the two acts of parliament. Logistics for such a course of action become complicated and time critical.

Parliament is already in recess for the summer, due to return on 3rd September. There are two weeks, for parliamentary business before the scheduled recess for the party conference season. The House of Commons would normally be expected to return on 8th October, giving just four weeks for opponents of Brexit to overthrow Brexit. 

Incidentally, the next European Council meeting is next scheduled for 17th October.

Of course, plans can be scuppered by a general election. Steps have already been taken by the new leader of the Liberal Democrats, Jo Swinson, to call for a vote of no confidence in the new government led by Boris Johnson. The Lib Dems do so from a position of relative strength, having been the second placed party in the recent European Parliament elections following third place in local elections in May.

Convention dictates that the Leader Her Majesty’s Most Loyal Opposition should bring a no confidence motion. There are two significant reasons why Jeremy Corbyn might be reluctant to do so. Firstly, the state of the polls suggests that the timing would be less than ideal for Labour, faced with the resurgence of the Lib Dems in London and the South East whilst in the other regions, the Brexit Party gained momentum. The combined effect was to halve the number of Labour MEPs.

Assuming that the government might be defeated in a vote of no confidence, Labour would also have difficulty in ratifying policy commitments to be included in a manifesto were the party conference not to go ahead.

The Fixed Term Parliament Act 2011 makes provisions for the calling of a general election. In effect, the opposition would be invited to form a new government. Parliamentary arithmetic suggests that a number of Conservatives would have to cross the floor for this to happen, unless an arrangement can be made with the DUP. The latter would be doubtful given Jeremy Corbyn’s associations during the Troubles.

The earliest date an election could be called is now 31st October, the date for withdrawal, unless parliament is recalled during the summer break.

For Boris Johnson to call a general election, there must be support from two thirds of the House, 434 MPs. In any event, Parliament must be dissolved 25 working days before polling. Any extension to the withdrawal date of 31st October would have to be approved both by the UK Parliament and the EU. That translates into electoral suicide for the Conservative Party, possibly for generations.

Against what many will consider to be a complex political background, how do we assess the probabilityof each outcome?

Currently, Boris Johnson may be correct in his assessment that a deal would be likely. If acting in the interests of EU citizens, the EU itself may feel that the trade balance, therefore economic prosperity, means that compromise, at least on the backstop, has to be made.

There is also the possibility that Article 50 could be revoked, thus remaining in the EU. For that to happen, Conservative opponents to “no deal” have to act quickly. Given opposition to the WA in three previous votes, those Conservatives would therefore show their hand as reneging on their manifesto commitments. It goes without saying that they would have to outnumber opposition MPs who insist on honouring the Referendum.

Should the EU continue to insist that the WA can not be changed, the prospect of “no deal” becomes more of a reality. The intriguing question is how that might happen.

Boris Johnson may be right in his assessment, that a deal is more likely. In fact, he has proclaimed that he would go “the extra 1,000 miles” to that end, presumably not to fall down at their door. The possibility of tariffs on EU sales, particularly vehicles which account for £25 billion of activity in Germany alone, would have a devastating effect on an already precarious economy. The same applies to agricultural markets currently protected from global competition.

In order to minimise its losses, the EU may decide to break its own rules, which it does in many instances. According to those rules, negotiation on future arrangements can not take place until Brexit has happened. However, there is nothing to stop both sides signalling the intention or writing to the WTO to signal the start of negotiations on a future free trade agreeement, therefore invoke GATT Article XXIV. That would allow the EU and UK to trade on current terms making it a “no deal yet” Brexit.

It is more than likely that text for such an agreement has already been drafted in both Brussels and London.

That is not to say that a trade deal will come quickly. The EU’s own website lists 98 agreements partly in place, pending or being negotiated, many suspended for as long as eleven years. Article XXIV notionally allows for up to ten years for a trade agreement to be concluded.

It may seem as though it will be a quiet summer but like the duck on a pond, there will undoubtedly be plenty of activity going on underneath the surface. The script writing continues, the drama and screenplays will evolve through autumn. It remains to be seen who will be the fall guys.

The Boris Cabinet

Boris Johnson is now Prime Minister. His Cabinet is not merely reshuffled but well and truly scattered. Has he created a house of cards from a new deck or is he just the Joker?

An immediate observation is that of diversity. Of the four great offices of state, PM, Chancellor, Home and Foreign Secretaries, none can claim to have a paternal father born in the UK. Boris’s own was Turkish, descended from a Circassion slave. Raab’s father was a Czech Jew who came to this country in 1938.

The new Chancellor’s family came to the country from Pakistan in the 1960s, contrasting with Patel whose Indian Gujerati family had resettled in the UK after being expelled from Uganda under Idi Amin’s regime. Boris was the only one to have been born outside the country, in Manhattan.

These appointments on their own send a powerful message of Britain being a land of opportunity, with a global outlook. In his speech outside Number 10, Boris was clear about rekindling free trade opportunities around the world.

Ethnic diversity is apparent through the rest of the Cabinet, with Alok Sharma at Employment, Rishi Sunak in the Treasury, James Cleverley the new party Chair and Kwasi Kwateng in charge of Business, Energy and Industrial Strategy.

Certainly, some women have left the Cabinet, obviously Theresa May, Penny Morduant and Claire Perry. As well as Priti Patel, Liz Truss has been promoted to International Trade with Amber Rudd retaining DWP. Former ministers who had resigned, Andrea Leadsom, Esther McVey, are reinstated. Nicky Morgan and Theresa Villiers, both dispensed with by May, also return.

No doubt much will be made of Jeremy Hunt’s decision to return to the back benches rather than accept an alternative to the Foreign Office. However, it is noted that a number of other announced candidates in the leadership election have stayed or been promoted to the Cabinet; Gove, Cleverley, Javid, Raab, McVey, Hancock and Leadsom.

Notably, the average age of the Cabinet has reduced. At 59, the Attorney General, Geoffrey Cox is now the oldest member, none in their 60s left. He retains the same role, as does the youthful Matt Hancock. The only others to hint at continuity are Rudd, DexEU Secretary, Steve Barclay, Leader of the Lords, Baroness Evans and Welsh Secretary Alan Cairns.

The talking points of Boris’s appointments contract with his predecessor, who notably appointed a cabal from her years at Oxford University. Those included Philip Hammond and Damien Green as well as a raft of other non-Cabinet ministers. Boris’s own potential for accusations of nepotism extends to his younger brother, Jo, outspoken for his policy differences with the new PM whilst the Oxford contingent has noticeably reduced.

If the global message is one of diversity and an outward looking Britain, what of the image closer to home?

Many commentators have already suggested a lurch to the right. In some cases, this might be justified, for example in Patel’s advocacy of capital punishment. Raab is one of the more prolific writers on policy, representative to an extent of the free market wing of the party which also includes the likes of Jacob Rees-Mogg, leader of the ERG, now Leader of the House and a font of procedural knowledge.

The undeniable shift is in Brexit Policy. Boris has surrounded himself with senior Cabinet members from the Leave camp, consistent with his aim of having a united Cabinet, committed to exiting the EU on 31st October 2019.

Boris himself is a former Foreign Secretary, Raab having resigned from DexEU over the Withdrawal Agreement. Barclay provides continuity, Cleverley having been a junior minister in the same department until this week. Certainly, those, like Gove, consistently voted in line with the Ministerial Code, Leadsom and McVey, the “blue collar Conservative” option having belatedly resigned at the final hurdles of May’s treaty.

The structure of the new Cabinet undoubtedly sends a strong message to the EU.

On the other hand, the new Prime Minister will be mindful that whilst Cabinet opposition has been minimised, there has been a shift on the back benches. It is a matter for conjecture how rebellious they will be, however, resignation letters present the image that a “no deal” Brexit will be opposed, despite protestations of loyalty to the new PM.

There are some other threats and opportunities for Boris to consider. Below Cabinet level, there are a hundred or so junior appointments that can be made, non Cabinet ministers and Parliamentary Private Secretaries looking to progress their careers. The full picture will become clear over the next few days.

The new rebel may well prove to be the old guard at Westminster, augmented by a few with ambition, in the vein of Rory Stewart and those already choosing their own margins; Oliver Letwin, Dominic Grieve and so on.

If there is a touch of genius from Boris, it is in having appointed a Cabinet for the future, both short term and long term.

On the whole, the leadership contenders have been embraced, to a large extent, represented the future of the Conservative Party. Those with ambition have been given an opportunity to prove themselves for the longer term. Perhaps more importantly, the new Cabinet is one of relative youth, dynamism and deeply symbolic of opportunity.

The old guard may huddle on the back benches, making their case for elevation to the House of Lords, itself an incentive to demonstrate loyalty. Retaining a position in Westminster, in whichever house that may be, can be key to lucrative second, third and more incomes from directorships and consultancies.

Rebellion would almost inevitably lead to a general election. The EU parliamentary elections heralded the rise of the Brexit Party. Cameron demonstrated how to win a majority, promising a referendum to harness the Eurosceptic vote.

In the meantime, the Remain vote appears to be split between two main parties, Labour and Liberal Democrats, with others that might currently be viewed as “fringe”, the Green Party and Change UK/TIG or whatever they choose to be called this week.

As ever, time will tell. Boris has taken some gambles, calculated by his team if not him. He can certainly claim a diverse team, embracing opportunity and “bursting with ideas” as he said in his maiden PM speech in parliament. Can he restore the credibility that has been lost under May?

Like him or loathe him, Boris has given his party at least half a chance at electoral success, whether that comes in the short, or longer term.

Conservative leadership contest

Conservatives leadership challenge

Theresa May has finally stepped down as party leader. The race to succeed her as Prime Minister is on. The aim of this is to summarise the relevant candidates and to track progress in the campaigns.

The timetable of events is short, May’s last day as leader of the party was 7th June, although she intends, for now at least, to stay in post as Prime Minister until the election is resolved by 22nd July should it go that far. Theresa May was appointed without a party membership vote.

The election process is multi-stage, the first group of stages being votes by MPs with recent amendments specifying a minimum number of votes at each stage. At least one will drop out in any round until the final stage, a vote among party members.

A challenge for any potential successor will be to coordinate another timetable, that for Brexit. The current state of play is that Article 50, the mechanism for leaving the EU, has been extended until 31st October. Unless there is an alternative to the failed Withdrawal Agreement, the legal default position is to leave without a deal.

Parliamentary arithmetic and chronology makes life interesting and can be changed to a degree. Following the announcement of a new Prime Minister, assuming that this does take place on July 14th, there would ordinarily be just 3 days and a Monday evening before the summer recess.

We normally expect a short session in September, two weeks of sitting until rising again for the party conference season. Parliament returns to action in the second week in October, leaving a just over three weeks to pass outstanding Brexit legislation.

There is an alternative scenario which may depend on the outcome of the EU elections. The House of Commons can have a vote of no confidence which could lead to a general election. This would depend on two circumstances. The first is a vote of no confidence being passed. The second is and a majority of two thirds of the House agree to an election.

It goes without saying that current public opinion might mean that the current opposition may not wish to call a vote of no confidence. Alternatively, if 200 or so MPs feel that their seat is under threat, abstention.

There are several considerations for Tory MPs in selecting a new leader. Perhaps the most obvious is the candidate’s position on Brexit. Since there has been so much division within Conservative ranks. This part of the argument will take a high profile in the public part of the debate at least.

We can also expect to be told that performance records of the candidates, combined with experience, are also major features. Who will be most capable of uniting the part?

The less public side, at least during the MP voting rounds, will be perhaps less palatable to the public. Some candidates may privately hint at future ministerial posts, enhancing earnings prospects when leaving parliament. Bizarre alliances may be made to prevent progress of certain candidates. We can expect to hear in abundance about unity.

In the last party leader election, it will be remembered that Andrea Leadsom withdrew. At the first opportunity, she was promoted by May onto a Cabinet position. May, whose final Cabinet included 16 Oxbridge graduates out of 26 attendees, was herself given a ministerial job by David Cameron, also an Oxford graduate.

So who are the candidates? They are listed in alphabetical order of surname below:

Michael Gove

The first of many Oxford graduates, Gove will be remembered as the education Secretary at the time of tuition fee increases. Lauded by some of his supporters as a “radical”, his reforms were described by experts as “neo Victorian”.

Gove of course stood in the last leadership campaign, having promises to endorse Boris Johnson’s candidacy before announcing his own merely three hours before the deadline for nominations. In this he was supported by Tory defector, Nick Boles and alternative leadership candidate, Dominic Raab.

MPs will point to his ability to savage sitting targets, recently in reply to a motion of no confidence, In earlier life he had done the same to a future monarch to who he will be expected to promise allegiance; Prince Charles.

A staunch advocate of May’s Withdrawal Agreement, despite any support in parliament, he will surely be considered an electoral liability, the negative image enhanced by revelations of his cocaine snorting history.

Matt Hancock

Oxford and Cambridge graduate Hancock has much in common with the outgoing leader, having had a short career with the Bank of England before slipping into the Conservative Party machinery. He is also transparent as a Remain supporter.

It might be seen as a benefit that he has kept a relatively low profile, currently as Secretary of State for Health and Social Care in July 2018. Of his eight ministerial appointments so far, his longest serving was almost 18 months as Secretary of State for Digital, Culture, Media and Sport

There seems to be little to suggest that he would last any longer as Prime Minister.

Mark Harper

Oxford graduate Harper has a background as an accountant before entering politics. Having held three ministerial positions during the five years of coalition government, he went on to become Chief Whip.

He has been associated with a variety of controversial policies, including the lorry poster campaign targeting immigrants, resigning when his cleaner was found not to have permission to work in the UK.

He may lay claim to having reduced delays in benefit assessment for disabled claimants, although his constituency office was found not to have disabled access.

Jeremy Hunt

Oxford graduate Hunt is perhaps the archetypal establishment candidate, coming from a military family and a distant relative of both the Queen and Oswald Mosely. He may be best remembered for his long term role as Secretary of State for Health, handing over responsibility for funding allocations to NHS England under the guidance of Tony Blair’s Special Adviser.

Hunt is another who campaigned for Remain and appears to be welded to the three times rejected Withdrawal Agreement..

His attention to detail may be in question, having apparently misinterpreted rules over his agent’s living costs, as well as claiming living expenses at one home whilst also claiming mortgage payments at another. He has also had to apologise for being in breach of money laundering rules and failure to properly register interests.

He may be a popular candidate with other MPs though few would describe him as a potential general election winner. His drugs confession was to cannabis lassis

Sajid Javid

Exeter graduate Javid is current Home Secretary having had a number of ministerial posts. Shackled by `collective responsibility’ he has been associated with support for May’s Withdrawal Agreement which may lose him appeal among the pro-Brexit wing of the party.

Much will be made of his ability to broaden the appeal of the party as he would become the first non Caucasian Prime Minister, therefore potentially perceived to add credence to Conservatives as the party of opportunity for all.

It may seem spurious to highlight that Britain has not elected a bald Prime Minister since Atlee in 1950 as candidates suck as Kinnock, Foot and Hague will testify.

Having been reported to have started his campaign early, it remains to be seen how he will be judged for ambition over principle.

Boris Johnson

Another Oxford graduate, Johnson starts the race as the bookmakers’ favourite, apparently a Brexiteer based on his resignation as Foreign Secretary after May’s Chequers “agreement” amongst Cabinet members in July 2018. He might be argued to have spoiled those credentials when voting for the third presentation of the Withdrawal Agreement.

In his favour is his electability, having been Mayor of London. A charismatic character, enhanced by a cosmopolitan family history, there is breadth in his appeal. He can also point to his establishment past, having studied at Eton and Oxford.

On the other hand, he can be seen as divisive in the party, Amber Rudd having brutally attacked him in the referendum debate although purporting to support him now. Rory Stewart has openly said he would not work under Boris.

Should Boris get through the MP votes, there is little doubt that he has huge appeal among party members. However, there must be big doubts about whether he will make it that far.

Andrea Leadsom

Leadsom graduated from Warwick, one of only three non-Oxford scholars in the race. She has been here before, having withdrawn before the final hurdle to allow Theresa May a clear run. Since then, she has held two ministerial positions before resigning from the cabinet over her leader’s attempts to push through a withdrawal agreement.

During the referendum campaign, Leadsom was a high profile Leave campaigner. Her resignation was ultimately the key to kick starting the current leadership contest, one for the reasons being that the arrangement she had voted for no fewer than three times would not lead to a “truly sovereign United Kingdom”.

It is clear that Leadsom does not enjoy the same levels of support among MPs as she did in 2016,

Despite being renowned for her pizza club meetings. It therefore seems unlikely that she will progress very far. Her own drugs confession was restricted to smoking cannabis at university.

Esther McVey

McVey is the third non-Oxford graduate, as well as being the second female to stand as a candidate. If elected, she would be the first Conservative Prime Minister to represent a constituency in the North of England since Arthur Balfour in 1905.

Her credentials as a Brexiteer rank relatively highly among the candidates, having made her opposition to the Withdrawal Agreement abundantly clear in her cabinet resignation letter.

As an electoral asset, McVey must be amongst the strongest candidates in the leadership race, if voters can forget her association with the toxic Universal Credit. However, she must be considered as unlikely to make the final round given the lack of depth of support among MPs.

Dominic Raab

Back to the Oxford graduates, Raab gained a law degree before a career in practice. Whilst some will point to his willingness to jump into the shoes of David Davis following the infamous Chequers Agreement, Raab’s Brexit credentials remain among the strongest of the candidates.

A prolific writer on policy matters, even his opponents would describe him as radical, coherent and consistent, albeit as one considered to be on the right wing of the party.

Twice smeared with what have been seen to be unfounded claims, Raab has maintained his composure with a dignified resilience.

Outside the front runners, Raab may be considered as one for the future to chart a new Conservative approach. His biggest hurdle is to survive the MP rounds of voting which seems unlikely given the depth of support for alternative candidates.

Rory Stewart

Eton and Oxford educated, Stewart reeks of privilege. Among his clams to fame are being locked in Prince Charles’ toilet at Highgrove. Speculation had linked him, through his previous diplomatic career, with intelligence circles, a real life Johnny English perhaps? Stewart has certainly learned how to be anonymous.

When in Afghanistan, he met his wife Shoshana, then married to a professor volunteer for his charity. Shoshana was made Managing Director. Despite apparently sharing the same morals as Boris, Stewart has stated he would not be prepared to serve in a government led by his scholastic predecessor.

His voting on Brexit has been totally loyal to Theresa May, latterly adopting the idea of a citizens’ assembly from Gordon Brown.

Rory will probably be best remembered for opening the drugs debate, having confessed to smoking opium at an Iranian wedding. His most significant contribution to parliamentary debate might be argued to be his ministerial response to the proposal of the hedgehog as our national animal.

Summary

If the media are to be believed, we can expect to see a bloody contest, characterised by chicanery. Key to ultimate success is overcoming the internal network of MPs before party members have their say between the last two standing. The criterion of electability may not feature highly until then.

It remains to be seen how much Gove’s revelations will affect the outcome. He does not appear to have leached parliamentary support although the fact that his own drug abuse was Class A, linked to the world’s most violent supply chains, may have more impact on the public.

The Conservative Party has a history of resolving issues behind the scenes with a general election being a distinct possibility should the factions not be able to convince the public of unity behind whatever outcome is achieved.

It would be unwise to bet against a repetition of the process within a year, however, an Oxford educated male appears to be a racing certainty.

Brexit – breaking the impasse

Brexit – breaking the impasse

The original deadline for Brexit, 29th March 2019, is less than 4 days away. Debate continues, resolution seems so far away. What can be done to ensure an “orderly withdrawal”?

The key is in the provisions of Article 50, the mechanism for leaving the EU. A critical word is “agreement”. By definition, agreement includes at least two parties to a transactional arrangement.

Paragraph 1 of Article 50 states that “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.” In the case of the UK, the constitutional requirement is approval in parliament. At the same time, “It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament”.

In the event of both parties being unable to come to a mutual agreement, paragraph 3 applies:

“The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.”

The time period expires on Friday, 29th March 2019, albeit that provisional unanimity to extend was apparently given last week. The provision is that parliament will agree this week or present an alternative approach.

Parliament has been clear that there are some unacceptable parts of the so-called Withdrawal Agreement. Most pertinently, is what has become known as the `back stop’. The House of Commons refuses to accept the backstop, the EU refuses to remove it. Therefore, there is no agreement between the two parties. The default position is therefore to leave on Friday.

The Withdrawal Agreement can be seen from different perspectives. In public at least, there has been little opposition in the UK to a “divorce settlement” of £39 billion. Article 50 does not include any formal arrangement over payments. A break can be clean with no liabilities on either side. The £39 billion can be seen as a generous offer.

Other provisions on the Withdrawal Agreement include other generous provisions. The UK could reclaim fishing waters from 11 pm on Friday. A transitional situation has been proposed.

It is hard to find any similar concessions from representatives of the EU.

Through a series of votes, parliament has indicated that “no deal” is an unacceptable option, even though that is the default position. There appears to be an impasse.

With four days remaining, there are other options. Article 50 notice can be revoked, surely a message of revolt from parliament that the will of British people will be ignored. There are still 4 days left to find a compromise.

Ultimately, any treaty has to be agreed by a qualified majority the people of the EU according to their own constitution al requirements. The British government can therefore be expected to respectfully put a case to the people of the EU.

What should that message include?

On 23rd June 2016, the UK gave a message. We are part of the European family with shared histories, sometimes amicable, sometimes not. As with all families, we make pursue different directions, Children leave home to discover the world and gain independence. We simply chose a path that does not follow the ideal of “ever closer union”.

Given our past, we also have close ties with others around the world, not least a voluntary, liberal liaison with countries in the Commonwealth. We seek to develop our own relationships on a different basis with other friends. Moving in with a new partner does not mean that we ever want to ignore our close family.

We enjoy home cooking, we want to be able to enjoy the same treats that we have for decades, if not centuries. We are happy to provide a market for EU cheese and wines. We are also happy to provide markets for other goods. We buy Skodas from the Czech Republic, Peugots that were once made in the UK, now from Slovakia, BMWs from Germany, VW from all parts of the EU.

Our trade gives Germany alone a €50 billion trading surplus. We have been generous in offering managed access to British fishing waters over a transitional period. We have had no intention of devastating EU fishing ports in the same way that ours have been since the 1970s. Sadly, those allegedly negotiating on your behalf do not share the same spirit of compromise.

Any job losses, in cars, wine, cheese and many other areas are down to both parties who can not reach an agreement, predominantly those who will not compromise on anything. We can buy what we want from other friends around the world.

After nearly 3 years, enough is enough. EU negotiators and leaders have shown no appetite to avoid “no deal”. So be it.

Here is a final offer to the people of the EU.

We do not wish to be protectionist to either the EU or our global friends. After Friday, we can agree to Free Trade Agreements (FTAs) with our other friends. Your leaders don’t want to be a part of that free trade network.

However, agreement to progress to an FTA can keep doors open. Article XXIV of the WTO suggests that if we all agree to work towards that end, we can trade on the same basis as currently. The EU car industry is going through a difficult time, not least down to corporate interests in falsifying information about vehicle emissions.

We do not wish to impose tariffs on EU goods but are left in a position where we have to. Lack of reciprocity of protectionist measures leaves us with no bargaining power. We want to keep your incomes and wealth growing. Please bear in mind that we also have our social responsibility to other partners. We wish to help markets develop in other countries and aid through trade.

We are still prepared to be generous. There is no obligation under Article 50 to pay you anything. As a nation, we are considerate. We are happy to keep paying into EU funds during the current budgeting period. That ends in December 2020. However, the British people decided that we wish to support environmentally friendly and sustainable agriculture, divert resources where we choose and not be subject to the vagaries of EU bureaucrats.

Britain is more than happy to give you the opportunity to adjust. Please let your leaders know that you want that period of adjustment too. Let’s agree to push for future FTAs. If your leaders do, then relationships will be maintained. If your leaders wish to cut off their noses to spite their faces, you have your ways of removing them – or actually you don’t. That is why we have chosen to leave.

Whatever happens, our people have close bonds. We may not be living in the same house but that doesn’t mean we shouldn’t be able to share a beer or two over football or when our interests coincide. We want to spend time with you on holidays and you are welcome to visit us. Just let’s have the freedom to grow.

Brexit tariff reduction

News has broken that in the event of “No Deal”, up to 90 % of tariffs will be removed. Confirmation seems to have come from a refusal to deny from Greg Clark, Business Secretary.

Naturally, views have been expressed, from all political vantage points. The opposition can be expected to oppose. Some in government have expressed reservations.

The announcement seems to have been leaked to Sky News. Greg Clark was later quizzed on Radio 4, indicating that formal notification will be made depending on the results of votes in parliament next week.

Perhaps the decision should have been made known in parliament first. May’s government has already been deemed to be in contempt. However, the substance, if and when all is revealed, is far more important.

In short, Sky  News were apparently told that “only the 10-20% of the most sensitive items would retain their protection, including cars, beef, lamb, dairy and some lines of textiles”. The devil will prove to be in the detail.

The motive, apparently, is to prevent shop prices increasing, therefore anti-inflationary. There may be more to it.

Perspectives always create debate. An obvious position is that such a move leaves the UK “nothing to negotiate with”. There is a wider context.

Tariffs are currently decided at EU level. The recent imposition of tariffs on rice from Cambodia and Myanmar is a case in point. Market share for Italian grown rice has halved as consumers in Italy have moved to cheaper options.

From a UK perspective, all this does is to increase rice prices for British consumers. The impact on British farmers is negligible if any. The same can be said for thousands of commodities, bananas, wine, oranges and lemons, in fact the majority of fruit and veg items that appear on supermarket shelves.

The benefit comes to consumers with the removal of taxes on healthy produce. Instead of having to pay high EU prices for oranges, these can be sourced from other countries at a lower price; South Africa, USA, Brazil. Whilst increase in choice provides consumer benefit, there may even be a positive effect on the nation’s health.

The larger benefit goes to those who spend a higher proportion of their income on food, specifically the lower paid. Wading through economic theory and reminded of Keynes’ Circular Flow model, there is a knock on effect to the wider economy, income being made available to spend elsewhere. The lower paid are less likely to save so the benefit is multiplied.

Whether or not there is likely to be a detrimental effect on farmers depends on two main factors. Will British produce still be protected? As has been referred to, beef, lamb, dairy and other products from overseas would appear to retain tariffs.

The other critical factor is how the government reorganises payments to farmers. If tariffs are to be removed in some areas, then by implication, the UK will not have to follow the Common Agricultural Policy (CAP).

Payments can be made to protect land, husbandry and the environment rather than to manipulate markets. Of course, this may mean that farmers have to reassess how they look at costs and incomes. If incentives are land management based and sufficient, then output costs depend on marginal rather than average revenues.

This would not be new. Historically under CAP, farmers have often made losses on crops, the subsidy being higher than the loss. The onus is on DEFRA to process the figures with the government to make the right decisions.

Several parliamentary select committees have heard that productivity growth has been hampered by protectionism. USDA figures show British agricultural productivity from 2001-12 averaged 0.8% annual growth as compared to the developed country average of 2%. There is still ground to be made up.

Of course, there will also be losers. French, Italian and Spanish wine makers can expect to lose market share in Britain as tariffs are removed from USA, Australia, South Africa and South America.

Similarly, the Republic of Ireland will be subject to those tariffs on beef and dairy products. Their major export markets for beef, Irish Cheddar and Irish butter will see their products more expensive in the UK. However, this may provide other opportunities for UK farmers.

So what about manufacturing?

Some answers may be provided by further select committee hearings, notably involving the economist, Patrick Minford. For those who are unaware, Minford is maligned by many but has some outstanding credentials. He was one of a group of economists associated with the Thatcher government of the 1980s.

Much of his work related to the breakdown of the trade off between inflation and unemployment, referred to as the Phillips Curve. The late 1970s to early 1980s saw both increasing inflation and unemployment.

Minford is also known as a ‘supply side’ economist. Here is an attempt to summarise that particular school of thought.

A market is essentially where buyers and sellers meet. Demand from buyers is determined by a variety of factors, notably price, price of other goods, incomes and tastes. Supply is based on profit, in turn the difference between revenues from consumers and costs of inputs. For some goods, environmental factors, technological progress and government intervention also apply.

In general terms, the higher the price, the less will be demanded, conversely, the more suppliers are prepared to supply. Economists love their graphs. We are used to seeing the following:

In a normal market, if the price is set too high, what is supplied will not be sold. If the price is too low, the supplier will see that goods sell too quickly. The market will find its balance or equilibrium, on our graph at a price of p1 and output of q1.

If Minford is right and world prices for commodities are lower (without tariffs) than EU prices, British suppliers will be able to make more profit at any given price. This has the effect of shifting supply, diagrammatically, to the right:

We can see that our market produces more, resulting in a lower price, or at least with no inflationary pressure.

The same basic principle applies to a whole economy. If we can reduce costs by increasing productivity, whether that is in pure costs, technological progress or by any other means, we can experience economic growth without unnecessary increases in price. For Price, in a whole economy we can think of the Retail Price Index (RPI). For Quantity we can think of Gross Domestic Product (GDP).

In a nutshell, the essence of supply side policies in a free market leads to lower prices, higher output and incomes and potentially higher employment to meet that increased output. If Britain is capable of more supply, we will attract inward investment.

In the shorter term, the Business Secretary seems to have suggested selective removal of tariffs. Among those is the car industry, although it is suggested that car components will be tariff free.

According to the European Automobile Manufacturers Association, the EU accounts for 85% of UK car imports, roughly 69% of cars on British roads. However, the supply chain is heavily integrated. The cost of producing cars in the UK will therefore remain the same if components are imported from the EU, potentially reduced if sourced elsewhere.

If EU finished cars are to become more expensive, then there are opportunities for those manufacturers staying in the UK to target that 69%, for example Jaguar to replace BMW and Mercedes fleets, the Astra or Corolla to replace the Focus or Golf.

In the longer term, technologies are changing. Diesel and ultimately petrol are forecast to be in decline. Any tariffs that are collected can be redirected into infrastructure investment in electric vehicle technologies as illustrated by representatives of Nissan, with a view to FTAs in the future, thus competing on a world stage.

Should the extensive removal of tariffs be welcome or a threat?

Much depends on perspective. If on goods which are not produced in the UK, then there is an opportunity to improve quality of life, reduce costs and simulate growth for the future. If the objective is to maintain existing ties with the EU, then there may be some concerns.

On balance, the threat to one of the top export markets for EU output might just be enough to prompt the EU to make realistic concessions on the flawed Withdrawal Agreement.