Brexit – where next?

Brexit – where next?

Theresa May has seen the biggest government defeat in British history. Her Withdrawal Agreement has been kicked into touch. The grieve amendment means that she has to bring Plan B back to parliament next week. Where do we go from here?

It is worth reflecting for a moment how we got here. May took office after David Cameron resigned, the 2016 EU Referendum result not going the way he wished. The subsequent leadership election managed a couple of rounds before the anticipated final run off. Andrea Leadsom withdrew, leaving May clear to take on the premiership, Leadsom earning herself a cabinet position.

The referendum campaign had been a cross party issue. Of the highlights, was a TV debate, featuring Boris Johnson and Andrea Leadsom sharing a platform with Gisela Stuart. Against them were Nicola Sturgeon, Amber Rudd and Angela Eagle.

Within 9 months of her anointing, May invoked Article 50, the mechanism for withdrawing from the EU. A month or so later, she called a general election, apparently leading in the opinion polls by some margin. The result was that she lost her overall majority.

From becoming leader to invoking Article 50, it might be argued that May made her first crucial mistake. Having been a cross party issue, May neglected, whether actively or passively, to draw on the cross-party nature of the Brexit campaign and vote.

The 2017 general election saw both major parties pledging to honour the referendum. The result was that over 80% of the electorate supported Conservative and Labour parties. Again, May failed to seize the opportunity to seek cross-party involvement, making Brexit, to a large extent at least, a party issue. This was with a divided party.

At the same time, under the fixed Term Parliament Act, May denied the population of the opportunity to voice an opinion in the scheduled 2020 election. With a 552:13 vote to call the election, opposition parties were complicit in derailing what should have become the natural course of events.

It might be argued that May made a second fatal mistake. Negotiations began with the EU, agreeing to a timetable for progress. The problem was that the chronology was that which was presented by the EU. A “divorce bill” was achieved in principle, a “backstop” agreed. It was decided to seek a withdrawal agreement, a “future relationship” deal to follow. The initiative was handed to the EU. The UK can make no free trade agreements without the consent of the EU.

The third arguable fatal flaw came at Chequers in July 2018. It emerged, confirmed in subsequent select committee reports, that May had been working to her own agenda, with the help of her `consiglieri’ Olly Robbins. The Chequers plan formed the basis of what led to what May called “my deal”, the withdrawal Agreement presented to parliament in December 2018, then suspended and finally rejected on 15th January 2019.

In between presentations, when the Withdrawal Agreement was clearly going to be rejected, May had sought a final compromise from EU personnel. Ambiguous assurances were offered. The EU were not prepared to make any alteration to legal text.

It will be recalled that May’s first DexEU minister resigned after Chequers, his resignation letter here. Davied Davies made clear his objection to some of the key points. Subsequently, he clarified during BBC Question time in December 2018 that he had simultaneously been discussing a Canada +++ style deal with his EU counterparts.

It is now a matter of record that May’s Withdrawal Agreement has resulted in the biggest ever government defeat in the House of Commons. The most mentioned reason as mentioned in speeches was the backstop, remaining in the customs union until an unspecified date in the future, aligned with EU rules but with no say. This would be accompanied by a divorce bill of £39 billion, budget contributions growing over time.

So where from here? There are several options.

Subject to parliamentary procedure, the default position would seem to be an exit on 29th March 2019 under what one side calls “no deal”, the other “WTO rules”. Ostensibly, there is little support in the House of Commons to allow this and it remains to be seen whether MPs can nullify this option. Indeed, having been presented with the offer to discuss a way ahead with Jeremy Corbyn, the latter has ruled out the “no deal” option.

Interestingly, May’s language over the withdrawal date, by 14th January, had already moved the firm commitment “we are leaving on 29th March 2019” to “that is what we are working for”.

That brings us to a first possibility, that the Article 50 time period could be extended, which is provided for. The request would have to be agreed unanimously the remaining EU 27, by no means a foregone conclusion. Whilst having initial appeal, it could also be argued that if an acceptable alternative has not been agreed after almost two years, then would any extension merely result in more procrastination?

At a time when Germany’s industrial production indicates that they might be leading the EU into technical recession, this might be the time for the UK to exert a position of relative strength.

An apparently popular position in the House of Commons is to lobby for a second referendum, the so called People’s Vote. This would of course be in direct contravention of the positions taken in both major parties’ manifestos in 2017.

Remainers have a variety of arguments. The demographic profile of the electorate has changed. It is a fair point but goes against the promise that the first referendum was a “once in a lifetime decision”. It might be true that people did not know what they were voting for, despite the wealth of both information and propaganda made available from both sides.

It might also be true to highlight that the economic projections from `Project Fear’ have proved false, the prospect of a European Army is not, as Nick Clegg said, a “dangerous fantasy”. Did Remainer voters understand the Five Presidents’ Report, let alone anticipate Guy Verhofstadt’s passion for yet further integration and tax rate harmonisation? Did we expect the EU to take selective approaches to Italy’s and France’s budget deficits?

In compiling Project Fear, the closed circle of establishment economists made their own “ceteris paribus” assumptions, deciding among themselves which of the ceteris were to remain paribus.

Polls and anecdotal evidence provide no surety that any referendum outcome would be different next time around. A plethora of evidence suggests that a proportion of those who voted to remain value the democratic process and would switch allegiance. In any event, informed sources suggest that logistically a “Peoples’ Vote” could not take place until June, subject to the unanimous approval of a delay by the EU27.

So politicians and the media would have us believe that the EU position is now non-negotiable. Despite protestations for a second vote and an extension of Article 50, these might not be feasible, given the perceived default positions. Withdrawal of Article 50 is a threat to democratic rule and civil obedience.

Is there another way?

There may be two.

Being positive, the House of Commons has indicated what is unacceptable. Brexit, given current parameters, is defined as taking place on 29th March 2019. Preparations have already been made, at least to some extent, for a Canada +++ deal in the longer term. The EU sugest no further negotiation.

May has an opportunity to be a leader. She can present two options. Both depend on highlighting the natural outcome of trading on WTO rules after March. These might involve reciprocal tariffs. The impact on a Germany approaching recession, could be enormous if BMW were to be bought from South Africa, Mercedes from Brazil and VW from India. The impact on Mediterranean agriculture could be enormous for food and agriculture, noting for example the opportunity to remove tariffs on South African or American orange juice.

Option 1 becomes eliminating a withdrawal period and moving straight onto a Canada +++ from 30th March. Since parts of the Withdrawal agreement have been drawn from other EU accession treaties such as with Ukraine, the same exercise can be completed, if indeed a draft has not already been constructed, over the coming month or two.

Option 2 gives more time. A commitment by both parties to reach a Free Trade Agreement gives a different option under WTO rules, specifically Article XXIV. This would allow for continuation of trade on current terms with breathing space to finalise a Canada +++ agreement with a “reasonable period, defined under Article XXIV as up to 10 years. This also allows the UK to negotiate other FTAs.

If neither of those options is agreed then the default position becomes live. The UK withdraws, publishes a reciprocal tariff schedule and despite our efforts to support stability in the EU economies, German cars, EU wine, agricultural output, Polish shoes and so much more besides is immediately subject to those tariffs and global competition with immediate effect.

Either of those options is fair, made in good faith and gives the EU27 an opportunity to mitigate the potential damage caused by refusals to compromise with previous efforts. The welfare of citizens of the EU 27 is up to them. Their surpluses in the balance of trade is in their hands.

We shall make a success of our opportunity to work in a global environment.

Two weeks to agree divorce bill? A reply to Barnier.

Michel Barnier has given Britain a fortnight to offer a divorce settlement if talks are to progress to trade. What should our reply be? We have some suggestions.

Theresa May has made some very generous offers. EU countries will not be out of pocket during a transition period. Reciprocal rights will be maintained for EU citizens living here and British citizens living in the EU.

Yes, there are some sticking points in negotiations. Britain seeks to maintain an agreement between two sovereign states, to allow movement between Northern Ireland and the Republic of Ireland. We propose a virtual border, the EU seeks to force the republic to renege.

As far as we can see, the EU seeks a gigantic divorce settlement. There seems to be no audited justification for such a bill. There does not even seem to be a counter proposal on the table.

The British are known for fair play. When negotiating to join the EU, several concessions were made, not least in access to British fishing grounds yielding something in the order of 60% of current EU fishing rights. We have made a more than fair offer.

Of course, we wish our neighbours to thrive. On the whole, British history is characterised by an outward looking nature towards trade, combined with innovation, both of which have led to long term prosperity.

The British people have decided not to dilute our own sovereignty to return to greater self-determination. Once again we seek to compete and collaborate in global markets. We seek to regain and deepen links with old allies, in the English speaking world, in the Commonwealth and beyond.

Our starting point is that no deal is better than a bad deal for Britain. The EU seems to wish to slow down the process of departing from the EU. Article 50 decrees that the leaving process should be complete within two years. We shall honour that.

Yes, there are complications but in some cases, there do not need to be. We operate systems in the EU that should allow for free trade between constituents’ markets. We have a parallel system for goods from outside the EU but with tariffs and regulations that are adhered to.

In principle, there need be no significant problems in switching from one system to the other. Quite simply, if there is no agreement, we revert to WTO rules. You can place tariffs on us, we can place tariffs on you. No deal means no transition, trade barriers start on day 1.

No deal is certainly better than a bad deal. We have to prepare for the future. Let us consider the practicalities.

No deal means that we leave in March 2019. Article 50 provides no basis for a divorce bill. In the same way, should we have been a net recipient of finds rather than a net contributor, we would be due no recompense. The EU may wish to consider that if a precedent is set, then any further countries wishing to leave the EU, if net recipients, should be due a windfall payment for leaving. Is that what you intend?

Of course, we have to plan for tariffs on our exports to the EU. We also have to plan for tariffs on EU goods. We also have to plan for trade deals with other allies.

We shall see a rise in some prices. French and Italian wine will become more expensive. We look forward to being able to trade more freely elsewhere, expecting a corresponding fall in wine prices from the Americas and parts of the Commonwealth.

Yes, olive oil will become more expensive. However, rapeseed oil is already an excellent and healthy British product. Our farmers will be incentivised to produce more. Roquefort will become more expensive but we look forward to experiencing cheaper Ewe Blue from the USA as well as developing our own excellent products, as we have with Somerset Brie. Who knows, perhaps innovative British farmers are already preparing our own Trewe Blue?

It will be a shame that motor vehicles made in the EU will become 9% more expensive. We recognise that over 80% of new car registrations in the UK come from the remaining EU27. We recognise that those who manufacture in Britain will therefore have a price advantage in domestic markets and are sure that Jaguar, Nissan, Toyota and Honda will recognise the investment opportunity.

We also recognise that when in a position to reach trade deals across the world, Mercedes will be available from Brazil, BMWs from South Africa and VWs from India.

At this point we should stress that from March 2019, fish caught in British waters must be landed on British territory. We may sell licenses to EU fishermen but look forward to further developing fish processing in the UK.

We know that you will consider the position on financial services and that by taking the “no deal” option, passporting is a weapon that you might wish to hold against us. You in turn may wish to consider that EU based companies have several thousand more passports in the UK.

London is a global financial centre with a well developed infrastructure that will take years to replicate in the EU. We wonder how that will impact on the strength of the Euro, given the inevitable job losses around Europe, and the already precarious position of the Southern EU members. It would be a shame if the EU chose to deny its citizens access to global investment markets.

By making the decision for “no deal” now, we give the EU the opportunity to plan your budgets. Our net contribution will cease in March 2019. Whilst Article 50 does not make provision for a divorce settlement, we recognise that you will retain ownership of the EU estate in Brusseles, Strasburg and elsewhere.

On making the generous offers that we have, we have strived to support the EU economy. Your decision to keep the handbrake on negotiations gives us little choice but to decide on a course of action that provides an element of certainty to investors in Britain.

The EU have chosen to risk jobs across the EU, your agriculture sectors will have more price competition from the rest of the world, your car sales will decrease through being less competitive, fishing ports from Spain, France the Netherlands and up to Denmark will lose out.

By giving ourselves some certainty, we appreciate that a decision for “no deal” now gives EU27 states the opportunity to plan for loss of trade and growth in welfare budgets.

As a country we look forward to regaining our role in the world. We look forward to tackling our €50billion trade deficit with Germany. We look forward to reducing poverty in developing countries as we trade more with them. We look forward to becoming more competitive in our corporate tax structure.

We have listened to what you have said. The ball is now in your court. The clock is ticking. You have time to change your position so that we could move ahead on a different basis.

Shall we say a fortnight, Mr Barnier?

 

General election 2017 – winners and losers

Following a campaign that has been both turbulent and tranquil, the day is finally over. The voters can have had their say.

This was an election that didn’t have to happen. The Fixed Term Parliament Act provided for a date in 2020, a year that could have provided perfect retrospective vision.

Following the Brexit referendum last year, itself within a year of the previous general election, Theresa May could have had a clear run, with a majority to see her through the Brexit deal and towards her chosen retirement date. 2020 could have been an opportunity for the electorate to tell a government that it approves of the deal, or ask a new government to renegotiate.

This was a campaign in which the Prime Minister shunned the limelight, just as she had during the Brexit referendum. Not for her the high profile debate, more an immersion in door knocking and refusals, a more personalised and possibly perceived sort of rejection. Hiding away would surely not turn the polls sufficiently for this to be a close run thing – or would it?

So what have we learned about Theresa May? Certainly, the manifesto was full of vagueness, only to be fleshed out with details of the “dementia tax”. Instantly, the swing of votes from pensioners was palpable. All she had to fall back on was her “strong and stable” mantra.

Other events overtook. The first election terrorist attack took place in Manchester, the second on London Bridge and Borough. One of her reactions was to deploy the army around focal points of government.

Whatever the intention, these responses highlighted a perception of self-preservation. Perhaps more importantly, police cuts under the Home Secretary prior to Amber Rudd were sharply thrust into the arena. Even the cuts to armed forces by May’s right hand man when he was at the Ministry of Defence were brought to our attention.

As support has leached from the Conservatives, where has it gone?

In fact, the Conservatives achieved their highest share of the vote since 1992. It was more a case of vote distribution. May might have been wiser to wait until boundary changes had taken effect before a vanity election.

That something dramatic could happen became apparent with reports of a high turnout, despite inclement weather. Could it have been anything to do with millions of younger people receiving their statements of student debt over the last few weeks?

Those younger voters, hit by the £9,000 p.a. tuition fees number over 2 million, an average of around 4,000 per English constituency. Most Conservative losses came in urban constituencies with higher concentrations of young workers.

The biggest beneficiary has been Labour, led by Jeremy Corbyn who is surrounded by Labour MPs, most of who have called him unelectable, either directly or indirectly. One wonders if he could form a government from his own party, even if Labour candidates had won a majority of seats.

Despite a manifesto that doesn’t add up, despite a history of liaising with terrorists, despite a Shadow Home Secretary who missed such open targets left behind at the Home Office, before stepping back on grounds of “ill health”, Corbyn’s disjointed team have closed the gap.

Instead of wealthy pensioners, frightened away by the dementia tax in blue, it seems that they could have drifted to the garden tax in red. If Theresa May is the deep blue sea, what does that make Corbyn? It is the sort of choice that confronted the USA, Clinton versus Trump where the underdog came out on top.

Corbyn’s messages on tuition fees and affordable housing are most likely to have resonated with the young.

Are there any other choices?

The second biggest party in opposition was the SNP. For their part, the Scottish voters have rejected independence. North of the border, they have their own battles. They also gained the 5th highest number of votes in 2015.

This time around, Scotland, coincidentally without tuition fees afforded an irony. Following their own complaints after the previous two general elections, Scotland has imposed a Conservative government on the rest of the county.

The fourth party in parliament, the Liberals, gained almost a million more votes than the SNP last time but 40 fewer seats.  This time around, the polls show them with a slightly increased votes, perhaps surprisingly since they are arguably the most pro-EU party, 48 % of the electorate having voted to remain in 2015.

In practice, the Liberal share of the vote decreased marginally, from 7.9% to 7.4%. Perversely, this led to a 50% increase in the number of seats. The biggest casualty was Nick Clegg who, in forming a coalition in 2010, reneged on his pledge over tuition fees.

That brings us to the party that achieved the 3rd highest share of the vote in 2015 but without winning any seats, UKIP.

Of the manifestos, this is arguably the most impressive, every plan being priced. The unfortunate part is that the costings come at the very end, after some incoherent messages from some of the MEPs. Even more incoherent are the off piste ramblings of the party so-called leader, a potential executioner and water boarder. At least he has removed the cap that featured in his Stoke by election campaign, presumably so that he can be recognised on CCTV.

As for the other UKIP MEPs standing, it must be a shock not to be elected off a list, hence the desire to fly in the face of another referendum, that of proportional representation.

It can not be beyond doubt that May made miscalculations. She might have believed the polls, she might have had bad advice. She looks anything but strong and stable. It is an unwise leader who does not expect her own record to be exposed during a campaign with extensive media scrutiny.

That leaves us with what is reported as a minority government.

In practice, May has perversely benefited from increased support for Sinn Féin, up from 4 to 7 seats. Officially needing 326 seats to command a majority in the House of Commons, Sinn Féin’s refusal to take the oath of allegiance reduces this, where the DUP abstain, the Conservative government has an edge.

The alliance with the DUP effectively gives May a working majority, on most everyday business, of 14. Critically, by not obtaining the landslide that had been originally envisaged, the DUP hold a balance of power. It will not be lost on anybody that the pernicious attack on pensioners is against DUP manifesto commitments. May cannot force the dementia tax through.

On balance, the result provides for little major change. Brexit will be scrutinised but the two main parties are committed to support the will of the people expressed last June, at least in some form.

Democracy is the winner. We now have an opposition that has a mandate to oppose. The young have gained a voice. The old are protected by the DUP. We do not have an overpowering majority that would allow excess. The government should be stable, the electorate are strong.

Oompah oompah …. Juncker

As Theresa May has finally triggered Article 50, Juncker and other key EU personnel have made their thoughts known. Are they worth listening to?

He is quoted in various media outlets as saying: “Britain’s example will make everyone realise that it’s not worth leaving … On the contrary, the remaining member states will fall in love with each other again and renew their vows with the European Union…. Half memberships and cherry-picking aren’t possible. In Europe you eat what’s on the table or you don’t sit at the table.”

His remarks are widely interpreted as intending to punish Britain for daring to leave.

On the other hand, one of his fellow EU presidents, Donald Tusk started off by taking a different approach, saying: “Therefore we must to do everything we can to make the process of divorce the least painful for the EU”. He has since apparently retrenched into the Juncker bunker.

To add fuel to the fire, one of the EU’s chief negotiators, Michel Barnier is also reported as suggesting “complete uncertainty about their rights and their future, the reintroduction of binding customs controls on trade from day one of the UK’s withdrawal, which will inevitably slow down trade and lead to queues of trucks at Dover, serious disruption to air traffic”. He has also suggested that negotiations on substance will not start until Britain meets a “divorce bill” of around £50billion.

Juncker may for a moment wish to remove his blinkers. There has been a lot of falling out in the EU already. Greece has already fallen foul of austerity measures as a result of a system that favours the industrial North as compared to the Mediterranean fringes.

Elections, both in the Netherlands and France have already highlighted a groundswell of unrest among European peoples.

It should not be forgotten what the European Union really is. It is a collection of 27 member states with a nominal parliament. The parliament can not actually put forward legislative programmes. It is the unelected EU Commission that does.

Some states have benefitted, notably Germany whose manufacturing output is effectively underpriced by being part of a euro currency zone comprised of underperforming nations. Estimates suggest that German goods are 15% cheaper in international markets than they would be had Germany not aligned itself in system of stagnant and uncompetitive economies.

Juncker may suffer from disillusionment that the rest of the EU, suffering through austerity, will fall back in love with the supranational body that has caused individual nations’ citizens to suffer considerably.

When it comes to diet, we can sit at our own table. Nowhere else in Europe seems to have a penchant such a hearty start to the day as a full British breakfast. Our table might just be better stocked.

As for Barnier, what he seems to be suggesting is of questionable legality and certainly not in keeping with the EU international treaty obligations agreed in Lisbon, specifically Article 8 which reads:

“The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation”.

Is Barnier really suggesting that the EU can not be trusted to keep its own word? Can the EU be trusted in any other international negotiations such as CETA and TTIP?

It is also worth reflecting on the “worst case scenario”, that of falling back on WTO rules. This is a phrase which can be used with different emphasis. In practice, Theresa May has suggested that no deal is better than a bad deal for Britain. It is the “worst case scenario” in international law, not the worst case in the worst of all possible worlds.

For the EU, firstly, to place artificial border controls might be interpreted as a possible breach of those WTO rules. Secondly, this would reveal the true nature of the EU as a protectionist, inward looking and totalitarian regime.

There is a third element too. In order to cause queues at Dover, then the nations who host cross channel arrivals, specifically France and Belgium, would have to be complicit in those breaches of international law. If speaking figuratively, then the same applies to other countries with sea ports such as Spain and the Netherlands. Each individual country would have to authorise illegal acts in international law.

As for the airport threat, this covers every country in the EU. With competition in international markets for inward investment, any artificial barriers to trade will hardly be encouraging to those companies who seek as a basic minimum the rule of law as a criterion for investment. Add to that the £50billion or so that British tourists spend in the EU. Who will go on a holiday where planes might not even land?

Barnier seems to implicitly accept that by putting up such artificial barriers, stating the authority of the EU is akin to accepting that Rotterdam may be a sacrificial lamb. Britain’s exports, 56% are outside the EU, might no longer be routed via the Netherlands.

If the EU wants to start a trade war, then so be it. The EU can demonstrate to the world what an unreliable partner it can be. EU citizens, all of who live in democracies, can express their own discontent when British people decide to drink wine from Australia or the American continent in preference to French, Spanish or Italian varieties.

This brings us back to other political considerations. Theresa May has already hinted that it has been Frau Merkel who has delayed discussion on reciprocal residential rights. There are further suggestions that it is Frau Merkel who has been holding out for the “divorce settlement”. Remember that she is the leader of a country that persistently fails to meet its financial obligations to treaty commitments such as NATO.

On the settlement, there are still several issues to be discussed. We do not know how the £50billion figure was arrived at. As a top three contributor to EU funds over the years, the UK has been a significant investor.

Yes, there may be a claim for pension entitlements but let us not forget that the contracts for the likes of Lords Mandelson, Kinnock and Hill have been contracted to the EU, not to the UK. The EU might just be highlighting their own irresponsibility in not funding pension obligations.

There may also be scope for counter claims, notably returns on our input into the European Investment Bank where the clue is in the word Investment. The initial input should be refunded plus any return. If there is no return, then the EU shows itself up once again as incompetent.

There are also returns to investments in science and intellectual property which is held by the EU. Has the EU wasted funds or are we due a return?

There is also the matter of our investment in the institutions of the EU. Perhaps we should expect a few floors of the EU buildings which we can convert into flats, hotels and retail premises in the heart of Europe? We could make a profit out of EU officials and MEPs’ expenses.

Can we even trust the EU figures? It will not have escaped the attention of anyone that EU accounts have not been signed off for decades. Financial accuracy, prudence and diligence are not EU traits.

Let us also suppose for a moment that the media are correct in assuming that Merkel is behind the threatened impasse. If the rest of the EU were to suffer from reciprocal barriers to trade, the rest of the EU would surely become aware. Merkel would face the prospect of being regarded across Europe as a worthy successor to Kaiser Wilhelm II and his Germany’s pariah in the 1930s-40s.

Thankfully, the Germany of today is a strong democratic nation, aware of its industrial strength and with an electorate that can remove Merkel herself.

The German people will be aware that Germany’s biggest trade surplus in 2016 was with the UK. German output is higher value than French cheese or wine. Around 80% of UK car purchases support hundreds of thousands of jobs in the German car and components industries.

There is an alternative route. The EU can respect the people rather than the German autocrat and Brussels bureaucrats. Whether or not Merkel is removed in her forthcoming election, people still need jobs, whether Polish shoemakers, Mediterranean farmers, vintners and cheese makers, car workers from VW, BMW, Mercedes, Dacia and Skoda.

There is a constructive way forward as proposed by Theresa May.

Europe’s citizens deserve better than the so called leaders. They have the opportunity to direct their politicians to stick it up their Juncker. Barnier can and should be persuaded by the Council of Ministers to put the interests of EU citizens and economies before self preservation of a EU Commission. The ivory tower is no place for a Tusk!

Come on EU, Tusk was right first time. Make the process painless. You have a vibrant market and a gateway to the world on your doorstep. Listen to Theresa. If you want to prosper with us, you just May.

Why the Lords must be overturned

The House of Lords has sent back the Article 50 bill with two amendments. The first concerns the rights of EU citizens. The second was to give parliament a “meaningful say” in any deal that might be reached. The proposed amendments can be seen here.

The first of those amendments gives the government 3 months to bring forward proposals with regard to protecting both EU and EEA citizens resident in the UK.

Interpretations have suggested that if passed, this amendment automatically guarantees those rights. In practice, any such proposals might be dismissed. There are certainly grounds for further debate on those far those rights may extend.

If the amendment is seen to be binding, then opponents may argue that the government’s hands are tied in any negotiations. Effectively, a unilateral pledge is made to the EU with no reciprocal arrangement being guaranteed to British citizens resident elsewhere among the remaining 27 countries.

In practice, Theresa May has commented in parliament that most leaders within the member states support reciprocal rights with a handful of nations holding out until Article 50 has been enacted in a statement of intent to leave the EU. Informed sources suggest that central to this stance is Frau Merkel.

Most EU states have a vested interest in British citizens continuing to live in their countries. Take, for example, Spain and France, retirement locations where local communities survive through accommodating well pensioned retirees. There are of course associated tourism benefits.

Frau Merkel faces her own elections this year. It would be a strange argument to have accepted refugees but to deport people from a rich and high growing economy that provides inward investment, not least with the trading partner that gives Germany its biggest trade surplus (Statistisches Bundesamt (Destatis), 2017).

In practice, it is highly probable that EU members will choose to reciprocate. Few political figures in the last century have sought to displace long term residents, from outside their countries. Stalin, Hitler and Idi Amin spring to mind, none of who were bound by EHCR.

There is of course a perverse situation that could theoretically arise. Should a future British government decide to erode the rights of British citizens, with the wording of the amendment, EU residents could maintain a higher level of rights in perpetuity.

The second amendment is potentially much more debilitating to negotiations. During the Lords debate, it was recognised by those on both sides that the wording is “defective”.

When launching the white paper in January this year, the government committed to inform parliament as negotiations progress. There already exists a mechanism for the ratification of treaties, namely the Constitutional Reform and Governance Act 2010. Both elements effectively make the amendment unnecessary, unless of course there is a more sinister motive.

What the amendment provides is for the approval of BOTH houses of parliament, that is to say the Commons AND the Lords. Moreover, the approval of BOTH houses is required should no deal be agreed and the decision is made to leave the EU anyway.

This is deeply flawed in many ways. It has already been argued in many spheres that the unelected Lords are granted an effective veto over any terms negotiated.

Consider for a moment who voted for this amendment. It was proposed by Lord Pannick, defender of BHS tycoon/typhoon Philip Green and supported by the Liberals, who gained 8% of the vote in 2015. Similarly, the Labour peers whose party attracted 30% of the vote, fell in line. Many of these, appointed by Tony Blair, also draw EU pensions, including the likes of Kinnock, Mandelson and Lord Harrison (former MEP) who described the majority of the referendum electorate “blind Brexiteers” and the Commonwealth a “corner shop”.

A significant handful of Conservatives also fell in with the Liberal amendment, as with some of the cross-benchers, not to mention abstentions. Among these, a significant proportion have families who derive income from the current arrangement with the EU, either in CAP payments or pensions from service in Bruxelles.

If successful in gaining the final say, what are the implications should they continue to thwart the will of the people? Perhaps we could take a clue from those Lords such as Ashdown, Pannick and Heseltine, that the ultimate goal is to maintain membership of the EU.

Scenario 1 is simple, the Lords agree with any deal that the government might negotiate, therefore no problem. With the Lords as currently constituted, the probability of this happening may be low, especially if the EU negotiators see a chink in our armour and insist on a bad deal for Britain.

Scenario 2a is therefore that the government negotiates what they perceive to be a satisfactory deal, 2b is that terms can not be agreed so that we revert to no deal and fall back on WTO rules. The Lords can veto either situation, based on current wording.

Article 50 provides the possibility of an extension to negotiations, with the proviso that all 28 nations agree. Again, there is a further range of scenarios.

Scenario A is that an extension is agreed. Scenario B is that Britain reapplies to remain a member of the EU. From a position of weakness, the terms of membership may be even worse than before. This would take us to 2020, when under the terms of the Fixed term Parliament Act, a general election will take place.

Scenario C is that if any of the 28 says no to an extension the EU is in a position to insist that Britain has to fall back on WTO rules anyway. The Lords then has a veto on an impossible decision, rendering itself totally without credibility. Luxemburg, Estonia, Latvia, Lithuania, Greece or Wallonia each has more power over our future than does Parliament.

The most likely outcome is no deal, on the basis that somewhere along the line the EU will be in parallel negotiations over budget with 27 nations. As Theresa may quite rightly says “no deal is better than a bad deal for Britain”.

The net effect of the Lords’ amendment could be to put the country in limbo, at the mercy of others. The Remainer lords will have created the uncertainty that we were told to fear during the referendum campaign. The 300 or so peers must not be allowed to win.

 

Ultimately, the solution would rest with the outcome of the 2020 general election. The Labour party would have to decide between the Remainer rump or to heed the will of the people. The Liberals would have to hope that the people accept EU membership on worse terms than before and prefer the wrecking amendments of their lords.

As for the Conservatives, before the referendum, the majority of the parliamentary party were ostensibly Remainers. Now, the majority ostensibly support the will of the people. They will all have to retire or face the judgement of the country based in the position they take up at the conclusion of Article 50 talks.

There are of course other possibilities. Other leaders or even parties may emerge, just as UKIP once did and Sir James Goldsmith did with the Referendum Party.

After experiencing the chaos potentially caused by this Lords amendment, constitutional reform, i.e. abolition of a totally unelected second chamber (with the exception of hereditary peers who choose between themselves) would certainly be a vote winner.

Any such alternative party would also need a coherent strategy towards EU relations, unless Luxemburg, Estonia, Lithuania, Latvia, Greece or Wallonia has already taken the matter out of our hands in 2019.

Either consciously or inadvertently, the House of Lords has created the potential for chaos and fundamentally weakened the country. MPs can oppose the amendment. With a majority of 14, it only needs 8 Conservatives to switch sides to carry it. Kenneth Clarke has already ignored one whip. The country then becomes dependent on other MPs with a conscience.

The early part of the week commencing 12th March sees the bill return to the Commons. MPs can still be lobbied. Who should prevail, the unelected House of Lords or the will of the people as expressed in a referendum? There is still time to have your say and contact your MP.

Final say – House of Burkes

The Lords met again to debate the Article 50 bill. The day was dominated by two Liberal Democrat amendments. The scene was set for entertainment and drama. The ultimate decision would be if the people or parliament should have the final say.

One amendment passed, one failed. Elsewhere, it was fun to see different perspectives of democracy from self-proclaimed democrats, particularly the Liberals who have been in the losing side in 2 referenda in around 5 years.

The first of those amendments was introduced was on providing a second referendum, this time on the outcome of the Article 50 negotiations. The second was on giving Parliament a meaningful say in approving any deal.

Lord Newby hesitantly introduced what was technically Amendment 3. Much of the debate wandered into whether the decision made by the people on 23rd June last year. Apparently, all referenda are advisory if they produce the result that any given Lord may prefer. David Cameron’s assertions, backed by his government’s propaganda, told the public something else.

Support for a second referendum came from all around the house. There were different perspectives, however. Those against the amendment were keen to highlight that the first referendum was in 1975. The second had already taken place last year.

Supporting the amendment, a number of speakers were keen to point out that such matters are “too complicated for the people”. It is always an education listening to the Lords to be reminded of the words and philosophies of Edmund Burke.

Those Lords who had been in the ‘other place’ during their careers were keen to regale us with their experience as well as why they are “representatives” rather than “delegates”.

It may surprise those sitting on the red benches that democracy has moved on somewhat since 1774. During the 19th century, more men were given the vote, even if they did not own property. By the time we got to the 20th century, even women got in on the act. Education is now open to all. We even have referenda nowadays.

In the event, Amendment 3 was defeated before Lord Pannick took to the stage over Amendment 1, allegedly ensuring that Parliament has the final say. Pannick will be remembered as the smart lawyer who took part in the legal challenge over the Article 50 process.

It was revealing that both sides of the debate agreed that the wording of Amendment 1 is slightly less than perfect. Lord Lawson highlighted this admirably, pointing out Pannick’s legal skills. Loose wording, so it would seem, presents a two year ticking time bomb.

A fellow Conservative, Lord Hogg, was among those prepared to dismiss slack wording in order to establish a principle. This is the same Hogg whose expenses claims, apparently including moat cleaning and piano tuning, gained such notoriety. Hogg did not declare his interest in CAP subsidies. On the same day, his daughter Charlotte faced calls to resign her position as Deputy Governor of the Bank of England, over her failure to disclose a potential conflict of interests.

In the meantime, the veteran swashbuckler, Lord Heseltine, declared his intent to rebel with the phrase “the fight back starts here”. He is another who benefits from CAP. Later in the evening, he was lose his five jobs advising the government. Perhaps he will need to up his Lords’ attendance record from 2.7%.

It is always fun to listen to those former Honourable and Right Honourable members of the Commons whilst researching their expenses history in the other house. Among those was Baroness McIntosh who famously claimed for Jayes Fluid twice in a week from a shop which is a four hour round drive from her former constituency home, yet close to her own private properties.

Had she really not made up her mind? Baroness McIntosh is still due an EU pension from her time spent as an MEP. Her previous significant rebellion as an MP was against expenses reform in 2008.

Another trend to delight the audience is Lord Ashdown’s increasing tendency to vehemently defend what start of as “misquotes”. When read to him verbatim, he embarks on debate ranging beyond the amendment. During his time as a Royal Marine, Ashdown will have learned of the benefits of a smoke screen.

At times, the drama turned to pantomime, notably with the contribution from Lord Pearson, one of three UKIP Lords. Outnumbered 34:1 by Liberal peers, it might have been unsurprising to hear the calls of “oh no we don’t”. Perhaps he should have advocated proportional representation in the Lords, given that his party secured over 50% more votes than the Liberals?

Given the nobility presented on the day, there was one notably chivalrous moment. Baroness Deech expressed a mistrust of the remaining 27 EU nations. When challenged, she gave supporting evidence of what she had read in the papers.

In the face of being metaphorically slapped down, up stepped Lord Lamont to provide concrete quotes from key EU negotiators and politicians from the 27. his gallantry calmed the house.

Other highlights, surprisingly to some, came from the clergy. The Archbishop of Canterbury sought to reduce division. Once again, The Archbishop of York is developing a habit of appealing to common sense and explaining the existing constitutional safeguards that made the amendment unnecessary.

The summaries made perfect sense.  Some Lords do not trust the government or the people to make the right decisions. Some Lords do not trust the 27 EU states. Some seek to create a legal quagmire which will keep their practices in gainful employment whilst others will seek to use procedure to get their own way, whether the people like it or not.

The Lords decided that no further referendum was required but BOTH Houses should have the final say on approving a deal – if there is one.

Ultimately, the elected representatives in the Commons will decide. Those who go against the will of the people will have to seek re-election. If they fail, they can always be elevated to the House of Lords.

Rights of EU citizens after Brexit (HoL debate)

The House of Lords has entered the second day of the second reading of the Article 50 debate. There have been some fascinating contributions, some expected, some unexpected. One in particular stood out.

It has been an interesting week for the House of Lords, starting with Monday’s BBC documentary Meet the Lords. There have been suggestions in the media, allegedly emanating from sources close to the Prime Minister, that should the Lords seek to delay invocation of Article 50, reform of the upper chamber will inevitably follow.

Debate on Wednesday afternoon centred on what is technically called Amendment 9b. The decision of the Lords is whether the Commons should be demanded to provide a guarantee for the rights of EU nationals currently resident in the UK.

The “noble lords” who support the amendment certainly have a noble case. Central to that is that people should not be used as bargaining chips as the UK seeks to reach a deal with the EU. We should end the uncertainty for existing EU residents.

There are some very practical considerations too. Many British businesses employ nationals from elsewhere the EU. In particular, the NHS is dependent on doctors from the EU and indeed elsewhere in the world. Wholesale change within a short time period would contribute to uncertainty in the provision of services.

It is certainly right that those who have  contributed to Britain’s economy and welfare are respected and reassured.

A range of debate from the other side was presented. Among those, the headline grabber was Lord Tebbit who controversially referred to why the debate was about protecting the rights of “foreigners” when perhaps A British government should support the rights of British citizens resident in the EU.

One of those is Lord Lawson, currently living in France but returning to contribute to this debate. He guided listeners to the words of the Archbishop of York, John Sentamu. The latter was arguably the star of the day.

In summary, the Archbishop started by telling us that he voted Remain. He moved to Britain in 1974 when Idi Amin kicked out Ugandan Asians. Sentamu himself opposed Amin’s behaviour, hence his arrival here.

He presented the historical context of section 9 of the Magna Carta as a basis for British law; no person would be excluded except by the law of the land.

Sentamu proceeded to give yet more context. Article 50 is the start of the Brexit, therefore the negotiation, process. An intervention challenging the “moral high ground” gave him the opportunity to develop further.

In practice, any decision to remove the rights of EU nationals would require further legislation. In the event of a decision to remove those rights, such legislation would have to be presented to Parliament, both the Commons and the Lords. It is unlikely, perhaps inconceivable, that such a bill would succeed. No British government should ever sink to the levels of Idi Amin.

Sentamu’s contribution was powerful in many ways. Even those of us who are convinced atheists have to recognise the simplicity, the clarity and the democratic process encompassed in his arguments, even if we supported the rationale behind the amendment.

What Sentamu has also done, probably inadvertently, is to provide a case for the inclusion of clergy in any reformed House of Lords. His was a voice of reason.

As for the debate, those who have been resident for more than 5 years have the right to permanent residency. Article 8 under European Court of Human Rights those with family here also have rights.

The accompanying Article 50 white paper confirms that it is the government’s intention to secure the rights of both EU nationals in the UK and UK nationals resident elsewhere in the EU.

In the event, the amendment was approved by 358 to 256, a total of 614 Lords (perhaps more) have claimed their £300 attendance allowance and expenses. There were 2 more unelected Lords than elected MPs who had voted in the Commons process.

The elected house will be justified in overturning the Lords’ vote. British law already provides protections for EU nationals living here. The EU may seek to deny reciprocal rights. If they are to seek to deny British nationals abroad those same rights, then we can be delighted to have voted in a referendum not to be a part of a totalitarian EU that seeks to emulate Idi Amin.

As the process continues, we can thank God, if he or she exists, for the guidance of those such as the Archbishop of York.

EU v UK – the balance of negotiating power

As the Article 50 starts to take shape, the question facing negotiators is who has the stronger position. The question has been addressed by select committees. Let’s take a practical look.

At the same time that debate is in progress, sundry parliamentary select committees are hearing evidence from different sectors. Key among them is Mike Hawes of the Society of Motor Manufacturers and Traders (SMMT). His lobbying has included hearings by two select committees during January alone.

Among Mike Hawes’ assertions are that Britain has a weak negotiating position. The basis for this is a much used argument by the Remain side during the referendum campaign. In short, 43% of Britain’s exports are to the EU. In return, Britain accounts for 7% of EU imports. This argument has been oft repeated, notably this week in the House of Lords debate.

EU position
The EU parliament’s Brexit negotiator, Guy Verhofstadt, has insisted that it is an “illusion” to think Britain could enjoy the economic benefits of the single market without accepting EU budget contributions and “free movement”.

He has also asserted that the EU will not accept any Brexit deal that will leave Britain better off than it was as a full member of the bloc because that could encourage others to follow the country out of the exit door.

EU Commission chief negotiator, Michel Barnier, has also suggested that no progress will be made until a “divorce settlement” is reached, something in the order of £50 billion. Leading EU politicians from the power base of Germany and France have insisted that there will be no deal on access to the SEM without free movement of labour.

Behind them, at least ostensibly, there are 27 nations and a Single European Market of 440 million people. Lined up against a solitary nation of 65 million, one might assume a position of strength for the EU.

That strength might also be a weakness, in that the leading powers that provide the bulk of EU funding have to agree to the same deal as the rest. That includes the South European countries undergoing austerity, the agricultural economies and those East European countries with pools of migrating labour.

British position
Theresa May has outlined a British position. Evolving from her “Brexit means Brexit” slogan, we now know her 12 point plan. We have also heard her assertion that no deal is better than a bad deal for Britain.

By asserting that Britain does not aim to be a member of the SEM, at a stroke she might have appeared to eliminated the EU’s strongest weapon. In real terms, how potent is this?

There is a beautiful simplicity to the British approach. We seek to cooperate with EU members where that is to mutual benefit. We seek to retain our sovereignty, including freedom to protect our borders, manage our own affairs and break free from the ECJ.

Britain would like a free trade deal with our friends. If they don’t want to share the same benefits, we have other friends who do.

Access to the SEM
It is worth pondering what exactly is meant by Single European Market (SEM). It is in fact an arrangement that puts up barriers to those from outside, effectively a protectionist zone that imposes tariffs on cheaper goods from outside.

The SEM will continue to be a collection of 27 countries using 24 languages. Of those countries, 14 use the Euro as a currency, the rest are working towards meeting the criteria for that currency.

The members diverge in many ways; the proportion of their economies involved in different industries, religious diversity, income, wealth and other demographic factors.

Much has been made of the need for the UK to secure access to EU services markets, not least financial services. This can be done by “passporting”, i.e. mutual recognition of regulatory frameworks.

In evidence given to Select Committees, David Davis has identified that the UK has 5,000 passports into the EU. The EU in return has 8,000 passports in the UK.

There are two key points to make about access to the SEM:

1. To be a member, we have to discriminate against those outside the SEM, i.e. the rest of the world, which accounts for 57% of British exports under WTO rules.

2. Membership of the SEM gives those other 27 countries access to the British market where the majority of countries have a trade surplus with us. They need us more than we need them.

Putting into perspective

Some other perspectives might be helpful. Instead of looking solely at exports, a more holistic picture can be seen from the balance of trade:

Overall, Britain operates a trade deficit with the EU. The largest part of that is with Germany, a country that has dominated European markets. This has been significantly helped by monetary union, the value of the Euro being held down by countries with different structures to their economies. This is estimated to give Germany a currency undervaluation, therefore competitive advantage of 15-25% according to the IMF.

Other countries have significant trade surpluses with the UK, notably Spain and France but let us for a moment use Germany as an example to focus the mind. It also helps to realise that Germany is the largest net contributor to EU budgets.

Germany’s car exports account for 12% of their total exports. Roughly 20% of those exports come to Britain. A significant proportion of those components are sourced from former East European countries. Germany and its neighbouring suppliers need to maintain access to the British customer.

No deal is better than a bad deal?
The default position, if no trade deal is concluded, is a reversion to WTO rules. Yes, that means that British produced cars may have tariffs applied when sold into Germany, at a rate of around 10%. That also means tariffs can be imposed on German cars coming into the UK, making them less competitive.

Theresa May also highlighted amongst her 12 point plan that free of the SEM, Britain is free to negotiate bilateral free trade deals around the world. Suddenly, cars built in the USA could gain a price advantage of 10% over those constructed in Germany.

Similar arguments can be applied to other EU trading partners and other industries. Consumers will note the range of agricultural products on supermarket shelves, from a heavily subsidised, labour intensive industry within the EU and with punitive tariffs on the rest of the world.

Red wines from Chile, Australia, the USA and others would have price advantages against those from France, Spain and Italy. The importance of the UK market to EU members, notably those who are net budget contributors, should not be understated.

To add to perspective, yes, the EU may account for 43% of British exports. That means the rest of the world accounts for 57%, under WTO rules. By exports, the USA is the biggest market for UK goods, Germany 2nd, Switzerland 3rd and China 4th. By surplus, Switzerland tops the ranking, followed by USA, UAE and Hong Kong.

In short, despite being the absence of a deal with a protectionist EU, Britain is afforded scope to profit from larger markets globally, both in lower costs of imports and freedom to sell into global markets.

Who wins with no deal?
On a political level, Britain gains democratic accountability. On a trade level, Britain regains the ability to deal with a world that has liberalised considerably over the last 45 years.

On what should theoretically be the mid point of the 2 years article 50 negotiations, in April 2018, the Commonwealth games will be held in Australia, a group of friendly nations accounting for 1/3rd of the world’s population, over 5 times more than the rump of the EU. This could be a timely reminder of the opportunities in countries which have a shared history with Britain.

Britain gains freedom to manage her own affairs, gains from reducing the net budget contribution, gains control over migration, gains from free trade with the growing economies of the rest of the world.

The EU would lose the net contribution, potentially face reciprocal tariffs with one of the biggest export markets for almost every one of the 27 remaining nations.

A corporate view
With much having been made of the car market during debate in Brexit, no apologies are made for staying with this example. Some further analysis shows that Germany is the biggest car market in the EU.

The top non-German brand sold in Germany is the 8th most popular model, the Skoda Octavia which is in fact German owned. The top non-German owned brand is the Ford Focus coming in at 14th. The Focus is also built in Germany.

To once again add perspective, in 2016 the Focus accounted for sales of 47,990 in Germany. There were 70,545 sold in the UK. In order to overcome a loss in demand, it might make sense for companies like Ford to avoid tariffs by investing in relocating assembly back to the UK, at least partially.

The relocation of investment argument might even be accentuated if, as suggested by Chancellor of the Exchequer, Philip Hammond, were to follow through his suggestion of reducing corporation tax. Adding value in a low tax economy as compared to the EU would encourage profit to be taken here.

Another angle is those German car makers with plants in other countries that could supply the UK market should trade deals be struck with, for example, Brazil or South Africa. We can always buy our Mercedes and BMWs from those countries. Better still, Jaguar would have a price advantage, more so if using British steel.

Summary
The EU institutions come from a perspective of self preservation, that of the bureaucracy that thrives on increased control. Member nations of the EU are diverse, with needs that vary. It is in the institutions’ interests to delay as long as possible, ensuring maintained net contribution from the UK.

Central to that self preservation is Germany whose industrial markets are artificially protected to sustain an economic engine for EU survival. The buffer states surrounding Germany depend on the net contributions from the bigger member nations to provide what growth exists in the EU markets. The Southern member states suffer with austerity.

Britain has much to gain from freeing itself from undemocratic bureaucracy. She has the opportunity to return to her national characteristics, based on a maritime history with global trade. We do not seek to protect ourselves from the world, rather embrace it with our friends who share a common language and/or a common history.

Whatever position the EU currently takes can soon change. Frau Merkel faces an election this year, as do the leaders in net contributing countries, France and the Netherlands. As well as negotiating with Britain, the EU has to negotiate with 27 member states, some of who will be asked for greater contributions, others who will be asked to accept less.

EU members need access to British markets to maintain a semblance of growth rather than recession. For Britain, the rest of the world once more provides opportunity. If the EU institutions seek to make Britain suffer, it is EU member states who will suffer, from decline in industrial and agricultural sales to a significant trading partner.

As Theresa May says, “no deal is better than a bad deal for Britain”. No deal would be a bad deal for EU member states. The British market is vital for the EU as a whole to maintain growth. At least one side will need to compromise. The EU has to recognise that its 27 member states will lose more by seeking to put up its own barriers to the British customer.

No deal for Britain would ensure no further contributions, would provide certainty in markets and start the march to trading with a growing world. It is up to the EU to decide whether they wish to adopt the philosophy of lemmings or to cooperate with an innovative country that has a global reach.

House of Lords – an opportunity for reform?

In the wake of the EU referendum, public attention has been aroused by suggestions that the House of Lords could be the forum to block Brexit. Were they to do so, would this make it the right time to reform or even abolish the upper chamber?

HoL1

The House of Lords is currently the second most populous legislative chamber in the world, only behind China. It has the largest head count of any chamber in the democratic world.

To summarise the statistics, the House of Lords is currently made up of almost 700 life peers, those being nominated by the Prime Minister. Additionally, there are up to 92 hereditary peers, those who have inherited ancestral titles. A further 26 are bishops.

Among the group of life peers are sports people who have achieved great things. There are also representatives of the legal profession, trade unionists, business people and other who have contributed to society. There is also a raft of failed and/or retired politicians, among them several expenses cheats.

There have been several half hearted attempts over the years at reforming the House of Lords. The most recent Act was in 2014 which merely created the opportunity to retire from the Lords and for members to be disqualified or removed.

The last major reform was under Tony Blair in 1999, which limited the number of hereditary peers. Following the House of Lords Act that year, the number of active peers was reduced from 1,330 to 669. Since then the number has grown again to 805, up by 15%. Each of the 3 Prime Ministers since and before Theresa May have flooded the ermine clad benches, there being over 850 who are either active or inactive. Cameron alone appointed 263 including his resignation honours.

HoL2

Given those numbers, a perspective might be given of attendances. In the year after Blair’s reforms, the average number of peers attending was 352 per day. At the time of the formation of a coalition government, this was up to 388 per day, a rise of just over 10%. By the time of Cameron’s resignation, the increase was to 497, a further rise of over 28%.

Those statistics generate a number of arguments.

At a time when they civil service and indeed the country have been subject to austerity, the Prime Minister has been able to appoint chums to a life of indulgence. Cameron did nothing to reduce the cost of government, at the same time as reforming state sector pensions, with the exception of parliament. They average cost of an active peer is over £130,000 each year in allowances and expenses.

At 805 members, it is hard to justify why the 21st biggest country by population should have the 2nd largest chamber, over 8 times the size of USA who have 5 times the population. The fact that is has grown so much since 1999 makes it hard to disagree that patronage is the wrong means for allocating seats. Incidentally, there is a maximum seating of 400.

HoL3

Anyone who even casually watches proceedings in the upper chamber will find it hard to believe the average attendance. It would be easier to believe the anecdotal stories of peers turning up to sign in whilst the taxi is left running. £300 per day might corroborate allegations aimed at the former Commons’ expenses cheats. There is rarely, if ever, standing room only.

Clearly, any future reform has to be directed at the number of Lords.

There are some alternate perspectives. No single party has a majority in the Lords. . Currently, it might be argued that the balance of power is held by the 26 bishops, 178 crossbenchers and 30 otherwise non-affiliated members. In the case of the former, the nation is afforded a moral compass, as for the others, they can vote with their conscience and on the quality of potential legislation. Independence of members has some attraction.

It may be a surprise to note how frequently the Lords have sent bills back to the Commons for amendment. In the last session alone, there have been 60 defeats involving 17 bills and other regulations.

Perhaps the most high profile of those was on in work tax credits. On that single issue, it seems reasonable to expect that the majority of the population would support the vote by the Lords. In fact, it is hard to argue that any recent defeats were anything less than appropriate measures to curb the excesses of a rash government with a working majority that could potentially last for 5 years under the fixed term Parliament Act.

On tax credits, the Cameron axis of government attempted to push through something which, if put to a public vote, would undoubtedly be defeated. This was also specifically against the electoral promises made by Cameron and his team.

Further analysis of those defeats suggests that collectively, the Lords have acted to uphold democracy and protect rights. Sundry Lords select committees also exhibit detailed and independent analysis of current events and policies. Not all that the lords do is bad and in fact much is for the greater good.

HoL sleeping

So how can we summarise the House of Lords? Certainly it is overpopulated. It is a retirement home for failed politicians and expenses cheats. It has also become a vehicle for unprincipled leaders to reward back scratching. Most importantly, as a revising chamber, it is a vital component in restricting the power of governments which go too far.

This makes the question of how to reform the House of Lords fraught with potential debate.

Some simple principles might apply. At this point, it should also be acknowledged that the House of Lords is unrepresentative in many ways; the predominance of men over women by a ratio of 3:1, the wealth profile and the age profile to name but three.

Firstly, there needs to be a multi tier peerage profile. Honours can be given to those who have excelled and served the public in many spheres. That does not have to be accompanied by entitlement to legislate. Indeed, not all hereditary peers have the right to sit. Extension of that principle would be no novel act.

There also has to be a time limit on how long those entitlements to legislate can apply. Under the current framework, a government has to submit itself to the electorate for 5 years. A peer is in the Lords potentially for life, regardless of competence.

Allowances should only be paid for all day attendance, clocking in before the start of proceedings and confirmed by attendance at a percentage of all votes, 80% does not seem unreasonable.

clean up the house of lords

Numbers should be reduced to a manageable level. It is hard to justify a figure of more than 400 active members, a comfortable seat each if they are to actually attend debates. On that basis, those attending the least can therefore be moved to the non-voting tier of Lords, to be reduced further as a democratic component is introduced.

That democratic component should number between 50% and 75% (to be agreed) which can be elected in between general elections and on a proportional representation basis, reflecting the democratic profile of the electorate. Such elections would hopefully provide a more reflective demographic profile.

The balance, quite rightly, should reflect the moral compass of the country. Bishops should be retained. £300 is a reasonable fee for legal professionals to scrutinise potential legislation. The balance of power should be held by those without other vested interests.

The need for reform is obvious, the solution can be simple, reducing the cost and abuses whilst retaining the brake on a government which exceeds its powers.

Brexit – some EU perspectives

The march towards Brexit continues. Finally, the Article 50 Bill has been presented to Parliament. What better time to consider perspectives from the EU on what Brexit might mean?

With the Article 50 Bill timescale, in theory at least, Theresa May should be in a position to invoke Article 50 itself during the EU Council meeting on 9th March in Malta. There will certainly be cause for reflection amongst EU ministers.
May blanked

It is worth taking a moment to consider what exactly the EU is. The highest priority from the Remain side is that the EU is a Single European Market (SEM), a free trade area for its member states.

A reverse perspective from outside the EU is that it is a customs union. Barriers to trade may or may not exist among EU members but for the rest of the world, the SEM is a market to which access faces barriers. The customs union also includes countries such as Turkey who have yet to become full EU members.

To many Leave voters and campaigners, the EU is a political union between 28, soon to be 27 countries. Among those, 14 are also involved in currency union with fiscal restraint in order to harmonise their economies and provide currency stability. In practical terms, this benefits some more than others, more of which later.

On 31st January 2017 the President of the European Council, Donald Tusk, has written to ministers. His letter can be seen here. Tusk is one of five EU presidents who collectively produce reports on the direction of travel, the 2016 report can be found here.

In short, these views can be seen a representative of the EU establishment. They are committed to ever deeper union and integration. This amounts to further convergence, fiscally, economically and in strengthening institutions.

To that end, Brexit represents a political threat. Tusk has identified what he calls “xenophobic sentiment” and “national egoism” as challenges within Europe. In short, democracy and the will of the people is secondary to maintaining and deepening the power of the institutions.

On top of the political threat, the EU administration faces a cut in its budget to the extent of a net £8billion (and growing) per year. This figure represents around 14% of net contributions. Brexit means that money will have to be found from elsewhere or that expenditure, with the power that brings, being diluted.

The EU administration is faced with the dilemma of doing a deal that respects democracy at the risk of other members being incentivised to leave or punishes Britain. The question remains, who would be punished more?

The EU is however still a collection of 27 nations, for the time being at least. It is remembered that even though its supporters see the EU as a valuable single market, those 27 states will have different views of what Brexit means. To explore those, let us start with relative trade positions.

trade balance

The above table represents the balance of trade, whether EU members are in surplus or deficit with the UK.

Top of the list is Germany with a surplus in excess of £25 billion annually. Their current strength is in full view of those who use Britain’s roads. Germany is the leading car exporter globally at almost twice the value of second in line, Japan and three times the value of USA in third.

To give more background, the UK accounts for 20% of Germany’s car exports. The car industry accounts for 12% of Germany’s total output.

A new German government would certainly be opposed to any sort of deal that damages her own interests. Failure to strike a deal potentially leads to the fall back position of WTO rules. That means of course that British car exports to Germany may face tariffs, in the order of 10%.

Reciprocally, tariffs might be imposed on one of the German car industry’s key export markets. Whilst the SMMT assert this will increase the price of cars by £1,500, there is also the distinct possibility that British consumers shift their buying patterns to those vehicles produced here. Will company car fleets shift from Mercedes or BMW to Jaguar?

There are further threats to Germany. If bilateral free trade deals are struck between Britain and other partners, Japan and the USA, German competitiveness is further diluted by those exporters into British markets as well as British vehicles into American markets.

There is a solution for the car manufacturing companies. German producers, as well as those owned by external investors such as Ford and General Motors can relocate production elsewhere, even back to the UK.

A summary of Brexit for the German economy is that loss in demand from the UK can mean the difference between modest economic growth and recession. Extra competition in markets where bilateral deals are made and disinvestment can lead to depression.

The same principle can be applied to those other countries with significant trade surpluses with Britain, imported cars coming from 7 of the top 8 EU countries which have a surplus with the UK. The exception is Poland which provides components across Europe. Poland’s main export to the UK is consumer goods, including shoes, a relatively labour intensive industry.

Incidentally, the UK happens to be Poland’s 2nd largest export market accounting for Poland’s largest surplus.

Poland is a prime example of another phenomenon, an estimated 800,000 nationals working in the UK and sending a proportion of that income home. Free movement has a greater proportional impact.

The other major trading partners also rely exporting on labour intensive goods to Britain. Among these are heavily subsidised agriculture products; wine, cheese, fruit and cured or processed meats. Reciprocal tariffs would increase these prices in the UK market by up to 80%. Conversely some of these products will become cheaper from the USA, the Commonwealth and the rest of the world.

Jorge Brotons, President of the Spanish export federation Fepex has already identified a cut of 15% in his members’ revenues from the UK, largely as result of currency movements. This would surely be exaggerated by full Brexit and the imposition of reciprocal tariffs. France and Italy can expect similar.

Although campaigners for prioritising access to the SEM choose to minimise Britain’s importance, it can be seen that a shift in Britain’s trading patterns has the potential to impact significantly at the margins. The SEM is not in fact a single market. Rather it is a collection of 27 markets with one dominant currency and 9 others using 24 different official languages.

Remember all of those countries have to agree to a deal.

Not all of the EU is prosperous as was identified on this site here during the referendum campaign. Intriguingly, those with the highest growth rates are typically those former members of the eastern bloc, still with their own currencies and modernising with western investment.

Those with lower growth rates are typically the more mature EU members, outside the German centred powerhouse and who are struggling to meet austerity conditions. These economies are also susceptible to small changes in investment, either through government policy or a fragile banking system.
5 presidents

This brings us full circle back to the institutions leading the Brexit negotiations on behalf of the EU. For all of the above reasons, it is in their interest to delay Britain’s exit, maintaining free access to British markets, freedom of movement and the net contribution. However, all nations involved must agree, including the UK. It is in our interests to seek bilateral agreements with the rest of the world which provides 90% of our economic growth. The EU can not rely on Britain’s compliance.

Restrictions on budgets, if they are to be overcome, require extra funding to be found from somewhere when EU growth is negligible. With elections this year in Germany,France and Netherlands, how can they strike a deal that maintains Germany’s artificial advantage through a Euro that is too strong for most of the rest of Europe? Will the resolve of members reflect the self interest of bureaucrats or will “national egoism”, what we call democracy, mean that they have to accept a scaling down of the vision?

It would not be surprising to see the bigger players in Europe influence the change of direction in of the EU. What Tusk misinterprets as “xenophobic sentiment” might actually be the embryo of devolution, seeking to bring decision making closer to home. Mr Tusk, the concept is called sovereignty.

The EU itself may well find itself in conflict with its members. Further integration can only work if funds flow from the rich in the EU to those suffering with austerity. Is that acceptable to the rich? Can the EU survive without?

So we can see a different context. The EU institutions and 5 presidents may seek to take a hard line with Britain. Voters across Europe may thwart their political will by replacing members of the Council with more nationalistic representatives. The goal may shift from power maximisation to loss minimisation. The only thing certain in the EU negotiating position is uncertainty.