“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.

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.