This EU Won't Work

In the end the UK election was not just about Brexit; like other recent votes in Western countries it seemed to have a lot to do with rebellion against what people know but believe isn’t working for them.

Blame for a ‘chaos’ result is being widely attributed to Mrs May’s presidential approach by making the election about her (in contrast to an unelectable opponent) plus an uninspiring manifesto that even undermined the self-interests of key supporters – pensioners. On the flip side Jeremy Corbyn inspired young people to vote for optimistic policies, regardless of their affordability, whilst appearing sincere in his beliefs, whether flawed or not.

If the Tories had presented a positive picture of Britain’s future after leaving the EU rather than a negative one of what it would be like if their opponents were put in charge, perhaps that might have inspired more support. As it was people in areas that voted Remain last year swung towards Labour and Leavers did not flock from UKIP to Conservative as expected. However, we have come to expect the unexpected and can spend too much time puzzling about why this is happening when the point is to make the best future we can.

If the Conservatives, with DUP support in Parliament or in a coalition government, form a majority, will this result in a ‘softer’ Brexit than the Tories alone might have wanted?  Certainly the DUP has important concerns about the Irish border and therefore the implications of leaving the single market without a free trade deal. Might this result in an EEA (or Norwegian) style arrangement? There are other options but they will require a bold approach that may be beyond the courage and convictions of the probable leaders of the UK’s new government.

“No-one wants to see a ‘hard’ Brexit, what we want to see is a workable plan to leave the European Union, and that’s what the national vote was about”, DUP leader Arlene Foster said after the election.

One radical approach would be to abolish all tariffs on UK imports, regardless of any reciprocal trade deals. This might help reduce the Irish problem and there are interesting arguments that it would be in the long-term economic interest of the country. We should remember that world (WTO) tariffs are not high on average and the UK Treasury receives only a quarter of its own import duties, the rest being passed over to the EU at present. Some sectors would be much more seriously exposed than others so strong transitional support may be required, especially for worker’s jobs. But note that consumer prices here would drop and EU exporters would have to compete with cheaper RoW imports; consumer spending power would increase and therefore growth.

Another thing to remember is that WTO rules are designed to encourage international trade, not to wreck it. So relying on these rules should not be seen as a catastrophe, it is how the majority of countries trade. Neither the EU nor WTO solve all the non-tariff barriers to trade and both address trading in goods more than the services in which Britain is a major international player. Trade agreements can help somewhat so must be part of the answer we need. The OECD is asking countries to do far more to reduce these costs which it estimates are equivalent to an average tariff of 40%. UK service industries (accountancy, IT, music, film, etc.) are relatively productive and highly regarded, representing around 80% of its economy and employment; plus they provide nearly half its exports with a very positive trade balance. All advanced economies tend to switch towards services from goods manufacture so with the right policies Britain’s future could be rosy. 

For now we wait to see the emerging shape of our political future, which is considerably more uncertain than it was a few days ago (we have commented before on uncertainty and how it’s inescapable – see, for example, Uncertainty). We are hoping for enlightened, forward-looking policies rather than backward-looking, defensive ones; it is not yet clear whether the election has made this more or less likely.

“I do hope that the results of the elections will have no major impact on the negotiations … As far as the commission is concerned, we can open negotiations in the morning at half past nine. So we are waiting for visitors coming from London,” said European Commission president Jean-Claude Juncker.

We sense a touch of malice in this comment, and others from EU bigwigs.