Sleepwalking towards the hardest Brexit

Is Article 50 revocable? The odd thing about this question, says Jo Maugham, the QC who aims to take the case to the European Court of Justice, is that the government appears not to what to know the answer:

The government constantly lives in a world where it doesn’t know what the law is. What is unusual about this situation is that the government does not want to know what the law is.

It’s even worse than that, though, because our legislators don’t seem to want to know either.

It has been left to private citizens to confirm the right of parliament to make the decision on Article 50, to establish whether or not it is revocable and to determine what happens to the UK’s place in the single market after the two years is up. Shouldn’t some of our legislators in the Commons or the Lords have been asking these questions?

Some are calling for an amendment to the Brexit Bill allowing for a “meaningful vote” on the final deal. But, unless Article 50 is revocable, the meaningful vote would be meaningless! That would be like giving notice to your landlord and then, just before you were evicted, asking your family to vote on whether to accept the hovel you have just been offered or be out on the street. With the 2-year clock running down, delaying the deal on offer would be likely to lead to no deal at all. A choice between a poor deal or no deal isn’t really a meaningful vote.

Surely a more meaningful amendment would be one which required the government to get an answer to whether Article 50 can be revoked before triggering it. It would be useful to have some other questions answered too but at least finding out whether we can change our minds would be a start. Without this, all the other talk meaningful votes, red lines and second referendums is just hot air.

It’s not just our legislators who have stopped asking questions though. According to the Guardian, civil servants are surprised by how little pushback they are getting from the media:

Privately, government officials are surprised there has not been more scrutiny of May’s claim to be able to swiftly negotiate a free trade deal that replicates most of the advantages of the single market without any concessions.

“People don’t seem to understand that any trade deals are years off,” said a senior civil servant in Liam Fox’s Department for International Trade. “There are 27 other countries with their own aspirations about Brexit. We cannot even start for two years. The Brexit-leaning press seems to have lost all its critical faculties. They seem unable to scrutinise what is going on because they have so much invested in the decision.”

It’s the wilful ignorance I can’t understand. In any other sphere, proceeding with a major project or transaction while knowing that there are unanswered legal questions would be seen as negligent. I can’t remember the last time a government planning such a sweeping change had such an easy ride. There’s something about this that feels almost soporific. It’s as though people have either decided it is no big deal after all or that it is happening anyway and there is nothing they can do about it.

Last month, the EY Item Club forecast that the UK will be trading under WTO rules two years from now.

Forecasting the likely outcome of the Brexit negotiations is extremely difficult given the lack of specific information in the public domain. The EY ITEM Club have assumed that the most likely outcome is for the UK’s future trade with the EU to be governed, at least initially by WTO rules. This is only one of the possible scenarios and is not the Government’s preferred outcome, but it remains a possible one given the risk that the ambitious objectives set out by Theresa May cannot be realised within two years.

Recent government statements, culminating in the Prime Minister’s speech on Tuesday, have brought greater clarity on the shape of the UK’s exit from the EU. This will have a major impact on the UK’s economic performance in the next decade and is already influencing the economy even before the Article 50 talks have begun. We think the most likely outcome is that the UK will be trading with the EU under WTO rules by the end of this decade.

So one of the UK’s main economic forecasting organisations believes that the cliff edge option, which would put high tariffs on our exports, disrupt supply chains, cause gridlock at ports and which even some Leave supporters believe would be a disaster, is the most likely outcome two years from now. OK, it’s only a forecast but I would have thought this might have had a bit more coverage in the media.

Once this becomes apparent, says the report, the business and consumer confidence built up over the last year is likely to drain away. Its predictions for the economy are grim:

The forecast sees GDP growth slowing to 1.3% this year and just 1.0% in 2018, picking up slowly to 1.4% in 2019 and 1.8% in 2020.

In other words, growth slows to a crawl for the rest of the decade.

There are good reasons to believe the Item Club might be right. The government is being completely unrealistic about how long a trade deal might take, our EU partners seem to be in no hurry to agree one and the lack of an agreement after two years would hurt us a lot more than it would hurt them. But the sort of forensic examination of the government’s approach that we might have expected just hasn’t happened. The time to challenge a chaotic Brexit is now, before Article 50 is triggered because, once the process is set in motion, it will be too late. Few in parliament seem to want to do that, relying instead on a vague never-never land of unspecified debates and votes sometime in the future.

Perhaps many in government and parliament have decided that a complete break from the EU is the best option after all but, if so, there has been remarkably little debate about it. Or maybe, and more worryingly, most of them don’t really understand what is going on. Whatever is happening, no-one seems to be putting up much of a fight for a less damaging form of Brexit. It may be that, as Janan Ganesh said, “Brexit is an idea whose only effective rebuttal is its own implementation.” In other words, we will have to wait until everything goes pear-shaped before people realise what a bad idea it was.

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Immigration: A few questions

The latest ONS labour market figures contain two decades worth of data on employment by country of birth. Since immigration is such a hot topic at the moment, I thought I’d take a ramble through some of the figures.

How has the workforce changed over the last two decades?

We now have 5.6 million more people in work than we did 20 years ago. Of these, around 2 million were born in the UK. The number of UK born workers hasn’t increased by much over the last ten years or so.

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Source, ONS EMP06, February 2017.

Is this because the foreigners have been taking our jobs?

No. Employment rates are at an all-time high. A greater percentage of the UK-born working age population is in work now than at any other time on record. The rate for EU born workers is higher still because most of the UK born of working age who are not in work are sick or disabled. The EU’s sick and disabled stay in their own countries.


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Source, ONS EMP06, February 2017.

What has happened since the recession?

There has been a small increase in the number of UK born in work but most of the employment growth has come from people born outside the UK. EU migrants account for around half the net job growth since the recession.

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Source, ONS EMP06, February 2017.

Isn’t it a bit rich to boast about a jobs miracle then tell the people responsible for it they might have to leave the country?

Yes.

Hang on, though, if the number of UK born in work is barely rising, how come their employment rate has gone up?

The UK born 16-64 population is falling. If the number on the bottom of a fraction gets smaller and the number on the top increases, the percentage goes up. Therefore, even a small increase in the number in work makes the employment rate go up

As the demand for labour rises, migrants are making up the shortfall. The increase in employment we have seen since the recession wouldn’t have been possible without them.

As our population ages and previous baby booms work their way into retirement, it leaves us with a population profile that looks more like a beehive than the traditional pyramid. Without migrants padding out our working-age population, the shape would look even more top-heavy.

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Chart by Michael O’Connor, using ONS data

What will happen if we send ’em all home after Brexit?

We probably won’t because, by the time we leave the EU, around 80 percent of EU citizens will have been here more than 5 years and so will be able to claim permanent residence. Of course, some will struggle to prove it and the government, should it be so inclined, might find all sorts of ways to make things difficult for them. Even so, it is unlikely that we will see a sudden and dramatic fall in the number of EU workers.

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Chart by Social Market Foundation

Of course, processing all these applications will be a colossal task for an already over-stretched civil service but that’s one for another day.

So everything is going to be OK then?

Well not really. Our economy is based on assumptions about trade and the availability of labour. Employers who have had access to a huge pool of well-qualified English-speaking workers will find it difficult to adjust. The EU migrants won’t disappear overnight but it will become more difficult to recruit new people.

The latest employment figures suggest that, for the first time in recent years, the number of EU workers in the UK has fallen.

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The figure for the first quarter of this year may look even worse. Anecdotally, I hear stories of EU workers going home for Christmas and not coming back. Time will tell but it looks as though EU migration might have peaked. Even this slight fall already has employers worrying about a skills and labour shortage. If the government reduces immigration by anywhere near the amount it says it wants to, many businesses will struggle.

This is a bit like turning the tap off at the same time as pulling the plug out. Just as our UK born working age population has peaked, we have decided to make it more difficult for workers to come here from the rest of Europe.

Are these companies just crying wolf?

A few might be but many are going to find themselves in serious difficulty if migration is restricted or if EU workers simply decide they’ve had enough of us and don’t want to come here any more.

Some industries are heavily dependent on migrant workers and a labour shortage might put a lot of companies out of business.

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Chart by Resolution Foundation

What might employers do? 

They could retrain existing workers to fill skill shortages and the government could help more people back into work. But most of the working age people who are not in work are disabled and, as Torsten Bell says, “we’re not about to send them out into the fields.”

A labour shortage might encourage some employers to relocate to where there are more people available. Most of the post recession job growth has been in London. If the supply of migrant labour is choked off, they might go further afield to find workers. It might also mean that the underemployed on precarious part-time or self-employment terms might find more secure work.

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Chart by Michael O’Connor, using ONS data

Then again, some employers might just move work abroad. If the EU workers can’t come here, multi-national firms might simply go to them. One HR director I was talking to recently said he may have to relocate his R&D function to central Europe.

It is possible that a labour shortage might give firms an incentive to invest in technology, thereby improving productivity. Brexit could be the catalyst for a the UK to become a world leader in robotics and artificial intelligence. That, however, would require a complete change in our business culture which has been short-termist and reluctant to invest for several decades.

What else could we do?

We could redefine ‘working age‘. If we can’t reinforce our working age population with migrants we will have to change our assumptions about when people retire. Older people are fitter and healthier than they used to be. Many are already working beyond what we used to think of as normal retirement age and, with the demise of defined benefit pension schemes, the next wave of over 65s might need the money. Raising the pension age to over 70 won’t be popular but it will probably happen sooner than we think.

So could this turn out to be quite bad?

It has all the makings of a complete clusterfuck.

It may well be somewhat challenging, yes.

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Tax and the self-employed

The report on self-employment by the Institute for Fiscal Studies (IFS) published earlier this month has stirred things up. The report found that, on a given level of earnings, typically, a self-employed person will pay less tax and NI than an employee. Not particularly controversial but the Freelancer and Contractor Services Association (FCSA) and the Association for Independent Professionals and the Self-Employed (IPSE) interpreted this as an attack on the self-employed.

I can understand why. Headlines about the gig workers’ tax advantage didn’t help but, to be fair to the journalists, the IFS press release contained the strapline “costly, inefficient and unfair”. It was likely that someone would interpret this as an accusation against the self-employed.

The IFS responded, saying:

We make no criticism of them or their behaviour. Rather, we are criticising government tax policy, on the basis of verifiable facts about how the tax and benefit system works and our analysis of why most of the reasons used to defend lower rates for the self-employed simply don’t hold. We invite all interested parties to read our report.

A good suggestion because it is an interesting read.

The first thing it notes is that the self-employed are still a small proportion of the workforce and those working through companies an even smaller one.

screen-shot-2017-02-14-at-16-28-40But their numbers have grown significantly since the recession and this trend will probably continue. The reports also points out that the increase in the number of owner-managed firms since 2007-08 has come entirely from one-director companies.

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The trouble is, the self-employed, whatever legal form they use, are not taxed in the same way as employees. As this example shows, for someone paid £40,000 a year by a company, the exchequer gets a lot more from an employee than it does from the self-employed.

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Furthermore, the more people are paid, the wider the differential becomes.

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Rising self-employment is therefore a potential disaster for the public finances. As the IFS report says:

One reason for this sudden interest is that the Office for Budget Responsibility (OBR) has quantified the cost of the ongoing shift towards working through a small company. It forecasts that the rapid expected growth in owner-managed companies will lead revenues to be £3.5 billion lower in 2021–22 than if the small company population and employment grew at the same rate (assuming that the overall change in the size of the workforce remained the same).

And:

HM Revenue and Customs (HMRC) estimates that the effective NICs subsidy to the self- employed relative to the employed exceeds the value of their reduced benefit entitlement by £5.1 billion, or £1,240 per self-employed person.

The report recommends aligning the treatment of different legal forms of work, thereby applying the same overall tax rate to income derived from employment and self-employment. It discusses a number of ways to do this but, by whatever combination of taxes, the goal is for the three £40,000 earners in figure 7.3 to each be paying around £12,000 to the exchequer.

From a fiscal point of view this makes sense. By equalising the tax paid, either self-employment will become less attractive both to workers and employers, or it will continue but the tax take will rise. Either way the government plugs what could be a nasty and widening hole in its finances.

But there’s a problem with all this. Most of the self-employed are already earning a pittance as it is. The collapse in their earnings since the recession has been severe.

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Chart via Resolution Foundation, Living Standards 2017

So, while it is true that a self-employed worker earning £40,000 will pay less tax than an employee on the same rate, he or (increasingly) she is much less likely to be on £40,000 in the first place. As you go up the scale in Figure 7.4, you find fewer and fewer self-employed people, apart from a tiny cluster earning over £100,000.

HMRC figures suggest the mean annual self-employment income is somewhere around £16,000 but, as Michael O’Connor showed, when you remove the small number of £100,000 plus earners, the mean incomes of the rest are very low. Furthermore, while some of the self-employed have earnings from other sources, a lot of them don’t.

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As the RSA reported earlier this month, almost a fifth of self-employed are in receipt of tax credits, compared to 10 percent of employees.  The move to Universal Credit is likely to reduce this support for many self-employed people.

Against this background, making the self-employed cover their own employer NICs is a big ask. It is true, as the RSA points out and the IFS chart in Fig 7.4 shows, that the amounts for low earners are not very large but when people’s pay is already so low it could make the difference between staying in business and packing up altogether.

Again, from a macroeconomic perspective, that might be a good thing. Removing the marginal self-employed would mean that employers either had to pay more to the ones that were left or convert their contractor jobs back into roles for permanent employees. However, even if this worked it would take a while and, in the meantime, some people would be facing destitution. More generous benefits for those that had closed their businesses, at least for short-term, would be a necessary quid-pro-quo.

There’s another important point here though. Let’s be clear about who is doing most of the tax avoiding. Look closely at Figure 7.3 from the IFS report. It’s the employer who is saving the biggest chunk of tax by using self-employed workers. Furthermore, the employer is also avoiding holiday pay, redundancy or unfair dismissal liabilities, pension payments and training costs. All this becomes the responsibility of the self-employed worker. While some of the self-employed may gain a bit from their tax status, the most of the benefits of self-employment are going to the employers.

Calls for something to be done about this are the story of the moment. ONS figures out today showed that the number of self-employed workers is at a record high. Yesterday the TUC added its voice to those of the IFS and RSA, claiming that low-paid self-employment is costing the exchequer £2.1 billion a year, though pointing out that this is due more to severe low pay relative to employees than to tax rates. RSA boss Matthew Taylor, who is heading the government’s review of employment practices, attacked businesses for using self-employed workers to avoid paying tax.

They are right, of course. As I have often said, the rise of the PAYE-less, NIC-less, VAT-less  and impoverished freelancer is everyone’s problem. The trouble is, trying to solve this by adding burdens to people already struggling to get by will have potentially devastating consequences for some. If we want to make it more difficult for employers to avoid tax and dump costs by using self-employed workers, we have to make sure the poorest don’t end up taking most of the hit.

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America has been here before

Breitbart carried an article last week saying that American liberals are in despair. It might be a bit late with that headline though. Now they are faced with the reality of Donald Trump’s presidency, his opponents are shaking themselves out of their despair and are starting to fight back. There are good reasons for them to be optimistic, not least of which is the president’s tendency to over-react and waste energy on trivial issues.

But history offers some perspective too, for America has been here before. Well, OK, not quite here but somewhere very similar.

In the 1920s, a determined minority imposed on the rest of America one of the most draconian restrictions on personal freedom ever enacted in a modern democracy. I’m talking, of course, about prohibition. The forces behind prohibition may sound familiar. Its supporters were mostly white protestants from rural and small-town America. Many people were disturbed by rapid industrialisation, urbanisation and immigration. They felt that their America was under attack. Campaigning organisations like the Anti-Saloon League were able to link their anti-alcohol aims to wider fears about immigration and social change. Many immigrants came from countries with drinking cultures and the increase in immigration at the end of the 19th century coincided with a rise in the consumption of alcohol. The cities with their crime, low morals, drunkenness and immigrant populations contrasted sharply with the small towns with their social order, morality, temperance and Anglo-Saxon protestant populations. It was a powerful story. Drink and drunkenness became identified with things urban and foreign. A range of social and political concerns thus crystallised around a single issue. Prohibition became part of a nativist fightback against the encroachment of immigrants and their un-American city ways.

While the story of prohibition is familiar to most people, perhaps less well-known is the power wielded by the Ku Klux Klan in the 1920s. These days, the Klan is a series of somewhat ridiculous dressing-up societies, prone to the occasional outburst of localised violence. In the 1920s, though, it was serious and organised, with paid officials and a national structure. And, the most important difference from today, it was mainstream.

Exploiting similar fears and social forces to those which led to the enactment of prohibition, the Klan grew rapidly. It burst out of its Deep South homeland and formed powerful chapters in such unlikely places as Pennsylvania, Michigan, Minnesota and Oregon. It took control of state governments and courts in Colorado and Indiana. In some parts of the country it became like the Nazi Party in Germany or the Baath Party in Iraq. You had to join it if you wanted to get on. There is even a story that Harry S. Truman was advised to join the Klan when he was a judge in Missouri, as someone might suggest joining the freemasons or the Rotary Club.

By the mid 1920s, the Ku Klux Klan was a national organisation. Some historians believe that around 15 percent of white protestant men were members. This graphic shows how the Klan grew from a purely southern movement into a nationwide organisation.

In the early to mid 1920s, the Ku Klux Klan was in the ascendency and its opponents were cowed. Resistance to the Ku Klux Klan was met with violence and, in areas where the organisation controlled the courts and police, the power of the state. In 1924, it sent a number of delegates to the Democratic Convention, coming close to securing its candidate’s nomination and in 1925 a “full mile of Klansmen” marched through Washington DC. Few would have bet against the continuing rise of the organisation and its reactionary and racist politics.

Yet less than ten years later, the Klan had collapsed and Franklin D. Roosevelt was in office, implementing his programme of liberal social and economic reform. Some of this is due to the sheer ineptitude of some of the KKK leaders. If you claim to be upholding American morality but your senior figures keep getting convicted for corruption, eventually even your most loyal supporter start to lose faith. Despite the Klan’s grip on many US states, the dogged determination of its opponents, such as the journalists Grover Hall, gradually exposed its leaders. Once its image became tarnished, its ‘respectable’ supporters, the politicians, lawyers and businessmen who had given it cover, melted away. By the mid 1930s it had almost ceased to exist. The year that Roosevelt became president also saw the repeal of prohibition.

Both prohibition and the rise of the KKK were symptoms of a nativist backlash against immigrants and social change. There are clear parallels with what has happened in the US and elsewhere in the last year. The lesson from the 1920s is that there is no quick fix. Those who want to fight back just have to find the loose threads and keep pulling at them until they unravel. As Tim Mullaney says, by keeping the heat on, Donald Trump’s opponents have already made a pretty good start. America saw off reactionary nativism once before. It should be able to do so again.

Update

John Verley pointed me to this piece on the alliance between the Ku Klux Klan and the Anti-Saloon League.

Drinking was something that was most closely associated with blacks and immigrants such as the Irish and Italians (both largely Catholic). These were the very groups targeted by the Klan, and so the Klan was strongly pro-Prohibition.

Nativism (anti-immigrant activism) could find no better running mate than Prohibition. In many towns there was little distinction between membership in the Klan and in an ASL-affiliated church.

The social and political forces behind prohibition and the KKK’s revival in the 1920s were very similar.

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Setting fire to the safety net

Is inequality getting worse, better or staying pretty much the same? It’s one of those questions that comes up over and over again.

Jeremy Corbyn couldn’t have picked a worse time to claim that inequality is getting worse, just before an ONS report appeared which showed that it was at a 30 year low.

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Chart via Resolution Foundation.

As ever, though, it’s a bit more complicated than that. If you look purely at hourly pay, the rates people are paid for the work they do, then Jeremy Corbyn is right. The UK is the most unequal country in the EU and more unequal than it was a decade ago. The European Foundation for the Improvement of Living and Working Conditions (Eurofound) commented:

The UK is remarkable for its polarisation: it accounts for a very significant portion (nearly half) of the top 1% of wage earners in the EU, and yet it also has a substantial presence in the bottom two quintiles.

But incomes are affected by factors other than hourly rates. This horrid but useful chart from the Eurofound report shows how, once you compare annual incomes and household incomes after tax, the UK falls to somewhere near the average in comparison to other EU countries.

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There are two reasons for this. Firstly, with the 3rd highest employment rate in the EU, the UK distributes its employment more evenly than some other countries. A smaller proportion of households suffer from unemployment and long-term poverty. Secondly, the UK’s tax and benefits system is highly redistributive.

This means that it is possible to have relatively high levels of pay inequality and relatively low levels of household income inequality at the same time. Furthermore, it is possible for pay inequality to increase and household income inequality to reduce at the same time.

As this chart from a recent report by the IFS shows, the difference between the male hourly wage at the 90th and 10th percentiles of the income distribution has risen while that for household incomes after tax has fallen.

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Different aspects of inequality can rise and fall at the same time.

As this chart from the IFS report shows, the tax and benefit system prevented a huge rise in inequality among working households over the past 2o years. (Post-tax income here includes the effects of taxes and benefits.)

screen-shot-2017-01-23-at-17-04-26Pay rose much faster for those on higher incomes but redistribution through taxes and benefits evened out the rise in household incomes until it was almost uniform.

Over the same period, as the Resolution Foundation showed, the proportion of people receiving out-of-work benefits fell and the employment rates of those in the lowest income deciles increased.

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Source: Resolution Foundation


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Source: Resolution Foundation

As well as mitigating income inequality, the benefits system, through tax credits and other in-work benefits, was encouraging people back into employment. This, together with the minimum wage, meant that household incomes rose faster for those on lower incomes than for those on all but the very highest incomes. Therefore household income inequality fell at the same time as individual pay inequality rose.

It would be churlish not to acknowledge this as a tremendous achievement. Holding household income inequality steady at the same time as pay inequality was rising demonstrates the effectiveness the government’s tax, benefits and employment policies. A deindustrialising country with huge international financial centre in its bottom right hand corner was always going to be at risk of rocketing income disparity. What could have been a rapid and divisive rise in inequality was tempered by government policy. It’s unfashionable to say anything nice about him these days but Horrid Tony Blair must take at least some of the credit for this. As Polly Toynbee often said, he was more Labour than he liked to admit.

Looked at another way, though, this simply means that, as Chris Dillow says, we have grown used to a much higher level of inequality than we had in the 1980s. Cheering about it having fallen a little misses the point:

Even if inequality is now falling, the damage done by the previous rise in it still lingers. To paraphrase Joseph Schumpeter, if a man has been hit by a lorry you don’t restore him to health by reversing the lorry.

Furthermore, all that is standing between us and severe inequality is our finely balanced tax and benefits system. Start cutting in-work benefits, as the government is planning to do, while the wage squeeze continues, as it probably will, and the level of inequality is likely to rise sharply.

In its recent report on living standards, over the rest of this decade the Resolution Foundation forecasts a jump in inequality similar to that of the 1980s.

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Ken Clarke remarked last week that politicians have no idea how to tackle inequality:

I think everybody who believes in liberal economic policies – which is the great bulk of politicians of the last few years – have never quite solved the problem of how to distribute the benefits better so that the whole country can be seen to benefit. We’ve been trying for years.

Might it be a good idea to come up with some new ideas before removing the safety net that, for all its faults, has kept inequality at bay for the past quarter century?

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3 questions MPs should ask before voting for Article 50

Let’s say you are about to buy a house. You receive a call from your solicitor saying that there are three unresolved legal questions relating to the property, any one of which might, at some future date, leave you with significant financial liabilities. Nevertheless, he tells you that he has exchanged contracts anyway because he reckons you’ll probably be able to sort it all out somewhere down the line.

You’d be aghast wouldn’t you? You would definitely try to stop the sale and sack your solicitor. You would probably report him to the Law Society too.

A far-fetched story? Perhaps, but this is pretty much what our elected representatives are about to do to us. They are being asked, in a very short bill, to allow the Prime Minister to trigger Article 50 which will begin the process of the UK’s withdrawal from the European Union.

But there are at least three legal questions about Article 50 to which we don’t yet know the answer.

1 Is Article 50 revocable?

The initial assumption after the Brexit vote was that, once Article 50 had been triggered, the UK would automatically leave the EU after 2 years unless the rest of the EU granted an extension. However, Lord Kerr, the author of Article 50, says that’s not so. This is currently the subject of a legal challenge in the Irish courts which “seeks to establish whether we can unilaterally – ie without the consent of the other 27 member states – withdraw our Article 50 notification.” . Jo Maugham explains the case here. At the moment the UK’s only fallback position if it doesn’t like the deal on offer is to resort to trading under WTO rules. If Article 50 is revocable it gives us the option of changing our minds.

2 Can we negotiate a new trade agreement with the EU before we have left the EU?

The EU trade commissioner, Cecilia Malmstrom, says not. It is, she claims, against EU law for the EU to negotiate a trade deal with one of its own members. The UK must therefore leave the EU completely before any trade deal can be agreed. All that can be negotiated in the two years following Article 50, she argues, is the terms of the separation, covering questions like the relocation of EU agencies based in the UK, the rights of EU and UK citizens, the pension payments of the UK’s EU officials and cross border security arrangements. If she is right, this would mean Britain leaving the EU on or before 31 March 2019 with no trade agreements.

Some lawyers disagree with her interpretation, arguing that there is nothing to preclude trade talks taking place in parallel with the withdrawal agreement. They may well be right but, at the moment, we can’t be sure because none of this has been tested. There will be 27 countries plus the European Commission involved in the negotiations. It only takes someone somewhere to decide that it is in their interests to challenge the legality of the negotiation and the whole process could be delayed. It would be helpful to get an answer to this question before we start.

3 Does leaving the EU automatically take the UK out of the single market?

Again, the general assumption has been that leaving the EU means that the UK leaves the single market too. But here too there is doubt. Some argue that leaving the EU and the European Economic Area are separate acts. To leave the single market, Article 127 of the EEA agreement must be triggered separately. If they are right, this means that, if no agreement is reached after 2 years, the default position is that the UK leaves the EU but remains part of the single market, rather than having to trade under WTO rules. This would give the negotiations a completely different dynamic. Rather than having to rush to conclude a deal, we could all take our time secure in the knowledge that there would be no sudden and severe disruptions to trade. This would give us the transition period. The UK could leave the EU and evolve from the EEA position to a bespoke trade deal over time.

Like Article 50, Article 127 is the subject of a separate legal challenge due to be heard sometime in February.

As yet, no-one can be sure of the legal position on any of these questions. but wouldn’t it make sense to get the answers before triggering Article 50? As Jo says:

No one, acting rationally, chooses to make a momentous decision earlier than they need to and before they have the fullest possible evidential picture before them. A Government driven by the interests of the country should want to preserve its optionality until the last possible minute. Moreover, it is hard to understand why the United Kingdom Government might argue for an outcome that denuded itself of a unilateral right and left it instead at the mercy of the agreement of the other 27 member states.

Imagine a board of directors taking a major decision on the future of a company, like a merger or demerger. If they did so without clarifying the legal position they would be in breach of their fiduciary duty.

Yet this appears to be what our parliament is about to do. It was left to private citizens to establish parliament’s right to vote on leaving the EU and it is being left to private citizens to establish the legal position. It should be our MPs asking these questions. Incredibly, most of them seem happy to vote to trigger Article 50 without having any idea about what it actually does.

If the answers to the above questions are No, No and Yes, then a vote for Article 50 automatically takes us straight to WTO rules. Do not pass GO, do not collect any trade agreements. Most people who know anything about international trade agree that this would be extremely damaging.

Of course, such a scenario may be very unlikely but, at the moment, no-one can be sure. Our MPs certainly can’t. No-one would buy a house if there were legal questions hanging over it yet parliament seems happy to take the most far-reaching decision since the Second World War without being in possession of all the evidence. Surely they should be asking these questions themselves. That’s their job.

People go into politics for all sorts of reasons but most are conscious of the legacies. A parliament which votes for something so critical from a position of wilful ignorance will be judged harshly by history.

Parliaments before the 18th century were often given names, such as the Good Parliament, the Merciless Parliament, the Unlearned Parliament, the Parliament of Devils and my favourite, the Parliament of Bats.

What might historians call this parliament? The Scared Parliament? The Ignorant Parliament? The Clueless Parliament? The Rabbit-in-the-Headlights Parliament? Or perhaps the Parliament of Lemmings, going headlong over a cliff without a clue where it was going to end up.

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3 questions MPs should ask before voting for Article 50

Let’s say you are about to buy a house. You receive a call from your solicitor saying that there are three unresolved legal questions relating to the property, any one of which might, at some future date, leave you with significant financial liabilities. Nevertheless, he tells you that he has exchanged contracts anyway because he reckons you’ll probably be able to sort it all out somewhere down the line.

You’d be aghast wouldn’t you? You would definitely try to stop the sale and sack your solicitor. You would probably report him to the Law Society too.

A far-fetched story? Perhaps, but this is pretty much what our elected representatives are about to do to us. They are being asked, in a very short bill, to allow the Prime Minister to trigger Article 50 which will begin the process of the UK’s withdrawal from the European Union.

But there are at least three legal questions about Article 50 to which we don’t yet know the answer.

1 Is Article 50 revocable?

The initial assumption after the Brexit vote was that, once Article 50 had been triggered, the UK would automatically leave the EU after 2 years unless the rest of the EU granted an extension. However, Lord Kerr, the author of Article 50, says that’s not so. This is currently the subject of a legal challenge in the Irish courts which “seeks to establish whether we can unilaterally – ie without the consent of the other 27 member states – withdraw our Article 50 notification.” . Jo Maugham explains the case here. At the moment the UK’s only fallback position if it doesn’t like the deal on offer is to resort to trading under WTO rules. If Article 50 is revocable it gives us the option of changing our minds.

2 Can we negotiate a new trade agreement with the EU before we have left the EU?

The EU trade commissioner, Cecilia Malmstrom, says not. It is, she claims, against EU law for the EU to negotiate a trade deal with one of its own members. The UK must therefore leave the EU completely before any trade deal can be agreed. All that can be negotiated in the two years following Article 50, she argues, is the terms of the separation, covering questions like the relocation of EU agencies based in the UK, the rights of EU and UK citizens, the pension payments of the UK’s EU officials and cross border security arrangements. If she is right, this would mean Britain leaving the EU on or before 31 March 2019 with no trade agreements.

Some lawyers disagree with her interpretation, arguing that there is nothing to preclude trade talks taking place in parallel with the withdrawal agreement. They may well be right but, at the moment, we can’t be sure because none of this has been tested. There will be 27 countries plus the European Commission involved in the negotiations. It only takes someone somewhere to decide that it is in their interests to challenge the legality of the negotiation and the whole process could be delayed. It would be helpful to get an answer to this question before we start.

3 Does leaving the EU automatically take the UK out of the single market?

Again, the general assumption has been that leaving the EU means that the UK leaves the single market too. But here too there is doubt. Some argue that leaving the EU and the European Economic Area are separate acts. To leave the single market, Article 127 of the EEA agreement must be triggered separately. If they are right, this means that, if no agreement is reached after 2 years, the default position is that the UK leaves the EU but remains part of the single market, rather than having to trade under WTO rules. This would give the negotiations a completely different dynamic. Rather than having to rush to conclude a deal, we could all take our time secure in the knowledge that there would be no sudden and severe disruptions to trade. This would give us the transition period. The UK could leave the EU and evolve from the EEA position to a bespoke trade deal over time.

Like Article 50, Article 127 is the subject of a separate legal challenge due to be heard sometime in February.

As yet, no-one can be sure of the legal position on any of these questions. but wouldn’t it make sense to get the answers before triggering Article 50? As Jo says:

No one, acting rationally, chooses to make a momentous decision earlier than they need to and before they have the fullest possible evidential picture before them. A Government driven by the interests of the country should want to preserve its optionality until the last possible minute. Moreover, it is hard to understand why the United Kingdom Government might argue for an outcome that denuded itself of a unilateral right and left it instead at the mercy of the agreement of the other 27 member states.

Imagine a board of directors taking a major decision on the future of a company, like a merger or demerger. If they did so without clarifying the legal position they would be in breach of their fiduciary duty.

Yet this appears to be what our parliament is about to do. It was left to private citizens to establish parliament’s right to vote on leaving the EU and it is being left to private citizens to establish the legal position. It should be our MPs asking these questions. Incredibly, most of them seem happy to vote to trigger Article 50 without having any idea about what it actually does.

If the answers to the above questions are No, No and Yes, then a vote for Article 50 automatically takes us straight to WTO rules. Do not pass GO, do not collect any trade agreements. Most people who know anything about international trade agree that this would be extremely damaging.

Of course, such a scenario may be very unlikely but, at the moment, no-one can be sure. Our MPs certainly can’t. No-one would buy a house if there were legal questions hanging over it yet parliament seems happy to take the most far-reaching decision since the Second World War without being in possession of all the evidence. Surely they should be asking these questions themselves. That’s their job.

People go into politics for all sorts of reasons but most are conscious of the legacies. A parliament which votes for something so critical from a position of wilful ignorance will be judged harshly by history.

Parliaments before the 18th century were often given names, such as the Good Parliament, the Merciless Parliament, the Unlearned Parliament, the Parliament of Devils and my favourite, the Parliament of Bats.

What might historians call this parliament? The Scared Parliament? The Ignorant Parliament? The Clueless Parliament? The Rabbit-in-the-Headlights Parliament? Or perhaps the Parliament of Lemmings, going headlong over a cliff without a clue where it was going to end up.

Posted in Uncategorized | 11 Comments