Politics is back and business didn’t see it coming

Davos was in shock this year. “Lost in a blizzard of complexity” and staring into a populist abyss, the corporate elites were struggling for answers. Its chief organiser, Klaus Schwab, executive chairman of the World Economic Forum, called on attendees to help “overcome the present mood of divisiveness and negativism,” sounding a little too much like a senior executive at a corporate conference when the company is on the skids and everyone thinks they are about to be made redundant.

How different things looked this time last year. The delegates were told that Donald Trump would be humiliated and a triumphant David Cameron would be congratulating Hillary Clinton on becoming president. Brexit, Trump and the rise of populism didn’t make it into the Davos predictions for 2016.

This year the agenda is a somewhat different. As Noah Barkin reports:

The titles of the discussion panels at the WEF, which runs from Jan. 17-20, evoke the unsettling new landscape. Among them are “Squeezed and Angry: How to Fix the Middle Class Crisis”, “Politics of Fear or Rebellion of the Forgotten?”, “Tolerance at the Tipping Point?” and “The Post-EU Era”.

So how come so few people saw this coming?

There are two reasons. Firstly, we have been through nearly four decades when politics seemed to matter less and less to the business world.  During that period, what David Goodhart called the two liberalisms dominated politics, the social liberalism of the left and the economic liberalism of the right. As he said:

Whoever you vote for you get the same old mix of economic liberalism and social liberalism – Margaret Thatcher tempered by Roy Jenkins.

Something similar happened in the US. From sometime in the mid 1980s, the right concentrated on its economic agenda and the left on its social agenda while both quietly conceded ground on the other front. As Alan Wolfe put it:

The right won the economic war, the left won the cultural war.

Both kept up the rhetoric on their losing fronts. The left condemned deregulation, privatisation and rising inequality while not being able or willing to do much about it. The right talked tough on immigration and traditional values to gain working-class votes while, as Thomas Frank observed, not actually delivering on any of it. It often comes as a surprise to people that Ronald Reagan granted the largest illegal immigrant amnesty in US history or that Margaret Thatcher abolished corporal punishment in schools. Despite her warnings about being swamped by immigrants, the rhetoric didn’t translate into action. As the Migrants’ Rights Network says, Thatcher’s policy on immigration was very light touch.

Corporations were, by and large, happy with both liberalisms. Deregulation, privatisation and lower taxes suited them well and the diversity and discrimination laws were a small price to pay. The occasional diehard corporate executive would complain, after a few glasses of wine, about being “forced to recruit nig nogs” (yes, that really happened) but a new generation of bosses happily embraced diversity when they realised that well-educated and well-scrubbed employees came in all colours. Immigration sat at the intersection between the two liberalisms. Economic liberals liked free movement of labour and social liberals championed multiculturalism. Companies liked it because it gave them access to more workers and a much wider range of skills.

Which brings me to the second reason. Over time, the prevailing political culture came to suit most large corporations and, as the likelihood of it changing seemed to diminish, company executives lost interest in politics. I have been in and around corporations for three decades and I have been struck by how little company executives talked about politics. A few in the big consultancies and banks were paid to pay attention but, even here, they were usually more interested in political risks in more volatile parts of the world than in what was going on closer to home. For the most part, those who discussed politics did so because they were interested in it, not because keeping up to date was in any way part of their job. They discussed politics as others might discuss gardening or golf.  Some people at very senior levels were astonishingly unaware and uninterested even in UK politics, let alone those of the rest of Europe .

Back in the 1970s, I’m told, company boards kept a keen eye on politics. By the mid 1990s, though, there wasn’t much point. Whoever won there wouldn’t be much change that would affect large companies. A few changes to employment rights, perhaps, and the introduction of a fairly modest minimum wage but nothing to cause any real concern. In the US, big firms gave donations to Republicans and Democrats alike. In the UK, the help was more subtle, as city firms embedded their staff within political parties for ‘free’.

For corporations, who won elections mattered less than it had decades earlier. The details might change but the overall direction wouldn’t. The relative importance of politics was reflected in the job prospects of political science graduates. It was much easier to get a job with an economics degree. After all, economists understood numbers and money and ‘real’ stuff. Politics was just a hobby, interesting but not something that would have much of an impact on the organisation. It’s still pretty much like that now.

So most people in the world of big business weren’t really watching what was happening in the stable countries with good credit ratings. It was assumed that they would carry on as before. That there were people in these countries who were as angry and resentful as those in more volatile parts of the world rarely crossed anyone’s mind.

The triumph of the two liberalisms didn’t suit everyone though. A lot of traditional right and left-wing voters began to notice that the things they thought they were voting against kept happening anyway, whether it was political correctness and liberal education or privatisation and deregulation. Attitudes to immigration, which was never that popular among people in Britain, began to harden in the rest of Europe and the US.

While people were reasonably comfortable, they would put up with the parties they had long supported doing things they didn’t always agree with. But economic collapse destroyed that side of the bargain too. The financial crisis and the long squeeze on pay and living standards turned mutterings of discontent into shouts.

For a while, it looked as though the pre-crisis economic consensus had survived. The backlash against capitalism that many on the left had hoped for never materialised. Leftwing parties, which might once have hoped to profit from a crisis precipitated by global finance, found that they were too much identified with the system to profit from its collapse. The revolution never came.

That there might be a backlash against global capitalism from the right didn’t seem to occur to anyone. In a direct riposte to Thomas Frank’s book, after President Obama’s re-election, Paul Krugman asked, “Who cares what’s the matter with Kansas?” Diverse and tolerant America was the real America, he said. Those blue-collar socially conservative voters were, apparently, no longer worth worrying about.

The day after Donald Trump’s victory, Thomas Frank was scathing in his criticism of the complacent “liberalism of the rich”:

[T]hat there is a kind of chronic complacency that has been rotting American liberalism for years, a hubris that tells Democrats they need do nothing different, they need deliver nothing really to anyone – except their friends on the Google jet and those nice people at Goldman. The rest of us are treated as though we have nowhere else to go and no role to play except to vote enthusiastically on the grounds that these Democrats are the “last thing standing” between us and the end of the world. It is a liberalism of the rich, it has failed the middle class, and now it has failed on its own terms of electability.

Though the backlash has come from the right, it’s not the same right that talked tough on social issues while deregulating, privatising and leaving corporations and the wealthy to do want they liked. These are nationalists who combine the social conservatism of the traditional right with the pro-worker policies and protectionism of the old left. Their rhetoric is xenophobic but also anti-corporate, often combining the two. It contests both the social liberalism of the left and the economic liberalism of the right. This combination, in varying forms, is a feature of the north European nativist populist parties and, insofar as his ideology has any coherence, the stated policies of Donald Trump.

Even in countries where parties of the populist right have little hope of gaining power, their electoral support is exerting a gravitational pull on the policies of mainstream parties. This is most obvious in the UK’s Brexit debate where, it appears, membership of the single market and customs union will be sacrificed in favour of the need to curb immigration. Theresa May’s government has also loosened its fiscal stance and promised a crackdown on tax avoidance and high executive pay. Even Germany’s CDU is shifting towards a more nationalist stance, its chairman declaring that “Multiculturalism has failed.” President Trump is already cajoling and threatening big corporations like Apple, Ford, Boeing and Toyota to ‘bring the jobs back’ by producing more in the USA. In whatever form it takes, this new populist right is not giving big business the sort of easy ride it has enjoyed over the past three decades.

“Big business won’t allow it” is a phrase I have heard often over the past twenty years or so. Both the libertarian right and the left told us that the power of nation states was over and that corporations would soon rule the world. But if big business had been that powerful it wouldn’t have allowed the referendum on the EU in the first place and it would certainly have stopped Britain’s withdrawal from the single market. To find an electoral verdict being met with such dismay in the corporate boardrooms of Britain, you’d have to go back to Harold Wilson’s victory in 1974. If the level of donations is anything to go by, the election of Donald Trump was met with almost as much unease in America’s big corporations. Hedge funds and tech companies bet heavily on a Clinton victory.

So not only is big business not as powerful as it was cracked up to be, it didn’t even see the populist backlash coming. Hence all those sessions at Davos which can be summed up under the heading, “What the hell happened?”

Of course, the populist surge may turn out to be short-lived. The Brexit and Trump victories were delivered by the over-50s. Within a few years, support for right-wing nationalist parties might, quite literally, die away. But their upending of the established political order has shown that, if people don’t like something and enough people decide to vote against it, even Davos Man can’t get his own way all the time. Other forms of popular opposition may appear in the future.

For the last three decades, business has treated politics as interesting but not very relevant. Now politics is back with an angry face and for corporations life won’t be quite so easy. Big business is in shock not only because of what happened but because, even with all its highly paid analysts and forecasters, it failed to see any of it coming.

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Banning strikes. Again.

Two months ago, Dominic Raab accused judges of “ivory tower logic” after they ruled that the decision to leave the European Union, based on the votes of 37 percent of the electorate, needed the approval of parliament.

He seems to have changed his opinion now though. On Sunday, he and 49 like-minded Tory MPs called for judges to overrule strike ballots if they deemed the proposed action not to be “reasonable and proportionate”.  Judges, it seems, are not so ivory towered that they cannot rule on industrial disputes.

The government’s Trade Union Act, which was supposed to be the answer to all this industrial militancy, has not yet been implemented but already there are signs that it might not have much impact. The various forms of industrial action called by a number of unions just before Christmas were supported by majorities that would be within the proposed new law. Increasing the ballot threshold to 40% will not necessarily reduce the number of strikes. It might even raise turnouts, thereby strengthening the union negotiators’ hands.

The anti-union MPs have therefore moved on. If workers still insist on taking industrial action, the only thing to be done is to stop pussyfooting around and ban it altogether.

The trouble with strike bans, though, is that, quite often, they don’t work. And the trouble with giving judges the power to rule on industrial relations is that they don’t always see things the employers’ way.

The often cited ban on transport strikes in New York is an interesting example. The quid pro quo of the employees not being able to take industrial action is that the law makes it very difficult for employers to change anything without union agreement. This has led to fossilised terms and conditions. Even with industrial action outlawed, New York has struggled to introduce driver only trains. Most still operate with a conductor.

Where strikes are banned, workers often come up with more ingenious ways of protesting, such as refusing to collect fares, forgetting their driving licences on the same day or flash mobbing shops. Social media makes such things easier to organise. This sort of action is much more difficult to control. With a balloted strike at least there is some warning, allowing employers and passengers to make contingency plans. With something like a sick-out, you wouldn’t know anything about it until you turned up at the station on a cold Monday morning to find that no trains were running.

Perhaps this is why, since the 19th century, no British government has ever banned strikes in peacetime. You can’t legislate against industrial conflict. Industrial action provides a safety valve in the absence of which, the conflict will simply manifest itself in other less manageable and often more disruptive forms.

As it will have enough on its plate with Brexit, the government is unlikely to have the resources available to draft pointless legislation and it will not want to pick a fight with the trade unions at such a critical time. The proposal by Mr Raab and friends probably won’t get much further than a letter to the Telegraph. None of which means we won’t see similar rants in future though. There is a long running tradition of right-wing MPs trying to fight the day before yesterday’s battles. If you have nothing new to say, you can always get some cheap publicity by attacking the unions.

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Did we ever really do God at Christmas?

The “war on Christmas” is back, an annual tradition in which politicians, journalists and religious pressure groups make up stories about Christmas traditions being banned. This is then followed by lots of boorish middle-aged men taking to their keyboards to proclaim, usually in capital letters, that Britain is a Christian country and that lefties and Muslims are destroying Christmas. Or something like that.

We’ve been spared the worst of it for the last few years after even the Daily Mail admitted that the renaming of Christmas as Winterval was an outright lie. It’s back with a vengeance this year, though, after Conservative MP Fiona Bruce claimed in parliament that Christians are afraid to mention their faith or to talk about Christmas at work. The prime minister made reassuring noises which suggested she agreed with the general sentiment while not actually agreeing with any of the claims made. Which is just as well because there is precious little evidence of workplaces banning Christmas or Christians being told they can’t talk about it.

Not to be discouraged, 9 MPs submitted an Early Day Motion to the House of Commons:

That this House reaffirms the right of every person in this country to use the phrase Happy Christmas; and encourages communities to remember and celebrate the real reason for Christmas which is the birth of Christ and to take the opportunity to enjoy time with loved ones as we a nation celebrate together.

Every year there is some sort of fuss about Christmas not being what it used to be or the ‘true meaning of Christmas’ being lost. Apparently, that phrase has a long history, both here and in the US. It got me thinking, though. Have the British ever really done God at Christmas?

When I was a kid we usually went to church on Christmas Day but, even by the 1970s, we were in a minority. I often heard people of my grandparents’ generation say that, at one time, everybody went to church on Christmas Day. I assumed that time must have been just before or just after the war. I never once doubted that they were right. My gran told me that the Salvation Army band played in the street and it was always snowing. I believed that too.

But, as ever, the horrid numbers blow away the idealised version of the past. Met Office figures suggest that, even in my gran’s youth, white Christmases were not that much more common than they are now. As for Church, by 1960 only 5 percent of the population attended Christmas Day Church of England services and that number has been falling steadily since.

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Chart via Church of England.

There isn’t as much historic data on church attendance for other denominations but more recent figures suggest that it declined at a similar rate.

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Source: British Religion in Numbers.

Specific data on Christmas attendances before 1960 is hard to come by too but the Church of England has figures for Easter attendance going back to 1920. Given that the number of attendees for Easter and Christmas broadly track each other after 1960, it’s reasonable to assume something similar for previous decades. Around 9 percent of the adult population was in C of E churches for Easter 1922, so the figure for Christmas was probably similar. Even in the inter-war period, when Britain had an empire and there was honey still for tea, attendance at church on Christmas Day was already a minority pastime.

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Studies of religion in the First World War suggest that 27-29 percent of the adult population were members of a faith body, including non-Christian groups. As far as I can tell, the only figures on church attendance before that are from the Religious Census of 1851. This found around 60 percent of the population went to some form of Christian religious service on 30 March 1851. Because these figures were embarrassing to the religious establishment, the census was never repeated. Indeed, these numbers might even be on the high side, given that the social conventions of Victorian Britain probably encouraged some people to say they had been in church when they hadn’t.

Professor Gerry Bowler, author of Santa Claus: A Biography, reckons the decline may have started even before that. The religious Christmas, he says, was already history in the English-speaking countries by the early 19th century. In an attempt to revive it as a family-centred holiday, New York intellectuals recruited the gift-giving St.Nicholas and turned him into Santa Claus.

In England and America Christmas had become debased by 1800. It had lost much of its religious significance; it had become associated with outdoor merriment, drinking and noise-making. Its long-time association with charity had largely been forgotten. In Boston, Philadelphia, and New York, citizens complained about drunken mobs in the streets attacking black people, immigrants and the middle-class. In order to transmute this alcohol-fuelled, young male, raucous disorder into an indoor, domestic, child-centred holiday, some New York intellectuals, writers, and artists called on St. Nicholas. The New-York (note the hyphen) Historical Society took Dutch-American folklore and publicized the gift-bringing saint Sinterklaas. Poets and artists soon produced works about Santeclaus, Sandy Klaw, or Santa Claus whereby St. Nicholas lost his bishop’s clothes and got the furs once worn by the shaggy helpers like Belsnickel. He now came on December 24, not December 5 and was over the course of the 19th century, as child-rearing practices softened, less judgmental. He went through a lot of costume changes, facial hair styles, ages, and size throughout the 1800s but by 1900 he was standardized as a portly adult-sized bearded grandfather figure in red and white.

Jesus has been fighting a losing battle with him to be the main man at Christmas ever since.

All of which suggests that the decline in religious observance was underway well before the start of the 20th century and was set in by the end of the First World War. If there was a time when Christ was at the centre of Christmas and most people went to church on Christmas Day, it is now well beyond living memory.

There isn’t much to suggest that is likely to change. Religious affiliation has been in decline for decades with only around half of the population now identifying as Christian.

Religious Affiliation in Britain, 1983-2014

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Chart via British religion in Numbers, based on British Social Attitudes Survey. 

Columnists can write articles, self-styled traditionalists can huff and politicians can put down motions in parliament but none of it will make much difference.

Perhaps the most succinct comment on all this was a clever pun by Tennessee priest Julias McCarter:

However much the venters vent, the ads get longer every year.

With the help of TV period dramas, we cling to a stylised view of ‘Christmas as was’ when the band played, it snowed, everyone wished each other Merry Christmas in the street, we didn’t have ‘all this commercialism’ and the churches were full on Christmas Day. But none of us can really remember anything even close to that and our grandparents couldn’t either, whatever they might have told us. The churches have been empty for 100 years. It’s a long time since most of us did God at Christmas.

With that, I shall wish you all a happy Christmas. Celebrate it however you like and enjoy it. I certainly intend to. Who knows, I might even go to church.

MERRY CHRISTMAS!

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Sneering at the workers

Don’t call people stupid for voting for Brexit, cried the Daily Mail. The Daily Express came up with the term Project Sneer to condemn anyone who suggested that working-class voters might have been duped when they voted for Brexit. They are “not thick, not racist, just poor,” wailed the Spectator.

This didn’t last long though. The tabloids have decided working-class people are stupid after all. So stupid, it seems, that they can be led passively into taking industrial action by union leaders hell-bent on destroying the country. Yes, folks, the union barons are back again and they are planning to wreck Christmas with a wave of strikes.

Even Number 10 got in on the act, accusing the unions of ‘contempt for ordinary people‘. However they define ordinary people, it clearly doesn’t include railway workers, post office staff, pilots and cabin crew.

The very term ‘union baron’ is an outdated slur. ‘Baron’ implies autocratic and unaccountable power. These days, union leaders are elected by their members and have to stand for re-election every five years. Furthermore, they can’t just call strikes. They have to win a ballot first. Which is where the ‘ordinary people’ come in. Even if a union leader has fantasies about bringing down the government or ruining Christmas, he can’t do it without getting a majority of his members on side.

Let’s look at what happened in the ballots for industrial action in the run up to Christmas.*

% Turnout % ‘Yes’ vote ‘Yes’ vote as % of all entitled to vote
Virgin pilots 80 88 70
Southern Rail drivers 77 87 67
Weetabix 70 90 63
BA cabin crew 60 79 47
Post Office 50 83 42

All were backed by large majorities of those who voted and most by a majority of those eligible to vote. All were above the 40 percent threshold in the yet-to-be-implemented Trade Union Act passed earlier this year. There is no question, then, of the legitimacy of this industrial action. If we can make the most far-reaching change to this country since the Second World War on the say-so of 37.4 percent of those entitled to vote, then surely even 42 percent is enough for a 5 day strike.

None of this is to say that the arguments of those taking action are right or wrong. I don’t know enough of the detail about any of these disputes to make a call and neither do most of the other people commenting on them. What is clear, though, is that these groups of workers know exactly what they are doing and are aggrieved enough to vote for industrial action by significant majorities. They are not being duped into it by evil ‘union barons’.

As for the arguments about it being Christmas and the strikes inconveniencing people, if you feel that you are being taken for granted, the best time to remind people of the value of your work is when they are most dependent on it. Lots of people work extremely hard to make sure we all get our Christmas gifts and get to where we are going on time. Some of them are simply reminding us that, if it’s really so important, we should be prepared to pay them properly for doing it.

For much of this year, pro-Brexit MPs and newspapers urged people to take back control. But when they try to exert a degree of control over something that directly affects them, like their pay and working conditions, they are met with condemnation, vitriol and threats. Being hard up and angry is fine, it seems, provided people don’t actually try to do anything about it.

 

* I couldn’t find turnout figures for the Swissport baggage handlers or Argos drivers. Both strikes have since been called off after improved pay offers from the employers.

 

Update: 

Simon Jones wonders whether the EU referendum got people back into the habit of voting to change things:

We’re currently seeing a wave of industrial disputes – railways, airline staff, Post Office workers, airport baggage handlers, Weetabix factory workers. While some suggest this is some wave of 1970s style union militancy, the fact is that the majority of these disputes are over ‘old-fashioned’ pay and conditions matters, and they are overwhelming supported by affected staff in secret ballots. Perhaps the Brexit vote has convinced ‘ordinary workers’ that they can change things by voting?

And did it all start with Strictly?

I heard an interesting theory put forward recently (by comedian Frank Skinner) that Strictly Come Dancing led to Brexit. In the 2008 series, journalist John Sergeant was possibly the most hopeless contestant to ever appear on the programme. However despite the frequent condemnation of the dance judges, the public voted week after week to keep him in the show. Skinner suggested that it was perhaps the moment that people realised they could ignore “experts” and get the result they wanted through voting in sufficient numbers.

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Gerontocracy

As usual, there was some very interesting stuff in the Institute for Fiscal Studies review of the Autumn Statement. This chart by Andrew Hood caught my eye.

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The over-60s escaped the post-recession income stagnation. On average, they have done rather well since 2007. It’s a similar story with wealth, as Andy Haldane pointed out in June.

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For many of those over the state pension age, the recession was something they witnessed second hand, either through the media or by talking to younger relatives.

What does the IFS think will happen over the next few years? Well with pay stagnation, benefit cuts and inflation, things are looking worse than they were in March. The IFS reckons that, in real terms, average earnings won’t get back to pre-recession level before the end of the decade. State pensions, though, will continue to rise.

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The upshot of all this is, as the Resolution Foundation says, a serious downgrade to the forecast for household incomes. The difference between the March and November forecasts (the blue and red lines on this chart) shows the impact of the economic slowdown.  A third of households will find themselves worse off than they are now.

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As Conor D’Arcy says, the last time we saw a pay squeeze like this was in the 1810s.

The likely impact of Brexit, then, will be more of the same. Stagnant or falling incomes for those in work with relative protection for those on pensions. Five years from now, the charts showing income and wealth by age will probably look very similar.

This graph by Oxford demographer Maja Založnik displays, for each age group, the percentage of the vote and the turnout in the EU referendum. Remain voters are in yellow, Leave voters in blue, registered voters who didn’t vote in light grey and unregistered voters in dark grey.

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It shows clearly how big a role the over-65s played in swinging the vote to leave. She points out that, had the vote been weighted by remaining life expectancy, the result would have gone the other way, as the votes of those with longer to live would have counted for more.

Many of those who voted Leave won’t have to live with the long-term consequences of Britain’s exit from the EU. Thanks to the relative insulation of pensions and pensioner benefits from the economic fallout, they won’t feel many of the short-term consequences either.

As John Harris remarked recently, in British politics, older politicians and voters are now calling the shots:

In both main parties, the former dominance of a clique of self-styled “modernisers” has been avenged, and politics is about a new emphasis on age, experience and supposedly traditional values.

In contrast to the excitable 40-somethings of the recent past, Theresa May and Jeremy Corbyn are 60 and 67 respectively. Besides leaving the EU, her flagship policy is the return of grammar schools; his, as far as I can tell, is the renationalisation of the railways. There may be occasional signs of interest in things more relevant to the 21st century (even if they have yet to cohere into a convincing vision, witness some of the recent pronouncements by the shadow chancellor John McDonnell). But the mainstream too often seems to be carved up between two conservative parties, led by people who are neither intellectually curious nor shaped by the great technological convulsions that have defined the past 25 years.

The electorate is growing older, and politics is clearly being reoriented accordingly.

On the day of the Autumn Statement there was a pro-Brexit demonstration. The chap in the middle here asks, “Who really runs this country?” If the income and wealth stats are anything to go by, the answer to that is pretty clear.

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No end to austerity

Four months ago, there was much cheering and dancing on George Osborne’s political grave (or at least his political cold-storage) as he announced the government’s abandonment of his deficit target and his own resignation.

Some people, including the leader of the opposition and the shadow chancellor, claimed that this was a U-turn.

 

Even the Daily Mail said that the government would “abandon George Osborne’s austerity agenda.”

The line was repeated by excited people in my Twitter timeline. George has abandoned the deficit target so it’s the end of austerity. Game over!

If anyone still believed that, the Autumn Statement should have put them right. The OBR’s fiscal outlook report shows that, when it comes to public service spending, very little has changed. The forecast looks pretty much as it did in March of this year, only with the fall in per capita day-to-day public service spending now continuing into the next decade.

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With NHS, schools and defence budgets protected, to an extent, this means an ever tighter squeeze on everything else. The cost of the Brexit process, including thousands of extra civil servants, will also have to be found from this shrinking pot.

No, the reason for the abandonment of the government’s target is not an end to austerity it’s simply that, even with continuing public service and welfare cuts, the public finances are now in such a dire state that eliminating the deficit by the end of the decade is now all but impossible. Lower economic growth means lower tax receipts. Even without the modest increases in capital spending, weaker growth meant that the government was already on course to miss its target.

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Chart by Ben Chu based on OBR figures.

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This forecast assumes that the government is able to achieve all its proposed cuts to public spending and social security. This is unlikely to be any easier than it looked this time last year so even the new deficit target might prove to be a tall order.

In any case, the Brexit vote has made economic forecasting even more difficult than usual. It has turbocharged Robert Chote’s donkey. The OBR has based its projections on the UK leaving the EU in April 2019, in line with  the prime minister’s statement but even then, there are so many possible variations on the terms of exit, it is very hard to predict what the economic impact might be.

What we can be reasonably sure of, though, is that Brexit will not improve the economy in the short run, which means that cuts to public service spending will continue for the rest of the decade. Much about the next few years is uncertain but, whatever else happens, austerity will be with us for some time yet.

 

 

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MPs should not vote for Article 50 until they are sure what it means

If you give notice to your landlord or your employer, you trigger a process which, if you don’t do anything else, will leave you homeless or jobless after a given period. Furthermore, even if you do take some action, the decision is still partly in the hands of others. You need to find a house you like and a landlord that will let to you or a job you like and an employer that will have you. For this reason, most people don’t give notice to their landlords without having another home to go to or notice to their employers without having another job lined up. The only people who do are those who have enough money behind them to give them other options. Or those who are extremely reckless.

Something similar applies to the triggering of Article 50. As we understand it at the moment, once triggered, Article 50 is irrevocable. It sets in train a process at the end of which, if we don’t do anything else, the UK drops out of the EU with no trade deals. That really would not be a good place to be. As the CBI concluded:

Relying on WTO rules alone would not work for the UK. Any limited advantages are easily outweighed by the significant costs to the economy as a whole.

This isn’t Remainer scaremongering. If anything, the warnings from some in the Leave camp are even more blood-curdling. The disruption to trade in goods and services from tariffs and non-tariff barriers would be horrendous. Martin Stanley, a former civil servant, explains the impact of non-tariff barriers here.

[T]he growth of ‘just in time’ manufacturing means that many firms are still very concerned that their businesses on both sides of the UK/EU border might experience significant post-Brexit impediments and delays in ports and at customs posts. I understand that one major bank has estimated that – if the UK were to lose unfettered access to the Single Market – the consequential non-tariff barriers could impose a cost on exporters equivalent to a tariff of 10-15%.

Of course, it is in everyone’s interests to reach some sort of trade agreement before this happens. The other EU countries don’t want to see their trade disrupted any more than we do. However, while a failure to reach an agreement after 2 years would be damaging for the rest of the EU, it would be catastrophic for the UK. If, on 1 April 2019, there is no deal, the rest of the EU would still have its trade agreements with the other countries in place and most of its cross-border supply chains would be intact. The UK would leave with nothing. Not even independent WTO membership.

The ‘they need us more than we need them’ argument, often trotted out by Brexiters, doesn’t stack up either. When it comes to trade, size matters. As this chart from the Economist shows, the EU’s exports to the UK are a relatively small percentage of its total exports, whereas the UK’s exports to the EU account for around half its total. Tariffs would  therefore affect a relatively small proportion of France and Germany’s trade while they would hit a much larger proportion of ours.

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The consequences of a failure to reach a deal after two years would be much more damaging for the UK. The time pressure therefore puts us at a disadvantage. The closer it gets to the deadline, the more attractive even a bad deal will look when compared to the alternative. Being under time pressure in negotiations is never a good place to be. If counterparties know you need to do a deal by a certain time, they are more likely to hold out and wait for you to blink. Effectively, it will be the UK against 27 other countries and the clock.

The LSE’s Thomas Sampson spelt this out a couple of weeks ago:

Bargaining power affects the outcome of trade negotiations. Countries that have little bargaining power are less likely to achieve their objectives. Unfortunately, the UK is starting from a weaker position than the EU. Because UK-EU trade accounts for a much larger share of the UK’s economy than the EU’s economy, the UK needs a deal more than the EU does.

The weakness of the UK’s position is exacerbated by the two-year time limit on exit negotiations under Article 50. As the two-year limit approaches, the UK will become increasingly desperate to obtain an agreement. There are two steps that the UK should take to improve its bargaining position. First, delay triggering Article 50 until the government has decided its post-Brexit objectives and EU leaders are ready to start negotiations. Theresa May’s commitment to invoke Article 50 in early 2017 before the French and German elections weakens the UK’s position because the EU will not be able to participate in meaningful negotiations until after these elections.

Second, the UK’s immediate objective after invoking Article 50 should be to neutralise the two-year time limit by agreeing a transition arrangement to govern UK-EU trade relations during the period between when the UK leaves the EU and when a longer-term agreement is concluded. Returning to the principle that you only get what you give, the UK needs to decide what it is willing to offer the EU in return for a transition agreement.

Agreeing an interim solution before we start negotiations would remove the time pressure. If no agreement was reached after two years, the UK would leave the EU but stay in the single market until such time as a deal can be agreed. That would at least avoid the severe disruption to trade and give everyone a bit more time to think. This option has been advocated by, among others, the former permanent undersecretary at the FCO, the Adam Smith Institute, the Centre for European Reform and professors Damian Chalmers and Anand Menon. Most people who have been involved in trade negotiations don’t believe that the negotiations can be completed in 2 years anyway. Even the chancellor doesn’t. Surely an interim deal that lets us continue negotiations at a sensible pace would be better for everyone.

Negotiation theory 101 says you should be clear about your fallback position, or Best Alternative To A Negotiated Agreement (BATNA), before going into any negotiation. At the moment, the UK’s BATNA is WTO only, which would be a disaster. An interim agreement would give us a better fallback position. It would be very unwise to start the negotiations without one. The UK’s strongest card is that, at the moment, it has control over the timing of the exit process. Starting that process is not something we should be bounced into either by ideologically motivated Brexiters or by those in other EU countries who are keen to be rid of us.

Against this background, the Brexit policies of the opposition parties make no sense. Jo Maugham has written an excellent piece taking Labour’s incoherent stance apart. As he says, waving Article 50 through removes any chance parliament might have to influence the deal. Once Article 50 is triggered, John McDonnell can bang on all he likes about red lines and moral pressure but it won’t make a scrap of difference. The country’s fate will be in the hands of government negotiators and their EU counterparts. Parliament will be irrelevant.

Almost as illogical is the Liberal Democrats’ policy which seems to be to vote for Article 50 with the condition that the government agrees to a second referendum on the final deal. By then it will be too late. With the clock running down, the British people will be offered the choice between whatever is on the table and no deal at all. To go back to my housing analogy, that’s like giving notice to your landlord then saying to your family, ‘We’ve got 3 days left in this house. We can either take this hovel we have been offered or be out on the street. What do you reckon, folks?’

No, the time to put up a fight on the terms of Brexit is now. If MPs want to determine the shape of Britain’s exit from the EU, they need to do so before Article 50 is triggered.

Of course, it might be that Article 50 isn’t irrevocable after all. The Lisbon Treaty is deliberately vague. But this raises another question. If we understand so little about what Article 50 does, should MPs be voting for it at all? Shouldn’t they get legal clarification on what Article 50 actually means before they vote for it?

MPs have a duty to act in the national interest as well as considering what they believe their constituents’ wishes to be. That’s what representative democracy is about. Before triggering Article 50, they need to know three things:

  1. Whether or not Article 50 is revocable;
  2. That there is a fallback deal in place should the negotiations extend beyond 2 years;
  3. What the government’s starting position will be.

For MPs to vote for Article 50 without establishing these facts would be utterly reckless and a dereliction of duty. It would set the country on a highly uncertain and potentially dangerous course. History will judge them harshly if they do.

Update 

There’s a further problem. It’s not even clear whether trade negotiations can be run in parallel with negotiations about the UK’s exit from the EU. The EU trade commissioner has insisted that it is against EU law for any trade agreement to be negotiated until after the UK leaves the EU. All that can be negotiated in the two years following Article 50, she argues, is the terms of the divorce, the withdrawal agreement covering short-term issues such as the relocation of EU agencies based in the UK, the rights of EU and UK citizens and cross border security arrangements. (There’s a detailed discussion of the difference between the withdrawal agreement and the longer-term relationship agreement, which covers trade, in this Institute for Government paper.)

Under this scenario, the UK would have to leave the EU and default to WTO only terms before it could even started negotiating its trade relationships.

Not everyone agrees with this interpretation and certainly most of the public discussion about the negotiating period assumes that we will be conducting both the withdrawal agreement and the trade negotiations in parallel. David Davis insisted that we can run both negotiations in parallel, while also admitting that defaulting to the WTO only option would be a disaster.

Luis González García of Matrix Chambers says:

This is a rather strict interpretation of Article 50 of the TFEU. In my opinion, such an interpretation would be contrary to the purpose of Article 50. The broad reference to ‘framework’ should be interpreted broadly in a way which ensures future stable and predictable trade rules to the benefit of businesses, investors, citizens and consumers of the UK and the EU after the UK exit from the EU. This means that the UK and the EU should enter into parallel negotiations of a free trade agreement.

This legal analysis from Sussex University comes to a similar conclusion.

Article 50(2) TEU addresses the content of the withdrawal agreement. It is open-ended, stating that ‘the Union shall negotiate and conclude an agreement with [the UK], setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.’ This does not preclude trade talks forming part of the Article 50 TEU withdrawal agreement or taking place in parallel. In practice, as Article 50 TEU has never been implemented before, legal debates about whether the UK faces restrictions in pursuing trade talks are highly politicised.

But the important point about all this is that it is yet another aspect of the withdrawal process that is not yet clear; another potential pitfall hidden in the fog of Article 50.

As Chatham House director Robin Niblett warned:

After invoking Article 50, UK negotiating leverage with the EU is greatly reduced.

The approach that would offer greatest certainty for all sides, therefore, would involve interlocking the Article 50 process of negotiating Britain’s withdrawal with the process of determining the framework for its new relationship with the EU. In fact, the government should not trigger Article 50 until EU governments have stated collectively that they will negotiate, in parallel, this framework and instructed the Commission accordingly. After all, Article 50 states that, “the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking into account of the framework for its future relationship with the Union.

So, to the 3 questions I suggested above, we can now add a 4th. Before triggering Article 50, MPs need to know:

  1. Whether or not Article 50 is revocable;
  2. That there is a fallback deal in place should the negotiations extend beyond 2 years;
  3. What the government’s starting position will be;
  4. That the other EU governments have agreed to negotiate the withdrawal and future relationship agreements in parallel.

Without this clarity, voting to trigger Article 50 would be an act of sheer recklessness.

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