Oct 31st 2019

What Happens to the United Kingdom Now? 

by Chris Patten

Chris Patten is a former EU Commissioner for External Relations, Chairman of the British Conservative Party, and was the last British Governor of Hong Kong. He is currently Chancellor of Oxford University and a member of the British House of Lords.


 

LONDON – The United Kingdom’s Brexit psychodrama continues. Although the UK government and the European Union reached a revised withdrawal agreement in mid-October, Prime Minister Boris Johnson was unable to push the deal through Parliament so that the UK could leave the bloc by his hoped-for date of October 31. EU leaders have therefore granted a further three-month extension of the Brexit deadline until January 31, and the UK will now hold a parliamentary election on December 12, which may help to resolve the current impasse.

Johnson secured the withdrawal agreement partly by reversing his previous position and accepting a customs border between Northern Ireland and the rest of the UK, and partly by settling for worse terms than his predecessor, Theresa May, had negotiated. Although the deal still must clear some parliamentary hurdles – and, here, the upcoming election could be the biggest hurdle of all – we may before long be able to see for ourselves how good or bad Brexit will turn out to be.

But perhaps I should revise the phrase “before long.” Assuming Brexit happens, if the first few years afterward are economically tough for the UK, Brexiteers will tell us that we should just give it time. In fact, one of Johnson’s senior ministers has said that we might not know the full economic impact of Brexit for 50 years. Between now and then, the results will need to be good to make up for what we are going to lose by leaving the EU.

It was Harold Macmillan, the UK’s prime minister in the early 1960s, who concluded that the country should join what was then the European Common Market to reverse systemic, long-term economic decline. Between 1951 and 1973, Britain ranked last among OECD economies, with average growth of just 2.7% per year. Japan grew the fastest, expanding at an average annual pace of 9.5%, while Germany, France, and Italy clocked in at 5% or above.

UK policymakers were obsessed with the question, “What went wrong?” We tried our own version of French central planning. We invested in new hospitals and roads, and closed loss-making railway lines. But we always eventually came back to the need to join the new European grouping that we had originally treated with disdain.

Another Conservative prime minister, Edward Heath, eventually got us through the European door following the death of Charles de Gaulle, who as France’s president had been an inveterate opponent of UK membership.

From 1973, when the UK joined, to 2016 (the year of the Brexit referendum), our economy grew faster than those of Germany, France, and Italy. And after the real launch of the single market in 1992 – one of Margaret Thatcher’s greatest achievements – the UK performed considerably better than its traditional competitors, at least until 2016.

Of course, other factors – such as Thatcher’s trade-union reforms – contributed to Britain’s success. But the overriding story was one of economic decline before EU entry, and a jump forward after we joined. Moreover, the UK secured this success pretty much on its own terms: we did not join the euro, we promoted free trade, and we pioneered the EU’s enlargement into Central and Eastern Europe.

But what will life be like after Johnson’s deal is in place? Mark Carney, the governor of the Bank of England, has said that the withdrawal agreement will be better for the UK economy than a disorderly Brexit, although tellingly, he suggested that it might be less positive than May’s deal would have been. (Of course, hers, too, would have left the country weaker than if we simply remained in the EU.) More revealingly, Johnson’s Chancellor of the Exchequer, Sajid Javid, has declined to produce an impact assessment of the new proposed deal, fueling suspicions that the government is far from confident about the outcome of such an evaluation.

After all, how can the UK possibly be better off outside its closest and largest market than inside it? Why should we be able to negotiate bigger and better trade deals with other countries on our own rather than as part of a market almost ten times our size? Some optimists believe that the UK can take the world by storm as a deregulated, free-market trader (“Singapore-on-Thames”). But they ignore the fact that stripping away environmental regulations, health and safety checks, and workers’ rights would be politically calamitous for the Conservative Party.

Assuming the UK leaves on the terms of Johnson’s deal, it will have until the end of 2020 to negotiate a free-trade agreement with the EU, with the government seemingly regarding Canada’s existing FTA with the bloc as its preferred model. But projections of the UK’s future economic performance under different Brexit scenarios ranked this option as the second worst, just above a no-deal rupture.

One of the many downsides of a Canada-type arrangement is that it hardly covers services, in which the UK had a trade surplus of £29 billion ($37.3 billion) with the EU in 2018. That is one reason why an agreement like this would suit the EU much more than the UK. In addition, a Canada-style deal would entail checks at the border for many if not most manufactured goods.

All this is a reminder that even after the UK leaves the EU, it faces years of difficult talks in which it will be negotiating from a position of weakness. True, the sun will still rise every morning, and we will still have many world-class institutions, companies, and assets. But the cohesion of the UK itself (comprising England, Scotland, Wales, and Northern Ireland) will be strained by policies driven by malignant English nationalism.

Moreover, we will be poorer. In fact, according to estimates by economic think tanks often used by the government, we probably already are 2.5% less well off than we would have been without the Brexit process. It is odd for a country to choose to be less prosperous and less influential in the world.

Some say that this doesn’t matter. But let’s see what happens when we have less money for all the things we want to do as a country and as individuals. Promises and predictions regarding Brexit will soon be tested against reality. When they are, I wouldn’t want to be one of Johnson’s Brexiteers.


Chris Patten, the last British governor of Hong Kong and a former EU commissioner for external affairs, is Chancellor of the University of Oxford. 

Copyright: Project Syndicate, 2019.

 


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