A deepening despair in Brexit-land

As the pound tumbles and political confusion continues, despair over Brexit and the UK's future is deepening, writes Rod Oram from the UK.

In his very short UK premiership to date Boris Johnson has gambled mightily on his Brexit strategy and has so far lost spectacularly. This past Tuesday alone he lost the very first vote he put to parliament (the first Prime Minister to suffer such ignominy since the Earl of Roseberry in 1894) and turned his working majority of 1 into minus 43 by sacking 21 Tory rebels including two former chancellors and the grandson of his political hero Winston Churchill.

He has also been deeply hypocritical. Reclaiming the sovereignty of Parliament by freeing the UK from the power of Brussels bureaucrats has long been the battle cry for him and his fellow Brexiteer politicians.

Yet, last week he got the Queen’s assent to suspend Parliament, a manoeuvre which will halve the time MPs have for debating his potentially no-deal Brexit; and this week he fought parliamentarian efforts to seize control of Brexit negotiations from the government he leads.

While the opposition parliamentarians sped their legislation to thwart Johnson’s Brexit strategy through the House of Commons in just one day, the bill’s fate in the House of Lords is far less certain. Conservative peers are planning a barrage of delaying tactics, while Labour and the Liberal Democrats peers hope to use their majority to bring the bill to a vote early next week.

But it would be a mistake to write-off Johnson just yet. He might succeed in calling an early election for mid-October. Labour says it would vote for that if the bill blocking a no-deal exit was passed by Parliament in defiance of the current government. Johnson might win that election, which would enable him to repeal the bill and seize back control of Brexit strategy; or he could even attempt to defy Parliament and still push through a no-deal Brexit without an election.

One way or another, though, the odds are high on the UK facing soon its third general election in four years. But this one will have monumental consequences, not just over the UK’s relationship with the EU but over the future of the United Kingdom itself. The Scottish National Party, for example, is likely to make the holding of another independence referendum a condition for its support of an early election.

On Wednesday, Johnson’s new chancellor, Sajid Javid, laid out the government’s spending strategy emphasising two main near-term goals – preparation for Brexit and an early election. He pledged a big increase in government spending on Brexit preparations including financial assistance to business, and on health, education, police and other vote winning public services, and on infrastructure.

He said the increases marked the end of a decade of government austerity since the Global Financial Crisis. But he failed to explain the new parameters of fiscal strategy or offer any assessment of how much dislocation of economic activity, reduction of GDP and impact on government finances an exit from the EU would cause, the worst-case scenario being a no-deal one.

The government’s Operation Yellowhammer has produced detailed analysis on those subjects. Initially the government said it would not make the details public, then it said it would offer a public summary. But this week it dropped that idea and reverted to secrecy. Unnamed officials quoted in the media said even the summary of impacts was largely negative.

Curiously, though, the government had also funded a think tank called UK in a Changing Europe to undertake a similar exercise for public consumption. It concluded that a no deal Brexit would make a recession “highly probable.” Moreover, it noted, such an exit would have to be followed by protracted negotiations with the EU to establish a new but separate relationship underpinned by a huge set of arrangements such as a trade deal to make it work.

“No deal will not mark the end of Brexit, merely herald the start of negotiations that promise to be significantly more difficult than those we have witnessed to date,” said Anand Menon, the think tank’s director. “The fact that negotiations can no longer take place under Article 50 [the EU’s exit clause] means they will be far harder, longer, and potentially more politicised (on the EU side) than during the period since March 2017.”

The Bank of England also weighed in this week on its latest assessment of the economic impact of Brexit. If the UK’s departure was disorderly, it could cause GDP to fall by about 5.5 percent, unemployment to more than double to 7 percent and inflation to more than double to 5.5 percent, Governor Mark Carney told the Commons Treasury Committee.

This, though, was an improvement on the 8 percent drop in GDP the central bank had forecast in its assessment last November, a setback worse for the UK than the Global Financial Crisis. “There is real progress on the ground, there is real progress in the financial system, and that has some positive knock-on effect on confidence and financial markets as a whole,” Carney told the MPs.

In response to MPs' questions, he said the bank would never intervene in the currency markets during a no-deal Brexit. “I would underscore that we never have done it. I can’t see a circumstance that we would intervene, either for market functioning purposes – never say never on that – but I would at least on a personal basis say never for monetary policy reasons.”

In recent weeks, the pound has fallen to a near 34-year low of US$1.20, with the most pessimistic forecasters saying parity was possible if the economic and political turmoil became extreme.

While the markets would be highly hostile to Labour leader Jeremy Corbyn’s strongly left-wing economic agenda should he form the next government, some analysts see a partial upside.

“If Labour came to power before 31 October or after another Brexit delay, its opposition to a no-deal Brexit would remove a near-term downside risk to the economy,” says Paul Dales of Capital Economics. “And, by removing further uncertainty, its support for either a softer Brexit or no Brexit at all would boost the economy in the medium term.”

... the political deadlock since had destroyed what little faith he had left in politicians and the political system.

While some people in the City of London believe the high drama in Westminster could break the long logjam over Britain and the EU, there are clearly many other people around the country whose despair about Brexit in particular and the country in general is deepening by the day. I’ve run into a fair few in my work around the country this past 10 days.

When, for example, I paused Monday morning in a Derbyshire village to seek advice on my route I ended up having a half hour conversation with Brian, whose career as an engineer in the steel industry began back in the mid-1950s.

He argued adamantly that the UK had made a dreadful mistake joining the European Economic Community back in 1973. The single market was a nightmare because Brussels bureaucrats were “masters of shite-ology”, which led to all sorts of market abuse by large companies.

The likes of British car and steel companies would have much better off holding on to their domestic market and seeking non-European export markets, rather than opening up to companies from the continent, he said.

For Brian, the 2016 referendum victory for the Brexit campaign vindicated his long-held beliefs. But the political deadlock since had destroyed what little faith he had left in politicians and the political system.

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