The Swiss mini-drama shows how trapped the Tories are

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It’s been a hectic week in Brexit. Since Jeremy Hunt delivered his Autumn Manifesto last week, the debate over the future shape of Brexit has flared up again thanks to some ill-advised comments about wanting to creep back in near Brussels.

The Sunday Times report – endorsed by our colleagues here at the Financial Times – said senior figures in Sunak’s government (big enough to put the story on its front page) wanted a “Swiss-style” deal with Brussels.

This produced the expected angry reaction from Brexit supporters, including Lord David Frost, who, as the UK’s Brexit negotiator, did everything to cut strings with the EU, and now believes they can hear the Sunak government backing down. .

Of course (as Frostian’s Brexiteers well know) Sunak’s government didn’t actually want a Swiss deal – that is, payments to Brussels coffers, free movement of people, dynamic regulatory alignment – but it provided the perfect excuse to drop the mark.

The “older source” was sloppy in using such language, when in fact what they meant was a gradually closer relationship over the “next decade”. For anyone seeing the increasing cost of Brexit on UK trade and investment, this may seem counterintuitive.

In fact, Hunt, who was interviewed the morning after the budget statement, said pretty much that. He told the BBC he had “great confidence” that the UK – despite being outside the EU single market – would be able to “remove the vast majority of the trade barriers that exist between us and the EU”.

This is clear to the birds. He was indeed the voice in the Sunday Times article that said the EU would allow the UK to choose its own path to a new relationship with the EU “because it is very much in the interests of businesses on both sides”.

Some days it feels like the past six years never happened. The EU has offered the UK a “Swiss-style” deal on agri-food harmonization (to help with the Northern Ireland protocol) but for other regions you can expect Brussels to apply the same balance of “rights and obligations” (and self-interest) as in the case of TCA negotiation.

Indeed, the entire mini-drama was a vivid demonstration of just how entrapped the Conservative Party was over Brexit driven first and foremost by concerns about the party’s internal governance.

This was of course mismanagement. Whoever made their mouths open about “Switzerland”, far from calming the markets and looking plausible as it was supposed to be, everyone mentioned just how far the Tories in Brexit were allowed to drive the process.

Not only did they stir up an ERG hornet’s nest, which would make it difficult to strike a deal to resolve the endless row over Northern Ireland, but they also announced mystical and cake-making thinking that still – even now – fuels serious debate about the future of EU-UK relations.

It is not simply that if you plug in the existing Tory “red lines” of not paying money into EU coffers or accepting any EU laws and freedom of movement, that there is not much you can do to improve the current basic trade deal; The hardships of Brexit run deeper than that.

Take the mass protest over the so-called EU Retention Bill, a reckless plan to “review or repeal” as many as 4,000 pieces of EU-derived law that underlie large sectors of national and economic life, from conservation rules to children’s car seats.

The cast of organizations telling the government this is a bad idea is incredibly broad. From the Institute of Directors to labor unions, environmental and consumer groups. But the government says it will continue to act regardless, as it is compensatory legislation for Brexiteers.

In practice, the utterly unwieldy “sipping clause” would have to be extended to 2023 for the retained EU law, but in the meantime uncertainty remains for UK business, and damage continues to be done to the UK’s reputation as a reasonable and stable government.

The row over the retained EU bill speaks to a deeper conceptual problem for Brexiteers, which is that while they cling to the belief that regulating differently from the EU will lead to higher productivity, much of the industry simply disagrees.

As Roger Parker, Director of Policy and Governance at IoD puts it: “Dealing with any resulting regulatory changes will impose a significant new burden on the otherwise dispensable business.”

This is a view that resonates across a very wide range of industries, and one that seems to really trouble the Brexiteers who hold so dearly to the idea that the UK’s regulatory independence is the path to Brexit profits.

In the fall statement, Hunt played the familiar tune, saying that “Brexit freedoms” would drive a “supply-side shift,” promising to announce changes to EU regulations in five growth industries: “digital technology, life sciences, green industries, and services.” Finance and Advanced Manufacturing”.

And yet that very night, at the Chemical Industries Association’s annual dinner — an advanced industry that exports £50 billion a year, half of it to the EU, and directly employs 150,000 skilled workers — chief executive Stephen Elliott was warning against a rush to deregulate.

“We are not in the market for any regulatory fire,” he said, noting besides that the cost of the UK’s post-Brexit plan to replicate the EU’s REACH chemical safety database is now expected to exceed £3 billion.

It no doubt frustrates Brexiteers, but a cost-benefit analysis of a bespoke or lighter-touch British regulatory system for companies that need, anyway, to register in the EU and the US to sell their products widely is likely to be negative. .

Government refers—as Hunt did—to advanced industries, such as life sciences or agricultural technology. However, I spent a day this week in Oxford talking to several startups in these areas and they’ve been clear over and over again: What they want from regulation is consistency, not difference.

They also warned that it would take time for UK regulators, such as the Medicines and Healthcare Regulatory Agency, for example, to build credibility in the global market, so that UK validations actually have an impact with other, larger EU and US regulators. and China.

All of this is obvious to business, yet it still provides the future hope that even remainders like Hunt must cling to in order to justify Brexit which has negative effects on UK trade since it came into force nearly two years ago.

Adding to the Brexit link is that, while industry largely rejects the government’s grand sale of “Brexit liberties”, that same promise of deregulation belies the search for those “Swiss-style” reforms. sought by the rational wing of the Sunak government. .

As Anton Spisak, a trade and European Union specialist at the Tony Blair Institute for Global Change, noted this week, bilateral agreements to reduce current frictions — a deal on agrifood or chemicals, for example — require elements of the jurisdiction of the European Court of Justice that a party cannot. Acceptance.

Needless to say, none of this helps the UK investment climate, even when a ‘reasonable’ government finds itself sticking to Brexit legislation – such as the Dominic Raab Bill of Rights discussed in an earlier newsletter, or the Retained EU Bill. Jacob Rees-Mogg – This is irony deep and wide.

Britain’s exit from the European Union in numbers

Step back a half second, and it shouldn’t be controversial to say that Brexit hurt the UK economy. Erecting all non-tariff barriers in the single market on our doorstep which takes up nearly half of UK trade would clearly have a negative impact.

However, some Brexiteers remain in denial, choosing to cite key export statistics between the EU and the UK without accounting for inflation, oil and gas exports after Ukraine or compare the performance relative to other peer economies facing the same global headwinds. .

One of the clearest ways to gauge how Brexit will affect UK trade is to look at “trade openness”. This takes the total volume of imports and exports and then divides it by the volume of GDP as an expression of how open a country is to trade.

Today’s chart by Stephen Hunsaker of the UK at a changing Europe think tank shows that the UK has been leading the pack for the majority of the past decade, but by the end of the Brexit transition period on January 1, 2021, the UK has fallen to the bottom of the G7.

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As Hunsaker explains:

What we clearly see is that it was not Covid-19 that caused the UK to lag behind the rest of the G7 countries, in terms of trade openness, but to leave the European Union on January 1, 2021. And it is clearly this promise of non-EU trade that complements the decline in EU trade has yet to materialize.

The Resolution Foundation, in its Big Brexit report published in June this year, compared the UK’s trade openness to France, which has a similar trade profile to the UK. It found that the UK has seen an 8 percentage point drop in trade openness since 2019, compared to a 2 percent drop in France.

So much for ‘Global Britain’. The research also found that the UK lost market share across three of the largest markets for importing goods outside the EU in 2021: the US, Canada and Japan.

UK government ministers can continue to blame “global factors” all they like – perhaps this is politically understandable – but until there is honesty with the public about why Brexit will affect the UK’s long-term prospects, There is no realistic prospect of finding meaningful solutions.

And finally, three can’t-miss stories about Brexit

  • Forget about Leavers and Remainers, Robert Shremsley argues in his column. The main Brexit divide in British politics is now between those who want it to work and those who have no interest in doing so.

  • At the annual CBI conference, director general Tony Dancker laid out ideas to boost business confidence, including measures to mitigate the impact of Brexit, such as fixed-term visas for foreign workers. But Keir Starmer’s comments about the need to end Britain’s reliance on immigration underlined the political constraints faced by both Labor and the Conservatives – much to the disappointment of business leaders.

  • New figures from the Office for National Statistics show net migration to the UK rose to a record high of more than half a million people in the year ending June 2022. Greg Thwaites, director of research at Resolution, said the data suggested migration patterns were “incredibly Primary “shifted post-Brexit”, with more EU citizens now leaving the UK than coming into the country.

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