Absolute madness from the Hard Brexit camp

Well we do seem to have a plan from the Hard Brexit camp – the trouble is that they seem to have taken the cartoon above to heart – The Exit negotiations will be complicated, hard and we most probably won’t get what we or anyone else wanted so let’s just skip the negotiations and break away now.

parchute-with-costs

The full article can be found here : We need a clean break before article 50 ties us up in knots 

In this blog I will step through each of his arguments.

The unreconciled Remainers are urging, “Play for time” in the hope that the UK’s desire to leave the EU will subside. This is madness. They used to deride their present objective: that we could somehow stay “in the single market” but escape the obligations of EU membership. EU leaders, such as the Italian prime minister last week, continue to make clear that this is impossible. Any deliberate and unnecessary delay would refuel the anguish and bitterness that led many people to vote Leave in the first place.

Here Mr Jenkins seems to accept that it will not be possible for the UK to retain membership of the Single Market whilst stopping obligations such as the Freedom of Movement.  Somehow, Mr Jenkins makes the leap from this realisation that the kind of deal most Leave voters voted for is not possible to a justification for abandoning negotiations altogether.

And he thinks he knows how to go about it….

We need to be aware that Article 50, as intended, could tie us up in knots. Nobody can guarantee that there will be an acceptable agreement at the end of the process anyway. So we must be prepared to leave without any formal agreement if necessary, or the commission has us over a barrel.

Please read “Can the UK cancel Article 50 notification once given” Yes if approached correctly for some more considered views on how the UK can defend against the danger that the “commission has us over a barrel” in negotiations.

Leaving without a formal withdrawal agreement would be messy, but a messy Brexit is what many have suggested that the commission and much of the EU would like. Still, a speedy and decisive resolution would be far more acceptable to business than years and years of uncertainty and then a “fudge”, as confirmed by Markus Kerber, head of the BDI, the federation of German industries.

Agreed, leaving without an agreement will be messy, leaving with an agreement will also be messy.  A speedy resolution would be preferable, but not one that leaves the UK so completely exposed as this suggestion.  Of course we could go for the one plan that we know does work and Remain.

Without a formal agreement, most things, like security cooperation, would carry on anyway because they have to.

Unbelievably Mr. Jenkins is suggesting that the UK and EU will not need to negotiate our security arrangements because “would carry on anyway because they have to”. We don’t need to agree any of this because it is too important?

Complicated things like patent and data law could be quickly sorted out afterwards.

I think Mr. Jenkins has got into the spirit of things here.  Because something is complicated it can get quickly sorted out later!  I struggle for words.

Of course, the big threat is loss of access to the single market, but the UK could start by making it clear we are offering zero tariffs for EU imports, and an open UK market for EU services as now, and that we would implement this unilaterally pro tem in the absence of a withdrawal agreement. What would the EU do? Would they really want to slap on their own tariffs and protectionism anyway?

Mr Jenkins advocates open our markets at zero tariffs for EU imports and an open market for Services.  “What would the EU do?” he says “Would they really want to slap on their own tariffs and protectionism anyway?”

Well, yes they would.  All trade deal will require unanimous agreement from the remaining 27 EU members.  It will require, as Mr Jenkins points out, considerable skill and perseverance to negotiate a deal that will satisfy the requirements of all of these member states. Each of them has a quite different motivation,  with Germany and France eyeing our Financial Services hub, France and Spain looking to Nissan Qashqai assembly to their plants at the expense of Sunderland, the Eastern bloc countries insisting on guaranteed quota for migrants into the UK. The list goes on, there are too many interests around the other member countries that will benefit from removing the UK from the competitor list.  How will this converge into an attractive trade deal by the UK just not even attending negotiations.

There are two other factors that will drive the UK and the EU towards a quick free trade deal, pre- or post-Brexit. We often pointed out that the UK imports £70bn more from the EU than we export to them, and Remainers always talked down this strength in the UK position. True, while 44% of our exports go to the EU, only 8% of EU exports come to us. But as thinktank Civitas explains, protectionism would threaten a far bigger share of jobs in the other EU states than in the UK.

UK exports to Germany are estimated to support 752,000 jobs, or 2.4% of UK jobs, but 1.3 million German jobs depend upon their exports to the UK, which is 3.2%. This pattern is repeated across the entire EU. UK exports to France support 1.7% of our jobs, but theirs to the UK support 2.4% of jobs in the France; to Italy, it is 0.9% vs 1.7%; for Belgium, it is 0.8% vs 7.8%; and for Ireland it is 1.4% vs 9.5%. Which countries would rationally support anything but free trade?

A so to the big one – the Trade imbalance between the UK and the rest of the EU.  The argument being that . True the UK trade deficit with EU hits new record in the first part of 2016 and we imported £24b more into the UK from the EU than they bough from us in the 1st quarter of 2016.

I would advise the Hard Brexiteers to read @tony_nog s blog If I were BMW to understand what would happen if tariffs were introduced on German imports into the UK.

In addition the argument that “they need our business more than we need theirs” only holds true whilst we do actually have something to sell.  Two of our biggest industries, car assembly and financial services will be under a direct challenge if we don’t agree a trade deal and the workload and revenues from these industries would merely shift, out of the UK to the EU.

Financial services – The UK requires a single market “passport” for much of our Financial services within the EU.  If we were to loose this then this work and the jobs would very likely just move out of the UK.  Both Frankfurt and Paris are extremely interested in moving this work. A veto from Germany would likely mean the Financial Service s hub moving to either Paris or Frankfurt – I doubt they would have a problem with that.

It would be completely irresponsible to exit the EU without a negotiated agreement on Financial services.

No agreement:
If the UK leaves the EU with or without a trade agreement but no agreement to allow passorting, then a Brexit could have a fairly damaging impact on the financial services, an impact which without future agreement could permanently reduce UK access to the EU financial services sector. The reduction in access and the cost of relocating some services to another EU country in order for businesses to maintain the same level of services in the EEA are, other than economic uncertainty, likely to be the two biggest impact’s on UK financial services…
A report by PwC estimated that cost of relocating services alone could have a -0.4 per cent impact on UK GDP by 2030 and the barriers to trade cause by the loss of passporting rights could reduce the contribution of financial services by between 0.6 and 2.2 percent. This is turn could mean between 70,000 and 100,000 less jobs in the short run, and 10,000 to 30,000 less jobs by 2030.
Source: Will UK financial services suffer from losing passporting rights after Brexit?

 

Car industry – It is worth noting that the UK does not actually have a car manufacturing industry to speak of. This disappeared in the 1970s as the UK struggled to compete with the German and French car manufacturers who were operating inside of the Common Market whilst the UK was outside.  UK jobs in the car industry have risen dramatically with the influx of the likes of Toyota and Nissan. The UK provides an important route into the EU market. Nissan export 60% of the cars assembled in Sunderland into the rest of the EU and Toyota is even higher with 85% going to the EU. A disruption to this would affect at least 800,000 UK jobs in this industry. It is also worth noting that the problem is not just about tariffs. As discussed in the Guardian View on the Tories and Brexit a UK outside of the Customs Union (the Single Market) would need to conform to EU regulations (so-called passporting) in order to sell into  EU. These regulations apply to non-service as well as services. In particular UK car “manufacturers” will need to be able to confirm that the vehicles are actually made in the UK and not just assembled here in order to satisfy anti-dumping rules. As an EU insider, companies in the UK do not currently have to do this but when outside, without a negotiated deal they may well not be able to get over this hurdle. And will a 10% tariff on car imports affect BMW, Audi, Mercedes?  Perhaps, but these high-end cars will be far less affected than the Nissan Qashqai etc.

It would be completely irresponsible to exit the EU without a negotiated agreement on Car exports tariffs.

Even in the event of tariffs, we could spend the billions of extra revenue on reducing company and employment taxes and increasing investment allowances, to offset the tariff costs on industry. We should make that clear to inward investors like Nissan now, so they have no cause to pause investment plans. The other factor is the net £10bn UK contribution to the EU. Sudden loss of this would cause chaos in the EU budget. There is a deal to be done, and quicker than most imagine.

Now Mr. Jenkins, the premise of the quick Brexit was that the UK would unilaterally implement a zero tariff regime on imports and the EU would follow suit.  However, in this last paragraph Mr. Jenkins seems to have dicovered a new pot of money to offer to all-comers – the income the UK will generate from tariffs which will “could” be used to finance various Brexit compensation schemes.  Mr. Jenkins seems to ignore the fact that any tariffs being collected will actually be additional taxes paid by UK citizens to purchase these imported goods.

And then we get to the “£10b UK contribution to the EU”. I note that it has been reduced from the £18b (£350m per week) claim before the Referendum – better late than never however the real number is actually about £8b and will need to factored against a number of additional costs the UK will incur and taxes we will have to forgo. Without having to look to far I would suggest that the UK will suffer from:

  1. an expected reduction in GDP of 1% (£6.5b) in 2017 just for the fear of Brexit
  2. a potential 2.2% drop in GDP from losing Financial Services passporting,
  3. the £12.2b per year in net HMRC revenues from the stopping of FoM,
  4. the estimated £5b cost of the Brexit ministry running a global trade negotiations team.
  5. Cost of up to 800,000 jobs lost in the car industry as the Asian investors redirect production to their EU plants
  6. Cost of up to 100,000 of jobs lost in the Financial Services sector as work gets relocated within the EU

Companies are already lining up to be compensated for the cost of losing the Single Market Nissan demands Brexit compensation for new UK investment

Conclusion

As Mr Jenkins says “madness” but the madness with with himself and his Hard Brexit colleagues.

We are now being told that negotiations will be too complicated and hard so let’s not bother however, as Nick Herbert says in his commentary: Hard Brexit ideologues threaten the UK’s economic future

But weren’t we told, time and again, that Britain is big enough to drive its own bespoke deal? It’s hard to see why it’s wise or attractive to say that what we want from the outset is the most brutal severance with the least advantage to us and the most potential economic damage.

The Remainer group who still look like they are the largest group (48% at the last count) with an agreed position.  The 52% of Leavers are split around at least three different propositions, the majority favoring a deal that, as Mr. Jenkins points out, they most probably can’t have, another group still waiting for the money saved from the EU to be distributed and a small group of near fanatical enthusiasts for the “Who needs a parachute, let’s jump anyway” Hard Brexiteers.

So, Mr. Jenkins would you like me to open the over-wing exit for you?

 

 

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