Source: The Spectator Australia
Brexit was always going to be stillborn. It is one of the worst policy decisions ever made, by any government, anywhere, any time. Even basic understanding of economics and the structure of global trade would have been sufficient to predict Brexit would be a disaster for Britain.
Yet, Brexit happened. Why?
Brexit was sold very cleverly to a generally uninformed, lazy, and prejudiced electorate as a remedy for three specific "grievances": Brexit would halt immigration to placate racists, jettison excessive regulation to please free marketeers, and - stated less publicly - usher in major tax cuts to make Britain internationally competitive for business.
The pro-Brexit Conservative governments to have ruled the UK since the Brexit referendum have all spectacularly failed to deliver on all three promises. Those who voted for Brexit have been betrayed.
This short note explains how the calamity of Brexit came about and where Britain may be heading next.
Let us rewind to the 1980s. Then Prime Minister Margaret Thatcher was strongly in favour of the European Union (EU). She is sometimes labelled an EU-sceptic, but this is wrong. Thatcher fought with the EU over peripheral matters, such as UK’s contribution to the EU budget (where she won a rebate), but when it came to structural matters Thatcher only brought Britain closer to Europe. She strongly favoured EU as a vehicle for peace in Europe and on account of her strong belief in markets she also pushed hard for the creation of the Single Market in goods and services.
Most telling of all, she supported the Single European Act, which was the basis for the formation of the single currency, the Euro. In her autobiography, she wrote: “It was right to sign the Single European Act, because we wanted a Single European Market” (source: here).
John Major, Thatcher's successor, was also strongly pro-European. “Bastards!” was how he described members of the then tiny anti-EU fringe of the Conservative Party during his time in the big chair. In the early 1990s, the EU-sceptics may have been few in number, but Major’s majority was so slim that he was unable to pass legislation without their support. Exploiting their position of power, they extracted 'a pound of flesh' for every vote and Major hated them.
Meanwhile, the vast majority of Conservative Party members were still very pro-EU at the time. The core of the British Labour Party also strongly supported EU membership throughout and beyond the Thatcher and Major years.
No one in Britain in the early 1990s entertained the idea that Britain would ever leave the EU and the ‘bastards’ were viewed by most British people as Far-Right freaks.
Given this erstwhile strong pro-EU consensus across the British political spectrum, how did Britain ever end up leaving the EU, let alone be government by the lunatic anti-EU fringe?
Fast forward to the Prime Ministership of David Cameron.
Cameron was adamant not to allow himself to be paralysed as John Major had been by the anti-EU Conservative fringe. In exchange for a promise from the EU-sceptics that European issues would be left on the back-burner during his first term in office to maximise Cameron's chances of being re-elected for a second term, Cameron offered the ‘bastards’ a referendum on EU membership in his second term, if he won a second term.
Which he did. And so Cameron called a referendum on EU membership in 2016. A referendum on its own does not guarantee Brexit, of course. The British people actually had to vote in favour of Brexit too.
Which they did. On the day of the Brexit referendum, 17.4 million voted to leave the EU out of a total UK electorate of 46.5 million. Some 16.1 million voted to remain. Some 13.0 million did not vote at all. The lethargy surrounding the question of EU membership, especially among the young, is still shocking. It was entirely pivotal to the outcome, because the Brexit vote was fundamentally a protest vote.
The reasons why so many voted for Brexit as a protest are many and complex. Most were poorly understood at the time. And many had nothing whatsoever to do with the EU per se.
Thus, when the referendum result was announced it sent shockwaves through Britain and across Europe. The British establishment had not seen it coming, not least because the British media and many political analysts inhabit a world so different from those who voted for Brexit. They simply had no appreciation of how tough life had become, particularly for the lowest income groups in Britain.
Yet, in retrospect, the warning signs were there all along. In 2011, riots had broken out in many British cities. This huge red flag should have alerted the media and analysts to the existence of deeper cracks within the lower layers of British society (see here).
There had also been a catastrophic collapse in living standards for lower-income groups in the aftermath of the Global Financial Crisis of 2008/2009. This was partly due to the policy of quantitative easing (‘QE’) by the Bank of England, which had been the main macroeconomic policy instrument used to generate economic recovery. QE massively increased income inequality by pushing up the value of financial assets, whose ownership is strongly skewed towards the rich.
The Brexit referendum was carried by an unholy alliance of angry working-class poor, a small number of very wealthy individuals, a thin slice of British business-owners as well as the elderly, particularly in rural Britain. The groundswell of dissatisfaction that led to Brexit also meant a wholesale rejection of conventional politicians in favour of populists promising “sunny Brexit uplands” for Britain outside the EU.
The populists had found it very easy to attack the EU. Made up of 27 different countries, the EU rarely defends itself very effectively. Nor had it helped perceptions about the EU that southern Europe had recently experienced serious economic turmoil during the European Debt Crisis (see here).
Strong nationalistic rhetoric and colourful xenophobia employed by pro-Brexit campaigners, such as Nigel Farage, therefore easily drowned out the boring pro-EU arguments of mainstream politicians. In addition, foreign election interference played a key part as gross misinformation about the EU was targeted specifically at browbeaten swing voters. Among the most persuasive lies were promises of millions of pounds for the NHS, endless lines of immigrants, and Turkey’s imminent membership of EU.
It would be unfair, however, to claim that the Brexit campaign was based entirely on populist lies. Among the top Brexiters, there was also a carefully constructed vision crafted by Far-Right Tories, who, following the generals elections in 2017 and 2019, had been thrust into the very heart of government.
Brexiters, as they would henceforth be known, believed in a modern resurrection of Victorian Britain in which Britain would once again ‘rule the waves’ by morphing itself into a low-tax, low-regulation, open-economy 'buccaneering' state, free from the constraints of trading blocks and especially EU regulations.
This vision of Brexit proved especially seductive to sections of the British financial elite and the business community, which simply refused to pay attention to the counter-arguments, such as the fact that at just 2% of global GDP Britain is simply not the economic powerhouse it once was. Far more importantly, no one paid any heed to the fact that the world long ago ceased to be a collection of stand-alone economies with which Britain could trade at will. Instead, the world of today is organised into large trading blocks to which membership is absolutely essential in order to freely trade and invest. And due to so-called gravity effects EU membership is particularly important for British prosperity and economic security.
Rather than dealing with these important facts of life, Brexiters instead concocted three specific election promises with hardly any basis in reality:
Promise Number One was to end immigration. This promise was specifically tailored to attract the votes of xenophobes among the poorly educated lower-income groups of British society. As mentioned above, these groups had been left behind in the aftermath of the Global Financial Crisis and were struggling. They proved particularly receptive to anti-EU rhetoric, because they had found it especially difficult to compete with more motivated, harder-working, and far better skilled workers from Eastern Europe.
Promise Number Two was to completely deregulate the British economy. This promise was designed to get the rich and business owners onboard. Brexiters like Jacob Rees-Mogg spoke of a ‘bonfire’ of some 4,000 EU laws to turn Britain into “Singapore on the Thames”, seemingly oblivious of the fact that Singapore is actually heavily, albeit very efficiently, regulated. Almost no media scrutiny went into challenging the feasibility of removing so much regulation, particularly given that most of it had received strong backing in the British parliament. Perhaps the media’s negligence of this issue can be explained by the fact that deregulation never became a prominent election issue during the Brexit campaign, but it was important nevertheless because the promise of deregulation helped Brexiters a great deal to raise funding for the Brexit campaign.
Promise Number Three was to cut taxes by at least 10% of GDP. This was by far the most important Brexit promise, yet one which to this day Brexiters have still not publicly acknowledged. Brexit simply makes no sense without a tax cut of this size, because in a world of trade blocks surrounded by tariff barriers Britain can only compete if it lowers the cost of production relative to other countries by this much. The alternative of rapidly increasing productivity not only flies in the face of historical trends, but would also require major public investment and therefore higher taxes. Deregulation, meanwhile, would help to lower costs, but deregulation is not nearly enough in itself.
The problem with tax cuts, of course, is that they have to be funded to avoid public debt spiralling out of control. Where to find the money? Enter the NHS. NHS spending accounts for approximately 12% of British GDP. Hence, a sale of the NHS would not only give the government a massive windfall from the sale itself, but also save the government required 10% of GDP to make Britain competitive every single year thereafter.
In short, there was a clear economically viable vision behind Brexit, but unfortunately for the Brexiters their vision always sorely lacked in political realism. And it is for this reason that all three Brexit promises – spoken and unspoken – were destined for the scrap heap right from the start.
The betrayals of the three promises is now clear for all to see:
Brexit Betrayal Number One: Contrary to ending immigration, immigration has increased significantly in post-Brexit Britain. There have also been important shifts in immigration patterns, from EU to non-EU immigration (and hence from white people to brown people) and from lower paid/skilled sectors to occupations with higher pay and higher skills (see here). These shifts have arguably contributed to rising inflation, because they have worsened Britain's shortage of workers with vocational skills. Britain has depended on workers with vocational skills from EU ever since Thatcher abolished conventional apprenticeships in the 1980s. Of course, the City of London and big business owners continue to obtain the skilled foreign workers they need. Viewed from the perspective of a typical lower-income British xenophobic Brexiter, this is hardly the version of Brexit he or she had in mind.
Brexit Betrayal Number Two: The second group to be betrayed was British business. In April of 2023, the government of Rishi Sunak cancelled Jacob Rees-Mogg's planned bonfire of 4,000 pieces of EU legislation after the government discovered that removing these laws was fundamentally undesirable. Most of the laws serve perfectly legitimate purposes. The other problem is that British goods and services will not – in many cases – be cleared to enter important export markets unless these laws are in place. So far, the main and only major accomplishment with respect to deregulation has been to allow water companies to pour sewage directly into Britain’s rivers. Some 94% of British voters oppose pollution of rivers (source: here).
Betrayal Number Three: Most importantly of all, the promise to cut taxes ran into a brick wall, when former Prime Minister Liz Truss and Chancellor Kwasi Boateng’s budget was rejected by financial markets. The message sent by the City of London was extremely clear: Britain cannot borrow endlessly without adequate incoming tax revenues. In layman's terms, you cannot cut taxes unless you also undertake commensurate spending cuts. Opinion polls have so far made NHS privatisation impossible and newly appointed Chancellor Jeremy Hunt was forced to raise rather than cut corporation taxes after the Truss budget debacle.
They deemed the public finances to be safe in her hands….Former Prime Minister Liz Truss (source: here)
Does Jeremy Hunt's policies mean that tax cuts are completely off the table? Probably not. Despite the omni-shambles that have characterised Tory policies since 2016, there are still people in the Conservative Party, who believe a Tory win can be snatched from the jaws of defeat at the next general election in 2024. They want Sunak to move decisively to the Right, particularly on immigration. So far, none of them have had to cojonos to talk about selling the NHS, however, without which Brexit can never become an economic success.
Politically, can NHS even be sold? Perhaps. The government's strategy is to run down the NHS slowly. It does so by increasing the difficulty of getting GP appointments, creating longer and longer waiting lists, letting patients die in ambulances, and fomenting a crisis in mental health care. The idea is to gradually induce patients to give up on the public health care system and take out private health insurance instead (See here).
NHS waiting lists (source: here)
However, in my opinion British votes will not stand for an outright sale of the NHS. Everyone knows that the alternative - a US style health care system - would be a disaster.
But if NHS can never be sold then the big tax cuts required to make the economy work will never be feasible. And in turn that means that Brexit will never succeed. As such, tax cuts are clearly the Achilles Heel of Brexit.
Given the impossibility of making it work, Brexit is nothing other than yet another classic British misadventure orchestrated by Britain's small, wealthy elite, which is taking advantage of a very ignorant and deeply neglected underclass of the electorate. As the misadventure sours further, it will - correction it already is - once again the poorest, most ignorant, and vulnerable who pay the price, particularly immigrants.
When will British politicians accept that a change of tack on Brexit is required? Clearly, since Brexit will never work it will prove a millstone around the neck of the next Labour government just as it has been for the Tories. Polls show that a clear majority of British voters now favour re-joining the EU. The least painful route to a new referendum would probably be to argue that Brexit was sold to voters on false pretexts.
Unfortunately, myopic British politicians from both parties were far too eager to vociferously support Brexit in the immediate aftermath of the referendum to now undertake big public U-turns on Europe. It is therefore likely that the next election will not be major Brexit watershed (see here). As such, Britain's long decline looks set to continue.
The End