Policy Research in Macroeconomics

Q & A with Prime’s Jeremy Smith on Brexit, immigration and democracy

Earlier in the week U.K. Prime Minister Theresa May unveiled her vision for Britain’s exit from the European Union. The Prime Minister couched her outlook in positive terms, speaking of Britain leaving the EU but remaining in Europe. She spoke of EU member states as friends and partners. And Mrs. May also insisted that Britain would prosper after Brexit is achieved. I have written about what the key takeaways from her speech were.

But to get a better sense of how realistic her vision is in political and economic terms, I also asked Prime Economics Co-Director Jeremy Smith for his take. Jeremy, a barrister by profession, has had a strong and sustained interest in political economy throughout a career that has spanned the public, private and non-profit sectors. And he is an expert in EU and national constitutional issues.  Here is the Q&A (18th January) that resulted.

1. We have now heard from Theresa May, the Prime Minister, regarding her plans on Britain’s exit from the EU. She has refrained from using the words ‘hard Brexit’. But she is basically going to take the U.K. into a hard Brexit. Was this always the likely outcome?

From the outset, we in PRIME have felt that this was not only the likely, but the almost inevitable outcome.  The reason is that the “Leave” vote was an alliance between the ultra-deregulated-globalisation lobby and the large number who see controlling inward migration as the number one issue.  Membership of the single market is incompatible with control over migration, and remaining in the customs union is not seen as sufficiently “global” by the ultras.  In any event, it is really hard to see or justify the advantages of remaining in the single market, paying the “membership fees”, being under the European Court of Justice’s jurisdiction – but not having any vote or any say on any of the rules.  If you want to stay in the single market, it makes no sense to leave the European Union!

2.  The plan that Theresa May has proposed for a so-called ‘clean break’ is not at all what the Scottish first minister Nicola Sturgeon has wanted. She has to be very disappointed in the plan the Prime Minister has formed given her desire to remain in the single market. What does Nicola Sturgeon do with this information now?

This all fits into a longer Scots Nat game plan, trying to lay a favourable basis for a second independence referendum.  For Scotland alone to stay in the single market (in whatever way) is probably legally impossible, but certainly fiendishly difficult from a legal perspective, as Ms Sturgeon well knows.  Of course the Scots were far more pro-EU than most of the rest of the U.K., so her position has a broader resonance among the Scottish people.  But as far as I read the runes, there is not at this point a strong mood to trigger a new referendum (and the Scottish economy is probably weaker than at the time of the 1st Referendum). 

So I think Ms Sturgeon and her team will continue to make waves and argue that the Scottish economy and society are being damaged by being forced to leave the EU and single market, while waiting to see if there is indeed any major negative impact on Scotland economically as the Brexit process unfolds.  In the meantime it is likely to strengthen her party’s already quite hegemonic position in Scotland generally, especially against Labour. But this one will run and run…

On the EU side, while there would surely be some sympathy for a Scotland wanting to stay in the EU or at least single market, there will be no help offered her.  That’s because the last thing other states want to see is a sort of breakaway European state, giving a precedent for more conflict and fragmentation.  Strongest opposition would come Spain, where the central government is in a long-term struggle with the secessionist-minded regional government of Catalonia – as well as having fought a decades-long insurgency by Basque separatists.

3. Ostensibly, now that the plan is to leave the single market, the U.K. will soon begin negotiating a free trade agreement with the EU with the hopes that this deal can be achieved in the two years that the U.K. has before it must leave. But even the free trade agreement with Canada will take seven years front to back when it comes into being. How realistic is it to expect that the U.K. will get a deal before Brexit occurs?

There will be no free trade deal with the EU agreed before Brexit.  The Article 50 process (for leaving the EU) only provides for the EU and U.K. to “negotiate and conclude an agreement…setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union”. Michel Barnier, who is to be in charge of the negotiations for the EU, is saying they will not think about a trade agreement until after the Article 50 stuff is completed.  I don’t think that that is required legally – “taking account of the framework” for the future relationship could surely include negotiating the outlines of a trade deal framework – but nor can the U.K. force this. 

So unless things go more amicably than so far seems probable, the future EU/U.K. trade deal looks a long, long way off.  However, there may well be a mutual interest in some short-term deals for specific industries, or even a short period of remaining members or associate members of the customs union.  Since that includes trade barriers vis-à-vis the rest of the world, the U.K. ultra-globalisers are not happy even with this idea, however.  

4. Theresa May told us she intended to allow Parliament to vote on her EU negotiation deal. But that’s only after it is ready to sign, with an exit from the EU without a deal breathing down our necks. How does this leave British MPs with a legitimate vote in deciding the outcome?

Not at all. This is a meaningless gesture, since we now learn that even if Parliament votes down the negotiated package (if there is one) the government would still aim to proceed to leave.  Back in late June, just after the Referendum, we suggested that Parliament should have a vote on the proposed terms – and that if Parliament thought it was a bad deal for the U.K., there should be a second Referendum.  But that is now clearly not on offer (and Labour is not demanding it). Parliament has in effect rather abjectly abdicated to the government over the terms of leaving the EU. 

Remember too that in a few days, the U.K. Supreme Court rules on an appeal in a case where the High Court had decided that the government had to get Parliament’s agreement to give the notification (under Article 50 of the Treaty on European Union) to leave the EU.  This was brought not by Parliamentarians worried about their constitutional rights, but by private citizens who believe that we live (and should live) in a Parliamentary democracy, not an authoritarian regime in which all power lies with the executive.   Right after the Referendum, we in PRIME argued (“A democratic strategy for the EU negotiations”) that Parliament should take the lead, and if truly unhappy with the outcome, be prepared to require a second Referendum.  But the House of Commons has been more the Mouse of Commons.

Moreover, just as likely as a deal is a failure to agree a deal (note that the European Parliament’s consent is required to a deal, and they are not going to be “easy” partners) and that would leave Parliament with nothing to agree… with the U.K. drifting out of the EU in March 2019.

5. Ostensibly the Prime Minister felt boxed in by the immigration issue that spurred the Brexit referendum vote. Is the immigration from Eastern European EU states too much?

This of course is highly debated and subjective.  There was first the period from 2004, when most of the new member states joined the EU – and every “old” EU country used the legal transitional power to defer free movement – with the exceptions of Sweden and the U.K. – for several years.  The Blair government deliberately chose not to impose any controls. This had the consequence, as Ed Balls noted recently in an interview,  that hundreds of thousands, not tens of thousands, of people used the chance to come to Britain, mainly from Poland which was by far the largest country.  Then a couple of years later came the accession of Bulgaria and Romania, and in recent times the larger flows have been from Romania.

There are several issues.  First, there is little evidence that inward flows have affected unemployment much if at all.  It was 4.8% in mid 2004, then went up slightly, but only lurched upward when the great financial crisis kicked in.  But second, the evidence from real wage evolution is more ambiguous – real wages continued to rise at a fairly even rate from 2004 to early 2008, but then fell greatly for the next 6 years, until a very modest recovery since early 2014.  Real pay today is still below its 2008 level – in fact, it’s still at its November 2005 level.  How far this is due to an access to migrant labour enabling employers to squeeze pay levels, especially in low-paid areas, is unclear.  But it seems to me unlikely that there has been no impact on pay, and I always smile when those who are otherwise great believers in markets try to deny that increased supply in the labour market can influence pay levels. 

What is abundantly clear is that Britain needs and relies on a lot of immigrant workers to provide vital services – the National Health Service relies on them, for example.

But I feel it was the speed not the fact of change in communities that has had the biggest consequence – and that includes the fear of change by communities that in fact hardly include a single immigrant. In addition, there are cases where a whole low-pay workforce may be imported.  It was the economic historian Karl Polanyi who said

“if international division of labour is effected by competition and consequent elimination of the less efficient, then much will depend on the rate at which the change proceeds.”

The change has been, I feel, faster than large numbers of people are happy with, and that perception has undoubtedly fuelled some of the Brexit fires.

Finally, the EU Treaties protect the right of freedom of movement of workers, but this is also interpreted to include those looking for work, and this can give rise to fears (mainly myths) about benefit/welfare tourism and so on. 

6. Short of leaving, how would the U.K. be best served in dealing with the inter-EU immigration issue?

This was where David Cameron fell down – he could not get a meaningful deal.  The position now is that most of the major movement of workers from the now not-so-new Member States is probably way past its peak.  If limiting the scale of immigration were deemed important, then the best thing would be to help other countries’ economic success – as rapidly as possible.  And that means sensible EU economic policies above all – and Treaty changes to get rid of the austerity bias. For the future, my long-standing view has been that full membership of the EU including full freedom of movement of workers should be dependent on an agreed level of economic convergence (e.g. GDP per head at more than 50% of EU average) otherwise it encourages excessive emigration as well as immigration.

In other small ways, there could be a shift towards more benefit rights being linked to having paid national insurance contributions for a period of years, which would restrict short-term access to some benefits without discriminating on ground of nationality.  But that can affect U.K. citizens also.

7.  It’s curious that Theresa May wants to continue to offer full capital mobility but is prepared to restrict labor mobility. Now ostensibly that combination of policy choices favors capital over labor. But May is going through with Brexit and exactly because British labor felt aggrieved. How does May address this contradiction?

She’s certainly conscious of the contradiction, and went out of her way to say in her 17th January, 2017 speech that she will continue to accept EU workers’ rights (which is more than David Cameron and George Osborne were willing to say) and also that “we will build on them”. And making sure that “legal protection for workers keeps pace with the changing labour market”, which I assume refers to mildly restraining the exploitative Uber model.  But I note that in the section headed “workers’ rights” she also bangs on about Global Britain and free trade!  So ultimately, especially in the race to the bottom that is threatened, it is obvious that workers’ rights will be ditched or ignored downstream if they get in the way of capital’s onward march. 

8. Do you think we will get a second referendum, and if so when?

No, unless there is a cataclysmic economic crisis over the next 18 months. 

This article was first published on Credit Writedowns Pro website on 18th January

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television.

Leave a Reply

Your email address will not be published. Required fields are marked *

This website collects cookies and analytic data. To use our website you must consent.
For more information read our Privacy Policy.