Conference season means Brexit danger

18 September 2018

This autumn is a dangerous moment for both Theresa May and Jeremy Corbyn each steering a divided party through increasingly risky Brexit negotiations.

Had Julius Caesar been a British politician the soothsayers would have warned him about autumn party conferences, not the Ides of March. These are where party members gather to intimidate their leaders, and the members are in extremist mood.

May, herself neutral (she campaigned for Remain, but with no enthusiasm) is trapped between hard-line backbenchers, led by Jacob Rees Mogg, and the strongly Remain Chancellor of the Exchequer. Rees Mogg wrote to local party officers arguing that the Prime Minister’s proposals “would shackle us to the EU forever” and insisting that: “the United Kingdom does not need to do a deal with the EU. The EU needs to do a deal with us at all costs. No deal means no divorce bill – landing a £40 billion Brexit bonus to the British people.”

The Chancellor hit back saying that no deal would shrink the economy by 8% over 15 years and require government borrowing to increase by £80 billion a year by 2023 to deal with the fall out. A reduction in tax revenue of £80 billion, or around 4% of GDP, would be a macroeconomic shock half the size of the 2008 financial crisis, and increase government debt to 6-7%.

The Treasury’s modelling is secret. It’s not clear whether they’ve taken the effects of currency depreciation or the possibility of the EU considering the UK defaulting on its international obligations (entailed by Rees Mogg’s suggestion that the UK doesn’t pay the divorce Bill). In any case, the cost to Britain’s economy would be huge. In 2007, Britain’s economy grew by 2.5%, in 2009 it shrunk by 4.9% – a 7.4% fall. Growth is currently about 1.5%, so a 3.25% fall in the growth rate (half the impact of the financial crisis) would produce a serious recession.

In this final phase of negotiations, the political battle will revolve around these two numbers. £40 billion versus £80 billion: the Brexit bonus versus the no deal recession. In a rational political system we would expect the recession to be avoided. A government does not want to be blamed for inflicting economic misery on its voters. These are not however rational times. Britain’s parties are not answerable to the voters, so much as their members, and Conservative members, as Rees Mogg knows, want Brexit, and they want it hard.

Meanwhile the Labour party has been similarly handicapped. Its members and voters are opposed to Brexit, but its leadership cabal is not. They see the EU as a capitalist plot (it must be all those well-known laissez-faire economies like Sweden). For them, Brexit chaos is a win-win. The Tories can be blamed for the consequences, catapulting Labour into power where it can enact a socialist revolution free of interference from the European Commission or Court of Justice. Labour members do not share Corbyn’s Brexit dream, but they have to an extent unbelievable in modern politics put their faith in him as a man. It seems that nothing, from supporting the IRA, to accusing, by insinuation, British Jews of dual loyalty, can shake their faith. But as long as members support Corbyn the party’s MPs can’t remove him.
The optimistic scenario is this: Theresa May manages to come up with some sort of agreement that ensures no hard border in Northern Ireland and is less economically damaging than no deal. But it depends on May achieving a feat of parliamentary rhetoric worthy of Churchill or Blair at the height of their powers. Can she persuade enough moderate Labour MPs to support her so that it counteracts the rebellion from hard Brexiteers on their own side? The rhetorical task is daunting. The arguments that will persuade her own side: party loyalty and evidence that the UK will set its own course away from the EU, are the exact opposite of the ones that will persuade labour rebels to join her. She would have to simultaneously maintain incompatible positions with a dexterity that would tax Bill Clinton. The odds have to be against her.

The danger for Corbyn is that May falls to soon, leaving him in charge when the crisis hits, stuck implementing a Brexit his party doesn’t believe in, pursued by financial markets that have so far given the Tories the benefit of the doubt, but which would stop suspending disbelief the moment the reds got into Number 10.

Garvan Walshe
Dr. Walshe is a former National and International Security Policy Adviser to the UK Conservative Party, and Executive Director of TRD Policy

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