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Sun 25 October 2020
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Jonathan Portes argues that the Government’s EU negotiations and Coronavirus measures are actually drawing the UK deeper into the European mainstream

Are we at a turning point for the British economy?

In one sense, it could hardly be anything but. The UK economy faces not one but two ‘once in a lifetime’ structural shocks – the COVID-19 pandemic and Brexit. The relative economic stability of the 1990s and 2000s is a distant memory. Instead, the closest analogy is probably the 1970s. As now, the global economy was in turmoil, but in addition the UK had its own, domestically generated problems. Our accession to the EU, and the turn away from the post-war economic model, set us on a new path for the next three decades.

And Brexit does indeed, in some respects, give us the chance to take another new path, by restoring – at least in formal, legal, terms – the UK’s autonomy both in domestic regulation and in external trade policy. Whether or not we conclude a relatively modest free trade agreement with the EU that covers tariffs on most goods is secondary here.  Whether our relationship with the EU is more like that of Canada or Australia, the key point is that we will have taken back control over a very wide range of economic policies that were, to a greater or lesser extent, constrained by EU membership.

Here the hopes of some ‘libertarian’ Brexiteers, and the fears of some continental politicians, converge. A new, buccaneering Britain will be free to cut through swathes of suffocating red tape, from the Working Time Directive to REACH (safety provisions for chemicals) to the Bathing Waters Directive, allowing it to become far more competitive than the hidebound EU. As for climate change, it can be dismissed either as a myth or as someone else’s problem.

Or, put another way, the UK will engage in a race to the bottom on social, labour market and environmental regulation, outcompeting the EU not by being more productive but by cutting corners, ditching carbon reduction targets, and engaging in social and environmental ‘dumping’.  Both these perspectives are summed up (unfairly and ahistorically, it must be said) by talking about the UK after Brexit as “Singapore-on-Thames”. 

The Government’s absolute priority is to remove any remaining constraints on our freedom to set our own economic course. Yet that course looks, if anything, more ‘European’ than at any time since we joined the EU in the first place.

But hold on. The current roadblock in the negotiation with the EU is not about environmental or labour regulation. Indeed, the UK has signalled that it is prepared to make a commitment to at least the broad principle of “no regression” – no backsliding – on environmental and labour standards, and, by and large, the EU appears happy with that. Perhaps more importantly, there’s no significant domestic political constituency for deregulation in these areas, even among business, let along the wider public. The Confederation of British Industry (CBI) no longer has a problem with the Working Time Directive, while the chemicals industry is aghast at the idea of deviating significantly from REACH.

Meanwhile, the slightly conspiracist idea that Conservative policy in these areas is written by libertarian economists in fringe think tanks such as the Institute of Economic Affairs is long past its sell-by date.  Mostly, they are complaining that the Conservative Party has strayed from the true Thatcherite path, or railing from the sidelines about the latest supposed excess of the “nanny state”.

Similarly when it comes to trade. Some Brexit-supporting economists, notably Patrick Minford, have argued that the UK should simply abolish all tariffs and indeed other trade barriers – implicitly meaning that we would no longer require imports to meet our own health and safety regulations. Safe to say that’s not going to happen. Indeed, the recently published UK Global Tariff, while simpler than the EU Common External Tariff it replaces, is not very different in economic terms – and certainly won’t achieve Professor Minford’s stated objective of wiping out most of UK manufacturing and agriculture. 


Subsidies Return

The big sticking point with the EU – and the area where the Government most wants  a radical new policy direction after Brexit – is about “state aids” or Government subsidies to business. 

The discipline that the EU imposes on anti-competitive practices, including the potential impact of such subsidies, was one of the reasons that Conservatives, historically, were keen on EU membership. Correspondingly, it was a key motivation for the rejection of membership by much of the Labour left from Tony Benn to Jeremy Corbyn. 

Under successive governments, Conservative and Labour, the UK has consistently pressed for a more rigorous and restrictive state aids regime – even when that led to occasional difficulties for domestic policy. And it’s worth noting that there is a perfectly good ‘progressive’ as well as ‘neoliberal’ justification for such restrictions – just look at the US, where no such constraints exist on states, leading to companies such as Amazon setting up ‘auctions’ where states effectively bid against each other with taxpayers’ money to attract jobs and businesses. 

Even within the EU, the UK spends far less on such subsidies than most other member states; and we frequently complained that others bent or broke the rules.

Neither in public health measures, nor in the economic and labour market policies adopted to cope with the crisis, has the UK emulated US President Donald Trump.

But the current Government has rejected the post-Thatcher consensus that it’s not the business of government to pick winners in the private sector; and it certainly doesn’t want any deal with the EU to be contingent on our observing broadly the same rules.

“Taking back control” here doesn’t mean becoming more like some idealised version of Singapore or Hong Kong. Instead, it means the right to spend more on subsidising strategic sectors or companies, as well as providing incentives to create jobs in ‘left-behind’ areas. It all sounds suspiciously continental. Indeed, Dominic Cummings apparent ambition that the UK should have its own “trillion dollar tech company” to match Google or Facebook reminds me of nothing more than Minitel – the French effort, pre-web, to put a networked terminal in every home. 

And a similar pattern is visible in the Government’s response to the Coronavirus pandemic.

While ministers have claimed that Brexit has enabled a more flexible response, there is little or no evidence that EU membership would have stopped us doing anything. What is most obvious is that – again, despite the fringe of its own party, well-represented in the Spectator and the Telegraph, but not in the wider public – the Government has chosen to remain pretty much in step with most of Europe. 


Converging Coronavirus Responses

Neither in public health measures nor in the economic and labour market policies adopted to cope with the crisis, has the UK emulated US President Donald Trump. Instead, we’re squarely in the European mainstream; our lockdowns have been more strict than some EU countries, but stricter than others. Similarly, the original furlough scheme had close parallels in Denmark and France, while the Jobs Support Scheme owes much to the German Kurzarbeit. The outcomes reflect this. Both in health and economic terms, our trajectory has not so far been that much different from France, Spain or Italy.

And the longer-term labour market impact of COVID-19 may push us further in a European direction. While the UK economy has successfully created millions of jobs over the last 20 years, especially for the low-paid, women and immigrants, that has been accompanied by a growth in precarious and insecure work, with many of those jobs being relatively low-skilled and low productivity, particularly in the domestically-oriented service sector. The differential impact of the pandemic puts elements of that model into question.

So we have a paradox.

We have left the EU and – rhetorically and legally – the Government’s absolute priority is to remove any remaining constraints on our freedom to set our own economic course. Yet that course looks, if anything, more “European” than at any time since we joined the EU in the first place. 

That doesn’t mean we know what exactly this new model will look like. Within the EU, individual countries – from Sweden to Spain, or Belgium to Bulgaria – have very different economic strategies. On climate change, for example, huge battles remain to be fought on whether, when and what a credible net-zero strategy looks like.

But at the moment it seems a safe bet that those battles will be fought largely on the terrain defined by previous and current UK and European debates, not by Trump or the denialists. For better or worse, we may have left the EU, but we’re still part of Europe.

Jonathan Portes is Professor of Economics and Public Policy at the School of Politics & Economics of King’s College, London


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