How Will Johnson Get the Economy Out of the Mess Created by Brexit and COVID?
The UK’s economic future is less certain than it has been at any time since the 2008 financial crisis, says Mike Buckley
COVID-19 is a global economic crisis as much as a public health one. The economic fall-out could be as difficult for governments to navigate as its health consequences continue to be – as well as more enduring.
In the UK, we know little of the Government’s plans beyond a vague commitment to ‘build back better’. The sense of a lack of direction is compounded by its lack of clarity on plans for the post-Brexit economy. Britain has won the right to diverge from EU standards and regulations but has so far failed to lay out plans to do so.
But the challenges facing the UK economy don’t end there. In the next decade, the country will have to confront the ongoing technological revolution and the transition to net-zero emissions of greenhouse gases. Doing so will require “policy, not gestures, and respect for reality, not slogans” – all the more given that the country starts from a base of stagnant productivity, high inequality, rapid ageing, and high debt.
Given the track record of this Government and its leadership, this gives cause for concern.
The Coronavirus pandemic arrived at the end of the long decade that followed the 2008 financial crash. That crisis could have been an opportunity for the global left to expose and rebuild the system that enabled it – from one built on low wages, exploitation and precarity; to one in which workers were more greatly valued, the power of trade unions increased, and the climate and environment were valued instead of exploited.
Instead, business as usual continued – assisted by the transfer of manufacturing to low wage countries, such as China, which kept the price of consumer goods low while the use of overseas workers kept costs down for employers.
Ten years on, the first signs of a reshaped economy following Brexit and the Coronavirus crisis are beginning to emerge. Employers are experiencing a shortage of workers, particularly in hospitality but also in construction, road haulage, food processing and fruit and vegetable-picking.
Business leaders are already calling for the Government to rethink its post-Brexit approach to labour mobility. Tim Martin, head of Wetherspoons pubs, is the most famous name to raise concerns. His call for a visa scheme for EU workers caused some surprise due to his longstanding support for Brexit but, in fairness, the Brexit he wanted included continued freedom of movement.
This labour shortage, however, is global. The EU peak migration demographic of 20- to 34-year-olds is falling by one million per year. China’s workforce began to decline nearly a decade ago. The US Chamber of Commerce is warning of a crisis affecting businesses “across every industry, in every state”. There are comparable issues in other countries such as Germany, Norway, Australia and Singapore.
The UK made this situation worse with Brexit. More than 1.3 million foreign nationals left the UK in 2020 due to Brexit and the pandemic. Many will not return given the end of freedom of movement, the wage cap in the Government’s new points-based immigration system, and the loss of rights and status if they do come back.
Worker fatigue after a decade or more of being undervalued is also creating shortages. Staff have left hospitality and other sectors in search of better options. Unions blame low pay, poor conditions and precarious contracts. “I had enough of the unsociable hours, I had enough of the low wages, I had enough of being spoken to like a second-class citizen,” one former hospitality worker told The Big Issue. “I got to the point of thinking: there’s more to life than this.”
Any immediate change is unlikely. Politically, the Government is too attached to the end of freedom of movement, while wage rises will be publicised as a Brexit dividend. One of the Home Secretary’s aides insisted businesses “can’t always say the answer is to hire cheap foreign labour”.
Some restaurant chains are reportedly raising pay by as much as 15%; construction businesses by 10%. Wage stagnation has had a damaging impact on poorer households for decades, in particular since the financial crash. But celebrations may be premature. Post-Brexit, we still have little idea of the kind of economy Boris Johnson and his Chancellor want to create, or their ability to create it.
Competing Visions of the Future
Part of the problem is that the Prime Minister sold two competing visions of a future economy in both 2016 and 2019. This constructive ambiguity was necessary, observes Anand Menon, for Boris Johnson to maintain “a disparate coalition comprised of proponents of a liberal, free trading Britain free of the ‘shackles’ imposed by Brussels, and those arguing [for] a future that would insulate the UK from the pernicious consequences of globalisation”.
This ambiguity arguably cannot hold past the Brexit transition period. Johnson has to satisfy one or other of his Leave constituencies within both the Conservative Party and the country.
Free traders expect trade deals with Australia, India and the US – the price of which will be a radical shift away from the European high regulation, high standards model to enable the imports of lower quality, cheaper food and other goods; and the opening of previously protected sectors of the UK economy to outside interests.
Lower-income Leave voters – as well as some expectant Brexiters both within and outside the Conservative Party – want Johnson to prove himself to be the ‘Brexity Hezza’ he promised by investing in poorer regions of the UK, even if in truth there was nothing stopping him fixing regional inequality from within the EU.
As always, the best clue to Johnson’s intentions are deeds, not words. On this measure, all the signs seem to point to him siding with the free traders. The UK-Australia trade deal being negotiated by Trade Secretary Liz Truss will commit the UK to zero-tariffs on imports. The economic benefits will be minimal, raising growth by 0.02% over 15 years. But, as publicity for Johnson’s free trading Global Britain, it excels.
The impact on UK farmers will be harsh. “The British Government must recognise that opening up zero-tariff trade on all imports of products such as beef and lamb means British farming, working to its current high standards, will struggle to compete,” said National Farmers Union President Minette Batters. “Family farms [will] go out of business when they are unable to compete.”
What this tells us is that Johnson will sacrifice UK industries, standards and consumer protections to win trade deals and shift the UK away from the European model.
His refusal to ease checks between Northern Ireland and Great Britain – which could be done easily by aligning the UK to European food and veterinary standards – is another indication that he intends to pursue this strategy.
Trade expert David Henig argues that the only reason to refuse such alignment is the pursuit of trade deals with states that would require freedom from EU food rules – most notably the US. “Chlorinated chicken,” he observes, “is not a joke in the US but a fundamental requirement for trade partners.”
The Future Economy
Boris Johnson’s choice will lead to a series of consequences he may not understand or be able to control. The loss of GDP from leaving the EU is impossible to replace. Even trade deals with the world’s biggest economies will not be able to make up for lost income.
UK exports to the Single Market fell by more than a third in the first quarter of the year. Brexit shrank UK services exports by more than £110 billion following the 2016 EU Referendum. The Government is doing nothing to mitigate these losses.
Even the prize of a US trade deal – the biggest available – would do little to make up for lost European trade. A US-UK deal would benefit the UK economy by 0.16% over 15 years, negligible compared to the 4% loss of GDP cost of Brexit.
Regardless of Johnson’s intentions, two factors suggest that he may fail in his attempt to shift the UK from the European high regulation, high standards model.
Economically, a permanently smaller economy will make it harder to recover from the pandemic and to fulfil the pledges Johnson made to former Labour voters in the Midlands and the north of England in the 2019 General Election. Polling from the time shows that voters who switched from Labour to the Conservatives did so more in response to his promises to level-up the country, recruit thousands of nurses and police officers, and build 40 new hospitals. A smaller economy would make it harder to fulfil these pledges.
For now, Johnson can sell trade deals with Australia and India as great British successes. But they are empty wins. They will not result in secure employment, new housing or better education. Freeports too will disappoint, with David Cameron’s Government having gotten rid of them in 2012 because they did nothing for the local or national economy. In addition, global pressures, including a possible return to inflation and the workers’ shortage, may disrupt Johnson’s plans.
Politically, Johnson may find it impossible to keep his Leave voter coalition together. Given its split between free traders and lower-income voters expecting ‘levelling up’ in their communities, it is – as Anand Menon observes – “unstable and vulnerable to fracture”.
But even in areas on which the two sides agree, Brexit is likely to disappoint. Both, for example, want Brexit used to invest in domestic manufacturing – but this is one of the sectors likely to suffer the greatest harm from loss of access to the Single Market. And one of the few issues on which both sides of the Leave coalition are united with Remainers is their opposition to low standards in safety, food, the environment and workers’ rights.
Nearly nine in 10 people are opposed to the import of hormone-treated beef; three-quarters oppose chlorinated chicken; and more than half want to keep the ban on GM crops. The public may take little interest in the Australia trade deal or possible deals with India and other states that may follow, but they are more likely to take an interest when it comes to the food they feed themselves and their children or when rights at work are lost.
The Government has already had to back down this year on a planned cull of workers’ rights in the face of business and public opposition. It is not hard to imagine it not doing so over food standards, environmental protections or GM crops if the public comes to understand the price of trade deals compared to their limited benefits.
The UK’s economic future is less certain than it has been at any time since the financial crisis. A better government would use the opportunity to strengthen the economy, reduce tensions over Northern Ireland and the Union, invest in poorer regions, and create an economy fit to meet the challenges of the 21st Century.
The Government we have is unprepared for the instability coming as a result of Brexit, post COVID-19 realities, and global pressures including population changes and climate change. The results could be messy – and Boris Johnson out of his depth when it comes to confronting them.
Mike Buckley is director of the campaign group ‘Labour for a European Future’
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