Blonde Money: Britain After Brexit
It only took four-and-a-half years, three prime ministers and two general elections. There is finally a Brexit Agreement. There is no doubt relief in many quarters that some form of agreement has been reached and for many months there is bound to be relief in financial markets also. However, this is a living document. It will take decades to work out what it all means for the British economy. Even then, it will change over time. Unless of course one or both sides decide to end it, which they can do, within the terms of the agreement, with 12 months’ notice. Parts of it can also be terminated, without the whole agreement being cancelled. That means more time, more prime ministers, and more elections, before the dust settles on what this all means.
But what do we know right now?
Inevitably the focus is falling on what it means for me and how I live and work.
- Can I take my pet to visit granny in Northern Ireland?
- Yes, but only with a new pet passport.
- Can I live half the year in my second home in Provence?
- No, only 90 days out of each 180.
- Can I be a lawyer in Czechia?
- Yes, but only if you’re resident.
- What about being a lawyer in Austria?
- Yes, but only if you’re not a resident.
- Can I be a tobacconist in France?
…and so on. These personal questions are consuming people’s energy and generating frustration. (For further details on these nuances, please consult this excellent primer from the Institute for Government).
They are just one of the inevitable frictions as the UK separates from the EU.
The other is supply chains. Despite the shrieking headlines over blocked up British ports, the truth is that supply chains were already under siege from the pandemic. We have effectively already seen a global No Deal Brexit, with borders slammed shut between nations for months. Companies have had to seek alternatives to build resilience and that process will continue.
There may be zero tariffs, but trade also requires documentation and paperwork. These “non-tariff barriers” always exist between nations. They need not prevent trade altogether. The EU still trades with the US, and vice versa, despite the lack of a free trade agreement between them.
Whether the Brexit-specific friction increases will depend on how much the UK wants to diverge. The more divergence, the more short-term pain for potential long-term gain. And the decision for that lies with the UK Prime Minister.
The success of all of this is not economic. It is political. It will depend on the leaders who take us forward for the years ahead.
And the Trade and Cooperation Agreement (TCA) takes account of this with its outline of arbitration methods if trade disputes should escalate. This is common with any trade agreement; the WTO uses their Dispute Settlement Body to sort out violations. But it’s not just a boring legal mechanism. It’s a potential political tool.
Let’s look at fish.
- Yes, the starting point is a 25% increase in the value of the catch for the UK, phased in over 5.5 years, at which point annual negotiations kick in
- But just look at the dispute resolution mechanism that kicks in if either side breaches these obligations
- Preferential tariffs on fish and access to waters could be removed
- AND so could tariffs on other goods
- AND this would continue until an arbitration panel determines if it were a proportionate response
- If either side terminates the Fisheries agreement, then that automatically cancels the trade, aviation and road transport sections of the deal
You can see where an aggressive leader might take this.
If you slap tariffs on my fish, then I slap them on yours. Then I slap them on other goods. Then you threaten to rip up the Fisheries Deal. Then both of us lose road and air access. Then the domestic law courts on each side get bogged down arguing the case… and we end up in a stand-off until one side concedes.
These arguments have already begun. The UK wants to diverge in certain areas, that was the point of leaving. Take the latest suggestion that the UK will loosen regulations on the 48-hour working week. The EU can complain if it’s seen to impact competition. But then the courts come in and everyone is bogged down until someone can decide what a proportionate retaliation might be.
This will not only rumble on but be deeply divisive at times. It has the potential to hurt economic growth in the short-term but increase it in the long-term. Europe’s economy has long faced structural challenges from an ageing workforce and sclerotic bureaucracy. Now the UK has escaped, it can forge a new path. Whether it is successful will depend on the politicians in charge.