The Trade talks between the EU and UK are said to be progressing better than before, with a new spirit of realism. Does this mean that the UK démarche in the Internal Market Bill (showing what the UK would do to the Irish Protocol unless the EU showed more sensitivity to UK concerns) has had a positive effect? We think it has.
If all continues to go well, Michel Barnier and Lord Frost hope to have the final details of a deal ready to present at the next EU summit in Brussels in mid-October. Reported concessions include the EU softening its demands for checks between the UK and Ireland, and the UK accepting “baseline rules” on state aid.
As the final push approaches, the misinformation continues. The Telegraph reported this week that Boris Johnson has been substantially softening his stance, having been “shocked by a London School of Economics report suggesting that no deal would cost Britain up to three times more than coronavirus”. This is a ridiculous claim on a number of fronts.
Very reliable sources confirm that the British negotiating team has not changed its stance, and certainly would not on the basis of the LSE report whose claims are overblown. One of our team has been involved in a detailed analysis of the LSE model’s past use in estimating the impact of Brexit. This reported that the LSE model showed a minimal impact of EU tariffs in the event of no deal. The impact of non-tariff barriers was also small even though these barriers may have been exaggerated. To get a larger impact, the modellers assumed future regulatory divergence (even though this is a matter for UK policy). Finally, they assumed a large knock-on effect from trade to productivity, an effect which we do not think exists.
There will then, be no “change of heart” on the British side, but rather a continuation of serious negotiations. Perhaps we should remind readers of the advice we got from a senior Australian Trade negotiator. He said ‘ignore anything the EU say until the last three weeks’. The last breakthrough, on the Withdrawal Agreement last October occurred exactly 21 days before the deadline. We are now approaching the next deadline, so expect news soon.
This week saw the Express report on BfB contributor Anna Bailey’s criticisms of Michel Barnier’s statements about British fish, in their article ‘Michel Barnier ‘wrong’ about international law as fish in UK waters doesn’t belong to EU’. Barnier claims that while the UK would regain full sovereignty over its waters after Brexit, the fish in those waters were “another story”. But as Dr Bailey explained, this interpretation of international law is “simply false”.
Our co-editor Dr Graham Gudgin gave evidence to the House of Commons Northern Ireland Affairs Committee last Wednesday for its enquiry into the Northern Ireland Protocol. A transcript of his evidence is at https://committees.parliament.uk/event/2138/formal-meeting-oral-evidence-session/
On the website this week
We really must change the Irish Protocol, by Dr Graham Gudgin
When Graham Gudgin gave evidence to the House of Commons Northern Affairs Committee this week the (Remainer) chairman decided not to take opening statements. Here is his prepared opening statement which says that Irish Protocol is a bad document from the UK perspective. The Johnson Government is correct to aim to change it.
“Those who protest that we can never break international law surely protest too much. There must be circumstances in which previously agreed treaties are too onerous or troublesome to live with.”
The Costs of Offshore Wind Power: Blindness and Insight, by Dr John Constable and Professor Gordon Hughes
In this important contribution to our series on post-Brexit Britain, Professor Gordon Hughes and Dr John Constable take on the entire green energy movement in arguing that the widespread view about the falling costs of renewable energy is wrong. They view official government projections of energy costs and hence prices as disgracefully inaccurate. Energy costs will be an important element in the UK’s future economic competitiveness and, if the authors are correct, energy prices are in for huge price rises.
“The actual costs of onshore and offshore wind generation have not fallen significantly over the last two decades and there is little prospect that they will fall in the next five or even ten years.”
Why UK law must prevail over the EU Withdrawal Agreement, by Martin Howe
Martin How QC explains that a single unified internal market is a key block in the constitutional foundations of the United Kingdom. There is an important difference between departing from the terms of a treaty and breaking international law.
“Treaty powers should be exercised in good faith, and a blockage by the EU of the adoption of reasonable ‘goods at risk’ rules under threat of using the treaty machinery to impose tariffs across the board on goods passing from GB to NI would likely be a bad faith exercise of treaty powers.”
Economist Harry Western explores the extensive economic damage that might be caused by the government’s new measures against Covid-19.
“If restrictions are extended these other human costs will probably be far greater than the toll exacted by the virus itself.”
Key points this week
Taking Stock of Financial Markets
Some outlets have recently reaffirmed the narrative of a negative financial impact of Brexit uncertainty, highlighting the dangers of capital outflows and suggesting that British stocks have done particularly poorly compared to European shares. These claims, however, are simply untrue. To start with, the Investment Association (IA), whose members control about 80% of all investment funds in the UK, say that their members have about the same amount under their management as they did at the end of 2019. Likewise, as the FT has written before, the EU has been relatively unsuccessful in building a rival to London’s dominance of European finance, or in attracting services from the capital to the continent. Indeed, London has recently closed the gap with New York, and the City is rated second according to the ranking of the Global Financial Centres Index – with Edinburgh ahead of every other EU city bar Luxembourg.
As for the claim that UK stocks have been battered by Brexit uncertainty over the past four years, a quick look at the performance of the FTSE 100 relative to France’s CAC 40 or Germany’s DAX disproves this claim. There was a big sell off across the board when the first lockdown was announced earlier this year, and while markets have been creeping up recently, they are now selling off again now in advance of a potential second wave. The FTSE100 hit lows of 5540 in Feb 2016 – well before the referendum – and was at 7682 in Jan 2020, further undermining the claim that British markets were battered by Brexit or that they have performed particularly poorly when compared to their European counterparts. Covid-19 has had as substantial an impact on many EU markets that rely on external trade and tourism. Conversely, US stocks have fared relatively well compared to Europe’s, due to America’s large internal market and the current strength of US tech stocks, that have mostly benefited from lockdown. Tying the recent performance of British markets to Brexit, therefore, simple represents wishful thinking.
Making a Meal of Food Imports
A recent headline in the BBC has revived scare stories of food tariffs leaving millions of Britons out of pocket if tariffs are imposed on European food imports in the event of a WTO exit. (These worries will have a familiarly dreary ring for Brexit-watchers: the British Retail Consortium has been complaining for some time about the dangers that tariffs might pose to its profit margins.) The numbers cited in this story are, however, misleading. The UK only gets about 25% of its total food from European sources – making apocalyptic predictions of massive price rises deceptive.
As the article admits, tariffs are added to the import price, but this price is only a fraction of the retail price. (This is due to importer, distributor and retailer all adding their own mark-ups). Secondly, if prices rise substantially then there will be incentives for import substitution with local products as well as with products sourced from Non-EU countries. Finally if there is a rival, locally produced product, the manufacturer or retailer of the imported product is more likely to absorb the increased tariff cost to avoid losing market share, further mitigating rises. Moreover, the EU’s farmers (much like its fishermen) are fully aware of the importance of British markets. For all Remainers like to poo-poo the significance of the EU’s substantial trade surplus with the UK, the fact remains that it is European suppliers who stand to lose disproportionately if the UK leaves on WTO terms – giving Brussels another incentive to secure a deal.
Key Points is compiled by a Cambridge PhD student.
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How you can help
There is much about Brexit still to be decided. Our MPs listen to their constituents. Do continue to send them links to our articles, especially on matters relevant to your constituency – for example, in rural areas, articles on the threat to British agriculture. Alternatively, make an appointment to speak to them at their next surgery. Let them know what you want post-Brexit Britain to look like.
As Boris Johnson said in in his post-election address, it is also time for unity and reconciliation. Keep reading our posts and share links to our quality content to help others understand how leaving the EU will be good for the UK economy and for our own democratic governance. We aim to educate our critics to think differently and more positively about the long-term impact of Brexit.
An Oxbridge PhD Student
Dr Graham Gudgin
Economist, Centre for Business Research, Judge Business School University of Cambridge
Professor Robert Tombs
Emeritus Professor of French History, University of Cambridge