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News review – Tuesday 19 February 2019

News review – Tuesday 19 February 2019

Independent MPs

Telegraph

A Tory minister and four Conservative backbenchers appear poised to defect to the new Independent Group set up by disgruntled Labour MPs, it has been claimed. Describing the breakaway group as “remarkably sensible people”, the minister told the Telegraph he was prepared to join the new party if the Government presses ahead with a no-deal Brexit. It came as Anna Soubry sparked speculation she is preparing to jump ship after removing a Conservative Party slogan from her social media profile. The Tory Remainer removed all reference to her party from her Twitter biography, referring to herself simply as ‘MP for Broxtowe’ having previously described herself as a ‘lifelong One Nation Tory’.

Mail
Jeremy Corbyn was told to prepare for more resignations last night as Labour was blown apart by the biggest split in British politics in 40 years. Seven MPs officially quit the party yesterday, branding it institutionally anti-Semitic, racist – and led by a man who’s a threat to national security. One said it would be ‘irresponsible’ to allow Mr Corbyn to become Prime Minister. But, on the eve of his party’s greatest crisis, the Labour leader spent hours on Sunday down at his allotment in north London.

Times
Jeremy Corbyn was warned by his deputy last night that more MPs would resign from Labour unless he brought the party back into the mainstream. Tom Watson issued the challenge after seven MPs quit the party yesterday.  He told Mr Corbyn to reshuffle his top team and said that he and other Labour MPs would in any case develop a policy programme in the party’s “social democratic” tradition. Mr Watson’s move, which threatens a schism in the opposition, came after Luciana Berger and Chuka Umunna led the most significant party split in a generation.

Mail
A senior Tory refused to rule out joining a new ‘Independent Group’ of MPs today after Labour’s ‘gang of seven’ set off an earthquake in British politics. Nick Boles, who has led cross-party efforts to secure the softest possible Brexit, stopped short of saying he would stay in the Tories and insisted he was fully focused on stopping a no deal on March 29 when asked if he would defect from the Conservatives. Other Tory MPs such as Heidi Allen and Sarah Wollaston will also be the focus of attention with just 39 days until Brexit day.

Sun
SENIOR Tories fear that at least six Conservatives will quit the party to join Chuka Umunna and the ‘Independents’. Anti-Brexiteer MPs Heidi Allen and Sarah Wollaston are under ‘resignation watch’. And insiders are convinced Anna Soubry will also walk despite her long career in the Tory party. Others thought to be considering their future are Antoinette Sandbach, Philip Lee and ex-Education Secretary Justine Greening. Both Ms Allen and Dr Wollaston have faced a fury from local activists over their strong support for a People’s Vote.

Sun
TEN more Labour MPs are ready to quit the red rose party and join a new group of “Independents” created on Monday, sources claim. Up to six Tories could join them before next week’s key Brexit vote. Labour was rocked by a devastating historic split on Monday as seven anti-Brexit MPs quit the party in protest at Jeremy Corbyn’s hard left revolution. In the biggest shake-up to British politics for nearly 40 years, arch Remainer Chuka Umunna and other backbenchers tore into the hard-left leader over his stance on Brexit and failure to tackle anti-Semitism.

Morning Star
A SMALL clique of Blairite MPs rebuffed pressure today to do the “honourable thing” and stand in by-elections following their resignation from the Labour Party. The seven MPs from the party’s right wing, Luciana Berger, Ann Coffey, Mike Gapes, Chris Leslie, Gavin Shuker, Angela Smith and Chuka Umunna finally left to form a new Independent Group following months of speculation. Yet despite their calls for a second referendum — a “People’s Vote” — they are refusing to stand in by-elections, with Ms Berger allegedly telling a Sky News reporter that “one thing voters don’t want now is more elections.”

Independent
The website run by former Labour MPs who have resigned from the party   has completely broken just moments after it was announced. The politicians, calling themselves The Independent Group, established a new website as part of a plan to split from the Labour Party that was announced at a press conference this morning. The website was referenced on a podium that the MPs stood in front of as they made the announcement. But while the launch was still happening, the website stopped working

Guardian
BBC viewers watching the defection of seven MPs from the Labour party on Monday morning overheard a stark warning from an unknown voice: “We are actually fu**ed.” The commentary was inadvertently broadcast to the nation on the BBC Two and BBC News channels, giving the unnamed commentator’s views on the decision of Chuka Umunna, Luciana Berger and other MPs to leave Jeremy Corbyn’s party and sit in parliament as an independent group. “Between this and Brexit we are actually fu**ed,” said the man in a live broadcast.

Labour Party

Express
THE Labour Party has been plunged into crisis as it was revealed nearly 100 Labour MPs face being ousted by their constituency parties ahead of the next general election at the same time as a breakaway group announced they are quitting the party today. A group of seven MPs angry with Jeremy Corbyn’s Brexit leadership announced their split at an event in Westminsiter this morning. Those MPs, including outspoken Remainer and former Labour leadership candidate Chuka Umunna, are furious Mr Corbyn has not committed to a policy of holding a second Brexit referendum with the option of staying in the European Union.

Times
Derek Hatton, the firebrand former deputy leader of Liverpool council, has been readmitted to Labour three decades after being expelled for being part of the left-wing Militant Tendency group. Seen by many as one of the most divisive figures in Labour history, Mr Hatton has praised Jeremy Corbyn and said that the Labour leader prompted his decision to apply to rejoin the party. In the mid-1980s he was criticised for running an illegal budget at the council in protest at cuts by the government of Mrs Thatcher, and for stunts such as sending redundancy notices to council workers by taxi.

Mail
Left-wing hardliner Derek Hatton has been readmitted to the Labour Party more than 30 years after he was expelled.  Hatton was the ringleader of the Trotskyist Militant tendency in the 1980s which set an illegal budget in Liverpool – causing ‘grotesque chaos’ in the city – and brought about bitter divisions in the party. He was thrown out in 1986 but the party’s disputes panel is said to have readmitted him last week after he was ‘inspired’ to return by Jeremy Corbyn‘s leadership. The news of Hatton’s return comes on the same day that seven Labour moderates quit the party in protest at Mr Corbyn’s handling of Brexit and anti-Semitism.

Sun
DEREK Hatton has been let back into the Labour Party 33 years after being kicked out for belonging to the hard-left Militant group. The ex-deputy leader of Liverpool’s “loony left” council in the 1980s was kicked out by Neil Kinnock.  Leading Labour moderate MPs lashed the move with Ian Austin branding it “disgraceful” and Ian Murray saying it is a “slap in the face”’. News of his membership emerged tonight after the “gang of seven” announced they were splitting from Labour because it has been hijacked by the far-Left.

Brexit

Express
THERESA May faces a fresh battle with Brexiteers after it emerged a compromise plan on how to take Britain out of the EU has been sidelined. Brexit Secretary Stephen Barclay took details of “Plan C”, drawn up by Brexiteers and Remainers, to talks with his counterpart in Brussels. But the call for “alternative arrangements” to a backstop preventing a hard Irish border was sidelined in favour of legal assurances. Mr Barclay and Attorney-General Geoffrey Cox will return to Brussels on Wednesday to present EU officials with a “legal way forward”.

Guardian
Four cabinet ministers have demanded the prime minister stop using the threat of a no-deal Brexit as a negotiating tactic, telling Theresa May that businesses and manufacturers now needed to be given certainty. The demand was made in a meeting with the prime minister on Monday by the justice secretary, David Gauke, the work and pensions secretary, Amber Rudd, the business secretary, Greg Clark, and the Scottish secretary, David Mundell.

Reuters
The British government will use tools including tariffs and quotas to make sure its farmers are not left at a competitive disadvantage by Brexit, environment minister Michael Gove will say on Tuesday. With just six weeks to go until Britain is due to leave the EU, the government is yet to win parliament’s backing for an exit agreement. It is due to set out later this month the tariffs it plans to levy if Britain leaves without a deal on March 29. Trade minister Liam Fox has denied media reports that he supports slashing tariffs on all imports to zero in order to keep prices low for consumers. Farmers say this could price them out of the market.

Politico
The emergency sirens are whirring for a no-deal Brexit — only this time it’s not a drill. In European capitals there is now mounting alarm that Theresa May has set Britain on course for a diplomatic disaster, by fundamentally misjudging how far EU leaders are prepared to bend at the last minute in their summit just a week before Britain’s EU departure date. A month after suffering the biggest parliamentary defeat in British history, May is doubling down on her strategy of winning her Brexiteer backbenchers and the Democratic Unionist Party over to supporting her deal by securing legally binding changes to the Withdrawal Agreement she finalized with the EU in November.

Ireland

Times
The Irish foreign minister has accused Theresa May of trying to drive a wedge between Dublin and other EU states and force his government to make concessions on the backstop. In an angry riposte to lobbying by British ministers in European capitals for a time limit to the Irish backstop, Simon Coveney said that Dublin would not be “steamrollered” into backing down. At a private meeting with Jeremy Hunt, the foreign secretary, yesterday Mr Coveney told him that any attempts to “isolate” Dublin would backfire.

Guardian
Jeremy Hunt was confronted over alleged British attempts to isolate Ireland from its EU partners by the country’s deputy prime minister during a meeting in Brussels on Monday, as tensions over the continuing Brexit impasse bubbled to the surface. Ireland’s tánaiste, Simon Coveney raised “negative briefings” in a private meeting with the foreign secretary before later publicly expressing his frustration over a lack of progress, with fewer than 40 days to go until Brexit. Warning that Ireland would not be “steamrolled” in the last weeks of the Brexit talks, Coveney told reporters: “Yes, there is frustration in Ireland.

EU

Telegraph
Jean-Claude Juncker, the EU’s most senior official, declared that Brexit was “in God’s hands” on Monday, as he said Brussels would be open to delaying Brexit if it avoided a ‘no deal’ scenario. In an interview with German newspaper Stuttgarter Zeitung, the eccentric European Commission president said that Brexit was now being dictated by higher forces. “When it comes to Brexit, it is like being before the courts or on the high seas; we are in God’s hands. And we can never quite be sure when God will take the matter in hand,” Mr Juncker said.

Mail
Major banks on the Continent will be able to carry on using London for £60 trillion of crucial trading activity even if there is a No Deal Brexit. Large lenders inside the European Union have been given permission by Brussels to continue accessing so-called clearing houses in the City for a year after we leave. These clearing houses allow banks to trade complicated derivatives which underpin vital lending to households and businesses.  Banks based inside the EU are legally only allowed to use clearing houses within the bloc – and it was feared a No Deal Brexit would cut them off from London, the main hub for clearing, causing chaos.

Breitbart
The EU has hailed a large rise in the number of migrants, many South American, who have been flying direct to Europe to file their asylum claims, with visa-free travel rules. While the bloc saw an overall decrease in asylum applications of 10 per cent over the last year, claims lodged by third world migrants who traveled to EU nations through regular channels rose by almost a third in the period, to around 115,000. The figure, which included 22,200 Venezuelans and 10,200 Colombians amongst applicants from South America, and 20,000 Georgians along with 21,900 Albanians amongst those from European countries outside the bloc, outstripped the total number of claims from Iraqi and Syrian nationals in the last year.

Jihadi bride

Sun
JIHADI bride Shamima Begum says the murder of 22 music  fans in the Manchester Arena suicide bombing was “fair justification” for air raids on IS in Syria. Begum, 19, who is pleading to be allowed back into the UK with her newborn baby, dismissed the atrocity at the 2017 Ariana Grande ­concert as “retaliation.” The mum of a Manchester Arena victim said yesterday she was horrified that jihadi bride Shamima Begum may be let back into the UK.

Migrants

Times
There were fresh calls for planes to  monitor the south coast night and day after more migrants were rescued from a packed boat off Dover yesterday. Two lifeboats took 34 migrants off a small vessel after its engine apparently failed. They were transferred to a Border Force ship that had been redeployed from overseas to patrol the Channel. More than 200 migrants have tried to make the perilous Channel crossing since November. Many started their journey in Iran and Afghanistan and had paid people-smugglers hundreds of pounds each to cross the Channel.

Mail
A group of 34 migrants have been picked up off the Kent coast today after being found on one boat. A lifeboat crew and a Border Force patrol vessel were called out to intercept the large rigid hulled inflatable with an enclosed cabin at the back of it. One witness said he saw at least one child, a boy who looked about six years old and was accompanied by a woman. According to local reports, the boat could have contained as many as 35 migrants.   Border Force was alerted to the boat heading to the UK coast at a 06:30pm.

Sky News
A group of 34 men, women and children have been detained by Border Force officials after crossing the Channel in a small boat. Two Border Force cutters and a coastal patrol vessel intercepted the small rigid-hulled inflatable boat at around 6.30am on Monday. The Home Office said the suspected migrants, whose nationalities have yet to be confirmed, have been taken to Dover for immigration officials to interview them. Kent Police said its officers attended the Port of Dover at around 11am on Monday to assist Border Force with the incident. Three men have been arrested on suspicion of immigration offences.

Manufacturing

Times
The Japanese car giant Honda is to shut its only British factory, leading to the loss of thousands of jobs in an industry already struggling with Brexit-related uncertainty. The company is expected to announce tomorrow that its plant in Swindon will shut in 2022, affecting 3,500 people directly employed by the company and many others in the carmaker’s supply chain. The closure, first reported by Sky News, will be the biggest blow to car manufacturing in the UK since the collapse of Rover 14 years ago.

Trade

Times
Ministers have been accused of “desperate and high handed” attempts at tying up trade deals with Japan. As Brexit day looms, the government is keen to roll over dozens of commercial agreements. However, it is understood that Tokyo reacted with dismay over a letter from Jeremy Hunt, the foreign secretary, and Liam Fox, the international trade secretary, that was interpreted in Japan as an accusation of foot-dragging. The UK “is engaging in a fire sale of trade agreements,” Angus MacNeil, chairman of parliament’s international trade select committee, said.

Westmonster
The Australian Trade Minister, Simon Birmingham, has hinted at a quick trade deal with Brexit Britain that could be concluded by the end of the year, if the UK leaves the EU with No Deal. Birmingham told the pro-EU Financial Times that: “If we face a No Deal scenario then we would be urging and encouraging the UK to negotiate and finalise an agreement as quickly as possible. “I would absolutely hope that we would conclude negotiations this year.”

Sun
EUROPE and America were on the brink of a trade war last night as Brussels vowed to hit back at plans by Donald Trump to clobber EU car exports. Eurocrats said they would “react in a swift and adequate manner” if the US President brands sales of European cars a threat to national security. Washington’s trade department is set to issue report this week after being asked to investigate the issue by Mr Trump. EU diplomats expect US officials to conclude the bloc’s car exports are a security threat, allowing the White House to hit them with sky-high tariffs.

Breitbart
The European Union Commission President Jean-Claude Juncker on Monday said that President Donald Trump would be breaking his word if he imposes tariffs on European cars. The U.S. Commerce Department said it has delivered its report on whether auto imports endanger U.S. national security. President Trump now has 90 days to consider the report and decided whether to impose import taxes. EU Commission President Jean-Claude Juncker said that during a summit in Washington last summer, Trump promised not to damage trans-Atlantic trade with such measures.

Health

Times
Complain about your doctor and you will get better care, the health and social care watchdog has said. About seven million people who used NHS, private health or social care services in the past five years had concerns about their treatment but had never raised them, the Care Quality Commission (CQC) said. A survey had shown that patients and their carers often worried about being seen as troublemakers or feared that complaining would make matters worse, it added.

The post News review – Tuesday 19 February 2019 appeared first on Independence Daily.

The day ‘Project Fear’ got real

The number of companies quitting Britain or slashing jobs can’t be attributed to bad luck any more. There are just too many.

Japanese carmaker Honda made a major announcement on Tuesday: It will close its plant in Swindon by 2022. That means cutting 3,500 jobs and a calamitous knock-on effect on all the smaller companies that supply and service Honda in southern England.

This is only the latest instalment of a snowballing disinvestment, which was never in the Brexiteers’ script. From the beginning of the Brexit battle, leading Conservatives always insisted that Remainers were stoking “Project Fear” by arguing that major companies would quit Britain if the U.K. left the single market.

But a trickle of departing businesses is now becoming a stream. Prime Minister Theresa May is gambling that she can win a game of high-stakes political brinkmanship with the EU, but the U.K.’s reputation as a safe destination for foreign direct investment has already taken a heavy knock.

The Dutch government this month gloated that it had helped 42 companies make the switch from the U.K. to the Netherlands in 2018 because of Brexit and is in talks with more than 250 others about making a move.

Britain must now contend with an unprecedented number of companies saying that they are packing their bags or warning that they will do so.

The Tories claim that the Honda announcement has nothing to do with Brexit. Justin Tomlinson, Conservative lawmaker for North Swindon, argued that the closure is all about “global trends and not Brexit.” Foreign Secretary Jeremy Hunt also suggested there is “economic uncertainty that’s not related to Brexit.”

But these arguments are not holding water with the opposition. Tom Brake, from the Liberal Democrats, said the announcement “is a shocking blow to the government’s delusional belief that Brexit won’t destroy British industries.” Labour leader Jeremy Corbyn also blamed the government’s “disastrous handling of Brexit.”

While Tory MPs said that Honda’s decision to consolidate production in Japan is unrelated to Brexit, Japan has secured a landmark trade deal with the EU to slash tariffs on goods. Honda can be confident of being able to export to the EU, while Britain could face higher barriers for access to the EU market.

Britain must now contend with an unprecedented number of companies saying that they are packing their bags or warning that they will do so. POLITICO takes a look back at the past few weeks of bad news for Brexit Britain.

Honda’s exit: The long lead time on Honda’s closure reflects the industry’s cyclical investment pattern. Around 100,000 Civics are produced at the Swindon site and though the suggestion is that Honda will maintain a European headquarters in England, the closure notice raises the question of how government officials will deal with mass layoffs. Local MP Tomlinson tweeted that the government would set up a task force to manage unemployment.

Nissan’s U-turn: Nissan decided not to produce a new SUV model at its plant in Sunderland — the first English city to declare it wanted out of the EU on referendum night. Nissan opted to play it safe and build the new vehicle back home in Japan. The company employs 7,000 at the factory complex and had been given government assurances (and a commitment of £80 million in cash) to keep things ticking over at the Sunderland plant.

Airbus’ warnings: Airbus, which employs 14,000 people in Britain, has been sharpening the tone of its warnings as Brexit approaches. On Sunday, the company’s chief in Britain Katherine Bennett warned that a no-deal Brexit would be “catastrophic” for the industry, adding that “there is no such thing as a managed ‘no deal’” for producers.

“Some difficult decisions will have to be made if there’s no deal … We will have to look at future investments,” she said. “There’s many other countries that dearly love aerospace.”

Ford’s retreat: Company officials had already told POLITICO the EU’s latest car and van carbon dioxide emission targets up to 2030 are so ambitious that they could start looking for the exit. But in the U.K., officials warned May this month that operations would need to be relocated under a no-deal scenario. That’s not good news for the 13,000 people the American auto giant employs in Britain.

Jaguar’s rest: Jaguar Land Rover has scheduled extra maintenance down time at one of its English plants.  The company employs 39,000 across the country and has already announced 4,500 layoffs as part of a massive cost saving plan. It’s also committed to carrying out some production in Slovakia at a new plant.

A British Midland International (BMI) aircraft | John Macdougall/AFP via GettyImages

Flybmi’s bellyflop: British regional airline flybmi on Sunday filed for bankruptcy, blaming Brexit and fuel costs. “The uncertainty created by the Brexit process” has “led to our inability to secure valuable flying contracts in Europe,” the company said.

Hitachi: Japanese manufacturer Hitachi announced last month that it would stop construction of a nuclear power station in Wales, only days after May’s Brexit deal was defeated in parliament. The company said it had failed to find sufficient private investors. The plant was expected to provide about 6 percent of Britain’s electricity.

Who’s also issuing warnings? Toyota owns a plant in Derby from which 90 percent of output is exported to the rest of the EU. The Japanese carmaker warned last year that production would stall under a hard Brexit. Meanwhile, BMW has multiple facilities throughout the U.K. and has flirted with shifting production of its iconic Mini to the Netherlands. It has also previously said production would stop for a month at the site in Oxford.

Government waking up to the danger: Britain’s Foreign Secretary Jeremy Hunt said Monday in a POLITICO interview that a solution to Brexit is needed quickly to avoid damage.

“We need to resolve this as quickly as we can,” Hunt said. “We need to resolve this for the sake of industry, actually for the sake of the sanity of the population of Britain and indeed of Europe.”

But still holding course toward no-deal Brexit: When asked for his plan to resolve the impasse, Hunt reiterated demands to renegotiate the withdrawal agreement and called for a time limit to the Irish backstop. The EU has consistently refused reopening the deal and argued that a time limit would defeat the purpose of the backstop. Unless one side makes a big compromise, the no-deal Brexit that industry fears could take place on March 29.

This article is from POLITICO Pro: POLITICO’s premium policy service. To discover why thousands of professionals rely on Pro every day, email [email protected] for a complimentary trial.


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Jean-Claude Juncker: Brexit delay beyond EU election is possible

European Commission President Jean-Claude Juncker said he could not rule out an extension to Britain’s EU membership beyond the European Parliament elections in May.

“That to my mind would be an irony of history. Yet I cannot rule it out,” Juncker told Stuttgarter Zeitung in an interview. “Any decision to ask for more time lies with the UK. If such a request were to be made, no one in Europe would oppose it,” he said.

With the Brexit deal agreed between London and Brussels comprehensively rejected by MPs in the U.K. parliament last month and political deadlock in Westminster, speculation has increased that the U.K. government will be forced to seek an extension to the Article 50 negotiating period. Without it, there is widespread fear that the U.K. will be forced into a no-deal Brexit.

A delay beyond the EU election would very likely mean the U.K. participating in the poll and electing MEPs.

Juncker also said he had no fix deadline in mind for how long the exit date could be postponed: “If you are asking for how long the withdrawal can be postponed, I have no timeframe in mind. With Brexit so many timetables have already gone by the wayside.”

“It is like being before the courts or on the high seas; we are in God’s hands. And we can never quite be sure when God will take the matter in hand,” he added.


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Honda plans to close English factory by 2022 as Brexit nears

Japanese carmaker Honda is to close its plant in Swindon by 2022, the local MP confirmed Monday.

The facility in England employs 3,500 and produces the Civic model. A Sky News report outlining the decision — set to be officially announced Tuesday — put it down to uncertainty around the U.K.’s expected exit from the EU.

The Swindon plant is Honda’s only facility in the EU and the decision is the latest bad news for the automotive sector in the U.K. given Nissan’s U-turn on the construction of a new vehicle model at its factory in Sunderland.

“They are clear this is based on global trends and not Brexit as all European market production will consolidate in Japan in 2021,” the local MP Justin Tomlinson tweeted following the decision.

He added that the carmaker had said no jobs would be lost before 2021 and that the government would set up a taskforce to manage unemployment in the area.

Without guaranteed tariff free access to the EU, carmakers with U.K. production facilities risk far higher costs and administration in exporting their output. Over half the vehicles built in the U.K. last year were exported to the EU27.


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Saturday papers – 16 February 2019

Saturday papers – 16 February 2019

Viv is feeling a little better but will be taking the weekend off from her Brexit Daily news.
She’ll be back at her keyboard on Monday.

 

WTO

We need not fear leaving the EU without a deal, says Westmonster.

There is “a huge reservoir of goodwill for the UK” from within the World Trade Organisation, according to the WTO’s Chief Spokesman Keith Rockwell.
With a No Deal Brexit looking increasingly likely as 29th March approaches and Brussels refuse to renegotiate, the UK is getting ready to take control with a WTO Brexit that would include the UK preparing a set of tariffs for global trade.
Rockwell described the UK’s EU exit as “without any precedent at all in this organisation”.
And he told Sky News earlier this week: “Everyone is being pragmatic and wants to see trade to move as freely as it can as we get through this rather tricky stretch that might await us.
“We’ve never had a member, let alone a founding member, be in this position before, of having to renegotiate their position.
“When you examine this, it becomes devilishly complicated. Nobody expects this to be without complication.
“Let’s wait and see – there is a huge reservoir of goodwill for the UK within this organisation.”

Brexit

The PM could be on the verge of going soft on Brexit, says the Sun.

THERESA May could be preparing to soften her Brexit stance and drop demands to re-open the withdrawal deal.
After the PM suffered yet another damning defeat on her plans last night it was reported that Steve Barclay has suggested to Brussels that ministers would not press ahead with changes to the text of the deal.
The Sun understands UK negotiators have indicated they will accept surgical tweaks to the Withdrawal Agreement rather than a full reopening of it.

There’s not much point in negotiating further, reports the Express.

BREXIT Secretary Steve Barclay held “completely useless” talks with EU ambassadors on Friday, it is claimed.
The Conservative Cabinet member met with EU 27 officials ahead of crunch talks on Monday with Brussels’ chief Brexit negotiator, Michel Barnier. But the meeting did not go well, according to a BuzzFeed News source.
Meanwhile, Donald Trump has vowed US trade with the UK will be “substantially increased” after Brexit.

Ireland

Has Brussels blinked?  The Telegraph reports the EU may have found a solution.

The leaks from Brussels have begun. Unnamed EU “diplomats and officials” have floated the subject of a temporary opt-out for Ireland in a no-deal Brexit.
Dublin will not have to erect customs infrastructure or police the outer limits of the single market immediately. There will be a transition.
Officials told Reuters that Ireland will ultimately face checks on its own exports to Europe or face being kicked out of the EU customs union if it refuses to put up a trade border against Northern Ireland in the event of a no-deal.

The Times reports some European countries are set to offer a solution.

France and other EU countries are ready to provide assurances over the Irish backstop so that the attorney-general can change his legal advice and say it is a temporary measure.
President Macron has softened his line in recent weeks to assist a last-ditch attempt by the EU to help to get the withdrawal agreement across the line.
Senior European diplomats said that the British government would be given enough in the way of legal assurances to persuade Geoffrey Cox, the attorney-general, to change his advice that the backstop could be used to trap the country in a customs union.

As long as these assurance have legal status, they could be accepted, says Westmonster.

Britain could accept legally-binding assurances on the disputed Irish border backstop that would not require reopening of the EU-UK Brexit deal, diplomatic sources said, signalling a possible shift from Prime Minister Theresa May’s official line.
EU and British diplomatic sources told Reuters after talks earlier this week between Brexit Secretary Stephen Barclay and the bloc’s chief negotiator Michel Barnier, however, that London was still seeking changes to the backstop that the EU has already ruled out.

The Express reports the Brexit secretary’s comments could anger Brexiteers.

BREXIT secretary Stephen Barclay has told Brussels the UK doesn’t need to renegotiate Theresa May’s deal to solve the Irish backstop issue – a compromise which risks drawing down the wrath of Brexiteers.
Mr Barclay suggested to the EU’s chief negotiator Michel Barnier that the government is willing to accept legal guarantees instead of reopening negotiations, according to a source who spoke to The Times. The Brexit Secretary put the option on the table during a private meeting on Monday with Mr Barnier, who described the discussions as “constructive” but reiterated the bloc’s refusal to rewrite the withdrawal agreement.

The Irish prime minister is talking tough, reports Sky News.

Those who believe the EU’s solidarity towards Ireland will falter over the Brexit backstop are “in for a nasty surprise”, the Irish prime minister has warned.
Leo Varadkar said Dublin’s “concerns have become the European Union’s concerns” during the UK’s exit from the bloc.
He told the All-Island Civic Dialogue on Brexit at Dublin Castle: “One of the most striking things about what has unfolded since the UK’s decision to leave has been the remarkable solidarity from the EU.
“Despite many attempts to bilateralise issues or to divide the 27, the solidarity has been strong and resolute and those who think it will break at the last moment are in for a nasty surprise.”

And Euro-Guido reports the Irish are getting very worried about their future.

The Irish political class is getting increasingly nervous about the EU throwing them under the bus, with the Irish Independent coming out with a searing editorial today aimed at the EU after a “senior EU diplomat” reportedly said that the EU would force Ireland to “choose between setting up a physical Border with Northern Ireland and de facto leaving the single market” in the event of no deal. Ireland’s leaders slowly waking up to the realisation that the EU will happily toss them to one side once they stop being useful as a stick to beat the British with…

Security

Despite suggestions to the contrary, we’ll not be left high and dry on the security front, reports Reuters.

Britain’s exit from the European Union will not affect security cooperation with its NATO allies France and Germany, given the growing external threats to the continent’s stability, the intelligence chiefs of the three countries said on Friday.
“The chiefs … said that all three services would continue to be close allies in jointly protecting Europe from threats such as Islamism, terrorism, organised crime or cyber-attacks,” the heads of Germany’s BND, France’s DGSE and Britain’s MI6 said in a rare joint statement.
“This would also hold true… in view of Brexit,” they said after meeting at the Munich Security Conference.

EU

The Guardian reports it’s the PM’s fault.

Theresa May will face a wall of resistance when she returns to Brussels next week as the EU’s chief negotiator, Michel Barnier, declared her Brexit strategy had “failed” after another parliamentary defeat inflicted by hardline Eurosceptics.
May will insist to EU chiefs that her defeat in parliament on Thursday does not change her belief that her Brexit deal can still achieve a majority – as long as there are changes to the backstop.
The mood hardened in Brussels on Friday amid doubts that the prime minister could ever forge any consensus in her warring party, with Barnier telling diplomats from member states that her strategy could not work.

The Independent claims Mrs May will ask for more time to negotiate.

EU ministers said Theresa May‘s latest Commons defeat makes Brexit even more difficult, after MPs refused to support her plan.
Greece’s foreign minister said the vote on Theresa May’s plea for more time, which resulted in the prime minister suffering her eighth defeat on Brexit, “complicates the situation even further”.
Tory MPs remain split over the possibility of a no-deal Brexit.

The Sun reports the prospect of no deal is very high.

BRUSSELS fears the chances of a no deal Brexit are now as high as 90 per cent after Theresa May’s latest calamitous Commons defeat.
EU diplomats warned the PM she is on her “last chance” to salvage a Brexit deal – but warned that privately the mood is “black”.
While Michel Barnier told EU ambassadors that Thursday night’s defeat showed the PM’s bid to get a deal through with Tory support had “failed”, according to a source.
He told a breakfast meeting of member states the ERG’s decision to abstain showed there was no majority within the party for any deal.

Conservative Party

Grassroots Tories are getting ready to deselect their Remainer MPs says the Telegraph.

Remainer Tory MPs are facing an ambush by pro-Brexit activists at annual local association meetings which have to be held before the end of next month.
At least two Conservative MPs – Dominic Grieve and Heidi Allen – are facing having no-confidence at local party annual meetings over the next six weeks.
The news emerged after another Remain-supporting Tory, Anna Soubry, warned of Eurosceptic “purple momentum” activists taking over MPs’ associations.

And UKIP could be part of the reason, claims the Mail.

Pro-remain Tory MPs said last night the party was being taken over by former Ukip members amid fresh infighting over Brexit.
Former ministers Nick Boles and Anna Soubry said a ‘purple Momentum’ was gaining control of some local Conservative associations and leaving their sitting MPs facing the threat of deselection.
It came as Theresa May was warned that a dozen ministers will resign by the end of the month unless she agrees to postpone Brexit to prevent a No Deal scenario.

The Sun claims there’ll be a war within government.

SENIOR TORY ‘Remainers’ are ready to force Theresa May to sack them over a crunch No Deal vote.
Sources claim a growing number of Ministerial aides and junior Ministers believe they shouldn’t have to resign to defy the Government and block a No Deal in the crunch Commons vote on February 27.
It was claimed up to 12 Ministers were prepared to defy the PM to sack them in a fortnight’s time.

Yet another new party

Remainer Tories may be planning to join up with remainers from the Labour Party, says the Guardian.

Intense discussions are taking place at Westminster that could lead to the emergence of a new centrist party consisting of six or more disaffected anti-Brexit Labour MPs along with the involvement of some Conservatives and the backing of the Liberal Democrats.
Labour MPs reported that some of those involved had lobbied backbench colleagues they thought were sympathetic as to how they could “make the shift” away from a tribal loyalty to the party.

‘Project Fear’

What will they think of next!?  The Express reports the prospect of mass deaths from ‘no deal’.

A STUDY has claimed 12,400 people could die as a result of Britain leaving the European Union without a deal.
The official health forum of German pharmacists has reported a study by Imperial College London’s Faculty of Medicine which has analysed a series of Brexit outcomes and the health effects on the British population. In part of the study, the analysts looked into how Britain’s withdrawal on the European Union would force the price of fruit and vegetables up and in turn cause consumption to plummet.

And threats of companies quitting the City are also confounded, says Euro-Guido.

The narrative of a mass exodus of City jobs has already been consigned to the Project Fear dustbin of history, with just 2,000 jobs now expected to move in the event of no-deal, compared to wild predictions of over 230,000 before the referendum. Now the FT of all places is reporting that EU asset managers are actually considering moving to the UK because of Brexit. That wasn’t in the script…
EU fund managers are up in arms over EU rules which would force them to trade dual-listed shares on uncompetitive EU exchanges after Brexit if the Commission refuse to give them access to London after Brexit.

ID voting

Showing identification when you vote might be a good idea but it may not go ahead, reports the Mail.

Ministers’ plans to introduce voter ID nationwide in elections are “falling apart” as three councils set to be involved in a major pilot have pulled out of the scheme, The Independent can reveal.
Citing time pressures and the “volume of work” involved in participating in the trials, the decision of the councils will raise questions over the feasibility of voter ID – already the subject of a legal challenge in the High Court.
Labour said the decision of the three out of 11 councils set to participate in the pilot at May’s local elections demonstrated the “shambolic” handling of the “undemocratic” proposals.

Health

The NHS is failing patients needing emergency treatment, says the Times.

Heart attack and stroke victims are among hundreds of thousands of patients made to wait up to an hour for an ambulance because the NHS has never met key targets.
Critically ill patients are waiting too long because new rules for dispatching ambulances struggle to pick out life-or-death situations, experts fear. Meanwhile, patients with non-life-threatening injuries routinely wait more than three hours for an ambulance, analysis of official data by The Times shows.

Economics

Our economy grew faster than Eurozone countries’, reports the Telegraph.

Britain’s economy grew faster than Germany’s and Italy’s in the final quarter of last year, in a striking reversal which highlighted the increasing weakness at the heart of the eurozone.
Germany escaped recession “by the skin of its teeth” at the end of last year, official figures confirmed on Thursday, with zero growth after a contraction of 0.2pc the previous quarter.
Italy contracted by 0.1pc, tipping it into its third recession this decade. The eurozone as a whole grew by 0.2pc, the same as the UK, figures from Eurostat showed.

Breitbart also has the story.

The British economy is matching or outpacing growth in the Eurozone’s leading countries as Brexit approaches, with inflation falling and real wages rising.
New Office for National Statistics (ONS) figures show inflation down to a two-year low of 1.8 percent, and quarterly growth is running at 0.2 percent — outpacing Angela Merkel’s Germany, which is supposed to be the economic powerhouse of Europe, and appearing to give the lie to claims by EU loyalists that Britain has become “the sick man of Europe” since the 2016 vote to Leave the European Union.

And the economic position of the EU could put the bloc at risk, reports the Telegraph.

The future of the entire EU project is at risk because of the deep, sustained crises in the southern eurozone economies, Christine Lagarde has warned.
While northern and western countries have prospered, those in the south have suffered, with average real wages falling from 2008 to 2017, the head of the International Monetary Fund said.
It is crucial to spread economic growth more broadly to “help restore faith in the European project”, she said in a speech in Munich.

Trade

Good trade deals are likely post-Brexit, reports the Times.

U.S. trade with Britain will rise ‘very substantially’ after Brexit, President Donald Trump has said.
Speaking at the White House today Trump signalled Washington welcomed a new trade agreement with Britain and said ‘we are agreeing to move forward’.
His comments will be seen as a boost for Brexiteer hopes that Britain’s departure from the EU will enable successful free trade deals around the world.

The Independent reports strong trade links between the UK and the US.

Donald Trump has welcomed an agreement between the UK and the US that he said would help boost trade between the two countries “very, very substantially” after Brexit.
The US president said trade links had been “strengthened” by the signing of the deal, which will see the terms of a similar agreement between the EU and the US continue to apply to the UK after Brexit.
He described the UK and US as having a “very good trading relationship”, despite having previously warned that Theresa May‘s Brexit deal could harm business links.

The Express says the US president’s comments give the UK a boost.

DONALD Trump last night gave Britain a massive boost by declaring that trade between the UK and the US will be “very substantially increased” after Brexit.
The US President announced that the special relationship will be “strengthened further” following a new mutual trade arrangement agreed by both countries worth at least at least £12.8billion a year for trans-Atlantic trade. He also significantly raised hopes of a wide-ranging free trade deal between the UK and US by insisting he wanted to see Trans-Atlantic business significantly increased.

HS2

There’ll be no standing on HS2 trains, reports the Times.

Passengers will be required to reserve a seat to travel on HS2 trains under plans to prevent standing travellers from clogging up aisles and doorways.
The Times has learnt that passenger numbers will be limited according to the availability of seats to improve journey comfort, eradicate overcrowding and ensure travellers know exactly where to board HS2’s huge trains.
However, a passenger group warned that the move represented a “huge cultural shift” that could frustrate the travelling public, particularly if the booking system is not user-friendly enough.

Climate change

Thousands of schoolchildren took a day off school yesterday to protest.  But was it worth it? The Telegraph reports.

Theresa May has said that the thousands of young people who protested against climate change on Friday increased teachers’ workloads and wasted lesson time.
The prime minister said it was good that pupils are politically “engaged” but argued that they need to be in school to become the future professionals who can help solve climate change.
The comments created an immediate dividing line with Jeremy Corbyn, whose name some pupils could be heard chanting, with the Labour leader saying it was “inspiring to see them making their voice heard”.

The Mirror also reports Downing Street’s words.

Theresa May has slammed thousands of young people for staging a mass walk-out from school as part of a global youth action over climate change.
While Downing Street said it was important for young people to engage with the issue, the disruption to planned time was damaging to pupils an increased teachers’ workloads.
A Downing Street spokesperson said: “Everybody wants young people to be engaged in the issues that affect them most so that we can build a brighter future for all of us.

The post Saturday papers – 16 February 2019 appeared first on Independence Daily.

Opponents of a WTO Brexit Ignore the Basic Lesson of Economics

Opponents of a WTO Brexit Ignore the Basic Lesson of Economics

The author of this article is Robert Lee.

The article was first published in Briefings for Brexit, and we re-publish with their kind permission

 

We must look at long-term, not only short-term consequences, and at effects for everyone, not only for a few privileged groups.

The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups

Henry Hazlitt, “Economics in One Lesson”.   

Henry Hazlitt was a philosopher and economist, widely regarded as one of the world’s great writers on economics. He argued that the two central fallacies in economics – responsible for much economic harm – arise from ignoring this lesson. The first fallacy is that of looking only at the immediate consequences of an act or proposal, and the second is that of looking at the consequences only for a particular group to the neglect of other groups. Those who argue against a WTO Brexit on economic grounds commonly commit one or both of these fallacies in spades. Greg Clark, current Business Secretary, is a notable and particularly unfortunate exponent of these fallacies, but the political class as a whole is largely in thrall to them.

Hazlitt would be appalled, but not surprised, by much of the content of Parliamentary debates on Brexit. MP after MP will mention a particular company in his constituency – usually from the motor industry or agriculture – that might lose jobs in a WTO Brexit. That possibility alone is presented as an irrefutable reason for opposing such a Brexit. The MP’s seem not to question the credibility of warnings of a large negative impact on the industry, nor whether the long run impact might be different to the short term, or consider that other groups and sectors might massively benefit from a WTO Brexit.

It is natural for an MP to stand up for his constituency, and nobody wishes people to lose their jobs. However, rational policy cannot be conducted on the basis that no job can ever be lost. In a market economy jobs are lost and created all the time for all kinds of reasons – technological innovation, changes in consumer demand, new regulations, population shifts, and many other factors. The degree of change in the UK labour market is staggering. According to the Office of National Statistics (ONS), in the three months to September 2018, 830 000 people changed jobs! This is evidence of a dynamic and flexible economy highly responsive to change. Job losses in any one sector or company of a  few hundred or even a few thousand – no matter how distressing for the individuals concerned – must be put in this wider perspective.

Following Hazlitt’s lesson, we need to assess not only the immediate consequences of an act but also the longer term consequences. We also need to consider the effect on all sectors of the economy and not just one. Take the motor industry, the sector most often cited by MP’s in their economic arguments against a WTO Brexit. The industry is said to be particularly vulnerable because of a reliance on just in time supply chains from the EU, and because under WTO rules, the EU could impose tariffs of around 10% on UK car exports. However, any new tariffs would only partly offset the boost to UK competitiveness from the 15% post-referendum depreciation of Sterling. Furthermore, the industry may be exaggerating the possible impact on supply chains of leaving the EU. The UK motor industry already receives 21% of its’ bought- in supplies from outside the EU without any problems. Just in time supply chains operate the world over between countries that are not in a customs union. Can the UK motor industry really not adjust its supply arrangements from the EU post-Brexit without incurring unsustainable new costs?

In my experience (I used to assist the Chairman of a large insurance company in his lobbying efforts) politicians and civil servants, in general, are naïve in dealing with big business lobbyists. Are CEOs of big companies likely to use Brexit as a cover for their own poor decisions, or exaggerate likely problems in order to obtain favourable treatment? You bet they will. Will politicians fall for it? Very likely. Will the motor industry adjust rapidly and efficiently to new circumstances and arrangements post-Brexit? Of course, it will.

More importantly, given there will still be some short costs, could a WTO Brexit be beneficial to the motor industry in the long term? There are a number of ways in which it could be. The UK government could reduce or eliminate all tariffs on imported motor components, as a WTO Brexit would allow us to set our own tariff schedule. This would reduce industry costs. In a WTO Brexit we would be able to agree on our own FTA’s (Free Trade Agreements), thus potentially boosting UK car exports to non-EU markets. The UK could use some of the £39bn that would otherwise be paid to the EU under Mrs May’s deal to cut corporation tax or boost consumer spending by cutting personal taxes.

Finally, and most crucially, under a WTO Brexit the UK’s long term economic growth rate should increase as, inter alia, we would be free to:

*Set regulations better suited to our own needs, and eliminate large annual payments to the EU

*Secure our own FTA’s, and reduce or eliminate the nearly 2,000 tariffs that we are obliged to impose by virtue of customs union membership

*Boost the fishing and agricultural industries free of the highly restrictive common Agricultural and Common Fisheries Policies, and introduce Free Ports

*Raise productivity and wages by reducing the flow of cheap immigrant labour, increasing investment and boosting labour force training

A Briefings For Brexit team estimate that on the basis of these and other measures a WTO Brexit could boost UK GDP by up to 4% (see “A WTO Brexit could yield the UK 80 billion pounds per year”).

This brings us to Hazlitt’s second fallacy. Even if the motor industry takes a short term hit – and even if it does not receive a longer-term boost – there are manifestly other sectors that will be boosted by a WTO Brexit outcome. Those fearful of a WTO Brexit focus too much on big companies, which can generally look after themselves and in any case tend no longer to be job creators. They need to think more about existing SME’s, particularly in the growth industries – biotech, fin-tech, aerospace, renewable energy, AI, and others  – in which the UK is already a world leader and from which the large companies of the future will spring. They need to think more about new companies which don’t exist yet, but which could spring up like mushrooms in a more liberated environment.

They need to think more about the benefits of tariff reduction or elimination to consumers, particularly those on lower incomes, and to the many thousands of businesses that don’t benefit from tariff protection. They are after all far more numerous than those in protected industries but are not organised to lobby politicians and civil servants. Hazlitt does not argue, and neither do I, that industries undergoing painful change should not be given relief or time to adjust, but permanent protection should only be considered in exceptional circumstances.

I have concentrated on the economics of a WTO Brexit because this is where its’ opponents concentrate their fire, but profound issues of sovereignty and democracy are also involved. Much will depend on policymakers taking the right decisions with our new-won freedom. But in the words of young Tory MP Julia Lopez, who clearly does understand the basic lesson of economics,

“There is no land of milk and honey awaiting us post-Brexit, only the opportunities we make for ourselves as a people from our own talents, efforts, and energy. Whether we succeed or fail is up to us – and that surely is the point.”

The post Opponents of a WTO Brexit Ignore the Basic Lesson of Economics appeared first on Independence Daily.

Neglected options for a Brexit deal in the UK

andrew hughes hallettEven the government’s preferred deal gives us no idea of the trade and investment arrangements after the transition period. Yet it – or no deal at all – appear to be the only options on offer. Andrew Hughes Hallett (George Mason University and the University of St Andrews) looks at the impact they would have on the UK economy, and Scotland in particular, concluding that ruling out every other option is, to put it mildly, unwise.

A careful reading of the UK government’s proposals for a new deal with the EU gives the impression that everything comes down to a choice between two “no deals”. One is the no deal case (leaving without any agreement with the EU) and the other is the government’s preferred option, which is a ‘no trade’ deal with two restrictions (that the Irish border shall be allowed to settle in the Irish Sea; and that the UK shall remain in an EU customs union till 2020 and perhaps beyond).

glasgow

View of Glasgow. Photo: ben matthews via a CC-BY-NC-SA 2.0 licence

There are discussions of other topics, but, as yet no material on the trade and investment arrangements. The government’s preferred “deal” therefore describes a transition out of the EU, but allows us to forget that there are decisions to be made in the transition period – and that making certain decisions now may rule out those options after the transition.

The options

Any discussion of what arrangements could or should be made between the UK and EU must be based on the arrangements that the UK government adopts with respect to the EU. That will remain unknown until a parliamentary vote in London. But on past experience, this is unlikely to pay little attention to regional interests generally (jobs, investment) or specifically (eg fishing)

i) A number of models to replace the single market have been in discussion, but they all involve trying to achieve the near-impossible feat of maintaining free EU market access (including for investment and passporting), while limiting the free movement of labour. This implies a difficult compromise, especially in the EU – for whom free movement of labour is a “fundamental freedom” that, if lost, would sit badly with the continued free movement of capital and investment that the UK values so highly. This explains why the negotiations have been so difficult with so little room for improvement.

ii) The main contenders are the Norwegian model (stay in the Single Market, contribute to its costs but with no vote on its regulations); the Swiss or Canadian models (bilateral free trade deals in selected sectors, allowing the UK the freedom to exploit her comparative advantages); stay out with bilateral free trade deals with the EU and other outsiders (not feasible so long as the UK has to remain in an EU customs union); a rules of origin approach much like NAFTA (cumbersome and hard to implement in industries whose inputs are mostly human capital, knowledge or skills-based — eg financial services).

(iii) A more explicit compromise would be to stay outside the EU but make bilateral free trade deals with the EU and outsiders to replace the Single Market without invoking WTO membership; or to stay inside with compromises on certain articles in the Single Market itself — for example, with quotas to replace the free movement of labour in return for concessions on aspects of EU membership outside the Single Market. This model has been proposed in the unofficial French–German ‘‘Continental Partnership’’ idea.

iv) The “no deal” option in which the UK leaves the EU without any agreement. Under this option, the UK would progress to WTO membership in her own right. However, all WTO members have to agree. Currently seven countries, including the US, say they oppose UK membership. Even if that obstacle is overcome, the UK would have to accept the WTO’s rules on international and bilateral free trade. The cost of the latter might be reduced by invoking the “most favoured nation” status between UK and EU, but how much benefit that would bestow is not known.

The gains in trade from the single market for the UK

Estimates have been made of the impact of Brexit on the UK, but few for regional economies such as Scotland. They produce UK losses of about 1% to 2% of GDP. These losses are about the same as reversing the gains estimated for membership of the single market when it was first set up. The Cecchini report estimated gains of 5% in GDP over five years in 1992. The EU’s post-mortem study completed in 2000 showed GDP gains of 1% by the time the euro arrived. Later estimates put the figure at 2.15% of GDP in 2006, or 2.13% of GDP in 2014. For Scotland, the Fraser of Allender Institute has estimated the costs of Brexit (gains lost) at about 2.8% of GDP or 80,000 jobs. These gains will not have been distributed evenly, of course. So the gains in the single market (or losses under Brexit) will hit some sectors, such as manufacturing, and some countries much harder than others depending on their industrial structures and trade patterns.

For the UK, the UK Treasury now estimates (rather late in the day) that UK GDP will be lower by 3.9% after 15 years of Brexit (an average of ¼% lower each year) if the government’s preferred plan is used; but 9.3% lower (or 0.62% each year) if there is no deal at all. This is costly in terms of losses, given that it does not yet account for the potential investment or productivity increases foregone. Interestingly, none of the Treasury’s calculations evaluate any of the compromise models available.

Scottish government figures for Scotland alone suggest losses of 7.4% after 12 years, or 0.62% per year. This lies half way between the government’s proposal and the “no deal ” solution. So Scotland would appear to be made worse off than the rest of the UK (rUK); although that damage could have been less, on UK Treasury figures, with any of the compromise arrangements that are currently ruled out (5% under a free trade association with the EU, 1% in a Norway type deal). Interestingly, the Treasury’s argument is that the smaller losses would arise because Scotland is partly sheltered by the energy sector. I am not aware that London has announced any plans to devolve oil or gas revenues to provide any financial sheltering, so it is not clear where this result is coming from.

Nevertheless, the argument is of interest because it shows how easily the economic outcomes can shift with rather small changes in the rules governing trade in any new association with the EU. On this basis, the loss of productivity improvements will explain 60% of the losses between no deal and continued EU membership by 2030; restricted migration 26%; but new trade barriers and tariffs only 14% [Scottish Government]. Clearly the loss of investment and productivity gains are the major driving force here, with restrictions on EU migration second. Comparable figures for the UK as a whole are not available. The reason why the trade impacts are not larger is that EU tariffs against outsiders average 2-3%. Since the pound has depreciated 15% post the 2016 vote, the cost of UK exports to the EU has fallen. As a result, UK firms are now reporting increased business. But imports cost more (23% more so far), raising the prospect of inflation. Since UK inflation is still within its 2%-3% target range, this is not (yet) a problem. So, reversing the argument across the EU as a whole, there will have been some downward pressure on prices as a result of Brexit, but rather small.

How important is investment in the Brexit deal?

Investment spending plays three key roles. First it builds capacity: the ability to produce competitively in the future. The specific quantity spent therefore has a magnified effect on output and employment going forward; and investment lost through Brexit would likewise have a magnified effect in lost growth. It is hard to put numbers on the investment gains where we lack comprehensive investment data. But, in the Scottish case (a region in an existing union), we can make estimates: grossing up the figures for public investment in the same proportion as the UK shows that new investment runs at around 3.3% of GDP annually, a little over half the UK rate (6%). On these numbers, Scotland could ill afford further losses in investment from Brexit, whether due to a slowdown or lost passporting. They also show the investment gains are almost certainly larger than the trade gains in the Euro project.

Second, an inability to passport your services/goods into the EU could be very damaging to investment spending. For obvious reasons we have no data on how much investment in Scotland is made to facilitate passporting. But given that 15.3% of Scottish exports go to the EU (ex-UK), and 63.8% to rUK (surveys report 70% is passported on), the loss of passporting rights directly or via the UK would mean a loss of more than 16% in investment. Scottish government figures are more sanguine (7.7% or between 6.3% and 9% lost over 12 years), the difference being that the loss of passporting exports through rUK is not included.

Third, and most important, investment is the way productivity growth enters into the economy. In fact, productivity growth is the only source for permanent increases in growth and employment (Scotland’s working population is static or shrinking). Hence lost investment for Brexit reasons would inflict greater long-run damage to the Scottish economy than the current weak investment performance because the capacity to incorporate new productivity gains would shrink. Again, this example shows how important investment has been to the EU participants.

The link to productivity

Scotland’s labour productivity  is 3% lower than the UK. Yet wages are roughly 6% lower. This implies that unit labour costs are 3% lower in Scotland. However, overall production costs per unit are not lower, since otherwise the Scottish economy would have grown faster. Hence productivity (meaning the way in which the inputs to production are combined) must be lower in Scotland. Scots work harder than their counterparts, but to less effect because cheaper labour is substituted for capital and productivity increases. In short, we need more investment to exploit trade and Scotland’s comparative advantage, not less, as will happen under any Brexit deal.

Digging deeper, Scotland ranks highly on R&D and innovation in the public sector (higher education) but does less well in business and industry. Most R&D spending is done by US, Scottish and EU owned firms: very little by UK based firms. In figures, 53% is done by US firms, 25% by Scottish firms, 16% by EU firms and 3% by UK firms. The best strategy, then, is to find ways to bring high productivity activities into the economy by investing in productivity growth underpinned by access to foreign trade and ownership – the opposite of what Brexit would bring. In fact, it appears that, by 2030, 60% of the loss of output/jobs under no deal vs. EU membership would be due to an emerging productivity gap; and only 14% from trade barriers and market access issues that have occupied so much negotiation time.

Might it not be wiser to keep the Brexit options in play, rather than rule them all out ex-ante?

This post represents the views of the author and not those of the Brexit blog, nor the LSE.

Andrew Hughes Hallett is University Professor Emeritus of Public Policy and Economics at the Schar School of Policy and Government, George Mason University, and an Honorary Professor in the School of Economics and Finance, University of St Andrews.

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