Posts Tagged ‘Scotland’

Met police spending on plastic bullets triples in a year

February 19th, 2019 Ben Quinn

Other UK forces also increase spending on ammunition amid fears of no-deal Brexit disorder

The Met police have tripled their spending on plastic bullets in a single year, according to figures seen by the Guardian.

The force spent more than £500,000 on the ammunition in 2017 – more than three times the average annual spend for the previous five years.

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Neglected options for a Brexit deal in the UK

February 12th, 2019 Ros Taylor

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.

Posted in 'no deal', Economics of Brexit, Trade, andrew hughes hallett, economy, investment Tags: , , , , , , , , , No Comments »

Are referendums a sign of no confidence in the government?

February 12th, 2019 Roch Dunin-Wasowicz

Are referendums a sign of no confidence in the government? In this blog, Joseph Ward (University of Birmingham) compares the 1979 devolution and 2016 EU referendums in Britain. He argues that the 1979 Scottish referendum holds many important insights for understanding the political ramifications of the Brexit vote.

Throughout the protracted debate on Britain’s exit from the European Union, many scholars and commentators have offered explanations and potential solutions to the dilemmas currently faced by the government. Quite unlike the ever-changing cast of characters in Theresa May’s Cabinet, one constant in this debate has been the ambiguity surrounding the British Constitution. As famously pronounced by legal scholar John Griffith, ‘Everything that happens is constitutional. And if nothing happened that would be constitutional also’.

The plasticity of the constitution – a great source of stability for so long – goes some way to explaining how the 2016 referendum could come about and why Britain’s institutions are crumbling in the face of the outcome. In a recent column Vernon Bogdanor suggested the best solution to protect the integrity of the United Kingdom would be to finally formalise the constitution, thus providing protection to reforms such as devolution and the Good Friday Agreement which seem unlikely to withstand the strain imposed by the Brexit result.

The extent of the political crisis that has engulfed the UK has led many to seek out comparable episodes from Britain’s history. In this vein, a recent Economist article considered several significant foreign and economic policy catastrophes such as Suez and the IMF loan crisis in 1976. It might be argued that such episodes, indicative of long-term decline, were subject to the whitewashing of British history successfully coordinated by Leave campaigners in lead up to 2016 and since.

However, whilst the origins of the Brexit debacle are rooted in the wider debate about Britain’s role in the world, in many ways that discussion has been superseded by the domestic ramifications of the vote. As noted in the same article:

‘…whereas the IMF crisis was limited to economic management, the current one extends to the unity of the British state. The four nations voted differently in the referendum, with England and Wales voting to leave and Northern Ireland and Scotland to stay’.

Not only has the aftermath of the 2016 referendum revealed divisions between the urban and the rural, between the young and the old, between those who’ve benefitted from higher education and those who haven’t, it has also brought the territorial composition of the United Kingdom back to the very centre of British politics. Once again, the historical compromise which forms the basis of the British state has created several seemingly insurmountable governing obstacles. In the case of Theresa May’s administration, perhaps the clearest such example is the Irish question, with the greatest number of objections to the negotiated deal centring on the so-called Irish backstop.

1979 and 2016: a useful comparison?

Whilst crises of either domestic or external origin never occur in a vacuum, the territorial dimension of the current predicament lends itself to historical surveys focused on domestic crises of a similar nature. With territorial and constitutional factors in mind, the initial devolution votes held by the Callaghan government in 1979 offer an interesting case for comparison. Although the obvious historical precedent, indeed the prior democratic mandate for 2016, is the 1975 European Communities vote, in terms of the result it was ultimately a success for the government, with Harold Wilson securing a two-thirds majority for continued membership.

The 1979 devolution votes under Callaghan, on the other hand, present one of only two other cases – including 2016 – of British government failure to secure the advocated outcome in a referendum[1]. Although often lost in the malaise surrounding the infamous Winter of Discontent, Callaghan’s inability to secure results in these two votes led to the downfall of his government, the repeal of the devolution legislation, and the inauguration of 18 years of Conservative dominance.

A comparison of these cases reveals two specific points of interest.

First, both cases highlight the primary role of party politics in debates over constitutional reform in Britain. The failed vote of confidence in Theresa May as Conservative leader coordinated by the European Research Group (ERG) – which only 6 weeks hence feels like a footnote – serves as a reminder that it was these same Eurosceptic pressures within the Tory party that forced Cameron’s referendum decision. The context of a hung Parliament, and the weakened position of Cameron in Coalition emboldened Eurosceptic demands and parliamentary pressure until he conceded.

In 1979, the growing electoral threat of the SNP between the two 1974 elections forced Labour’s hand in adopting policies on devolution. In the event this did little to quell SNP support, and in October Labour was returned with a majority of just 3 seats. This weak position, which eventually became a minority government, dictated that Callaghan was even more exposed to backbench pressures. In order to get the devolution legislation through, therefore, the government had to concede a number of amendments, most significant of which stipulated for a referendum to be held in each country to test support for the measures. Whilst Cameron ultimately seized the initiative from backbenchers where Callaghan could not, neither leader desired to hold a vote where party pressures forced them into doing so. This factor also applies, of course, to the Labour party divisions that precipitated the 1975 vote.

Second, after failing to secure the necessary support in either the Scottish or Welsh votes[2], Callaghan had to consider repealing the devolution legislation in accordance with the referendum amendment. This prospect prompted the SNP to remove support from the administration, which led to the tabling of confidence motion by the Conservatives in opposition. The motion went against Callaghan by one vote, triggering a general election that May, and ultimately the inauguration of 18 years of Conservative rule. Prior to that recently tabled by Jeremy Corbyn, this was the last occasion in which an opposition had tabled a confidence motion in the government, with or without success.

This eventuated in a scenario whereby anti-devolution Labour MPs under Callaghan could be charged with preferring ‘Margaret Thatcher in Downing Street to a Scottish Assembly in Edinburgh’. It has been suggested that party political arrangements that have dominated post-war British politics might be another casualty of the current crisis, and of course it might yet come to pass that one faction or another of May’s Conservative Party breaks ranks. Whilst the broader context of each case is one of political instability, this clearly shows the potential for failed referendum votes to present an existential threat to any incumbent administration, and to threaten the wider institutional arrangements of the British political system.

Moreover, 1979 holds another important insight for the narrative surrounding the history of the referendum in Britain. Studies which have analysed referendum use in the UK have tended to suggest that although the device has often been at the mercy of political expediency, it has also provided a ‘rubber life raft’, as Callaghan famously termed it, that parties have come to rely on when faced with party-splitting issues. However, it is important to note that referendums also have a history of exacerbating issues for British governments as well as offering solutions. Though it might be the case, as some have argued, that the only way out of the current impasse is to return to the people with a more concrete proposition, this should be treated with caution given the way in which party politics has previously dominated referendum practice. As Callaghan would discover, and May is still discovering, unfortunately that ‘rubber life raft’ doesn’t always lead to the shore.

This post represents the views of the author and not those of the Brexit blog, nor the LSE. Image C00 Public Domain.

Joseph Ward is a Doctoral Researcher and Graduate Teaching Assistant in POLSIS at the University of Birmingham.

[1] The other was the North-East England devolution referendum, held in 2004.
[2] 1979 results: Wales: 20.3% For; 79.7% Against; Scotland: 51.6% For; 48.4% Against. A threshold was placed on the votes to state that a minimum of 40% of the eligible electorate must vote for the change.

Posted in 1979 referendum, Birmingham, Callaghan, European Communities, Joseph Ward, UK and European law, UK politics, Wilson, advisory referendum Tags: , , , , , , , , , No Comments »

Brexit made me do it: now we have the perfect excuse for bad behaviour | Kevin McKenna

February 10th, 2019 Kevin McKenna

The stress of Britain dropping out of the EU is going to be used by all and sundry in their defence

The ancient Roman principle of quæ operiat asinus tuus (to cover one’s arse) is also a revered one in the conduct of UK politics.

A slightly updated form is sometimes manifest in the practice of burying bad news, although the dark arts of political manipulation were probably perfected by Quintus Tullius Cicero, the Roman statesman. Cicero wrote an essay about it in 64BC, which was essentially a self-help guide for his older – and better-known – brother, Marcus, on how to get into the senate. In it, he urges his brother to make elaborate electoral promises he had no hope of keeping.

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Police Scotland sets up Brexit emergency planning centre

February 8th, 2019 Severin Carrell Scotland editor

Emergency services to work with government agencies and councils to test readiness

Scottish police are setting up a special emergency planning centre near Edinburgh to cope with protests, crowd control at airports and haulage delays at ports in case the UK crashes out of the EU next month.

Scotland’s chief constable, Iain Livingstone, has said there will be “dynamic and fast moving challenges from Brexit” which could involve police officers being sent to ports and airports if flights and ferry services are disrupted.

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