Ed Miliband has suggested that Labour should campaign on the basis that Brexit must happen, but not cost those on lower incomes in the country a penny. It's a nice idea in theory. In practice it suffers from the obvious flaw that it's a demand that is very obviously undeliverable. That does not make it the wrong political thing to do, but it does mean that there has to be a back up plan. I've already suggested some things I would want in that back up plan. This blog is about why Brexit is bound to harm ordinary people. The list is long.
First, there's the cost of tariffs. Put simply, we import more than we export and there is little sign of that changing. The result is we are bound to pay more in tariffs than we raise, and tariffs, like VAT, are regressive. That means more is paid as a proportion by lower income households than higher income ones. The result is a double whammy: we will all be worse off but lower income households will be worse off by more.
Second, if we do avoid tariffs by staying in the single market we will have to pay to do so. And what is absolutely certain is that we will pay more than now: anything else is not in the EU's interests. Add up all the fees we are already suggesting we might pay the EU, whether for market access, some free movement, bank passporting and more, and the supposed £350 million a week it was falsely claimed we were paying for membership will soon look like a bargain. I can't see business and the wealthy paying for this, so you can guess who will.
Third, there is the direct cost of leaving, now estimated at many tens of billions required to buy us out of our commitments. Someone is going to have to pay this.
Fourth, after these direct issues are dealt with there are many indirect ones. The first is that there will be less investment in the UK: I know we are offering tax and other incentives to make it look otherwise right now but the cost of these will soon mount and when it does the cash will disappear. We may be good at luring tax haven activity after Brexit but it's wise to recall that nothing really happens in tax havens and income and wealth inequality is usually hideous. This is our future.
Fifth, UK productivity, and so income, will crash as a great many highly trained people leave the country. It does not matter whether there are quotas or anything else: life for many is being made very uncomfortable in post-Brexit Britain and skilled people will go elsewhere. That will reduce our national income at cost to us all.
Sixth, we're going to lose foreign earnings. I am told that across the university sector overseas applications are down 20% this year. That's a massive loss of export earnings. It's also going to push some universities into major financial crisis. And this sector is far from alone in facing such challenges. Brexit is gong to cause job losses.
All of which, seventh, implies a government with lower tax revenue. And we know that even though it is entirely the wrong thing to do our governments try to cut their spending when faced with this situation, which reduces income still further, leading to yet more loss of services and income, much of which impacts on those on lowest incomes the most.
And, eighth, in all this we will also suffer inflation that has, at least in the short term, greatest impact on those on low income. That is the inevitable consequence of the collapse in the pound.
Ninth, I see few compensating factors. Tariffs in other countries will counter the fall in the value of the pound and not make our exports more attractive. Alternative export markets are far away and trade simply does not travel well. And we have no pipelines of short term domestically trained skills to replace those we will lose. I struggle to find silver linings.
So, finally, tenth, there would be the hope if a government realising a all this decided to protect the poorest in society and impose the costs of Brexit on the biggest businesses and highest earning people who could afford it best. But there is not a hope of that.
The government is bound to fail the Ed Miliband test. That makes it both a good and bad test simultaneously. I am not saying don't use it. But please have a plan for what happens when the government does fail. To not do so would be negligent.
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Well said, Richard. I wish some of our ‘leaders’ would say this publicly.
Underlying all of this for me is that I’m afraid that BREXIOT has to happen for those who want it to change their minds.
It’s an awful cost to pay and I do not want anyone to suffer let alone me and mine but that is the way I think that it will unfold.
Also – Labour and the opposition must start planning for this because believe you me, the Right are already identifying their next stool pigeons to take the blame for the havoc the BREXIT will bring.
It doesn’t have to happen and it shouldn’t. It will merely be a lack of principle on the part of the two main parties. Of course it can’t and shouldn’t happen, to return will be very difficult, it will mean accepting Schengen and the Euro two hurdles I doubt we could achieve soon.It is shameless cowardice to fail to point out the lies that were told by the leave camp and an unbelievable price for workers to have to pay.
I can’t disagree with anything you have said.
Nice article.
For the more uninformed or foreign reader, it would have been interesting to also get an insight in the benefits of brexit for citizens.
There are two unexpected fringe benefits of brext for the 27 remaining countries.
One : at least for now you are making such a mess of brexit and so many disadvantages are coming to light, it is hardly likely that there will ever be a referendum on this the way you brits mishandled it.
Two : the EU got rid of an uninformed criticaster that mostly only had negative input on EU plans and ambitions. The UK could have worked for 40 years on improvements of the EU and except for a negative input, they never did.
The old comment, fog in the Channel, continent isolated, is a mentality that never left many of the older brittans
Well indeed
I’m not sure if you have seen this from your fellow countryman:
https://www.theguardian.com/commentisfree/2016/jul/24/eu-britain-must-suffer-for-brexit
I’m Irish an in contrast to the British we have been very good at making the most of the EU. An interesting article in the Irish Times.
http://www.irishtimes.com/news/world/europe/monsieur-brexit-no-friend-of-london-but-likes-ireland-1.2899440
“Barnier also has good personal links with Taoiseach Enda Kenny and Minister for Finance Michael Noonan, particularly through their membership of the European People’s Party, the European political grouping to which both Fine Gael and the UMP are affiliated. Kenny and Barnier were vice-presidents of the grouping at the same time, and Noonan worked closely with Barnier on financial issues during Ireland’s presidency of the Council of the European Union in 2013.
Ensuring that Ireland’s voice is heard around the EU table as Brexit negotiations begin will be vital if Ireland’s unique relationship with the UK is to be reflected in the final deal. Having Barnier onside is an important first step as the Republic faces one of its biggest political and diplomatic challenges in decades.”
I suspect Northern Ireland may play a more important part in the negotiations than the Brexiteers realise.
I agree with your last sentiment
Or rather, perhaps, I hope it is true
I dispute your point 4 re inward “investment”.
A Chinese lead consortium has just taken a controlling stake in National Grid.
I doubt that this action will erect a single pylon, so I would put this “investment”
in the category “financialization”.
As China is not in the EU, I don’t see that the UK being out need be any
impediment to the financialization of what remains of British industry and infrastructure.
But that is not investment so I am not sure what you are arguing with
As Richard says, it isn’t really ‘investment’: not in the sense of deploying capital to develop and facilitate production.
There will be no equitable return in which risk is rewarded, value is created, and gains pass to all paricipants. It’s a rent: the extraction of value created by others.
China has purchased a rent over Britain’ s energy users and, like the rail privatisations, the captive ‘customers’ will not see capital in action, taking on risks and marshalling resources to generate value and extract a fair return to the investor.
It is not an investment, and it is not a free trade in an open market, for we are neither automatic beneficiaries nor free agents: we’re more cow than counterparty and our part in the transaction is to be milked.
Very few of our post-Brexit ‘investments’ will be anything else.
China is doing the old model of Empire – extracting rent from others – in a new way – but the goal remains the same
If the UK chooses to put tariffs on imports from the EU, there would be a cost to consumers of those imports & these might bear more on the lower paid.
But why would the UK government do this? It’s not obliged to. In fact, quite the opposite. The purpose of Brexit is partially to get outside the EU tariff barriers to imports to the EU. Paid by EU consumers.
If the UK chooses not to impose tarrifs on imports from the EU then, under WTO MFN rules,it could not impose tarrifs on imports from anywhere
Phil I have been wondering the most favoured nation rules.
Does this mean that we are not likely to get ‘deals’ from these countries around the world, which we are told are queueing up to sign ‘free trade’ agreements?
If they can’t do this, then we are no better off than now and worse off if these counties have an agreement with the EU.
As a UK consumer, I fail to see the downside of that.
How about the possibility that not all of life is to be considered as a consumption function?
Richard. As your first item dealt with the cost of tariffs on households, particularly low income households, it’s difficult to see how one could consider it as anything else than a consumption function.
If the UK does not wish to impose tariffs on EU members, why should they want to impose them on others (outside specific anti-dumping measures which would be permitted under WTO rules)?
I don’t think Brexit must happen. It is the straightforward duty of MP’s to look after the best interests of their constituents and not make them poorer. They should vote to stay in. Never mind the non binding referendum – the real circumstances have been found to be different to those outlined and MP’s must have the courage to recognise it – as it seems the electorate now have in the North East. I strongly suspect they are not alone.
Yes, exactly. This nonsense from the Brexit crowd about ‘the will of the people’ should be challenged in Parliament. The referendum is advisory only, and as the severe consequences of leaving the EU become ever more obvious, there is every reason for MP’s to refuse to invoke Article 50.
I know MP’s are of variable quality and judgement, but surely to God, those who aren’t convinced Brexiteers should be able to see the negative consequences, and be willing and able to point these out to their constituents, even if their constituency voted Leave.
Given the torrent of lies told by the Leave campaign, they have a duty to point these out to their constituents who were taken in by those lies.
To add another dimension to your analysis, Richard, let’s not forget that while all of this starts to play out – which it will pretty rapidly after Article 50 is triggered and each month it becomes more apparent how far up shit street we are without a paddle – other policy related events won’t just stop.
I’ll give just a few examples, but there are many. It’s been apparent to anyone who takes the time to read up on the situation that the social care system is close to collapse, with already obvious consequences for the NHS. This has now been confirmed (see the report in today’s Observer) and it’s clear that the government’s flagship policy in this area – the Better Care Fund – is a failure. Urgent representations are being made to try to address this, but even if alternative policy is adopted next week (or money thrown at the problem) – which it won’t actually be for months – this policy disaster is now unstopable (sadly for those it will impact).
Add to this an NHS which will be pushed over the brink into operational failure if we have more than a week of very cold weather over the next three months (or a flu outbreak), a homelessness crisis (again, something that will really hit the headlines if we have a lengthy cold spell and rough-sleepers start freezing to death on our streets – particularly if in London), and what we already know to be going on in prisons, and we have a set of domestic policy disasters that even in normal (i.e. Brexit free) times would occupy much of the time of a government. Add in the turmoil Brexit creates and I suspect the government will be in serious danger of policy paralysis by as early as the end of 2017. Indeed, I think we have a government where this is more likely than say under Cameron, given we know May is an overbearing control freak – exactly the type of PM you don’t want when you need to be able to devolve policy making and trust people enough to get on with it – which she clearly doesn’t.
In normal times I’d also add that the approaching policy catastrophe should be a golden opportunity for Labour. I don’t see that happening. But it may well be that the double wammy of a domestic and foreign (Brexit) policy disaster provides the spark that actually ignites a real progressive alliance for the protection of the interests of the majority of citizens of the UK. After all, if Cameron and Clegg could claim that acting in the national interest was the basis for the previous coalition, then the coming situation more than justifies a similar approach. Either that or martial law.
Ivan
I agree my focus was narrow and deliberately so
The actual range of risks, as you highlight, os much higher
And it will require a government that realises that austerity is the route to hell in a hand cart to address that, and we have not seen one of that ilk for a long time
Richard
Add another problem: 20GW of generating capacity is gone offline permanently.
As I type we are on the edge of amber with around 5GW capacity remaining until red starts and demand side reductions apply.
Nuclear is at 100%.
CCGT is at near 100%.
Coal is around 50%… But bringing remaining capacity online is expensive.
And it’s warmer than usual.
Don’t worry John. As the economy starts to tank, we won’t need so much energy. Or do worry, very much!
I think we underestimate the change in mood that has swept much of the country and which will intensify as Brexit shrinks the economy. I had a letter today from an old friend who moved down to Devon and is a former Liberal County Councillor. He feels that the old liberal culture of the South West has already evaporated as UKIP and Daily Mail-style xenophobia have taken root. A local mayor was pictured welcoming Syrian refugee children to his town- he has had an avalanche of hate mail and physical threats ever since. I’m afraid I no longer share you optimism for the immediate future.
Despite all the good points made above how sure are you that if we had the referendum tomorrow that the result would be any different?
Suppose the result went the same way. You might begin to wonder whether for many people of all races, creeds and orientations that the pre brexit status quo isn’t that good and that the prospects for their children are downright awful.
But in that case would you vote to make them worse?
Given the opportunity to democratically express my concern for my childrens prospects let alone the struggles of so many of my fellow citizens I believe there is only one choice to be made.
When I came across your ‘list’ I thought here is an opportunity to demonstrate that there are cross cutting interests shared by many who voted remain and leave. That here is the first glimmer of an opportunity to make for a fairer settlement between the governed and the governing, between the needs of citizens and the needs of business.
It would be good if that common interest could be found
These are the kind of reasoned, logical considerations that I’m sure would have come up ahead of the 1975 referendum ( I wasn’t born then but there was a much more nuanced level of discourse about the benefits of joining the EEC) and exactly why the far too short and detail light “debate” period this time did everyone a severe disservice. Saw a stat over the weekend suggesting a lot of people in Sunderland would reverse their vote to leave if the referendum were held again today- these kinds of points must be made vociferously because you can be sure the bbc, and daily mail for example, will no spell them out to people. Good, depressing work!
You sound a bit confused. VAT is a progressive tax not regressive.
With the greatest offer spec, it is not by any stretch of the imagination progressive