Brexit Hits Traffic

Until now, Brexiteers were like teens with the keys to Daddy’s Audi, singing team songs as they barrelled down the motorway. Now they’ve run into heavy traffic, and they may grow more irritable.

Last week, the Chancellor of the Exchequer, Phillip Hammond, delivered his autumn statement, revealing that the cupboard is a lot barer than he had supposed back when he took the job in the early summer. With interest rates rising, the pound slumping and economic growth expected to slow, the cumulative budget deficit over the next five years will soar above £100 billion. That’s a lot of change.

That means there will be less change left over for other things, like the big infrastructure programme the new government had hinted at or new money for the beleaguered National Health Service. As if that’s not bad enough, if the expected slowdown materialises, Britain’s economy will by next year be growing more slowly than the European Union’s – the same European Union the Brexiteers said was holding the UK back. And you can kiss goodbye any hopes of seeing the extra £350 million a week the Brexit campaign said could go into the NHS once Britain left the EU.

Inevitably, Brexiteers protested that the Chancellor’s predictions of future growth, taken from the Office of Budget Responsibility, were too glum. That may be so, though there are more pessimistic predictions around, including those from the Bank of England. More pertinently, if the Chancellor wanted to look at the future impact of Brexit through rose-tinted glasses, he would have needed more clarity from the Prime Minister as to what changes in Britain’s relationship with the EU are in the pipeline, as well as details of any promises made to British-based companies regarding future adjustment costs. But since this information is hard to come by, given that Prime Minister Theresa May refuses to provide a ‘running commentary’ on Brexit planning, Mr. Hammond had no option but to err on the side of caution.

It’s no secret why Mr. Hammond is getting so little guidance from his Downing Street neighbour. Five months after the Brexit vote, Mrs May seems unable to produce a consensus out of the competing visions of Brexit coming from within her cabinet. Some want to forge ahead with a ‘hard Brexit’ and leave the EU altogether, while others want to stay in the single market. This division points to a fundamental problem in the Brexit camp, which I wrote about shortly after the referendum. Just over half the electorate voted to leave the EU in June, but just what they were voting for varied greatly.

To date, Mrs May has been able to paper over the differences with her anodyne ‘Brexit means Brexit’ mantra. But sooner or later, the details will emerge, at which some Brexit-supporters may well feel let down or even betrayed. Already, for instance, the Office of Budget Responsibility has said that post-Brexit, annual net immigration to the United Kingdom will fall from 265,000 to 185,000 – a far cry from the target of ‘tens of thousands’ the Conservative government has been promising for years, let alone the ‘pack them up and put them on boats’ expectations of some of the harder-edged supporters of Brexit.

Meanwhile, the opposition to Brexit is now starting to regroup. Buoyed by a recent court ruling that Parliament must approve the triggering of ‘Article 50’ that will commence exit negotiations, a campaign is building to hold a second referendum. At the moment, this remains a minority opinion, but sentiment may well start to change. By next year, what the Institute of Fiscal Studies estimates will be the worst pay-squeeze in 70 years will start to bite, as growth slows and the rising inflation that will result from the weaker pound starts eroding earnings. The IFS predicts that real incomes in 2021 will still be below their 2008 levels. In short, just as the details of Brexit begin to come out and disappointment sets in for some, Britons will start feeling Brexit’s pain.

For the moment, the wind is still in the government’s sails. The Conservatives retain a solid lead in opinion polls, and any economic pain has yet to hit. However, things are likely to get interesting in 2017. By then, developments on the other side of the English Channel may also alter the picture. With François Fillon emerging as the mainstream right’s presidential candidate in next year’s French election, one of the EU’s major brokers is likely to be led by a man committed to deep reform of the EU. It is entirely possible that support for Brexit will start softening just as the EU begins to grow less unappealing to Brits.

Brexiteers still have some aces up their sleeve, not least the improved prospects of a UK-US trade deal that Donald Trump favours. However, this is a long-term goal, and will recede behind the backdrop of near-term economic and political developments. In the months ahead, the fast lane to the Brexit future is going to detour into a lot of laybys, and things may get more complicated.

 

Image: Barnes Bridge on the River Thames, south London

 

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