To the surprise of few, the Supreme Court has upheld the High Court’s ruling that a Parliamentary vote is required to trigger Brexit. While many will lambaste the court, the essence of the matter was that leaving the EU does affect the rights of UK citizens (e.g. rights to move, work and reside in the EU) and thus could not be done under Crown Prerogative (essentially a Prime Minister’s whim). I am happy to live in a country where this challenge was possible and where it was upheld.
Yesterday the High Court ruled that the government cannot use Crown prerogative to give notice to leave the EU under Article 50. Unlike most who are commenting on this, I have read the judgement (here). Although I am no lawyer, the prose is clear and the point simple.
Firstly, Laws can only be made, amended or repealed by Parliament (i.e. both the House of Lords and the House of Commons). In this context, a law is anything that affects the rights of a UK citizen. However, the Crown (i.e. the government) can do things that don’t affect the rights of UK citizen without reference to Parliament, including entering into Foreign Treaties and going to war. Now these actions may well affect the wealth, health and happiness of the UK citizens, but they don’t affect their rights and so don’t require Parliamentary approval.
Although our membership of the EU is by Treaty (currently the Lisbon Treaty) it also grants the UK citizen rights in UK law, courtesy of the European Community Act 1972, as amended. Triggering Article 50 means that, absent any agreement with the EU to the contrary, the UK would leave in 2 years. some of the rights granted in ECA 1972 would expire, and that therefore means that Article 50 cannot be triggered Crown privilege. Hence the ruling.
Now, there are grounds for arguing that the ruling is wrong, or that the case should not have been heard. No doubt the government will make them on appeal. It may or may not win. However, as we stand we have a population that voted to leave, a government that undertook to enact the result of referendum and a Prime Minister who is now hamstrung. The situation is exacerbated by the bleating of self-interested politicians opposed to Brexit (and their acolytes in media and elsewhere) who are currently conflating the need for Parliamentary approval to trigger Article 50 with a line by line negotiation of an exit, or at least setting out the exit terms.
The ruling does not of itself require Parliamentary oversight of the exit process. All it requires is an Act to trigger Article 50, accepting that doing so will cause the loss of certain individual rights (most of them are quite arcane or silly, like losing the right to elect an MEP as the main rights accruing to EU citizens are already incorporated in UK law). Such an Act would probably get through the House of Commons, but it might stall in the House of Lords – although Mrs May could solve that by creating 200 or more Brexit peers. She might also be able to invoke the Parliament Act.
However, all of this is going to take time, and that time is causing uncertainty which in turn is doing economic damage to the UK. It is also frustrating the will of most of the people and is showing in stark relief just how unfit our current Parliament is. While it would be unprecedented for a referendum to be binding the Referendum Act 2016 could have expressly included wording to allow the use of Crown prerogative – as David Cameron clearly stated he intended to. But perhaps such an obvious provision was left out on purpose. It remains a scandal that the entire government operated on the assumption that the vote would be to remain. If it is the case that no consideration was given to how to leave (in a technical, legal sense) as part of the preparation of the Referendum Act then the cabinet of the time were fools, and their advisers incompetents.
While I can see the obvious attraction for Mrs May in winning an appeal, there is a significant chance that the government will lose it – certainly its performance thus far in court has been pretty poor. And it if loses it may lose worse. I think Mrs May’s best course is to introduce a sort Act, defy anyone in the House of Commons to vote against it (as it is now government policy she can and must whip it). The House of Lords, which you may recall remains in a state of unreformed idiocy, will then face the choice of obstructing the people’s will and that of their government, or gritting their teeth and passing it.
Tomorrow is the 5th of November. As Parliamentarians and their advisers head off for their recess they should reflect upon the mess that they have created.
Thanks to UKIP’s pugilists the party conference season has been more interesting than usual. Predictably the Labour party has gone navel gazing while Tim Fallon (who?) and the Liberal Democrats want a rematch on the referendum – oh the irony. Meanwhile some Tories and some commentators seem to have invented the “Hard” and “Soft” flavours of Brexit. Clearly there has been some weed smoking…
The facts are simple. The result was out. The EU bureaucracy does not want us to leave; nor do many of the member states nor a fair chunk of the UK government establishment. Their solution is to kick the can down the road and just keep talking, pretending the vote never happened.
The EU treaties provide for a simple exit, via Article 50. They do not provide for membership of the single market without the acceptance of free movement. While it is perhaps possible that the EU treaties could be amended to allow this, it is unlikely to happen in any fast time frame. As such a treaty change would probably require ratification by all member states it’s a reasonable bet that it would never pass.
So there is no point in discussing it. Which means that there is no “hard” of “soft” option on Brexit. We just do it. there are some minor discussions to be had within agencies such as Europol, but they are all minor and in most of them we hold the whip had – (“You want access to our intelligence? Then show us your own” etc.) With nothing to negotiate and nothing to agree, we could be gone in six months.
Now, while leaving the EU means leaving the single market there is no reason why the UK could not offer EU members the opportunity to export to the UK tariff free. Given that the UK is a major market for the EU the member states would be likely to rather want that. Particularly the Germans. (The top selling car in the UK is the Ford Fiesta. Made in German. Number 2 is the Ford Focus, made in Germany. In fact seven of the top 10 selling cars in the UK are made in Germany).
Of course, the UK is not a charity so we would request reciprocation – any tariff being charged on any UK export to EU would result in the UK charging tariffs on imports from the EU. The genius of this position is that if gives the problem to the EU to sort out with its remaining member states. While some Eurocrats may want to savage the UK it is unlikely that their paymaster, Mrs Merkel, will be able to survive allowing the EU to destroy the German car industry and prevent it from taking advantage of the UK’s open market policies.
And it does not require a treaty. The agreement would exist de facto, not de jure. Those who remember the Cold War should remind themselves that the entire country of East Germany was never recognised in English (and other) Law. Yes, we noticed their wall and fence. Yes, we prepared to deal with their armed forces and no doubt expended treasure upsetting their regime – but we did not recognise it as a country. In the same vein, therefore, we simply do not have to recognise the Single Market, just deal with it on tariff free terms.
We can adopt a similar approach to passporting, enabling our financial service industry to operate in the EU but outside their regulation. We just apply a higher level and offer the reciprocal to them. For example, we allow Deutsche Bank, BNP and the rest to continue operating in the UK under (effectively) EU regulation provided that NatWest and HSBC may operate in EU, as they do today. We can also point out that bank operations are largely dominated by the Basle conventions, which are voluntary and global, rather than the EU directives. London is the largest financial market in the world. Paris and Frankfurt don’t even make the top 10 and last time I checked most EU currencies and financial companies desperately need access to the vast pool of capital and expertise that exists in London. Again, we make the offer to the member states who can then instruct the EU apparatus.
Having thus solved the problem of Brexit and evaded the (alleged) downsides the government can then turn to a more serious problem.
It is appalling that there was no contingency planning in place to cover the possibility of a Brexit vote. This is an abject failure by the Civil Service. My understanding is that the Cabinet Secretary, Jeremy Heywood, was instructed to prevent any such preparations from happening by David Cameron, citing a similar (apparently) instruction issued by Gordon Brown in the run up to the Scottish Independence Referendum. It was felt, I understand, that making such preparations risked them leaking and demonstrating that the out option was viable.
The result of this is that since Brexit we have had no clear leadership, no action and no plan. This has directly impacted upon the value of the pound and indeed allowed the development of the hard / soft fallacy. This has done material damage to the economy and could even constitute maladministration – which is (broadly) the crime of deliberately governing badly. Mrs May has already had to remind the Civil Service and government machine that Brexit is Brexit and it will happen. She should now take them to task for their abject failure to prepare. “My political masters told me to do it” is not a defence if the instruction was clearly against the country’s interest.
The government can use the time thus saved to return to the very real problems confronting the country; the deficit, public sector productivity and the rest. They may well find it easier to find solutions now that Brussels plays no part in our law making.
Brexit is Brexit, out is out. Just do it.
It’s been one heck of a week. As the settling dust is obscured by the fur and feather of a Tory party leadership spat, reported on by a media that has an ill focused lens I thought it time to just revise where we are, what has to be done and how it should happen.
The simple fact is that a small but clear majority of Britons want out of the EU. Moreover, they were promised by the Prime Minister that he would initiate the exit via Article 50 if Out won. So we now have 17 million Britons feeling betrayed, and the rest of the country less than impressed with the integrity of government or political debate. The EU are pretty unchuffed too, as are remoter parts of the UK and the metropolitan set. Let’s sift the wood from the trees.
Why did we vote out?
From Lord Ashcroft’s exit polling (which is usually OK), the reasons for voting out were:
- Concern about EU expansion of powers of geography
It seems unlikely that any acceptable exit will include anything less than cessation of the EU freedom of movement (which I’ll return to), as some wannabe PMs risk finding out the hard way.
As regards the generational split, it’s hard to take seriously as although 73% of 18-24 year olds voted to say, according to Sky data published in New Statesman on 36% of them could be bothered to vote. Notwithstanding a fatuous Facebook petition the result stands as a clear instruction from the UK electorate to Parliament. The fact that people over 45, whom in any sensible culture would be considered wiser people, voted overwhelmingly to leave. So we are quitting. The next question is how.
There are two ways of leaving. One is via Article 50, which allows for up to 2 years to negotiate a settlement. This can be done by a Prime Minister without requiring a vote in the House of Commons. The other is to repeal the Acts of Parliament that enabled membership, but that requires a vote in the House of Commons which might well not pass. It would also give no opportunity for negotiating a settlement or controlled exit.
So What Needs Negotiating?
As the vote has rejected free movement the UK needs to agree a mutual visa regime for EU nationals. That is, actually, trivial as EU nationals become the same as anyone else. According to ONS data there are some 200,000 US citizens resident in the UK. Moving EU nationals into this regime is no big deal. Ensuring UK citizens currently resident overseas are secure is also no big deal. The only problem with ending free movement is that it has hitherto been a condition of tariff free access to the EU Single Market (for every country other than Liechtenstein), including for EEA members.
The single market (a misleading term) is worth about 13% of our GDP. If we had to pay tariffs the rate would be around 2% (various sources, try the World Bank). Frankly if you are selling a product to a customer and there isn’t room for a 2% price hike or profit cut you will be going bust soon anyway. Moreover, in the short term the depreciation in the pound already has it covered. Bottom line is that tariff free access is not worth it. As I have blogged before, we pay £2 in EU membership fees to secure £1 in tariff reduction. And, of course, tariffs cut both ways. EU exports more to us than we do to them, so we might make £5 billion a year out of import duties. Every little helps, but it’s a rounding error.
There is just one fly in the argument that we don’t need a single market, and that is passporting. This has nothing to do with people moving; it’s all about finance. And it’s important so switch on.
In 2007 an EU directive called MiFID came into force, replacing an earlier directive. MiFID is the Market in Financial Instruments Directive, which does what is says on the tin. You may remember that there was a financial disaster the next year, so MiFID 2 is on the way – although it has problems.
Specifically, MiFID regulates how banks (and other financial industries) are authorised. A bank authorised in the UK can use that authorisation to operate in any other EU country (it could do this in a similar way under the earlier directive). In the absence of passporting, a bank would have to be regulated in each country that it operates – and complying with those regulations costs money and assets (known as regulatory capital).
So, as it stands, Brexit means the UK withdraws from MiFID and all the banks doing business in the UK have to open a branch in an EU country and conduct their EU operations from there. As much of the UK economy is based on international finance that is bad for the UK’s GDP, and good for those who covet London’s pre-eminence as the world’s global financial centre (i.e. the French and the Germans). So it seems the cost of controlling immigration from the EU may be the loss of The City’s pre-eminence, or at least some of its profit, which would be very bad.
I’m not so sure that this should be a concern. For a start, London – like New York, Hong Kong and Singapore is a financial centre. It does it all banking, share trading (the stock exchange), commodities trading (in US this is done in Chicago not New York), insurance (in Germany banking is in Frankfurt but insurance is in Munich), shipping and so on. Finance is interconnected so if you were going to move from the City or Docklands quite where to go is not obvious – but you may have to go to more than one location. And that move won’t be cheap.
Moreover, most of these destinations lack the hard and soft infrastructure to cope with a sudden influx of global firms. Much as Dublin might want it there simply isn’t room to accommodate the workers. And let’s not forget that the EU member states rely heavily upon London to provide them the finance they need to prop up the Euro and expand their faltering economies. Making life more difficult or expensive for the finance industry is in no-one’s interest, although it is the biggest stick in the EU’s negotiating option.
Of course, MiFID only applies to the EU. Banks and most other financial organisations are global. Banks are regulated globally under the Basel Accords, which determine how much capital they must hold etc. These global agreements are administered by a committee comprising the G-20 countries plus some others with heavy banking involvement (e.g. Hong Kong and Singapore). There are, perhaps surprisingly, no direct powers of enforcement – they are accommodated in national or EU laws.
There is a strong case for moving MiFID to a similar structure, why should 28 (now 27) countries required different regulations to the rest of the world? And remember, post Brexit the EU is under 20% of the world’s economy (and that is falling).
Given that the UK is leaving, that the UK’s population has rejected uncontrolled migration financial institutions have the choice of moving to multiple other locations, which will take time and cost money or finding a better idea. The EU’s choice is between inhibiting the flow of finance to its struggling economies or find a better idea. The other 27 countries face the choice of seek to seduce City Firms into your jurisdiction (at odds of 1 in 27 of success) while interrupting the flow of capital, or find a better idea.
The better idea will be to separate MiFID into an institution and run it like that. Original members are EU28, but membership of MiFID is not conditional upon EU membership, simply on complying with its rules. Rather than waiting for the EU to do it (which they won’t) we just sit down with all the major finance players and sort it. Better, let’s make it a global standard and call it the Junkers Agreement (never underestimate the vanity of a bureaucrat). Base it somewhere with decent skiing or great beaches and away we go. As all UK and EU financial institutions are MiFID compliant we can continue passporting while they merge into global MiFID.
That looks interesting, but might be tough to pull off. Why are the British so against immigration? Surely they can be won round?
The up side of migration is well rehearsed and clear. It enables countries to access skilled labour when it needs it without the cost and delay of having to train it from scratch, nor nurture it from the cradle until it became economically useful. Historically the economies of the US, Canada and the Antipodes have benefited enormously from significant immigration from Europe, including the UK. The chief benefit is high economic growth.
However, in the UK it is a little different. Immigrant labour, i.e. the work of those who come to the UK and settle here permanently, is indeed helpful. What does not help is short term labour from EU countries who are here to support their families in their country of origin. The reason is simple. The immigrant who has determined that their future is in the UK invests in the UK, keeps all their wealth in the UK and spends in the UK. This spending generates more income for the vendors of the stuff the immigrant buys, and that in turn triggers more spending. National turnover increases almost exponentially from the creation of a single immigrant job. This is known as the multiplier effect.
Migrant labour is different. The migrant is here to work hard, pay tax and then return to his homeland with cash in his pocket. Sure, the original job gets done and tax gets paid. But rather than building a home and life, the migrant’s mission is to live as cheaply as possible, so he spends the minimum -sharing rooms rather than a house and purchasing little beyond subsistence living. An immigrant may earn £10 per hour, pay £3 in tax and spend £6 of his remaining £7. The migrant might spend perhaps £2.50 of the remainder, leaving £4.50 untouched. The UK economy loses £3.50 of new sales to trickle down, so the multiplier effect is much weaker.
This may explain why UK growth is not as strong as it should be. Many of the jobs created have been filled by migrants, who are hoarding and exporting the cash to other EU economies. Thus there is a weak multiplier effect and growth is slower. It is unfortunate that the government seems to have no reliable data on immigration, but this would explain why it’s taking so long for the economy to grow and why Osbornes sums are wrong. Migration is part of the problem.
It seems to me therefore that the government can’t escape from the need to control migration; the people want it and the economy needs it. However, this is not likely to be found compelling by the EU member states, and if they don’t play ball then the financial institutions will have to set up at least some offices in the EU27, which will cost the UK some income. The UK needs to find another negotiation tool.
Fret not – it created one last week.
Here is a chart produced by the PEW Research centre from 2016 data collected before Brexit.
The stark conclusion is that the EU is hardly inspiring confidence within the electorates of its member states. The Poles and Hungarians probably like it because they have high levels of their workers sending home cash from other EU countries. The Eurozone is struggling to grow and the EU is part of the problem in its abject failure to secure any meaningful trade agreements, in its flawed and inflexible agricultural system and its unaccountably. Now that the British have shocked their own leaders (but, interestingly, not this PEW report) others.
It may therefore be that the EU has bigger problems than the Euro, which is an astonishing agreement. It may well be weak and desperate and suffering from an incipient existential crisis. It is suffering from the delusion that it can make it hard for the UK to leave. Even if it does, what message does that send to the other member state populations. And if, as is likely and reasonable, we depart on pragmatic terms then others will follow.
In which case we need to play hard ball. Our line is:
- UK will no longer allow free movement of EU nationals (or anyone else)
- We don’t need the single market.
- We’ve globalised MiFID
The first two will take almost no time to agree; the third we can put into some other entity pending resolution (and we all need that quickly) but as all financial institutions in EU and UK are currently MiFID compliant and everyone needs finance it’s not a block. Job done. Bye Bye. We could get that done in a month which would avoid further harm to the UK.
Ouch – This Hurts
It’s not been a great week for UK PLC. But in the circumstances, caused more by Cameron’s abject dereliction of duty than Brexit per se, it could have been much, much worse. We’ll come to politics later. Let’s deal with what has happened.
The bad, but unsurprising bit was that the pound fell. No surprise there as lots of people had to close out positions etc. and lots of silly people hadn’t anticipated the vote out. The FTSE 100 held on, unsurprising as much of its earnings are from multi nationals (we Brits really do global stuff). FTSE 250, which is more UK and Europe centred, had a harder time.
The interesting bit is the UK Gilt yields fell (which means that the price of UK debt rose – as more people wanted to buy it than sell it). Read that again. Post Brexit people were effectively lending the UK money cheaper that pre Brexit. Now, the ways of the markets are odd and there are many parameters to look at, but if bond investors were worried about the UK’s future they would be selling, not buying.
And the Euro fell against the US dollar. Which means that investors didn’t view Brexit as healthy for the Eurozone.
So, how much longer will this go on. Well, until we have a plan of how to leave with an indicative timetable. Once we have that the markets will be able to stabilise. We are now suffering not from Brexit, but from political failure.
How Not To Lead
It was unfortunate that the government forbade the Civil Service from preparing any contingency plans. This, combined with Cameron’s self-indulgent resignation, has achieved the near impossible and added a political crisis and uncertainty to what was always going to be a tad tricky. The welterweights that inhabit the House of Commons now need to grow up.
Whoever they appoint needs to immediately start Article 50. I would not be surprised if it was not started by Cameron as soon as the Civil Service has something as the markets and EU need to hear it. So, of course, do the 17 million who, like me, voted out who were assured by their Prime Minister that he would immediately honour the result. The fundaments of democracy are now at risk in this country.
Aside from the trustworthiness of the Prime Minster (and Cameron has plumbed depths that make even Blair blush) there is the minor matter of the complete disconnect between the elected representatives and their electorate. Boris Johnson’s attempts earlier this week to pretend that the UK doesn’t really mind immigration was in brazen disregard of the outcome. Indeed, quite how so many MPs misread the dissatisfaction with the EU is odd. Referring to the 43% of social group AB and 50% of C1 who voted out as “swivel eyed loons” or “Little Englanders” seems reckless and, from those who have done little more than a degree and some party work, intensely irritating. Clearly we need to change how we select out politicians. That is a debate for the future, but it has been brewing some time.
Mending the nation won’t take so long. As the full extent of Project Fear becomes apparent many of the remainers will see that they were duped. 43% of remainers made their minds up in the final month of the campaign, 25% in the final week. And what will make them see this? The future.
Here Comes The Sun
The moment we confirm that we are leaving the private sector can get on with what it does best – creating wealth. Better than that, as a nation freed of the economic navel-gazing of the EU we can get on and start doing deals round the globe – mostly in the Commonwealth countries. India is already making overtures – as we share language, legal structures, culture and even cricket we’ll be pushing at an open door. Better yet, the Indian economy and growth is heavily based in services, which is what we do. India’s economy is growing at 7.9%, its annual increase in GDP is US$163 billion, compared to US$255 billion (and falling) in EU. Where would you rather invest?
I am not saying that this will be easy, and the Cameron tantrum has made things much harder than they need be. But Brexit has happened; the truth about the EU is becoming apparent and we’re on course to be rid of it. As a bonus, we have also had a demonstration of how inadequate, self-serving and remote many of our politicians are. The system is clearly broken but it is our system; we pay for it and it reports to us.
Brexit will prove to be cathartic.
Several of the weekend’s newspapers have criticised the Vote Leave campaign for failing to spell out how the UK will actually leave the EU in the event of a vote for Brexit.
Its an odd accusation as the process is set out in Article 50; basically we negotiate. Talk of the Norwegian or Swiss models is claptrap – we’re the UK and will adopt our on terms. I covered this in my recently published (and sadly not yet widely read) pamphlet on the EU debate Tilting At Windmills and so have produced the relevant chapter below. Enjoy.