“In a world of rising protectionism, Britain is in danger of being left outside all of the big trade blocks”. This statement of the obvious, when I first read it in the “Economist” of 8 October, seemed to jump off the page. Why is a government beleaguered by economic woes not (yet) of its own making, failing to explain the damaging impacts of Brexit to the public at large?
The government’s Office of Budget Responsibility (OBR) has continued to stand by its estimate that the impact of Brexit will lead to a 4% reduction in the potential productivity of the UK economy (relative to remaining in the EU) with the full effect being felt after 15 years. Economists at Cambridge Econometrics projected in January 2024 that, by 2035, the UK is expected to have 3 million fewer jobs, 32% lower investment, 5% lower exports and 16% lower imports, than if it had remained as a member of the EU.
Meanwhile, whatever happened to the UK-EU “Reset”, launched with considerable fanfare at a summit in Windsor, between Keir Starmer and EU Commission President Ursula von der Leyen, on 19 May? Talks seemed to go rather quiet for the last 6 months. Both the European Parliament and the House of Lords European Affairs Committee have now published their lengthy advice to both sides. However, following a call between the two leaders, on 12 November, negotiations on some issues began on Monday 17.
UK no longer in the first rank of international nations
The current government seems to be slipping into a familiar mode adopted by their post-war predecessors. Known as “British exceptionalism” this attitude, laid bare by the award-winning journalist Philip Stephens in his acclaimed book “Britain Alone; The Path from Suez to Brexit” relates to the extremely reluctant and belated realisation by Whitehall and Westminster, in the post-war years, that the UK was no longer in the first rank of international nations.
An oft-heard slogan, when I was in primary school, was “We won the war”, which the memory of Winston Churchill’s charismatic leadership enhanced. The UK, of course, deserves credit for standing virtually alone against Hitler in 1940. However, having spent time in the museums at Caen and the Normandy beaches, whilst in no way diminishing the sacrifices made by all of the Allies, the reality of what happened on and after D Day in June 1944, shows that the superior technology and seemingly infinite manpower and material resources which the USA deployed in supporting the ongoing invasion, were crucial to the liberation of Europe.
The end of World War II left the UK weakened by the war effort and also marked the beginning of the end of the British Empire, as subsequently, many former UK colonies started gaining their independence. The US and Russia emerged as the most powerful countries in the world, while the UK and France, effectively bankrupt, had to come to terms with becoming secondary powers.
However, the Labour government of Clement Attlee did not recognise this at the time. As Philip Stephens confirms, “Attlee, no less than Churchill, was a champion of British exceptionalism.”
The government’s chief economic advisor to Attlee’s government, John Maynard Keynes, had warned ministers in August 1945 that Britain’s world role was a burden which “there is no reasonable expectation of our being able to carry.” He pointed out that almost the entire British war effort had been facilitated by the US “Lend Lease” programme, which, if it ceased, would mean that the UK would have to withdraw from its overseas responsibilities. “Lend Lease” was, in fact, terminated shortly afterwards, by President Truman, but Keynes’s advice was ignored.
The “Marshall Aid” fund
Despite myths to the contrary, in 1947, Britain actually received the largest share of any European country from the USA’s four year European Recovery Programme, the “Marshall Aid” fund ($2.7 billion as against $1.7 billion for West Germany). However, despite the landmark achievements of Attlee and Bevan in relation to the establishment of the Welfare State and the National Health Service in the UK, the Marshall funds were largely used to give strategic and financial support to the “world power” role, including “defence spending” which was still around 7.7 % of GDP in 1951 (the last year of Marshall Aid) as opposed to investment in infrastructure and industry.
By contrast, Germany and other beneficiaries of the Marshall Fund would, in the 1950s, enter export markets with new plant and machines, and upgraded roads and railways.
The subsequent post-war history of the UK’s ambiguous relationship with the rest of Europe is well-known: De Gaulle’s vetoes under Macmillan, with the UK finally joining the EEC in 1973, thanks to Edward Heath’s persuasion of French President Pompidou. This was followed by Wilson’s 1975 referendum confirming the UK’s membership as the “safer option”, then culminating in the tragedy of the Brexit vote in 2016, promising more money for the NHS, and a new era of “Global Britain”, wooing voters to vote “Leave”.
Of course, in the Trump era, globalisation, as such, is no longer, as there has been a shift away from multilateral free trade towards protectionism, meaning the UK’s isolation makes it even more vulnerable to collateral damage. This has recently been illustrated by the threat of steel tariffs, by Trump’s USA, followed by the EU in retaliation. The EU’s tariffs would not apply to the UK if it was a member of either the EU or EEA (which includes Norway, Iceland and Lichtenstein) but it is not. It seems unlikely at present that the UK’s hope for “exceptionalism“ to be applied will materialise, as the UK industry is seen as a competitor to EU producers.
Which brings us back to the “Reset”. According to recent reports in the Financial Times and elsewhere, things are not going well. The UK wants:
(i) A Phyto-sanitary agreement to avoid checks on animal and plant products as of 10 November.
(ii) An alignment of energy prices for cheaper energy trading.
Despite the Labour government having better relations with the EU than its predecessors, most EU members believe that the UK should not regain any benefits of membership cost free, as this could set a precedent. Other “3rd countries” such as Norway (as mentioned above, a member of the EEA), and Switzerland (a member of the EU single market) pay into EU funds for such privileged access.
(iii) Participation in the EU’s E150bn SAFE defence loan scheme.
The EU also wants the UK to pay up to E6.5bn to participate in Security Access for Europe (SAFE) for joint defence projects. The deadline for the UK to participate in the EU SAFE contract bids is 30 November.
Another “ask” from the UK, is:
(iv) A youth mobility scheme for 18- to 30-year-olds to live and travel in the EU, based on a ”memorandum of understanding”, with a cap on numbers.
On this, EU member states want an unlimited scheme, with EU students paying the lower “home fees” for UK domestic students, which they want to be legally binding.
As the EU’s market is roughly 6 times greater than that of the UK, not surprisingly, the EU has the upper hand. The UK government has said: “We will only agree deals that provide value to the UK and UK industry.”
However, is that short-term or long-term thinking? Could it be echoes of “British exceptionalism” that the UK is claiming? Surely not.
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