Contradictions have emerged within the Tory party between their ‘Global Britain’ free trade agenda and their pledge to ‘level up’ the country and to end the inequalities which emerged under globalisation
This is the second part in SPERI’s new series on Brexit, the Conservative Majority and the UK Political Economy
The Johnson Government flush with electoral success presents itself as a new Government with a radical new agenda, as though some other party had been in Government for the last ten years. This agenda has two main strands which on the face of it are contradictory. The first is the pledge to make Britain ‘Global Britain’ once more, freed from the shackles of the EU. The second is Britain First, the pledge to level up and rebalance the economy, shrinking the inequalities which emerged so starkly as a consequence of the ‘Global Britain’ policies pursued by the Thatcher Government in the 1980s. It seeks to consolidate Conservative support in the seats won in Labour’s Red Wall.
The Global Britain agenda implies radical divergence from the EU, as the Chancellor confirmed in his Financial Times interview on January 18th. The UK he said must not be a passive rule taker, so could not belong to either the single market or the customs union. It must have the freedom to pursue trade deals with non-EU states, signalling the end of frictionless trade with the EU, creating a difficult period of adjustment. There will be winners and losers and in the short term the economy will be smaller than it would otherwise have been. But in the longer run the economy could be larger and more dynamic if looser regulation and taxes particularly in new emerging sectors stimulates higher rates of economic growth.
How serious is the Government about pursuing this agenda? The first test will be the trade agreement. The Government has imposed an artificial deadline, the end of 2020 for getting an agreement. In practice this only gives six or seven months for negotiation. If agreement cannot be reached there could be a severe economic shock, forcing the disruption of many supply chains and a radical restructuring of the British economy. Those sectors of the UK economy which are highly dependent on trade with the EU will go under, shrink or be forced to diversify into other markets. New sectors such as AI will emerge. Such an economic shock is what some supporters of a No-Deal Brexit have always wanted, believing that as in 1979 what the British economy requires is the breakup of a particular model of the economy. It is still a big risk for any government to take knowingly.
The Government has to hope that any losses will not be too big in the short run, that a new wave of enterprise and innovation is unleashed, and that trade deals with major non-EU markets can be negotiated swiftly. That is quite a lot to hope for. A second possibility is that the Government gets cold feet and finds a way to retreat from its hard-line rhetoric, as it did over the withdrawal agreement itself, suddenly finding it acceptable to put a border in the Irish sea. In the case of the trade agreement it will mean that the Government in practice is forced to accept the need to stick as closely as possible to EU rules. It will conclude a barebones trade agreement so as not to break its pledge to be formally free of the EU at the end of 2020, but in practice many contentious issues will be reserved for resolution after that date, and will result in a series of side deals to preserve the status quo. They will be presented as Global Britain exercising its sovereignty. Such a trade agreement will still be costly for the British economy and less optimal than current arrangements but the costs will be more manageable.
Which of these two possibilities is more likely depends on the trade-off the new Government makes between its vision for a more competitive and open Global Britain and its vision for Britain First, which levels up opportunities and resources for all its citizens. The towns and regions which have suffered cumulative disadvantage in the last forty years are unlikely to be the cutting edge of Global Britain. What they want is not more globalisation but less. They want economic security, infrastructure investment, better public services, and much less immigration. Global Britain embraces free trade, a minimal state, and a capitalism which is more dynamic, open, cosmopolitan and inegalitarian. Britain First embraces protectionism, an interventionist state and a capitalism which is more risk-averse, closed, communitarian and egalitarian.
It is obvious that the Johnson Government cannot deliver both free trade and protection, lower taxation and better public services, higher economic growth and a big reduction in immigration. Showing itself more protectionist in some areas and more free trade in others it will look for compromises which work politically. There will be a lot of pork barrel politics in this new era. New bus services and reopened train lines will mushroom in northern constituencies which voted Conservative, along with new initiatives on skills and new subsidies for regional investment, bypassing existing Treasury rules. But the government will also know that its Blue Wall supporters in the South and in the shires are expecting cuts in income tax, capital gains tax and inheritance tax, and it has to deliver those as well.
Making this add up fiscally will be no mean task. No wonder that Sajid Javid says he wants to boost the trend rate of growth of the economy back to 2 to 2.5 per cent. The Bank of England calculates that the present trend rate of growth is nearer 1 to 1.5 per cent. At the moment the economy is hardly growing at all. Not good enough for a Government with such ambitious plans and contradictory aims. The question it will have to confront when the euphoria of its election victory fades, as it will, is why would any Government knowingly weaken existing profitable sectors such as cars and aerospace before new sectors have emerged to fill their place? The UK is not a continental sized economy. Since the middle of the nineteenth century it has been dependent on trade. Global Britain does not seek to abandon the Anglo-liberal model which has shaped British development for so long but to entrench it still further.
Will this Government when the going gets rough be committed enough and clear-sighted enough to follow that vision through, and if it does will it risk losing parts of its new electoral coalition, disappointed at the slow progress in levelling up the country? New Labour increased government spending by record amounts, aided for ten years by a growing economy and full participation in the EU. Yet its attempts to rebalance the economy, reduce inequality and level up the country made only slow progress. After a decade of austerity and cutbacks the scale of resources and commitment now required is that much greater. Will the Johnson Government find those resources and does it have that commitment? The decisions it makes in the next few years will reflect the trade-off between the Government’s Global Britain priorities and its Britain First priorities, and how those play with the different elements of its parliamentary and electoral coalition. They will determine whether the Johnson Government is any different from the Conservative Governments of the last ten years.