Lord Hannan of Kingsclere is a Conservative peer, writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.
Brexit, on its own, does not add or subtract a farthing from our national wealth. All it does is remove constraints, allowing us to make different choices. Those choices will determine our success. We can opt for the formula that always guarantees growth – lighter regulation, freer trade, lower, flatter and simpler taxes – or we can go the other way, rewarding politically-connected industries and giving into demands for higher spending.
A year has passed since the EU’s transition period came to an end, giving us the freedom to make these choices. Now seems as useful a time as any to assess which way we are going.
We should first note that 2021 was a worse year than almost anyone expected when it began. Remember the relief with which we greeted the end of 2020. After nine months of intermittent lockdowns, we finally had vaccines and with them, it seemed, a clear way out of the crisis. But a new lockdown was decreed on January 4 – supposedly until mid-February although, in the event, parts of it were left in place until July. So we should not infer too much from an atypical year. None the less, we can make a tentative early reckoning.
Some of the positives were listed by Boris Johnson last week:
“We’ve replaced free movement with a points-based immigration system. We’ve secured the fastest vaccine rollout anywhere in Europe last year by avoiding sluggish EU processes. And from Singapore to Switzerland, we’ve negotiated ambitious free trade deals to boost jobs and investment here at home. But that’s not all. From simplifying the EU’s mind-bogglingly complex beer and wine duties to proudly restoring the crown stamp on to the side of pint glasses, we’re cutting back on EU red tape and bureaucracy and restoring common sense to our rulebook.”
He’s plainly right about the vaccination programme. Had we still been in the EU, we would never have opted out of the cumbersome collective purchasing scheme which, let’s remember, almost every British Europhile clamoured to join.
As for trade, there have been gains, but they have so far been stunted. A combination of bureaucratic inertia, rent-seeking and general protectionism has limited our ambition – even with as close an ally as Australia. The resistance to free movement of labour, for example, was wholly on the British side, as was the foot-dragging on cheaper food.
Free-trade is counter-intuitive, running up against our hunter-gatherer instinct for self-sufficiency. Even so, ministers have so far not been radical enough. We need to think like New Zealanders, eliminating barriers regardless of lobbying by vested interests. We need to understand that unrestricted imports make our industries more efficient. We need to remember that “cheap” is not a dirty word: giving our consumers more spending power is what drives our economy.
The PM gets all this, at least in theory. Two years ago, in Greenwich, he offered the strongest and most eloquent defence of free trade yet put forward by a head of government. Invoking Adam Smith and David Ricardo and Richard Cobden, he went on to diagnose where the world was going wrong:
“The mercantilists are everywhere, the protectionists are gaining ground. From Brussels to China to Washington tariffs are being waved around like cudgels even in debates on foreign policy where frankly they have no place; and there is an ever-growing proliferation of non-tariff barriers and the resulting tensions are letting the air out of the tyres of the world economy.”
What was the solution? Why, for Britain to resume her historic role:
“There lies the port, the vessel puffs her sail, the wind sits in the mast. We are embarked now on a great voyage, a project that no one thought in the international community that this country would have the guts to undertake. But we commit to the logic of our mission: open, outward-looking, generous, welcoming, championing global free trade now when global free trade needs a global champion.”
Good stuff, no? Yet, in the very first test case – whether to retain the steel tariffs that the EU had imposed in retaliation against Donald Trump – Downing Street overruled the Trade Remedies Authority and kept the levies in place, largely so that a handful Conservative MPs could boast about standing up for local producers. We have thus sent a message to every politically-connected industry: if you want special favours at the expense of the general population, the door of Number 10 is open.
When it comes to deregulation, too, the rhetoric has been ahead of the reality. The Government was very warm in its language when, in June, Iain Duncan Smith, Theresa Villiers and George Freeman produced a well thought-out and serious plan to remove some of the more needless and expensive EU rules. And, to be fair, it has made some positive changes beyond those listed by the PM: restoring pint bottles of champagne, scrapping the tampon tax and so on.
But the most burdensome EU regulations have so far been left in place: the Clinical Trials Directive, the Ports Services Regulation, the Temporary Workers’ Directive, the End of Life Vehicles Directive, the droit de suite rules, the Alternative Investment Fund Managers Directive, MiFID II, the bonus cap.
Repeal is always difficult once an industry has had to assimilate compliance costs. Established actors don’t want new entrants avoiding those costs, and so become advocates for measures they originally opposed. For example, 15 years ago, the entire chemical sector was opposed to the EU’s REACH Directive, which replaced a risk-based approach to importing chemicals with a pricey and prescriptive list system.
Now, having gone through the hassle of implementing it, the industry wants to keep it. It is difficult, in such circumstances, for a minister to say, “I understand your position, but I have a responsibility to start-ups, innovators and, above all, consumers”. And so, again and again, we have taken the line of least resistance and left things as they are – or worse, as in the case of REACH, expensively recreated our own version of the EU’s regime.
For all these reasons, it is often easier to let regulations wither on the vine than to hack them back. Over time, many regulations cease to be relevant. Who cares, these days, what the rules are for fax machines or word processors? Britain could, in theory, acquire a cumulative competitive advantage simply by not adopting the new regulations that the EU does.
Again, though, this requires a conscious effort. If, for example, we decree unusually cumbersome carbon taxes, we shall fall behind more pragmatic countries.
Brexit could mean cheaper energy: we could cut prices by disapplying some EU rules or, if that is too much, by regulating more lightly in future. But we are choosing to do the opposite.
Brexit could mean cheaper food. Outside the Common Agricultural Policy, we could remove tariffs, quotas and other barriers. But we seem reluctant to do so.
Inflation is taking off, but we are not pulling any of the levers that might mitigate it. Instead of cutting taxes, and so giving people more disposable income, we are raising National Insurance, squeezing household budgets further.
Yes, a lot of this has to do with the epidemic – not just in the immediate sense that we are half a trillion pounds worse off, but in the wider sense that the crisis has made voters more illiberal and statist.
Has Covid-19 killed our appetite for reform entirely? We’ll know soon enough. The Government seems to have decided to try to keep things open rather than paying people to stay at home. The PM’s could now make some of the reforms arrested by the pandemic. If he doesn’t, we must conclude that he never will.