Garvan Walshe is a former national and international security policy adviser to the Conservative Party.
It’s a year since the entry into force of the “Trade and Cooperation Agreement” between the UK and the EU, in which the Government chose one of the most decisive forms of Brexit, with Great Britain leaving the Single Market and Customs Union. And the UK declining to participate as associates in Europol, the Erasmus programme, and the European Defence Agency.
The Government took the view that the terms offered weren’t good enough to satisfy the grievances of those who votedLleave in 2016, and nor, indeed are the terms of the deal it itself negotiated: that’s why it is trying to revise the Northern Ireland Protocol.
But it is now five and a half years since the referendum vote, and even Leave voters are tiring of this approach, with only 48 per cent endorsing the government’s handling. Its time would be better spent making the most of the situation they have crated, instead oftrying to fine-tune the Brexit deal further. Two areas are in particular need of attention.
First, Brexit entails a restructuring of the British economy: the Government needs to focus on maximising economic advantage, rather than seeking to address the grievances that led to Brexit.
And second, now that the UK has left the EU, it needs to exploit its diplomatic relationship with a still reasonably friendly bloc to its maximum, rather than re-fighting the Brexit negotiations.
Economically, new barriers to trade in goods and services have been erected, and the net loss is projected to amount to four per cent of GDP each year in the long run.
Making good this annual loss requires dramatic improvements to productivity. Long term economic growth depends on equipping people with the skills for tomorrow’s economy. This cannot be achieved by policies to improve the conditions for people who lack those skills and are unlikely to acquire them, or be in parts of the country where they could take advantage of them even if they did. Rather, levelling up will only be affordable if productivity can be enhanced elsewhere.
As Richard Baldwin argues in The Great Convergence, modern industrial goods are manufactured in three main geographically concentrated clusters: south-east Asia, North America, and continental Europe. Leaving the EU’s Customs Union is a decision to uncouple the UK from pan-European supply chains.
Leaving the EU has also made it harder to access customers there, limiting Britain’s access to the high-earning part of the European value chain. This leaves two possibilities for profit, increasing access to other parts of the world, and taking new steps in design and invention.
Trade deals alone cannot make up the loss of leaving the EU, because trade is inversely proportional to distance, and the rest of the world is far further away than Europe, but ways of reducing other aspects of what trade economists call “trade resistance” can.
Having cut itself out of the only manufacturing cluster within reach, the UK has to rely on its dominant service sectors. Differences in regulations impede service sector trade, and this is hard to reduce without the sort of enforceable agreements to harmonise them that this Government considers an infringement of sovereignty.
This leaves travel costs and cultural difference. Travel to Europe apart, costs are largely a matter of airport infrastructure and, in the medium term, decarbonising air travel. Reducing cultural difference means persuading more British people to learn languages and about other cultures.
Another aspect of services is people. If more aviation and languages boost service sales abroad, effective immigration policy can boost their creation at home, with the proceeds (because immigration is in virtually any circumstance economically beneficial) being used to build up domestic human capital too.
As David Willets has argued, we should build more universities in places that lack them, so that more young people can participate in the international service economy. All this will better equip the UK economy to thrive outside the EU’s trade structures.
When it comes to relations with the EU itself, the Government should start with an accurate understanding of the organisation it left. The EU is not merely an association of member states, but has acquired some of the powers and apprutenances of a state. That is why British voters wanted to leave, after all.
Yet the Hovernment persists in focusing on bilateral realtionships at the expense of that with the Commission. Even when it does not descend into the absurdity of Lord Frost refusing to call the EU by its name, this fails to recognise the reality of the Commission’s power in trade and economic policy, let alone the fact that the countries still in the EU have decided to pool their powers in Brussels.
So rather than wishing the Commission away, the government needs to seek out a real, mutually beneficial, relationship with it, in areas like research, and security and defence policy, even if closer trade policy is currently off the agenda.
Anti-Brexit opinion, which is concentrated among the young, has consolidated, rather than faded with time. Though it will take some time to work through, the weight of that opinion will eventually be felt, and take Britain back towards a closer relationship with the EU. If the Government wants its Brexit legacy to stand, it had better start thinking how to make it work.