Britain’s Opportunity Is Europe’s Warning
If the UK makes the most of Brexit, it will boost prosperity so much that the EU won’t be able to ignore the lessons of the Leave vote
Since the result of the UK referendum I have received numerous telephone calls and emails from friends and colleagues who are EU nationals, as well as from friends in America and Commonwealth countries, who are genuinely mystified at the result. They all took it as a given that I would vote Remain. The Leave vote has been seen by them as a vote for xenophobia and racism; demonstrative of a “little Englander” mentality, withdrawal from the world stage and a rejection of Europe by the UK. In my judgment nothing could be further from the truth. Let me explain why.
Even for those who campaigned and voted for Leave, the result of the recent UK referendum was a great shock. The referendum result was a response to a single question: “Do you wish to remain or to leave the European Union?” It did not fudge the issue and neither did the result: 48.1 per cent voted to Remain, 51.9 per cent voted to Leave. No post-Brexit planning had been done by either side, presumably because everyone thought Remain would win. A number of those who voted Remain called for an immediate second referendum refusing to accept the result.
The decision by the people of the UK to leave the EU is more far-reaching than the two great watersheds of postwar British politics: the Attlee government of 1945-51, which introduced a comprehensive welfare state, the National Health Service and nationalised whole sections of British industry; and the Thatcher government of 1979-90, which privatised state-owned industries, deregulated other areas of the economy, sold council houses to tenants and gave parents greater choice for their children, including new kinds of schools. The Attlee and Thatcher governments moved policies to different points on a well-defined spectrum. Voting to Leave, however, is an affirmation of our separate identity (and through devolution identities), not just through the growth of our democracy over centuries, but more importantly through a belief in self-government.
Any attempt to undo the result of the referendum will be seen as a betrayal of the democratic process and as disdain by the political establishment of those who voted to leave, because the former think they know far better than the latter. This was a vote of no confidence in the Platonic guardians. As Lord Lawson and others said in the two-day debate in the House of Lords on July 5-6, 2016, any attempt to undo the result will be political mayhem.
One reason I voted to leave is that the EU is not working. The euro as a common currency was set up because the euro-area was what economists judged to be an “optimal currency area”. For the original six members (France, Germany, Italy, Belgium, Holland, and Luxembourg) this made sense as one could easily imagine free movement of labour and capital across their borders just as with goods and services. Today the euro-area is made up of 19 countries including such geographically dispersed and different countries as Finland, Greece, Ireland, Malta and Slovenia. Unemployment is low in Germany (4 per cent), Austria (6 per cent) and Holland (6.5 per cent), but much higher in France (10 per cent), Italy (12 per cent), Portugal (12 per cent), Spain (20 per cent) and Greece (24 per cent). Unemployment in the UK, which is outside the Euro-area, is 5 per cent.
The euro was set up as a monetary union but without a banking union, a fiscal union or a political union. When countries do not have the ability to devalue or revalue their currency because of shocks to their economies, the whole adjustment process is placed on domestic fiscal policy and changes in the level of wages, both of which are difficult to achieve in democracies.
Not only is the euro not working: neither is the Schengen Area, which comprises the 26 countries who have abolished passport and other types of control at their mutual borders. As a result of the migration crisis and terrorist attacks in Paris, seven Schengen countries (Austria, Belgium, Denmark, France, Germany, Norway and Sweden) have reintroduced controls on some or all of their borders, with five Schengen states erecting fences to keep out migrants from other member states. The free movement of labour is one of the four founding freedoms of the EU along with freedom of goods, services and capital. Although the free movement of labour has not been revoked by the suspension of Schengen, the increased border controls needed to cope and the growing opposition to large-scale migration have led electorates to question the free movement of labour as a fundamental freedom of the EU.
A further aspect of the EU which is not working is the failure of traditional political parties to respond to the wishes of their electorates. Because of this there has been a growth in minority parties: AFD (Germany), Front National (France), Freedom Party (Austria) and others, some of which have very unattractive and extremely right-wing, even fascist elements.
The high unemployment in southern EU countries, the construction of fences by EU member states against other member states and the growth of minority political parties all suggest that the EU is not working. These failures are not the result of peculiar British obsessions but are inherent in an EU driven by the demands of ever closer union. As it stands, the EU is not a sustainable political entity and continued membership will involve the UK in endless, fruitless and fractious debates.
Because the EU is not working, it is in desperate need of reform. For most of the political leaders of the European Union and officials of the European Commission, the reform of the EU means “ever closer union” between EU member states. This would result in more fiscal powers over tax and expenditure transferred from individual member country governments to Brussels, a European finance minister being appointed and a European treasury set up, targets set for numbers of migrants for each member state by Brussels rather than by themselves, and the creation of a European army and a defence force, a proposal which was published by the German government in a paper conveniently released only after the UK referendum.
“Ever closer union” requires a little more explanation. The European project started in 1951 with the six founding member states setting up the European Coal and Steel Community (ECSC). Next came the Treaty of Rome of 1957 and the creation of the European Economic Community (EEC), then the Maastricht Treaty of 1993, which created the European Union. Through the European Communities Act of 1972 British courts are subject to the rulings of the European Court of Justice, based in Luxembourg. The Court is increasingly active and its decisions have an increasing impact on British life. The UK entered the EU in 1973 with the promise from our then Prime Minister, Edward Heath, that it would have no implications for our national sovereignty. As history has shown, this was patently untrue. The EU is a political project which seeks to create a transnational state with a government, parliament, currency, supreme court and a common foreign and defence policy. Jean Monnet, one of the founding fathers of the EU, said back in the late 1940s: “There will be no peace in Europe if the states rebuild themselves on the basis of national sovereignty.”
The key to “ever closer union” is the EU’s acquis communautaire. This refers to the body of European treaties, directives, regulations, legal decisions and judgments of the Court of Justice which have been made since 1958 and which take precedence over national laws. This must be accepted by all new member countries. No individual country has the right to pass a law which contradicts the acquis communautaire. Individual laws and regulations being made in Brussels expand the acquis communautaire.
The irony however is that the recently released Pew Attitudes Survey showed that “ever closer union” as the direction of EU reform is rejected by the citizens of France (60 per cent), Italy (65 per cent), Germany (68 per cent), and by even greater numbers in Holland (73 per cent), Sweden (85 per cent) and Greece (86 per cent).
The decision by the UK to leave the EU is a decision to regain the governance, lawmaking powers and control of our own affairs, especially immigration. The greatest example of the benefits to be had from controlling our own affairs is the fact that we retain our own currency, the pound sterling, and are not a member of the euro-area. This has allowed the pound to take some of the pressure when we have faced shocks such as the financial crisis of 2008. Another area which is not working for the UK is the Common Agricultural Policy (CAP). It is a high percentage of the EU budget, distorts trade, is one of the main areas of fraud in EU expenditures and overcompensates particular countries, particularly France. Some agricultural subsidies may be justified, but not the whole gamut which is the CAP.
It is because of the existence of the acquis communautaire that in order to regain control of our own affairs the 1972 European Communities Act, which makes UK law subordinate to EU law, needs to be repealed. There is a huge amount of detailed law and regulation which needs to be assessed. Some of it we will continue with, some of it we will scrap.
By asserting such control we will also be doing a favour to other EU countries. Increasingly over recent years Britain has been seen as a drag on further integration within the EU. We opted out of the Euro. We opted out of the Schengen agreement. Without us the EU can decide far more quickly to move in the direction which it wishes to travel. Any attempt to create a European army, navy and air force will meet with huge resistance from the UK. The peace of Europe since 1945 has been primarily due to the existence of Nato, not the EU.
Even though Theresa May campaigned for Remain, she has made it very clear that for her and her government Brexit means Brexit. Brexit was a decision by a voting majority of the British people to leave the European Union. The challenge now is to make a success of it. That is why she has created two new government departments and appointed three leading campaigners to key positions in her cabinet.
From press reports this view is likely to be challenged by several dozen members of the House of Lords who are discussing options to block, delay or revisit the referendum result possibly through a second referendum. Because of the passionate nature of so many speakers in the House of Lords debate, the attempt to block Brexit does not surprise me. As I listened to speeches by former permanent secretaries, Cabinet secretaries, Heads of the Civil Service and former Foreign Office officials, including ambassadors, I was reminded of my experience over five and a half years as Head of the Prime Minister’s Policy Unit in Number 10. I found senior civil servants extremely able, fair and open minded. There was little group-think except on one subject: Europe. Throughout my time I came across many officials who were frustrated by Brussels, but I never came across any senior official who ever contemplated seriously the UK leaving the EU.
It would be extremely unwise for an unelected body such as the House of Lords, the very epitome of the establishment, to be seen to block the Brexit result, especially given that the process which set the referendum up was a Conservative manifesto commitment and had been approved by Parliament. The House of Lords is a revising chamber. It can examine the details of Bills. It can even ask the House of Commons to think again. But on something as momentous as a referendum it has no legitimacy whatsoever to stand in the way of a democratic vote. If it did it would engender cynicism regarding our democracy and embolden the more extreme elements of both Left and Right to take direct action.
The Prime Minister is right to say that our priority now is to focus on making a success of Brexit rather than blocking it. As a consequence we need to negotiate an exit from the EU on the best terms we possibly can. This means new trade agreements, a level playing field for financial regulation and control over the scale of immigration.
On trade we need to develop the best negotiating team we can. New Zealand has already offered help because we are short of negotiators. Commonwealth countries such as Australia, Canada, New Zealand and India are open to agreements. Writing in the Wall Street Journal, Robert Zoellick, the former US trade negotiator, has suggested that the North American Free Trade Area (US, Canada, Mexico) should offer the UK associate status. France, Italy, Germany and Sweden export large quantities of manufactured goods to the UK and are eager for continuing access to our markets. There is no reason why this should not be matched by UK access to the single market for financial and other services. We are a big player in the single market and there is every reason to think we can negotiate a reasonable outcome. If we are excluded from the single market we will be able to strike new trade deals in the world’s growth markets of Asia Pacific, Latin America and the Middle East and with countries such as Indonesia, Mexico and the Philippines.
In any event we should recognise that the single market is highly protectionist. Professor Patrick Minford estimates that EU protectionism raises the prices of food and manufactured products by 20 per cent to UK consumers, amounting to an 8 per cent rise in their overall cost of living. According to him, the gain in GDP and living standards if we were to be outside the single market is 4 per cent, which has led him to propose that to save time and money this would be best realised if we simply withdrew from the EU and moved to unilateral free trade.
In view of the result of the referendum, the one issue we cannot duck is immigration. Continued immigration is essential for the British economy and for our public services. I do not believe the British public is racist but they are clearly concerned that we have no control over the number of immigrants entering the UK. Following the Leave vote it is essential to regain control over total numbers, as well as the freedom to admit the kind of economic migrants best suited to our economic needs. We also need a debate about the criteria for asylum, the problem of overstaying and the removal of illegal immigrants. Our present immigration system is under huge pressure and too open to abuse. We need to create a consensus on all these issues. To suggest that greater controls over immigration are impossible is an obvious starting negotiating position for the EU. To claim it is final is to rule out many possible trade-offs.
Quite apart from negotiating Brexit, we need a coherent economic strategy, which provides stability and reinvigorates our enterprise economy. The fiscal framework for this will be set by the Chancellor in his Autumn Statement. He may need to give some hints of the future path before then.
The Chancellor has already discarded the objective of a budget surplus by 2020. This creates an opportunity for lower taxes on companies, a reduction in VAT and increased infrastructure expenditure. Reaching the Irish rate for corporation tax of 12.5 per cent is attractive; reaching a 10 per cent rate would be even better. Top of the list for increased infrastructure spending is London’s third airport, the Trans-Pennine railway, greater investment in the major cities throughout the country, and a housebuilding programme ideally led by the private sector, but certainly also involving local authorities and housing associations.
There are short-term economic costs to Brexit with uncertainty leading to reduced consumer and investment spending. The government urgently needs to show business that it means business, because private industry will not wait for the timetables of political parties or legislative assemblies.
We also need to boost enterprise. As the entrepreneur Luke Johnson has said, “Planning, employment law, environmental and energy legislation — all should be rigorously simplified.”
It will take time to prove whether or not leaving the EU is successful. Both the Leave and Remain camps will be pushing their stories soon to show that it is either a success or a disaster. I believe it will take a minimum of five years and probably ten before a sensible judgment can be made.
The vote to leave touched a deep nerve in our society. It was a judgment by people about the way that British society has developed over the past few decades: the growing divide between the rich and the rest; between winners and losers from globalisation; the rapid change in our culture, which has left people confused and without a clear sense of identity; and about a sense that modern Britain has become a two-class society, with stagnant real incomes for lower-income earners, inadequate housing, high youth unemployment and millions of families without any ownership stake in our society. Brexit therefore is a social challenge for us all.
In this context, and most difficult of all, we need to set out how we can create a far more inclusive economy in which each family has a stake in our economic life. We need far more houses to be built across all tenures: private ownership, housing associations and local authorities. We also need far more people being able to buy their own homes. While 86 per cent of Britons would like to own their own home, at present only 62 per cent do so, the lowest level since 1985.
We need far more investment in training people for a digital world. We have 865,000 people between the ages of 16-24 who are Neets (not in education, employment or training). Apprenticeship schemes, technical education and raising standards throughout all schools are essential.
There are many challenges ahead in making the UK an even more dynamic and enterprising economy as well as a fairer society. The referendum has achieved Brexit, but it is also a wake-up call for all of us to face radical change in 21st-century capitalism.
The three major risks from Brexit are the short-term economic cost, possible exclusion from the single market and Scotland voting for independence so as to rejoin the EU.
Because of the uncertainty and time associated with negotiating new trade agreements, there are likely to be economic costs over the next 12-18 months, so that some reduction in growth is highly probable. In view of the fact that we are consuming more than we are producing by running a balance of payments deficit, a fall in the pound has been a necessary adjustment. Some of the fall may have had a speculative element but a significant devaluation was timely. Already post-Brexit UK stock markets have recovered.
In mid-August the Bank of England introduced a large stimulus package, by cutting interest rates, more quantitative easing, including buying corporate debt, and greater incentives for bank lending, in order to boost the economy and present a recession from developing. The Bank’s announcement reinforces confidence; but the potential for further monetary policy measures in times such as these is limited. Fiscal policy, too, is critical, even in the short term.
In the referendum vote Scotland voted by 62 per cent to 38 per cent to Remain, which raised once again the issue of independence for Scotland. However, the reception Nicola Sturgeon, the Scottish First Minister, was given in Brussels following the referendum made it clear that France and Spain would raise objections to Scotland being admitted to the EU, because of the pressure they face from separatist movements by Basques and Catalans. Scotland would also lose the considerable net fiscal transfer which it receives from Westminster. This is linked to a low and volatile oil price and makes it uncertain whether a vote for independence would in any event be successful. The latest YouGov opinion poll (conducted following the Brexit vote) suggests 53 per cent of Scottish voters oppose independence compared to 47 per cent who support it — a similar margin to the 2014 Scottish referendum. In the short term, at least, Brexit has not helped the cause of Scottish independence.
One important point is that there should be no risks for the 3 million or so EU nationals who had already settled in the UK before June 23, the day of the referendum vote. It’s quite outrageous that the government has not already made a clear commitment on the issues. These people should never be thought of as bargaining chips in the negotiations.
The founders of the European movement — Konrad Adenauer, Jean Monnet, Alcide de Gasperi and Robert Schuman — had a Christian conviction which underlay their politics. They were predominantly Catholic and their vision of Europe was based on Catholic social teaching, namely, the dignity of each human person, the pursuit of the common good and the principles of subsidiarity and solidarity.
On November 5, 1990, Jacques Delors, three times president of the European Commission, the driving force for the creation of the euro and a practising Roman Catholic, made an appeal for the European Community to become a “real community” — not just a market but something which required a new “sense of belonging”, a European affectio societatis. We need, he said, the EU to possess “a heart and soul”. Just a year later he predicted that Europe could not succeed on the basis of legal expertise and know-how alone, adding: “If in the next ten years we haven’t managed to give a soul to Europe, to give it spirituality and meaning, the game will be up . . . Today’s Europe lacks a heart and soul.”
This same theme was elaborated in May by Pope Francis in his acceptance speech of the Charlemagne prize, which was presented by the Presidents of the European Council, the European Parliament and the European Commission for an exceptional contribution to European community. In it he lamented the fact that the ideals of the founding fathers (he quoted from Adenauer, de Gasperi and Schuman) have been lost and that the desire for unity in the EU seems to be fading as people put self-interest above building a common home. He called for “a new European humanism” and made a passionate appeal with a series of “I have a dream . . .” refrains. However, the fact is that no European demos along these lines has so far emerged. It was because the European Union has not been able to find a collective identity at a spiritual and national level that in the end the Remain campaign was unable to make an appeal to Britain except on the basis of fear and scaremongering.
A vote for Brexit is not a vote of no-confidence in Europe. I am proud of my European heritage and voted in the 1975 referendum to remain in the EEC. It is, however, a vote of no confidence in the EU becoming a transnational superstate. For me, Brexit is a platform for the revitalisation of the British economy and the implementation of policies to move us to a fairer society.
Jacques Delors’s observation that the EU does not have “a heart and a soul” reflects the current reality. I doubt if the EU ever will. The heart and soul of Europe is to be found in the histories, languages and cultures of different European countries and regions, not in concentrating more powers in the institutions of Brussels or in the artificial creation of a new flag, anthem and Europe Day.
Brexit may open up other possibilities, namely a recognition that Europe as a spiritual heritage is not dependent on political unity any more than the heritage of Western culture requires that all Western countries from France to Canada to New Zealand need to be members in the same political entity.
If the ideals of the founders of the European movement are to be realised, the EU must take a step back. It should become an organisation which facilitates the “willing and active cooperation between independent sovereign states”. Containing nationalism is a worthy objective. Suppressing nationhood is damaging and counterproductive.
Three areas of reform are crucial for the EU.
One is the euro. Germany is the anchor state of the euro. Germany, France, Austria, the Netherlands, Belgium, Luxembourg and Denmark look like an optimal currency area in that one can easily imagine free movement of people, goods, services and capital between these countries. Other EU countries should have the freedom to reestablish their currencies and if they wish peg them to the euro (as happened in the Bretton Woods system, from 1945 to 1973), so that under the rules they draw up together they are able to revalue and devalue their currencies when in disequilibrium. In any event, because of the problems of countries within the euro area which run fiscal and balance of payments deficits, the German electorate will not continue footing the bill to bail these countries out.
The EU at present is a protected customs union. It must retreat from its protectionism in agriculture and services and become a genuine free trade area. Europe must show to the world that it is open for business. At present EU member states have regained control of their borders in a highly unsatisfactory way. The process whereby they do so should be formalised, with free movement remaining an ideal, but subject to appropriate controls to meet local circumstances.
In short, Brexit could prove to be the catalyst for a renewed Britain and a renewed Europe. The task is immense. We cannot determine Europe’s future but we can our own. In the four countries which comprise the United Kingdom we need to regain the self-belief that we can strike out on our own in a globalised world, building trade links throughout the world and revitalising our own enterprise economy, which in turn will provide a basis for a fairer and more equitable society.
I firmly believe we can succeed, which is why I voted to leave the European Union.