Like a shot of adrenalin straight to the chest, Boris Johnson’s spectacular election victory promises to reawaken an economy becalmed by Brexit and political uncertainty. But beware the comedown as the effect wears off.
For most internationally facing companies, it has always been difficult to see much, if any, economic upside in Brexit, and plenty of potential for downside. The outcome of last week’s election nonetheless came as a huge relief to business leaders, for given the choice between Corbyn and Brexit, it was always abundantly clear where the real danger lay.
This was never a devil and the deep blue sea alternative. It was much starker; certain economic catastrophe versus the unknowable but relatively less impactful consequences of redefining Britain’s trading relationship with Europe. It was indeed not Brexit and Boris Johnson wot won it, but Corbyn who won it for them. In this sense, the outcome of the election is an artificial one, based more on Labour’s unelectability than Johnson’s agenda.
Overnight, international perceptions of Britain have been transformed. Previously regarded as potentially one of the most unstable of the major advanced economies in Europe, the UK can now reasonably lay claim to being the most stable, and overall business friendly, of the lot. A clear and present danger has been removed and a high degree of political certainty has returned. That’s bound to be good for investment.
The sustainability of the Boris Bounce is, however, vitally dependent on maintaining cordial relations with Europe, accounting for some 65 per cent of all the UK’s international trade once EU negotiated free trade deals with the rest of the world are taken into account.
That’s question number one. How many risks with the economy is Mr Johnson prepared to take? Might he rip the economy out of Europe in one go, with potentially damaging consequences, or does he plan largely to abide by its rules and customs arrangements, even though we’ll have little say in their construction? It’s always been the economic dilemma at the heart of Brexit, and now it is about to be crystallised. Without freedom to decouple and diverge, there isn’t a lot of point in leaving the EU. Yet large numbers of jobs and businesses are built around continued integration.
Question number two is related. One of the great revelations of this election is that there is a forgotten world of hinterland Britain outside London. Who knew? The discovery of a foreign country in their own backyard has been as much a shock to metropolitan types as the Brexit vote itself. The Labour heartlands have turned Tory, and the Conservative Party must now respond to their needs. These formerly Labour voters may be socially conservative and pro-Brexit, but it doesn’t mean they are also raging Thatcherites, keen to see the final stages of the Iron Lady’s free market revolution pushed to its logical, flat tax, low welfare, small state conclusions. Indeed, Johnson has assured them it won’t be.
Many of these constituencies, moreover, were won on wafer-thin majorities. It wouldn’t take much to turn them red again. Johnson cannot afford to disappoint.
He must have a clear strategy for answering their concerns and improving their economic lot. Investment in roads, rail and free ports will not in itself do the trick.
Though the landslide nature of the result harks back to some of Thatcher’s election victories, it is in fact quite different. The intrusion into Labour heartlands puts the Prime Minister much more in hock to collectivist approaches to government than the individualistic, “there is no such thing as society”, instincts of the Thatcher era. In this sense, Conservatism has come full circle. Free-market purists may be as disappointed with the world they are waking up to as diehard remainers.
Most important of all, he must re-engage with business – which may involve a grown-up deal with the Europeans that keeps us closely aligned
But nor can the Government, in answering the demands of Northern constituencies, afford to neglect Remain-voting London and the South East, which as things stand basically bankroll the rest of the country. It’s a tax dynamo which the Government offends at its peril.
The size of the majority, together with a largely non-committal manifesto, gives Mr Johnson a clean canvas on which to paint. What he will choose to do with it is at this stage is anyone’s guess, though personally I would be a bit careful with the prevailing City view that we can now expect a softish, pragmatic Brexit, in which the UK remains closely aligned with our neighbours in the EU. This may be more a case of wishful thinking among business and City elites than informed view.
The things the Prime Minister has definitely committed to – no extension to the transition, independent free trade deals around the globe, a points based immigration system, and a much more interventionist approach to industry – may well be incompatible with such an approach.
There are a number of voices around Mr Johnson who think it more important first to reach a trade deal with the US than Europe, and urge him to prioritise that aim. That would not be a wise choice, though there may admittedly be something to be gained by playing one off against the other. Economies take time to adjust. There would be plenty of medium term, collateral damage in an abrupt switcheroo, a significant proportion of it in “Red Wall” seats. Creating new opportunities in the US is all well and good, but the Government won’t be thanked if in the process it has let the bulk of the UK’s car and aerospace industries go. Johnson must find a way of tiptoeing his way between the EU leviathan on the one hand and a rapacious US on the other.
Most important of all, he must re-engage with business – which may indeed involve extending the transition and striking a grown-up deal with the Europeans that keeps us closely aligned. There is much talk of Singapore-on-Thames, but the lesson to be drawn from this hyper-successful former colony is not so much its low-tax, small-state model as, counter intuitively, its very high levels of state intervention and government partnership with business.
Worthwhile incentives for targeted investment and training urgently need to be introduced, while business in general needs to be force marched into recognising its obligations to society at large and local communities in particular. A good starting point would be the £3bn a year apprenticeship levy, which has been shamefully misdirected and abused but would only require relatively minor tweaks to make it work as it was supposed to. Climate change, meanwhile, provides unparalleled scope for reinvigorating the regions by putting them centre stage in the required energy transition.
Johnson has been gifted an amazing opportunity to make the economy work for everyone. My worry is that there is, as yet, not much evidence of a coherent plan for doing so.
Please don’t blow it.
The Telegraph, London.
Source: Thanks smh.com