January 12, 2018
No, there won't be a second referendum
Nigel Farage has a talent for getting onto the front pages of newspapers. The latest instance is for his support of a second referendum, but this is absurd on so many levels that it is hardly worth discussing. So were the reactions from some of those who have been campaigning for it, and who now believe that they are within striking distance of a Brexit revocation.
In theory, almost everything is possible in politics. But you would have to be a foolhardy gambler to bet on such an outcome. Theresa May is still in office and, while nobody really seems to be impressed with her, the Conservative Party is too gridlocked to replace her. And the last thing the Tories want is another referendum that would expose their internal divisions. Even those Tory rebels who recently gained parliamentary support for an amendment to the Brexit act would not go as far as to ditch May. It would result in unbelievably messy situation for the party.
This is also why we think the proposal by the otherwise impressive Anand Menon in favour of an extension of the Article 50 deadline is not going to fly. He notes, quite rightly, that there is still a lot of work to be done even on issues on which there now exists a political agreement in principle, let alone on the transition and the future trading relationship. The best course of action would be to allow more time, not to frustrate Brexit but to make it work, he argues. We share the sentiment, but the problem is that an extension of the Article 50 deadline will prolong uncertainty over Brexit itself. For as long as the UK is a full member of the EU, the UK will be in a position to pull the plug on Brexit. The main reason to stick to the March 2019 deadline is to get that uncertainty out of the way.
A far more likely course of events was sketched by the FT this morning. It quoted an internal discussion in the Coreper, the assembled EU ambassadors of member states, where some members voiced support for a renewal of the transition period. This is an important subject because, without the possibility of renewal, a cliff-edge Brexit is still possible if there is no prior agreement on the provisional application of a trade deal. There is also the consideration that a permanent renewal of the transitional period could be construed as a quasi trade-agreement, and this would constitute an abuse of the Article 50 process which only allows for a time-limited transition towards a future trade deal. Art 50 is silent on how long the transition can last, however.
Hungary and Ireland raised the idea of an extension clause, but this was strongly opposed by France and Germany, the FT writes. The ambassadors did, in the end, not agree to recommend a change in the negotiating mandate.
Apart from those who support an extension clause right now, and those who object to it on categorical grounds, there is a group of countries that wants to deal with the situation only when it arises. That group of countries includes the UK itself. We think therefore that the transition is essentially a done deal.
The main outstanding issue is the future trade deal. Art 50 suggests that it should be outlined in the withdrawal agreement, but gives no clues as to the level of detail. We suspect that it will only underline a commitment to an association agreement, covering trade and areas of bilateral cooperation. We don't think, for example, that it will tell us whether financial services or other services will have continued market access. That is for later.
Philip Collins reminds us in his Times column just how important the City of London continues to be the country at large. He refers to the impact assessment of the Mayor of London, which warned of the loss of half a million jobs by 2030 in the event of a cliff-edge Brexit. Collins makes a broader point: the forecasts themselves are not what matters, but the report contains an important truth that is independent of the accuracy of the forecast itself. Even ten years after the financial crisis the country remains dependent on London and the revenues that flow from it. London and the southeast of England are the only regions that generate a revenue surplus. The rest of the country is subsidised by London. London alone accounts for a quarter of the entire income tax paid in the UK, three times the size of the income taxes paid in Scotland, and more than the northeast, the northwest, and Yorkshire and Humber, combined.