HOW IS BREXIT likely to impact on the political fortunes of the May government? What opportunities or indeed pitfalls face the Conservative Party as it attempts to negotiate Britain’s exit from the European Union? Bearing in mind the current travails of the Labour Party, such a question might appear almost redundant. It could be asserted (only half-jokingly) that it does not matter what the May government does in office post-2017 general election such are the dynamics of the British political landscape and arithmetic of a bigger parliamentary majority. Be that as it may, this chapter argues that Brexit poses challenges to the future of Conservative Party statecraft. Because of constraints of space, the focus here is on political economy. The party is in danger of forgetting the significance of the EU (especially the Single Market programme) for helping to manage a range of difficult governing problems in the area of economic policy. This chapter begins by describing these governing advantages, before suggesting that some of these problems may already be returning to the political agenda as Theresa May prepares to begin negotiations with the EU following the triggering of Article 50.
Despite Britain’s growing semi-detachment from its continental European partners, membership of the EU has always conferred certain governing advantages on Conservative leaders. In the 1980s in particular, the project to complete the single market helped to legitimate the Thatcher government’s free market supply-side strategy that had generated so much controversy. As negotiations began to implement what would become known as the ‘1992’ programme, the British economy had just gone through a sustained recession, had witnessed the closure of a number of businesses, experienced mass unemployment, not to mention industrial unrest and inner-city riots. In this context, ministers began to claim that completion of the single market would eliminate non-tariff barriers to trade, help to reduce costs and prices, and trigger a competitive shock to the economy. Greater competition would encourage technical innovation, increases in productivity, growth and employment (HMG, 1984). Research by the European Commission estimated this initiative would boost EU GDP by 4.5 per cent, plus help to create 1.8 million new jobs in the medium term (Emmerson et al, 1988). It is true that the precise details of this argument probably eluded much of the electorate at this time. But it did provide the Conservatives with a more positive narrative to deploy in the party political arena. In doing so, a direct link was made between the fortunes of British exporters in European markets and the performance of the British economy (Howe, 1988; 1994: 445).
However, membership of the single market offered an additional, less articulated governing benefit after 1979. Faced with widespread criticism of its neo-liberal ideas, it helped Conservative leaders to resist calls for a return to the discretionary and interventionist policies of the 1960s and 1970s. According to such arguments, the best way to reverse deindustrialisation and reduce large-scale joblessness in Britain was through public ownership of key strategic industries, trade barriers, economic planning and prices and incomes agreements. The problem for the Conservatives was that this governing style necessitated direct and continual contact between ministers, business groups and trade unions if it was to be successfully implemented. Thatcher and her advisers worried that such an approach would politicise economic policy, especially after the experience of the Heath government in the 1970s. As a stakeholder in this interventionist and discretionary strategy, the Conservative Party would be held responsible for the outcomes and would be blamed if results were not forthcoming (Lawson, 1992; Thatcher, 1993: 93; 1995: 223-30). The beauty of the single market programme was that it placed the burden of culpability on businesses and workers to improve the British economy by taking the opportunities at the EU-level created for them by Conservative politicians. At the same time, as the single market became a part of the EU law, policies like import controls, restrictions on capital movements or state aid to declining industries would be illegal, thus further entrenching this market supply-side strategy.
Another reason why the single market project legitimised the neo-liberal economic policy of the Thatcher government was because it helped ministers to rebuild relations with the business community. As bankruptcies and factory closures accelerated in the first half of the 1980s, many industrialists protested at what they saw as the Conservative’s wilful neglect of manufacturing industry. The president of the Confederation of British Industry threatened a bare-knuckled fight with the government, while 364 economists organised a letter to The Times calling for a Keynesian reflation of the economy, as well as specific measures to aid the high number of jobless. Promises to push for the completion of the Single Market struck a chord with business, who had been lobbying for similar action for years (Buller, 2000: 82-83). Never mind that it was the City of London that was most likely to gain from this policy development because Britain’s financial services sector was the most competitive in Europe.
Finally, the single market project helped to sooth nerves within the Conservative parliamentary party at this time. During the first Thatcher government, it was widely acknowledged that the majority of Conservative MPS were ambivalent, if not genuinely concerned, about the wisdom of monetarism as an economic doctrine. As the adverse effects of monetarism on British industry became more visible, many on the left of the party also began to argue for a return to the Keynesian ideas associated with the post-war period. However, it needs to be remembered that those on the left of the party tended to be the most pro-European. Promotion of the single market was something that not only appealed to the neo-liberal instincts of Thatcherites, it chimed with the communautaire sympathies of the ‘wets’. The single market initiative had the further benefit of easing tensions between Number Ten and the Foreign Office. The latter in particular had become uncomfortable with the aggressive diplomatic approach that Thatcher had employed throughout the negotiations leading to resolution of the British budgetary question (ibid. 80-86).
If EU membership helped to legitimise the neo-liberal economic policies of successive Conservative (and Labour?) governments since the 1980s, might Brexit pose a challenge to this statecraft? Such an assertion appears incredible, especially when neo-liberal ideals have remained dominant despite the global financial crisis (2007–8). The May government has constantly stressed that Brexit does not mean the UK is turning inward; Britain’s future economic prosperity remains heavily dependent on exporters being able to take advantage of new trading opportunities (May, 2017). May herself is hoping to negotiate a ‘bespoke’ deal with the EU 27, allowing certain sectors of the British economy to retain tariff free access to the customs union, perhaps in return for continued payments into the EU budget. However, there are no guarantees that this diplomatic strategy will be successful. Ivan Rodgers (former British ambassador to the EU) believes Angela Merkel will rule out such a sector-by-sector approach (Mance, 2017). If such a rejection takes place and Britain falls back on World Trade Organisation (WTO) rules, it could take years before Whitehall is in a position to conclude bi-lateral trade agreements. Even when this happens, a ‘hard Brexit’ is likely to reduce the UK’s attractiveness as a trading partner, as it no longer provides a ‘backdoor’ into the single market.
If ministers struggle to secure favourable trade deals over the next few years, they may start to come under pressure to adopt a more interventionist and discretionary approach to domestic economic management. Forecasts continue to predict that Brexit will eventually result in a slow-down in economic growth. In this event, the impulse to step in and support certain industries (viewed as ‘special cases’) may prove difficult to resist, especially if such a downturn is accompanied by capital flight. Indeed, it could be argued that such pressure is already in evidence. Nissan’s decision to build the new Qashqai SUV at its Sunderland plant was only taken after private assurances from Number Ten that Brexit would not affect its current trading conditions with the EU (Campbell and Mance, 2016). Recent reports suggest that the PSA Group, which is in talks to buy Vauxhall, has received similar promises after concerns that the factory at Ellesmere Port might be vulnerable to cutbacks and redundancies (Campbell, 2017). Of course, such promises set a precedent and observers have already started to ask why car manufacturers should get special treatment (Mance, 2016). Membership of the single market (and neo-liberal policies more generally) were introduced in the 1980s precisely to avoid Conservative politicians getting sucked into such discretionary behaviour.
Avoiding such a discretionary and interventionist governing style is important for Conservative leaders because it may negatively impact on their credibility and reputation for competence. Put simply, the danger surrounding discretionary decision-making is it will lead the party to make promises that it cannot keep, resulting in the politicisation of policy as ministers are held accountable for their misjudgement. The more specific question in this context is: what assurances did the May government give Nissan and the PSA Group and can they deliver them? If (as Number Ten maintains) the promise was simply to get the best deal possible from the Article 50 process, the risk is that any agreement will fall short of expectations, particularly if the EU 27 want to play hardball. If (in the event of a ‘hard Brexit’) the government has promised compensation for EU tariffs, then the potential financial liability could be enormous, especially if other sectors of the economy prove successful at gaining the assurances that Nissan and the PSA Group have received. And this is assuming such compensation is legal under World Trade Organisation (WTO) rules, a judgment that may turn out to be mistaken.
If the completion of the single market was something that the Conservatives and business could unite behind in the 1980s, Brexit risks increasing divisions between the two. May has already signalled a more sceptical stance towards the corporate sector, championing workers representatives on company boards and binding shareholder votes on executive pay (May, 2016). For their part, business groups have urged ministers to provide reassurance that EU staff hired since the referendum will not be required to leave when Britain ceases to be a member. Such tensions are likely to continue as British negotiators try to balance the promise of stricter controls on EU migrants, with the desire to secure the best trade agreement possible. EU migrants help to counteract skills shortages in a range of sectors of the UK economy. If the May government places significant restrictions on EU migrants (or they simply emigrate as a result of Brexit) businesses have warned such developments will make it more difficult for them to operate (Parker, 2017).
Finally, Brexit is likely to complicate Conservative party management, despite the hope that the referendum would resolve the European question once and for all. Not surprisingly (because it is an issue that resonates with business) we have already seen evidence of such divisions over the future of Britain’s immigration policy, as the May government appears set to institute a new work permit regime for EU citizens coming into Britain. Former remain campaigners want what has been termed a ‘free movement minus’ approach.
For example, William Hague has argued for a system whereby any EU citizen with a UK job offer should get a work permit. Such a scheme would avoid ministers having to second guess the needs of the market through the sector-by-sector allocation of permits. Pro-Brexit Conservatives fear such a ‘free movement minus’ approach would fail to significantly reduce EU migration and risk the wrath of the 52 per cent of the public who voted to leave. Instead, the government should have the power to decide the total number of work permits issued to EU-citizens each year: a policy that mirrors the current regime for non-EU migrants (Parker and Warrell, 2017). It could be argued that such splits are a proxy for future arguments within the party concerning whether the May government should pursue a ‘hard’ or ‘soft’ Brexit.
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