Theresa May needs to compromise with the technocrats

Opinion piece (E!Sharp)
15 February 2017

As British prime minister, Theresa May has the right – and the power – to interpret the referendum result as she sees fit. And her decision that the UK must leave the single market is a fair one: the referendum campaign was largely about free movement. Remainers lost, however unfairly the Leavers played the game. And in opinion polls taken after the vote, many Leave voters cited the desire for sovereignty as the reason for their vote. But Remainers, who cling to unfashionable technocratic policy-making ideals, hope that May will seek an exit that minimises the damage from single market withdrawal. On that front, the decision to leave the EU’s customs union was disheartening.

In the white paper on Brexit, which appeared during the House of Commons votes to trigger ‘Article 50’, the British government said that it would “not be bound” by the common external tariff or the EU’s commercial policy, which means that Britain will be leaving the customs union. The economic consensus is that leaving the single market will be costly, because we know from so-called “gravity models” that Britain’s trade with EU member-states is far higher than one would usually find between countries of equivalent wealth, population and proximity. (These models are among the most precise that the dismal science can offer: they ‘explain’ the patterns of trade that we can observe in the data pretty closely.) These models do not provide us with iron laws to base our decisions upon. They should lead us to think that Brexiteers are probably wrong, not certainly so. But they do offer us a better guide than mere assertion, such as ‘global Britain should take advantage of the opportunities outside sclerotic Europe’.

The customs union is less clear-cut (if the UK and EU manage to conclude a free trade agreement). On the downside, UK exports and imports will have to clear customs procedures – so there will be some costs in form-filling, tariffs on imported content that is re-exported to the EU, and so on. On the upside, the UK will be free to negotiate trade deals with countries outside the EU.

In a recent report, the House of Lords EU committee said that it was “troubled” that the government had no estimate of the cost of leaving the customs union. British officials shrug off the fact that this decision was made without proper analysis, and it was clear from the moment that Theresa May picked a leading Brexiteer, Liam Fox, to be international trade secretary in July 2016 that Britain would leave the customs union. But it is a question that is answerable. The World Bank, for example, thinks that Turkey’s membership of the customs union has raised its trade with the EU by 4-7 per cent. Withdrawal may cost the UK more than this, given the size and complexity of supply chains that criss-cross the English Channel and Irish Sea. And the National Institute of Economic and Social Research in London has found that trade deals signed with the US, Canada, Australia and New Zealand, as well as ‘BRICS’ emerging economies, might raise UK trade by 5 per cent. It was a more balanced decision than the decision to leave the single market, which the evidence is clear that it will be costly. But the decision was not subjected to rigorous analysis before it was taken – because political imperatives mean that policy must match the ‘global Britain’ rhetoric of Brexiteers rather than the evidence.

There are many more decisions coming in which the economics and the politics point in different directions. Will Theresa May seek to allow more immigration from the EU than from other countries, to keep the flow of fruit-pickers, bankers, nurses and teachers that Britain needs and to encourage the EU-27 to offer a good deal in other areas? Or will she continue the (quixotic) push for much lower immigration? Will she accept a quick, one-sided trade deal with the US in order to demonstrate that Brexit offers opportunities, and inflame anti-Trump passions in continental Europe? And will she accept an EU budget divorce bill in order to salvage trade and investment links, which are less tangible to the average voter but more important to their prosperity?

In private meetings British civil servants explain government policy through slightly gritted teeth. Their instincts are to be cautious and empirical, but their job is to serve politicians, who must interpret the referendum result in a way that maximises their political advantage. Michael Gove, another leading Brexiteer, famously said that the British people “have had enough of experts”. So far the ‘clean break’ right and their amplifiers in the press has won the ear of the prime minister. But the impulse to take back control will ultimately have to be converted into policies that minimise the costs of that decision. If May does not seek compromise and Britain falls out of the EU without no agreement at all, we will witness the ultimate test of Gove’s other assertion that technocrats “are more likely to err than the rest of us”.

John Springford is director of research at the Centre for European Reform.