Are we at last seeing a Government achieving some success or is the public being sold snake oil? Economic growth is the principal measure Government purports to have chosen to be judged by as they say it underpins all decisions. But where is the evidence?
“TRADE” DEALS
“Win-win” is the message from UK Government about the recent economic arrangements struck by the UK with the USA and the EU. Added to a Trade Agreement with India, these events are all positive in some ways, and building good global relations is of value in itself. But they have all been represented as great contributors to growth of the UK economy, and of course growth is the declared number one priority of the Government. For example, the combination of the SPS Agreement (about health standards in agriculture and animal products) and the arrangements proposed for common energy/carbon trading between the EU and the UK are said by UK Government to be “a huge boost for growth”. But they are forecast to add only £9.8 billion by 2040, 15 years away, and peanuts in the scheme of things. The EU/UK “agreement” is largely not that but merely an agreement to agree! Perhaps we should be questioning more whether the hype surrounding positive events being pushed out for public consumption is perhaps in fact misinformation.
And the India Trade Agreement, whilst a thoroughly good thing in terms of setting relationships in many ways, is reported to add a paltry 0.1% boost to growth again by 2040. There are benefits to both countries, but nothing economically special for the UK.
THE USA “TRADE” AGREEMENT
This is formally called the US-UK Economic Prosperity Deal (EPD). We could be forgiven for thinking that a trade agreement has actually been signed. It has not. In fact, Trump has no power to sign a normal trade deal without Congress approval. It is merely a deal which settles the position on some tariffs and otherwise is an understanding to cooperate and talk constructively about numerous other things. It is far from a win for the UK. In fact, as is well known, Trump, because he felt like it, announced outrageous tariffs across the board of at least 10% on all British imports, and high 25% tariffs on steel and aluminium, cars too. In the main all that got negotiated was the retraction of those new high tariffs which had no justification in the first place; mutual car quota imports of up to 100,000 at 10% (above that 25% from the UK to USA) and some mutual arrangements in respect of beef exports. Otherwise, the unilateral imposition of the new 10% tariff on UK exports to the USA was kept, without any concession in the other direction! Other tariff bits, like tariff free U.S. ethanol to the UK was a new concession in favour of the USA!
Key issues like the pharmaceuticals sector and the treatment of the giant U.S. tech companies were left to discuss later. One is left with a feeling that the UK got little if anything by way of improvement on anything. There has to be doubt not just on the negotiating prowess of the UK Government but even more on its assessment of its own achievements and how it presents the success to the British people. We were promised truth. Are we getting snake oil, with extra spin? And has Trump merely used the UK relationship, where trade was evenly balanced before his announced outrageous tariffs, to present his ability to deliver deals quickly to the world if the other party gives reasonable concessions, as rarely does he promote anything except his own prowess? Are we really to believe that the UK PM has some real sway in the White House? And if the chats do not go too well on other areas, for example tech companies, could Trump’s love fest with the UK change? And is there a real risk that, when it comes to the big outstanding issues still to be sorted, the UK will simply appease as it seems to do so often?
THE EU/UK DEAL
The document concerned is called the “UK-EU Summit – Common Understanding” notably it is not a trade agreement. There are some commitments but mostly it is an agreement to discuss and cooperate in a variety of areas, with no detail. Importantly perhaps, it is represented as a reset in the relationship between the EU and the UK and it is surely the case that mutual beneficial relationships, without constant harping back to the acrimony of Brexit and punishing the UK, are to be welcomed. Surely now all negotiations must be conducted without the Brexit noose around the neck.
Unfortunately, in the UK some Brexiteers overreact to any new agreement with the EU where there are concessions, whilst the more extreme EU evangelists in the UK perhaps see every concession as a ray of hope of rejoining. The PM’s long term EU plans are opaque. As mentioned above, the economic growth benefits of the deal so far are small. The EU retained access to UK fishing waters for another 12 years, when the maximum UK Government wanted was reportedly 4 years. UK fishermen see this as a weak sell out but, even if it is, commentators observe that fishing is small beer in the UK. However, perhaps the SPS relaxing bureaucracy around farming products overall is beneficial.
But with it comes the UK conceding sovereignty over rules and regulations with the commitment to dynamic realignment, which means the UK must adopt for its food industry, not just its exports to the EU, whatever rules and regulations in this area the EU decides, and must submit to the EU court. Arguably as a one off this is not that bad, as to export foodstuffs to the EU compliance with their rules is needed anyway. But that ongoing commitment may mean taking rules which reflect the risk averse anti-innovation approach of the EU. For example, genetic developments due to AI relating to crops etc in the future may be restricted in an undesirable way; the UK has given up its right to innovate as it wishes. Current and future EU rules may impede the UK in its food arrangements with other nations, perhaps an acceptable price to pay but that is an unknown.
This Understanding, UK Government says, paves the way for UK armaments companies to participate in the EU Safety Action loan fund of 150billion euros for weapons rearming across the Continent. But the basis is not agreed, and France is known to be actively resistant to non-EU companies participating. Agreeing other things but leaving detail outstanding on the major prize for the UK in this reset of a relationship may prove to be poor negotiation. And in other areas to be agreed the UK has already agreed to dynamic alignment again, for example on the carbon emissions trading unification terms which remain outstanding. Plus, the Youth Mobility programme details are to be agreed, and the UK wishes to limit the number of EU under 30s coming to the UK under the scheme, but the EU wants to maximise.
Perhaps the most undermining aspect of the UK approach is the commitment to dynamic realignment on matters where detail is outstanding, which is rather the same mistake Theresa May made in negotiating with the EU: conceding a big point of principle before starting proper negotiation of the detail! Law making independence is a key to sovereignty and if, having conceded the principle of dynamic realignment, that becomes the norm then that independence disappears. From the EU point of view this Understanding is a lot to smile about. UK Ministers seem delighted with this new closeness to the EU, but will the goodwill only last if the UK continues to appease? It is to be hoped that this “reset” means the UK and the EU can move forward generally with all Brexit talk behind us. Or will the reset reopen the UK internal strife which extreme Brexit advocates and extreme EU Remain advocates cannot seem to let go.
CHAGOS ISLANDS
The UK has now agreed to give up its “ownership” of the Chagos Islands to Mauritius, when there was no compulsion or legal requirement to do so. And it is paying Mauritius billions for the privilege. That adversaries are debating the real cost suggests a lack of transparency: Government cite a cost of about £4 billion, but opponents say its £30 billion: cannot a simple factual sum be explained in this new world of truth? Many commentators are at a loss to understand why, at a time when the public purse is under such pressure, the Government chose to not only surrender an asset but pay billions to the donee for future usage. But the Prime Minister seems impressed by a non-binding UN International Court opinion that the UK should give it up. One of the judges, some observe, was a Chinese representative, and China has an evident interest in increasing influence in the region. How does this square with growth economics in the UK? How is it good negotiation?
DEFENDING THE REALM
Government declares its first duty is to protect the UK and secure its people. It vaunts its new commitment to defence spending of 2.5% of GDP by 2027. And says it aims to go to 3% by 2034 if finances permit. It is common ground among defence experts that the UK is incapable of defending itself against any serious Russian attack, or against the Chinese, and is grossly under equipped and undermanned. A Reservist capability of tens, possibly hundreds, of thousands is needed. There is a common concern among political and military experts that, if the USA shows any sign of reducing its NATO commitment, manna from heaven for Putin, he may well strike at Europe to divide NATO and so destroy it, testing each country. Various countries are talking of a 3.5% – 5% GDP defence commitment. But words may come easy and implementation is so far negligible.
With the Strategic Defence Review now published some Government actions to render the UK capable of defending itself have been promised but have yet to be implemented: that capability is the acid test, not a sum of money, but pretence that 2.5% or 3% of GDP comes close is smoke and mirrors. The 3% commitment is subject to Government having enough money to spend and so is illusory without making huge sacrifices elsewhere. Honesty is needed, if the first duty of Government is to be fulfilled. And the big revamp needs to happen not in 10 years but in say 3 or 4 at the latest. One benefit however may be some growth in the domestic defence industry.
Putin now sees a window of opportunity with Europe having to rearm and so for a limited period being, by its own admission, powerless against him without the U.S. guarantee, and he already has his entire economy on a war footing. Why are we not seeing more urgency?
MORE SPEND
About 2 million public sector workers are now to get above inflation increases in pay, it has been announced. Still, some of them may strike. Yet again, for all this giveaway of taxpayer money to the public sector, no commitments on productivity have been negotiated and nothing on performance. This echoes the massive rises implemented when this Government was elected again without any quid pro quo. Should there not be some explanation as to why better productivity is not a requirement? Or is this just another piece of surrender to get a deal, with the paymasters, the taxpayer and the private sector yet again the fall guys? And winter payment energy subsidies are probably to be reinstated after Labour MPs pressure. It is easy to give money away. And still the burgeoning benefits bill goes up. How does any of this contribute to growth?
IMMIGRATION
The promise to the electorate was that illegal migrants would be stopped and that Government knew how to do it by smashing the gangs: nothing happened and the problem is worse than ever. Net migration has decreased but only due to laws tightening visas introduced some 18 months ago. New immigration laws are being rushed in. There is suspicion these laws are political responses where inaction was damaging Labour at the ballot box. There has been no real explanation as to how economic growth will benefit.
WHERE ARE THE GROWTH MEASURES?
Despite some nice things having happened over recent weeks, and Ministers may be reasonably pleased with outcomes, the problem remains that almost nothing done recently, or promised to be done, advances in any material way the first priority of economic growth. Yet we are told by Ministers how they are successfully delivering on their promises. How long will the media and the public leave this misinformation unchallenged? Perhaps the biggest worry is that this Government seems to be incompetent at negotiation but seems to think it is good at it. Are we getting snake oil or being treated as fools with stagnation and spending dressed up as success?
At least the PM is being philosophically consistent. When questioned about spending he apparently told the BBC’s Today programme “The question is how do we grow the economy and create wealth” and “I don’t think you can tax your way to growth.” We will have to watch this space.
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