Chris Farrands was my director of studies in the PhD programme at Nottingham Trent University, between 2006 and 2011. Our relationship meant many meetings in Nottingham, Izmir, Edinburgh or Bucharest. Chris is not only ”a great teacher”, but also a great friend. That is, until our conversations go into international politics, especially British and European Union politics. He knows so many details, deriving from such a vast personal experience (see the short bio at the end) that he overwhelms the audience. The interview with Chris, published by Veridica in two episodes, demonstrates all these aspects and it is, in my opinion, the richest and densest media text on Brexit published în Romania and, perhaps, beyond. The first part deals with the economic consequences of Brexit for Britain and the second part explores the more delicate topic concerning Scotland, Northern Ireland and Wales in the context. (Dragoş C. Mateescu)
Veridica: The EU is first and foremost a common market: what are the main challenges and costs for the UK government in repositioning globally its domestic economy and trade after Brexit? More specifically, the UK economy has changed a lot over the last decades when the country was a EU member. Many important companies had production units in Britain and now may relocate; which are the sectors/companies which are most affected and how do they seem to adapt to the new situation?
Chris Farrands: I have to begin by disagreeing with two aspects of the questions I am reflecting on. First of all, the EU was not ‘first and foremost a common market’, although that was the way in which it manifested itself institutionally and, in some respects, legally. It was presented as a ‘common market’ (which it had largely been in the early ‘60s) during debates on UK accession both in the mid 60s and in the early 70s. But by the time the UK joined in January 1973, following the Treaty of Merger in 1967 (combining the institutions and competencies and aims of the three original treaties) and the Hague Summit of 1969, it was already a much more substantial political institution, and its name was by then ‘The European Communities’. The Hague Summit looked forward from the success of the first decade of the main institutions to further stages of integration under the founding treaties. The Treaty of Rome (but not the other two) was defined as a ‘Traité Cadre’ in administrative French, meaning (roughly) a framework treaty which outlined objectives to take forward progressively, filling in the objectives of policy and political cooperation, but also adding new objectives in the future which met the agreed broad aims. To the original aims, the Hague Summit added a potentially shared currency and a common foreign and security policy, as well as common industrial, technology and regional policies. These are at most implicit in the Treaty of Rome; but the success of the ‘first stage’ of integration had led political leaders to stretch their aspirations forward. This quickly became clear in the academic literature on the EC in the early 70s, when I began to study the EC/EU closely, but was not at all evident in public debate or public opinion. As the doyenne of British EU academic debate Helen Wallace observed, the debate in the UK from 1971-73 almost entirely ignored the very significant shifts in focus in the Hague Summit conclusions. But one can assert that the EU was first of all a security community with an emphasis on economic and technology development and full employment. The common market, and in the 1980s the single market proposals that followed, was a means to achieving a goal which was much greater than some measures of market integration, important though that was, and always included meeting the challenge of situating Europe between and separate from both the US and the USSR, as well as replacing the older imperial identities of the several European nations with something more modern and more limited. At the same time, other, ‘harder’ aspects of security were not off the table (separating, as German clearly does, but common English usage does not, security and defence).
Brexit is not over yet
I’m afraid I also disagree that Brexit is over. It is not even over legally, in the sense that both London and Brussels are potentially tweaking the details of the joint agreements which implement it, and that process looks likely to continue for several years in some forms. There are those, mainly on the right, in both London and Belfast, who would tear up substantial parts of the agreement altogether; and there are others -more- who would accept the agreement so long as its implementation was left on a very low light on the back burner. Brexit may now be largely dead in British domestic political debate, but the working out of its achievement, costs and benefits are very much work in progress. That the Covid-19 crisis obscures some of its most damaging effects does not mean it has been well managed. It is just that the great majority of people prefer not to want to think about it at all, and that is the greatest value card in the present government’s hands. It is quite evident that the legal arrangements for ‘getting Brexit done’, speeding through legislation which keeps the full body of EU law including the acquis communitaire in place in the UK for later amendment, means that EU related regulations and procedures will still haunt political and legal debates, probably into the 2030s, but surely for the foreseeable future. Brexit simply is not ‘done’ at all.
A less transparent way of governing and the costs of the new trade policies
At the same time, it seems that Brexit has been a huge political success both for the Leave campaign and for the Conservatives, and that it has in a substantial way shifted the main axes of British domestic politics. That means the government has acquired a kind of immunity from some of the obvious criticisms it has faced, not least about corruption, but also about its (lack of) basic honesty. The various local election results in May 2021 reinforce this view. Brexit provides a cushion of security that a government can take advantage of into the future if it is bold enough in planning spending and priorities. That enables it to restructure education and media as well as wage a more explicit culture war against longstanding opponents. It has also allowed the present government, which is ‘conservative’ pretty much in name only, to develop new economic policies which are, so far, a bizarre mixture of neo-Keynesian spending and neo-French industrial strategic planning (especially in advanced technologies) with neo-liberal retrenchment and handing large parts of the key state institutions over to the private sector, including health and social care, primary and secondary education, prisons, probation, security and the provision and financing of government services. This has been done very much as an intended consequence of Brexit to which the pandemic has added some additional impetus. Because thus far it is impossible to say what the eventual mix between neo-Keynesian ambition and neo-liberal privatisation and retrenchment will be, it is harder to foresee what the final outcome might be.
All the same, your first question is relevant and of great importance. On leaving the Union, the EU was of course by far the UK’s greatest trading partner, accounting for 44% of trade by value. Equally important, the EU was the source of a great deal of the UK’s economic and financial regulation, and all that remains in force until it is changed by specific measures. Power to do that has been put in the hands of ministers without resort to Parliament, which is constitutionally dangerous; but so far they haven’t had much time to change very much. What they have done is to make new ‘trade treaties’ and create ‘new connections’. In practice, many of the new trade agreements, such as that with Japan, largely carry over the elements and principles from previous agreements which the UK was party to through the EU. Initially, the most significant wholly new trade deal was that announced by Trade Minister Liz Truss with the Faroe Isles. Without irony, one can see that agreements with Mauritius or the Faroes do not create significant new employment opportunities or investment deals for the UK, although they do demonstrate that most compelling motive of the Brexit debate, the assertion of ‘national sovereignty’. Recently, the UK has signed a trade deal with India which does not duplicate a former EU agreement and which is slightly ahead of a promised EU-India full free trade agreement (FTA). But the British deal, although announced with a great fanfare, falls well short of being an FTA, and some of its most important elements are ‘declarations of intent’ on investment and trade diversification (the latter including fruit), rather than actual solid trade commitments. Non-tariff barriers may fall -they are extensive given that India has since independence in 1947 pursued an autarkic trade policy- but will not be removed. India insisted it would require the UK to offer work and migration visas to India citizens, and that has been watered down to a commitment to offer substantially more student visas, but not on a long-term basis. India has also insisted on keeping out inward investment in fields such as agriculture and retail, in order to prevent British agribusiness or retailer chains such as Tesco from disrupting the politically important, vastly fragmented Indian retail and distribution systems. The new agreement does not change that.
But how much does the UK actually need to substitute for trade with the EU? Much trade has continued, even if it has become more costly and more fraught because of customs and regulatory differences which were predictable from the moment of the Referendum vote in 2016, but to which little detailed attention was paid until 2019. If UK trade with the EU falls by a few percent, it will be important, but much is certain to remain. UK trade has fallen sharply in some sectors, including shellfish and seed potatoes (both down by over 80%). That has a severe affect in some localities, but no real macroeconomic significance. Shifts in finance, where many firms have moved some of their operations into EU cities (Amsterdam and Dublin are the main beneficiaries, but all EU finance centres have gained), have moved jobs, assets and skills out of the UK, and there is no reason to think this trend will not continue for a time. But UK finance is very large, resourceful and flexible, and if a business trading derivatives or wholesale insurance has to operate in London and another EU city at the same time, that is not necessarily going to have a huge long term effect on jobs or GDP here. That is even more so given that so much of London’s financial business was and remains with the rest of the world.
The effects of Brexit are like a long-term case of untreated syphilis
When other critics of Brexit suggested that it would have an effect like going over a cliff, I thought the analogue was a mistake: so much would continue more or less the same for some time, and although there would be very obvious short term impacts, the longer term impacts would be much more serious but less evident. So my preferred analogue is that the effects of Brexit are more like a long-term case of untreated syphilis which saps energy and damages the brain and other organs, but where the effects can creep up on the sufferer unnoticed except by others close to them. There is a rather accurate portrait of this condition in the film Young Winston, where the future prime minister’s father Lord Randolph Churchill is diagnosed with the disease, and his wife and servants warned of its steady impact, but advised the patient himself must not be told the name of his condition. The distinguished French politician and EU negotiator, Michel Barnier, observes in his newly published memoirs that, looking from outside, it was very difficult to understand the shifts and turns in UK policy during the several stages of negotiations without recognising that not only was London engaging in some rather transparent attempts at double dealing, but, more important, Westminster was caught in an acrobatic performance of self-deception about the meanings and impacts of its own policies.
On the likely impact of Brexit more precisely, the Treasury and Bank of England both produced estimates of the problems which a no-deal Brexit would cause, estimating the harm as a reduction in GNP of 5-7% over a sustained period of time. The future impact, they said, was likely to be strongest in agriculture, the car and truck industry including components, financial services, and food processing, but the effects were likely to be broadly spread across both sectors and geographical regions. The estimates were widely accepted, including by the Financial Times, Economist and Oxford Analytica (I declare an interest, having worked extensively in the past for both the Economist Intelligence Unit and for Oxford Analytica). Of course, we do not have a full no-deal Brexit. But the deal the UK made is quite close to that, excluding the UK not just from the Single Market and from Norway style relations, but from almost all ‘dynamic alignment’ with the EU’s evolving economic and social arrangements, and the Financial Times has suggested that the likely harm of the current arrangement would be a loss of 4-5% of GNP over a sustained period. One main reason for that is that the current arrangements affect the likelihood of inward investment into the UK for two reasons, first the specifics of the deal reached, and second the continuing uncertainty over the implementation of the agreed arrangements, including over Northern Ireland and logistics and the possibility of maintaining supply chains between the new UK system of regulation (whatever that eventually turns out to be) and the EU as it evolves. The government now refuses to publish any official estimates of the effects of Brexit on the UK economy, and claims that they do not exist, although that is quite certainly false: the Treasury will certainly have an estimate of the impacts for internal purposes, and that will have been shared or imitated in the Bank of England because it is their role to make such estimates; they will have been concealed because of their negative outlook.
Brexit’s impact on businesses ranging from construction to high tech
The nature of the impact on supply chains and future economic development follows from this and forms an answer to your second question. I should say I am not in a position to make any detailed quantitative estimates. Jobs and investment in the financial services sector are already affected, as noted above -one should not just call this the ‘City of London’ since financial services are strong in Leeds, Manchester, several smaller cities, and above all in Edinburgh, where four of the largest insurance companies are based (even if they also have offices in London).
Some engineering firms will be affected only slightly, including the largest. For example, Rolls Royce (aero engines and aerospace, not the now very small car business) have been a global firm producing to a variety of regulatory standards for years, and they have needed to adapt very little to Brexit, although they have been very hard hit by the travel effects of the pandemic. JCB, making engineering equipment and earthmoving machines, equally a globalised firm with only a limited interest in the UK market, have also been little affected, and their directors have been enthusiastic cheerleaders for Brexit because they believed a shift to a more deregulated economy would help their business.
Large construction and engineering companies are little affected both because their international contracts are mainly in the Gulf or countries such as Indonesia or India, and because the UK domestic construction market, especially for housing, has remained buoyant.
In sectors such as white goods, the UK no longer has any major producers: most goods bought here are of Swedish, German, Italian or Chinese make, and what matters to consumers is free access to imports rather than jobs or exports.
Small businesses often claimed before Brexit to be unaffected because they worked and sold only in a UK national market. Some small business leaders were feverish supporters of Brexit, more on nationalist (‘poujadist’) grounds than for any economic reason. But for some, this has proved already to be illusory as the costs of supplies imported from the EU or the costs of transport and customs verification have soared since January 2021. These include SMEs that had been nurturing European markets for knitwear, craft goods, confectionary and shellfish. For smaller firms, the cost of meeting customs and regulatory requirements now will drive them out of business, if they were highly dependent on EU markets, or at least to a sharp contraction. Brexit will have a long term effect in creating non-tariff barriers to trade in both directions which will act as a deterrent to many small businesses -the vaulting cost of postage and transport have become prohibitive for some already. But equally, many others are not affected at all. Again, these impacts will not show heavily in macroeconomic figures, but create stories which at a local level are compelling.
UK high technology businesses are experiencing mixed impacts. Firms in biotechnology and medical research are severely affected by phytosanitary regulation and are having difficulties in meeting new demands without setting up parallel firms within EU boundaries, which quite a few have done or are planning. Firms in physics and engineering research and development do not have the same pressures. But all are affected by the apparent exclusion of UK universities and research firms from the Horizon 2020 and successor programmes. The UK government had promised that the UK would remain a full member; it then neglected to negotiate on this at all; only after January 2021 has it tried to reverse its neglect, but the UK’s role in the future research programmes can only be as a third country, limiting researchers’ roles as ‘lead researcher’ in projects. This affects money, and the UK government has completely failed to meet its promise to make good all funding lost through cutting a full role in EU research, while also hugely cutting development aid research, which had an important research and technology component (especially in medical and health work). The UK’s status in future EU research projects will be similar to Morocco or Turkey rather than as a leading actor, but it will retain some role. This has been devastating to university research, which I will not discuss here. But it has also affected research and technology firms across a range of important cutting-edge fields. The biggest loss is actually not in cash, although that is important, but in access to networks, which are vital, and access to staff as a result of new migration restrictions. It has to be added that in some areas, including space research and IT related work, Brexit’s impact on the UK will be very limited because the UK will remain a full member of non-EU European research projects including the ESA and Large Hadron Collider based at CERN, as well as Airbus, just as before. But future peaceful atomic energy research, especially including ongoing work on safety standards and on nuclear fusion, has been left in confusion after the UK adamantly refused to continue the connection with EURATOM as part of its withdrawal arrangements. However, some high tech industries may benefit from government support and inward investment from the US and elsewhere, and there has been a good deal of public discussion of vaccine and health technologies for obvious reasons, but also of new materials and software innovation where UK firms have a strong global presence. Whether this amounts to more than talk or opening UK firms to acquisition by US finance remains to be seen. But the potential for post-Brexit global growth is there. One longer term effect of Brexit is likely to be to push some high tech firms relatively more towards collaboration with other English speaking countries, but how significant that will be is hard to judge now, and depends on future rules on intellectual property as well as on financing and the ability to manage cooperation between competitors.
Long term costs and opportunities
In the lead up to the actual withdrawal agreement made on 24 December 2020, it was not at all clear what the impact would be on supply chains even for the largest manufacturers. In the short run, these proved to be very difficult but not insoluble. A lot of hard work and pragmatic engagement kept most supplies flowing, although Jaguar Landrover closed for an extra two weeks over a shortage of components (including computer chips), and car plants in Swindon and Sunderland also experienced problems which came on top of difficulties related to Covid-19. In the longer run, it is very likely that production at both Swindon and Sunderland will cease, and the jobs will be lost. But that will also be due to the shifts towards electric vehicles and consolidation in the sector, which across Europe has a severe problem of overcapacity. The most vulnerable vehicle producer in the short term is the Vauxhall plant on Merseyside, which is also subject to pressure both because it already needs substantial reinvestment, and because it has been working on outdated models where Vauxhall managers would like to concentrate more of their work solely on plants in Luton. The UK car industry is likely to lose a significant number of jobs in an already contracted sector, unless there can be a faster shift to the production of electric vehicles, and probably also of hydrogen powered heavy goods vehicles. Those major shifts in focus also require the establishment of large-scale heavy battery production capacity, which the present government has been encouraging but not directly investing in; and it requires hydrogen energy, which the government is talking up, but not investing in the relevant research capacities. Private investors are taking up both, but there is an inevitable choice between creating new plant in the UK or in the EU, and it is still possible that the latter, having a large market and plenty of technical knowhow, will win that competition.
Brexit does offer opportunities for building industrial capacity and creating jobs. Most obviously, there is a huge market for green energy and low carbon technologies. Governments in the last twenty years have strongly supported wind energy, although that has mostly been offshore wind, which is 30% more expensive than onshore wind. They have also encouraged some solar power investment, although the biggest blow to solar in the UK was caused by a ferocious government tariff on Chinese made solar panels a few years ago. More recently, government have also withdrawn financial support for domestic installation of solar panels -it is instability of government policy on green technologies as much as Brexit or anything else which affects the sector. Efforts to promote tidal and wave energy in Scotland have yet to get to an industrial scale, although there have been a series of successful research developments, and neither tidal or wave energy will be produced at a cost comparable to wind unless they are produced on a much larger scale then currently envisaged. More broadly, investing in green energy in housing and construction, in steel production (moving from coal to electric arc technologies) and in new materials and engineering sectors provide possible ways of creating a significant number of jobs which can be directed towards areas which have suffered from decades of deindustrialisation. Again, Whitehall (and the three devolved administrations in Northern Ireland, Scotland and Wales) talk up these opportunities at every opportunity, and they are real. But the investment requires consistent new funding, new collaborative networks with local businesses and local authorities, and above all new training in further education to make available the skills these technologies demand. Again, there is less enthusiasm in London to follow through on any of the detail. It is possible that Brexit will provide a major opportunity in these fields; it is less certain that the opportunities will be seized.
The financial services will adapt
The financial services sectors least likely to be affected by Brexit are all those which provide retail services for UK based customers, including banking, insurance and pensions. Equally, those largely working in a global market -including derivatives, foreign exchange and capital/debt markets, are less affected. It is those which deal with wholesale European markets including equities and debt/bond markets which are more likely to continue to be affected. These are the sub-sectors which have been readjusting including moving elements of their businesses into EU based centres; for example, Amsterdam has taken a significant chunk of equity trading across Europe from London. This is unlikely to be reversed, but the impacts on jobs and investment are hard to trace. The market for special purpose acquisition companies (SPACs) is relatively new, and London is trying to get ahead in this field, but the major competitor is the much larger US market (many times the UK market) and EU regulation limits the development of SPACs and is unlikely to change. In short, financial services, by far the largest employer and producer by value in the UK economy, is diverse and not really a single sector; it has been affected by Brexit, will continue to be, but is mostly likely to be able to continue to adapt effectively. Much larger changes in the US, including in corporate taxation, and in Beijing, where government has begun to take a much tougher view of corporate and financial regulation, are more likely to shape the future of UK financial business. Thus for example HSBC is a major retail bank in the UK as well as a corporate trader and investor. Following recent developments in Hong Kong, there is a real possibility the bank will be split in two, one working inside China including Hong Kong, and perhaps other parts of East and South East Asia, and the other dealing with global business in Europe, including the UK, and in the US. Such a demerger has been mooted and may become a reality. It would have a strong affect in the UK, where HSBC employs tens of thousands of staff.
Both recovery from the pandemic and from Brexit depends on the ability of the country to attract new investment where levels of investment in manufacturing has tended to be significantly lower than Sweden, Germany, Japan or the US continuously since the 1960s. The government’s promise of what it calls a ‘levelling up agenda’ depends on the provision of state investment and the attraction of private funds. This relates to an issue which long predates Brexit but which Brexit has illuminated. UK productivity has been poorer than its competitors for a long time, and has proved intractable to change despite much greater efficiency in a few sectors. To improve productivity requires (among other things) an improvement in the skills base, which is an issue not so much of degree and postgraduate qualifications as of sub-degree level training and further education. As on other issues, the government has promised several times in the last decade to boost further education and the skills it provides, and they have at times made small steps in that direction. But they have also fallen back on a reliance on firms training their workers, which is actually the root of the issue since manufacturers have in effect refused to commit to staff training for decades except when they were forced to, and when they were forced to strove valiantly to water down whatever previous governments asked them to do. It is widely recognised that there are skills shortages and problems in the structure of qualifications across the whole UK economy compared to most other advanced European economies, and the structural shifts following Brexit should provide an added incentive for firms and governments (and unions) to collaborate on changing this. The UK economy will not recover from Brexit without that transformation, and that will also have a further effect in widening regional and social inequalities.
Chris Farrands was Principal Lecturer in international relations at Nottingham Trent University (NTU), where he specialised in contemporary theories of international/global politics, international political economy and the external relations of the European Union. He was the Director of the NTU Centre for Energy and Environmental Studies. An alumnus of the University of Wales Aberystwyth, London School of Economics and NTU, he has previously worked at a number of UK and French Universities and is a former Visiting Research Fellow at Chatham House and Visiting Scholar in Residence (on sabbatical leave) at American University, Washington DC.
Chris Farrands is the author, co-author or editor of a dozen books and around 100 published papers and reports on international political economy and the contemporary theory of international relations, discourse analysis, discourse and performance of identity. Now retired from full time work, he continues to supervise research and write.
Throughout his long career, Chris Farrands has done extensive consultancy work including for the Department for Business, Enterprise and Regulatory Reform in the UK Government, the UK's Economic and Social Research Council (ESRC), Nottinghamshire County and Nottingham City Councils, the Economist Intelligence Unit, or Oxford Analytica. From some of these positions, he has also worked with the European Commission.