Shopping for Brexit

When we first joined the EEC and the public by majority voted to stay in I used the common market as it was intended. I bought a German car and French wine. I went on family holidays in Spain, bought Danish bacon and Dutch market garden produce. I noted that the businesses I worked for usually traded globally but made little or no progress in selling to the continent whilst doing well in the Americas and Asia. I also watched as UK industrial businesses struggled against the competitive strength of many continental challengers, from German cars to Italian clothing and textiles.

As the EU and individual member states from time to time made statements and decisions which were clearly against the interests of the UK and its economy I started to change my shopping habits. First to go were the foreign cars. I have bought UK manufactured vehicles since the early 1980s. I replaced French red and white wine with English whites and Australian reds. More recently over the last decade or so I switched to an annual holiday in England rather than the continent. I give priority to English food products when I go to the supermarket. This summer it has been possible to buy salad items, vegetable and fruits entirely from English farms.

Every time someone from the EU threatens us as their idea of a good way to negotiate I check the labels on products more carefully in the local shops. There is plenty of scope for us to make and farm more of what we need at home, which is exactly what we will do were the EU to seek to impose farm tariffs on their trade with us.

I note that still no member state has said it wants to impose new tariff and non tariff barriers on their trade with us. One day perhaps the EU will get round to talking about how they can keep their great access to our market. Meanwhile they should not upset all their customers in the UK too much. I saw other shoppers checking the product origin labels carefully on my last visit to the supermarket.

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The German media tantrum

You know people are losing when they resort to personal abuse and bluster. Clearly the German government was unhappy about being told the truth about their 100bn Euro bill for the UK to leave – it is a work of fiction.

I had many dealings with the German government and with their business representatives when I was single market Minister, many when I was making the case for the UK not to belong to the Euro, and a few in the run up to the referendum. The Germans always began in a friendly and diplomatic way, seeking to explain to me why it was in the UK’s interests to accept a new law, join the Euro and remain in the EU. They thought I would be sufficiently amenable to see it from their point of view. They kept telling me that if I did not see it their way the UK would lack influence in the EU. That was such a silly irony – you will only have influence if you agree with us on all the big issues!

I used to explain to them that I am a UK MP, not a German one. I have no special insight into what laws, taxes and budgets Germany needs, and am not accountable to German electors for such decisions. I do not seek or expect any influence over the big issues affecting the German economy. In return I do not think Germany can help me and my colleagues in deciding what currency the UK should use, how high our taxes should be, what taxes we should imnpose, what laws we should have and how we run our borders.

They might then shift their ground and pretend that the EU does not have that much influence after all, and that the UK inside the EU could nonetheless influence its laws. I would explain that the true project, the one they often used to want me to adopt, includes the Euro, Schengen, common defence and much else that does mean major powers at EU level. This is clearly something the UK does not want. I accept and always have accepted that out of the EU they will decide what regulations to impose on companies selling to them, just as the USA decides the terms on which we export to them. The difference is once we are out we do not have to impose those same requirements on everything we make and sell elsewhere if it does not suit us and our customers.

Today we see yet again the Germsan media and probably some in the German and EU governments misjudge the UK position. Once again they think pressure, personal ridicule, scorn will force the Uk to see it their way. It did not achieve their end when they tried to pressurise us into joining the Euro. It did not work when they offered Mr Cameron very little, thinking it would be sufficient to secure a stay in vote. It looks like they misread it again.

The truth is the Uk can and will leave in March 2019, with or without a deal on the future relationship. I forecast that on that date, even after many more rows and disagreements, planes will still be able to fly from Frankfurt to London, German cars will still be admitted into UK car showrooms, and tourists will still make the pilgrimages between our two countries. The only question is will the EU make this easier, or does it have workable plans to make it a bit more difficult. We await their answer when they have cooled down. The present intemperate language belittles them. It does not damage us.

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Why do some commentators and many in the media exaggerate the economic impact of Brexit?

Brexit is a very important political event. Taking back control of our laws, our money and our borders means restoring democracy to these islands. That is why so many voted for Brexit. We didn’t expect a magic wand once we are free again. We do want to live in a country where the government is answerable to the people and can be kicked out if it gets too much wrong. We do not like what is happening on the continent, where people cannot change their economic policies when they fail because they are controlled by the EU. As Syriza in Greece found, you can win on a ticket of changing policy but the EU does not let you. You remain in their case lumbered with mass unemployment and more cuts in cash wages .

The UK already has considerably more control over its economy than a Eurozone member. It can still create money, control its own banks and set its own interest rate. It can influence its own exchange rate. Its budget, however, is burdened by EU contributions, it is meant to follow the Maastricht criteria on deficits, it has to impose various taxes that it cannot remove and finds that elements of the rest of its tax system are altered or controlled by ECJ judgements.

Now we have voted to leave many ascribe every twist and turn of our economic performance to the Brexit vote. They usually credit Brexit with any negative figure, and express surprise at positives. They often add to a positive figure some comment that it may deteriorate at a future date, or say it has improved despite Brexit. Much of this is nonsense. The car market rose sharply from June 2016 to March 2017. This was not mainly owing to Brexit. It then fell and stayed low since then. This was nothing to do with Brexit, and everything to do with the Chancellor’s decision to sandbag the market for new cars with higher VED on dearer cars, and for the government to cast a shadow over diesel cars in general.

The further fall in the pound in the summer of 2016 had much to do with the Bank of England’s decision to halve interest rates again, and to create more money. This seemed a needless idea given that consumer confidence remained high and growing after the vote. The fall off in turnover in the housing market and the slowdown in price rises started in April 2016 before the vote, when the Chancellor made a tax attack on BTL property and hit the upper end of the property market with much higher Stamp duties.

Whenever a new figure comes out, good or bad, I ask myself how would we have explained this without the Brexit vote. In most cases the explanation today will be the same as before. I do not ascribe the excellent rate of jobs growth in the UK to the Brexit vote, as that had started well before the referendum. Nor do I attribute most of the fall in sterling to the vote, as that too had started well before.

On Thursday morning I almost fell out of bed when I tuned in to the Today programme and heard the business interviewer ask a guest what positives could come for him from Brexit. I soon relapsed into my view that the BBC does not do positive Brexit when the interviewer followed up with the suggestion that Brexit would allow the UK to slash the employee protections in employment law! Why don’t they follow the Brexit plot at all? Where were they when we kept repeating that we have no wish to remove people’s employment protections and intend to keep them all? It must just have been mischief making for Brexit again as it usually is.

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Mr Barnier’s state of mind

Mr Barnier seems to think the UK will not settle what it owes. That is a misunderstanding. The UK government has always made clear it will honour its legal obligations. It will, for example, pay around £30 bn of additional net contributions to the EU for the near 3 year period of transition from our vote to leave to our exit in March 2019. That is a big win for the EU, given the fact that the UK Parliament could have moved to implement the referendum decision quickly and unilaterally to end our contributions much earlier. We could have renounced the EU Treaty instead of complying with it by sending an Article 50 letter. We chose the friendly route of leaving instead. It gives them plenty of time to adjust their budgets for after our departure. The problem for Mr Barnier is there is no legal or Treaty power to levy money on us after we have gone, and no legal requirement for us to co fund their budget after 2019.

As Mr Barnier and his colleagues are usually sticklers for the law of the Treaties, he should get on with implementing the various clauses in the EU Treaties requiring the EU to have close and friendly relations with neighbouring countries, and to promote trade between them. That of course is what businesses and many voters on the continent want him to do, as they want best possible access to the lucrative UK market.

It does sound as if the EU has been doing some homework on the lack of UK Ministerial powers to make ex gratia or additional payments to the EU above and beyond the legal and required contributions whilst we are a member. I see they are now talking about the UK paying money to low income third countries as overseas aid. UK Ministers do of course have powers to make overseas aid payments to such countries. The good news is we are already making large payments under this heading, so the EU might be able to take that into account to help it move on to the important issues over our future relationship.

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Japan trade deal

Just as Leave argued, trade deals the EU currently has with third countries will become trade deals with both the EU and the UK on our departure. Japan is close to signing a deal with the EU and has made clear it would like to sign a mirror one with the UK. No country with an EU trade deal has stated it does not want to carry on with both the UK and the EU on the same terms after our departure. Unfortunately there are no EU trade deals with the big players, the USA, China and Japan at the moment, nor with close partners of the UK like Australia and New Zealand. That is our opportunity.

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Why was there never any opposition to EU policies from Labour, the Lib Dems and Greens?

One of the things I most disliked about our period of membership of the EU was the complete absence of effective opposition to many of its plans, policies and laws. Policies that would have produced howls of protest if recommended for domestic decision by a Conservative government went through unopposed or little observed as long as they came from Brussels.

In the EU itself the Council of Ministers acting as legislature usually met in secret session. There was no formal opposition to expose the problems with a proposal, so it was only draft laws that annoyed a particular member state government that got any proper scrutiny. The European Parliament was a bit more capable of voicing criticisms, but contained an overwhelming majority of representatives who welcomed extensions of EU power and were therefore often willing to go along with new laws as each one helped with that aim.

It is bizarre that the Green party has never in the UK kicked up a big fuss about VAT on green products, for example. Strange that Labour and the Liberal Democrats offered no opposition to the UK joining the Exchange Rate Mechanism, one of the worst economic policies pursued post war. They otherwise opposed any Conservative government economic policy that was made in the UK. Where was Labour’s voice demanding a more ambitious renegotiation when Mr Cameron set out to buttress the UK’s membership of the EU by seeking only modest reforms to try to reflect growing public disquiet with what the EU was doing?

Instead Labour in office 1997-2010 and Labour in opposition 2010-15 tried to avoid talking about the EU as much as possible, and tamely allowed EU measures to pass without criticism. The EU was able to give us the beef crisis, the fishing discards disgrace, the ERM recession, the movement of people well ahead of the Labour’s government’s planning figures, dear energy and much else besides without a squeak of protest. This lack of criticism over so many huge areas of policy made more voters sceptical of the project and worried about what it was doing to our robust tradition of criticism of governments. The ERM alone cost us around 6% of our National Income, or £120bn a year!

Now we have Mr Corbyn apparently taken hostage by the Blairites, now saying he wants us to stay in the single market, customs union and freedom of movement area. That will drive a big wedge between him and the many Brexit supporting Labour voters in the northern cties.

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The EU bill or leaving present

The government has been very clear that it will pay what we owe. It seems equally clear we only owe the regular contributions up to the date of departure.

Those who argue we will have to pay something more are arguing for an ex gratia payment or leaving present. We received no credit or down payment when we joined to reflect all those liabilities the existing members had signed up to, so we owe nothing for future liabilities when we leave.

Those who say you don’t leave a restaurant without paying the bill are right. But once you have left the restaurant you do not have to pay for other people’s meals who are still dining, nor do you get sent a bill later for the staff pensions.

Were Ministers to want to go beyond just paying what we legally owe they will need new primary legislation. Ministers in the UK do not have the power to give our money away to other governments or institutions without an express legal power from Parliament to do so.

The 9 month delay in sending the Article 50 letter has already cost us around £9bn of extra net contributions or ££15bn of gross contributions. Those who wish to delay our exit are wanting UK taxpayers to have to pay more to the EU.

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Now they want to misrepresent Margaret Thatcher’s offer to Japanese companies

Amidst all the negative lectures on the fall in sterling as a result of Brexit the gloom mongers ignore the movements of sterling against the yen, despite the yen being one of the world’s big four currencies with the dollar, Euro and pound. The renminbi has recently joined that top grouping at the IMF but there are still controls on financial markets in China.

I guess they ignore it because you could get 140 yen for each pound on 2nd January 2013, 140 yen for each pound on June 24th 2016 when we knew the vote result, and you can still get 140 yen for each pound today. It’s true in between the pound went up and went down a bit against the yen. Japan without a Brexit vote has also had a currency falling against the Euro over the last year. Her exporters are probably pleased about that, and her companies located in the UK probably relieved they have no currency issues with the UK for their UK based activities because there has been currency stability between the yen and the pound over the last twelve months.

I mention this because the issue of which currency Japanese companies use when basing an investment in the EU has been a live one. In the 1980s I was Margaret Thatcher’s adviser on policy including economic and business policy. We did decide to offer a welcome to Japanese inward investors, especially in the car industry. We always made clear to them that the UK did not seek to develop and join a common currency with the rest of the EU, and would stay out of the more federalist parts of the EU project. They said they could accept that.

I became a Minister in the Trade and Industry department. I helped develop the relationships with the main Japanese inward investors. My pitch to them was that we would represent their wishes along with other business in the UK in an attempt to limit the damage the EU’s wish to tax and legislate might cause, as we sought to shape a more business and customer friendly single market. They welcomed this approach and saw the UK did need to disagree quite often with the EU plans. Global companies were often privately critical of EU proposals and wanted the UK to amend or head them off.

In the 1990s Japanese companies expressed concern when I and others made the case to stay out of the Euro. There was talk of some inward investors from around the world deciding to move to the continent if the UK failed to join. We took this argument on, stayed out of the Euro, and the overseas investors stayed here. The Japanese came to see that you cannot eliminate all currency fluctuations and having a pound which might trade closer to the yen than the Euro does could have its advantages.

The UK government did not make a simple offer of invest in the UK and you will be part of the whole EU club as many are now claiming, because that was not true. The UK was at the same time as attracting inward investors making it crystal clear it wanted its own currency, border arrangements and the rest. We always ruled out joining the Schengen movement area. Many overseas investors liked the UK package and understood it was very different to the continental one. They will be swayed in future, as in the past, by the blend of UK policies and the attractions of the UK market and skilled workforce.

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Mr Draghi wants more free trade so why not accept the UK offer?

Mr Draghi’s recent speech about growth contained some important statements. He expressed concerns about the big increase in elderly people and the strain that will place on state budgets. He said that state debt and meeting state liabilities would become increasingly fraught if the productivity and output growth rates did not speed up. Whilst what he said seemed to mainly describe the economies of Spain, Italy, Greece and some other Eurozone countries, he sought to argue that all the richer OECD economies face these same issues. Indeed, he was a pessimist, expecting the OECD growth rate of 2% per annum pre crisis to slump now to 1% a year only.

So what was his remedy? Surprisingly his main recommendation was to intensify global competition in order to spread innovation and higher productivity more widely more quickly. He pointed to using international bodies to offer a common regulatory framework to make more international trade feasible in his terms. He gave as examples the Basel Committees and the FSB as global bodies for regulating the finance sector.

He had a notable omission from his speech. If he is keen to keep trade flowing with minimal tariffs and other barriers he should be urging his fellow officials in the EU and Eurozone to welcome the UK’s offer of tariff free trade with no new barriers. I wonder what held him back from making this obvious statement? Did he forget the clause in the EU Treaties which requires the EU to develop friendly and positive relations with neighbouring states, including free trade?

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Mrs Merkel backs a Euro budget, Euro Treasury and Euro Economics and Finance Minister

Today we learn that Mrs Merkel is responding positively to Mr Macron’s overtures for a more integrated EU government with more power and larger budget. It will be interesting to see just how much extra money in practice Germany wants to put behind these centralising initiatives.

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  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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