Thread by @docrussjackson

#THREAD

Free to read article: 'The origins of ‘cakeism’: the British think tank debate over repatriating sovereignty & its impact on the UK’s Brexit strategy', exploring the notion the UK could keep certain EU benefits, or not suffer costs after Brexit.

tandfonline.com/doi/full/10.10…

The analysis demonstrates how the assumptions behind what article author Andrew Glencross calls #cakeism, originated after 1992 in policy circles associated with #TuftonStreet 'think tanks' & the Conservative Party, particularly the European Research Group (ERG).

They argued that a free-trade alternative to the EU was easy to put in place by simply disaggregating preferred elements of the single market from supranationalism.

A Westminster-centric perspective also meant these proto-Brexiters were unable to countenance any potential domestic disruption caused by leaving the EU.

During May’s Brexit negotiations, European Research Group MPs resorted to cakeist arguments that reprised the same assumptions about international trade and the unitary nature of the UK state articulated well before 2016.

Cakeist ideas helped scupper May’s customs plan and paved the way for Johnson’s free trade deal, thereby demonstrating the enduring influence of the early think-tank debate on leaving the EU.

The article explores the key role & influence of Brextremist Daniel - now Lord - Hannan, who after graduating in 1993, became the first director of the Eurosceptic European Research Group, an organisation for Eurosceptic Conservative MPs chaired by Michael Spicer.

Hannan, The Conservative MEP dubbed ‘the intellectual godfather of what became the Leave campaign’, led the charge when it came to portraying the EEA or EFTA as a mechanism for obtaining the benefits of free trade without constraints on sovereignty.

Hannan's 2005 The Case for EFTA, a Bruges Group publication, sought to make the case for replacing EU membership with EFTA on the basis that Switzerland, Norway, Iceland, and Liechtenstein ‘have found a way to have their cake while guzzling away at it’.

Hannan emphasised the ‘freedom of action’ supposedly enjoyed by EEA countries & Switzerland via its bilateral trade deals. Concerning the single market, it is ‘more accurate to think of integration on an issue-by-issue basis: defence, fisheries, free movement of people & so on’.

This cakeist framing of the EEA thus ignored the consensual nature of EEA-EU harmonization & did not dwell on the trade frictions arising from these countries being outside the customs union. Rather, Hannan emphasized that: "[EEA] parliaments can always...

...ignore an EU regulation that they deem deleterious to their national interests. This might theoretically open them to the charge of breach of treaty obligations under international law or, even more implausibly, lead to their expulsion from the EEA by the other members....

But it is hard to imagine that the EU states would choose to take such drastic action over a question of essentially domestic concern."

This notion that the EEA does not compromise sovereignty because of the possibility of cherry-picking EU regulations became a commonplace.

What was overlooked, therefore, was the way the EEA is structured formally, via the EFTA Court and the Surveillance Authority and, informally via diplomatic channels, to create enormous pressure to avoid a breach of treaty obligations.

This free market critique of the EU instead saw the EEA as precedents for disaggregating EU obligations, something the greater economic and political heft of the UK would facilitate.

Significantly, these Eurosceptics had no fundamental problem with accepting free movement of people as part of this looser relationship.

Even in 2011, when political repercussions of Eastern European immigration were clear, a Bruges Group paper noted ‘some feel that the free movement of people from Eastern Europe could have been phased differently, however keeping the EEA is a fast track to creating jobs’.

Ultimately, the central message of advocates of Brexit avant la lettre was the ability to repatriate sovereignty while crafting a free trade arrangement with the EU that left maximum regulatory flexibility.

The claim that the single market could be disaggregated, if the UK so desired, presupposed leaving the EU had minimal costs. Foreshadowing the future Vote Leave campaign, Hindley & Howe asserted that ‘everything suggests... that a British departure would be negotiated & orderly’.

This confidence stemmed, in the words of Hannan, from the conviction that ‘instead of having to negotiate from outside to join the things we liked, we would be in the happy position of withdrawing from the things we didn’t like’.

Lord Pearson, a co-founder of Global Britain & onetime leader of UKIP, followed this line of reasoning in a 2005 Civitas publication in which he declared that ‘if we left the EU, they would come running after us to make sure we signed a free trade agreement with them’.

A 2004 Civitas (a spin-off from the IEA) report authored by Ian Milne, director of the Global Britain think tank launched in 1997, contained similar bromides about the uncomplicated nature of EU exit.

In words resembling many pro-Brexit referendum speeches, Milne wrote ‘straightforward uncomplicated mutual commercial self-interest would rapidly assert itself over any initial petulance & ensure that post-withdrawal, UK-EU trade would be as free, if not more so, than it is now’.

ERG MPs, albeit in varying numbers, voted three times against May’s withdrawal agreement with a UK-wide customs ‘backstop’ to prevent a border on the island of Ireland if this could not be accomplished by a future FTA, a key reason why she failed to get her Brexit deal ratified.

The ERG's opposition to making Northern Ireland a central preoccupation stemmed not from unionism, but from a cakeist & profoundly mistaken belief that border issues were exaggerated and could be solved via technological means.

The ERG’s motivation behind minimizing the costs of leaving the single market and the customs union, even in the absence of an orderly departure or transition period, can be explained by their expected payoff from signing new trade deals.

The counterpart to painting the EU – just as the proto-Brexit think tankers did – as an anti-competitive protectionist bloc was the belief that economic growth could be maximized via FTAs based on lower regulatory standards covering agricultural goods or data privacy.

The obsession with regaining sovereignty over international trade was at the heart of ERG’s subsequent campaign to limit UK-EU regulatory alignment as part of the second phase of Brexit negotiations.

The principal ERG fear during the 2020 FTA talks was that UK regulatory autonomy would be emasculated by the EU’s insistence on ‘level-playing field clauses’ that went beyond those in place for FTAs with Canada or South Korea.

Agreeing to such terms would limit the UK’s ability to pursue market deregulation, which proto-Brexiters had long argued was both a benefit of leaving the EU and a way to compensate for subsequent trade friction with the single market.

Hindley and Howe had highlighted NTBs hampering UK access to the single market could be offset by ‘the policy choices made by the British Government after leaving – in particular, the extent to which it engaged in a bonfire of existing EU regulations’.

https://twitter.com/docrussjackson/status/1615641600880689152?s=20&t=RcQ_lH8yb-GgVeAxgLmo4A

In the ERG's opinion, the ‘“level playing field” clauses go further than in comparable trade agreements, but their impact on the practical exercise of sovereignty is likely to be limited if addressed by a robust government.

'In any event they do not prevent the UK from changing its laws as it sees fit at a risk of tariff countermeasures’. Moreover, the ERG legal guidance highlighted the fact that if EU countermeasures became unacceptable ‘the Agreement could be terminated on 12 months’ notice’.

In other words, the UK had crafted an FTA that specifically allayed ERG concerns that in turn built on a proto-Brexit understanding of international trade that minimized the significance of NTBs.

Johnson acknowledged this cakeist logic by promoting the TCA as proof that leaving the EU provided a better trade posture by supposedly replicating the advantages of frictionless trade with the single market while creating new opportunities for new domestic policies, & new FTAs.

What this article has shown is that the intellectual origins of Brexit help make sense of the complications facing the UK government’s attempt to enact the 2016 referendum result and how they were resolved.

The arguments marshalled against EU membership – long before the Leave campaign was created – were beholden to a particular set of assumptions about international trade and the ease of leaving the EU without disrupting UK politics.

After the 1992 Maastricht treaty, a small circle of think tankers and policy analysts with links to the Conservative Party started a debate on repatriating sovereignty and explored the advantages of EU withdrawal.

Their arguments were fundamentally cakeist in assuming that the advantages of the frictionless single market could be replicated without regulatory harmonization and that leaving the EU carried no substantial risk of domestic economic or territorial disruption.

The promotion of this policy narrative underlines Stone’s point that (#TuftonStreet) think tanks help provide ‘the conceptual language, the ruling paradigms, the empirical examples, that then become the accepted assumptions for those making policy’.

onlinelibrary.wiley.com/doi/10.1111/j.…

Cakeism gained a new political prominence during the Brexit negotiations when assumptions about a smooth and generous UK withdrawal settlement were finally put to the test. Of course, both phases of the UK-EU negotiations had their own political and bargaining logics.

The analysis presented here demonstrates how the ERG’s adoption of cakeism – both in relation to underplaying the significance of the single market & the Irish border in order to emphasize the importance of regaining trade sovereignty – contributed to shaping Brexit outcomes.

The actions of the ERG in the period 2017–2020 only fully make sense when connected to the intellectual origins of Brexit developed at a time when the EU’s resolve to preserve the single market was unclear.

The fact that the ERG and Boris Johnson spoke the same language of cakeism shows the enduring influence of the early debate that leaving the EU would have no significant consequences.

How very VERY wrong Boris Johnson & the ERG were - and still are.

ft.com/content/e39d03…

Before the 2016 referendum, Brexiters such as Lord Daniel Hannan, an adviser to the Board of Trade, worried that having close trade ties with EU held back the UK economy. Britain was “shackled to a corpse”, he said.

But since the eve of the pandemic, the UK’s economy has underperformed compared with every other #G7 country.

The OECD expects the UK’s performance over the next two years to be worse than any other advanced economy bar Russia.

In two areas, there is now a clear consensus allowing them to say with certainty that the Brexit hit to UK prosperity was, as Swati Dhingra, an external member of the BoE’s Monetary Policy Committee, recently remarked, “undeniable”.

First, sterling depreciated more than 10 per cent after the Brexit vote in 2016 and has remained at this level ever since. This drop raised import prices, business costs and inflation, but failed to boost wages, exports or the competitiveness of the UK economy.

The Resolution Foundation estimated that the depreciation raised import prices and overall inflation. It calculated that as a result real wages fell 2.9 per cent, costing households £870 every year on average.

The second clear effect is on business investment, which has flatlined in real terms after 2016 before falling during the pandemic. Brexit resulted in a rise in the cost of capital for UK companies as investors worried about diminished prospects of doing business in Britain.

While other countries also saw weak business investment during the pandemic, the effect was much worse in the UK and looking at EU and US trends “suggests a material undershoot [of investment] of around £60 BILLION a year”.

Numerous results of studies now appearing suggest very large drops in trade between the UK and the EU, a decline in the variety of goods traded, a loss of trading relationships between companies and similar patterns in services.

“There is strong evidence the TCA has reduced the UK’s trade with the EU around 15% so far” - Thomas Sampson.

The UK’s trade with the rest of the world has also decreased by similar amounts.

Martina Lawless, a research professor in Ireland’s Economic and Social Research Institute, said Brexit had been “substantially negative” for the UK with her estimates showing declines in EU imports and exports of “close to 20 per cent”.

Almost every country except the UK saw a trade boom in 2021.

Professor of economics Jun Du finds that imports to the UK from the EU have largely recovered, but she estimates exports to the bloc are now 26% lower than they would have been without the new barriers to trade.

The effect of this can be seen most clearly in goods trade, where there are technical barriers and more stringent border checks.

There has also been a large drop in the number of goods traded, with varieties dropping to 42,000 from 70,000 before new rules came into effect.

Smaller companies are hardest hit because the barriers are a more significant cost relative to the value of trade: “[Small companies are] not just unproductive firms, but also new firms — that’s why we're worried about future growth — when you lose that, your pipeline breaks”.

“There is little dispute that trade has been damaged [by Brexit] big time”.

Similar evidence is emerging in the services trade, but so far, ministers have simply rejected the economic evidence. J

Jeremy Hunt, the chancellor, recently said that he did not accept the OBR’s estimate that Brexit had caused a 4 per cent hit to the UK economy.

“There are big opportunities for us to become much more wealthy than we would otherwise have been!”
🤪

The government has not quantified these potential gains, and where it has — such as for the Australia trade deal — they were estimated to be tiny, raising output by just 0.08%.

Economists say this is scant compensation for the economic losses the country has suffered so far.

“We know now that Brexit has made UK households worse off by raising the cost of living and it has made life harder for UK firms [by increasing trade barriers], and this has made the UK poorer,” said Thomas Sampson, associate professor at the London School of Economics.