Tuesday 11 December 2018

Historic and toxic Tory ideology weakens UK's bargaining hand

Conservatives have a history of splits over trade policy - Brexit is just the latest, writes Blair Horan

'Conservatives have a history of splits over trade policy'. Photo: Getty Images
'Conservatives have a history of splits over trade policy'. Photo: Getty Images

Blair Horan

The UK Conservative party has a history of divisions over trade policy - so a split, which could lead to a second referendum, cannot be ruled out.

The weakness of the UK's negotiating position has been brutally exposed in the negotiations to date. Next up, a shattering of the illusion that the UK can have a bold and ambitious trade agreement that mirrors existing single market access, without the obligations of membership.

Both post-war Labour and Conservative governments stood apart from 'Europe', because sovereignty and the empire were prioritised. The UK's preference was for a free-trade agreement in Europe, similar to the later NAFTA deal agreed between the US, Mexico and Canada. However, the six countries in the European Coal and Steel Community chose instead to create a unified continental scale market, which economically is closer to the US federal model. This structure requires a much greater pooling of sovereignty, which in Britain is viewed as a loss of sovereignty.

The Brexiteers' main objection to the EU is their claim that it has changed from the original common market, which was approved by Britain's 1975 referendum. However, the red lines set out by Theresa May - an end to free movement of people, budget contributions and the jurisdiction of the European Court - are all core provisions of the founding Treaty of Rome.

The UK has either an opt-out or a veto in respect of all the key competences subsequently agreed, with the exception of the Single European Act 1987, which Britain championed because it removed restrictions to create the single market.

The truth is that the Conservative party has been captured by a toxic ideology, which is a potent mix of extreme free market economics and English nationalism. There is nothing unique about this development, but every likelihood that it will split the party during the Brexit negotiations.

In 1846, Conservative prime minister Robert Peel split his party to push through the abolition of the Corn Laws, which set the UK on the path to free trade. Peel had become convinced by the case for free trade, though it was the emerging Irish Famine which led to his decision. A large majority of his party remained protectionist, and suffered electorally for a generation. Peel, and not his party, was on the right side of history.

'Radical Joe' Chamberlain was a Liberal who split with Gladstone over Home Rule and later joined the Tories. In 1903, he started the Tariff Reform League which proposed an end to free trade to create a system of imperial preference within the empire.

The idea of a free trade area or a customs union for the empire was not a practical proposition, due to the geographical spread and very different levels of development. Also, it made no economic sense for the UK to introduce tariffs, because more than 75pc of its imports were either food or raw materials for industry. Nonetheless, his idea captured the Conservative party which was decimated in the 1906 election.

In 1909, the chancellor, Lloyd George, set a trap for the Tariff Reformers with his 'People's Budget' which would pay for old age pensions by introducing land taxes and a super tax on the well off. The Conservative party opposed the tax rises and proposed tariffs instead, with the slogan 'Johnny Foreigner' should pay.

Both the Liberal and Labour parties presented that choice as taxing the people's food instead of the landlords and the rich. As a result, the Conservatives failed to win the two elections in 1910. Yet again in 1923 the Conservative prime minister Stanley Baldwin, with a secure majority, called a new election over tariff policy and lost, ushering in the first Labour government.

For that period, the policy made little economic sense and was a vote loser, but it had become an article of faith within the party. In the February 1932 budget, during the depths of the Great Depression, chancellor Neville Chamberlain introduced tariffs across the board as a prelude to imperial preference, which was agreed in Ottawa that summer. He finished his speech, by saying how proud he was to have completed his father's great work. In 1937 as prime minister, he removed the head of the Foreign Office and then abandoned plans for an expeditionary force, as he pursued a policy of appeasement of Nazi Germany.

Britain would prioritise her empire, and the Nazis would dismember Europe.

It was the political side to imperial preference. Harold Macmillan, as prime minister, led the post-war UK back towards Europe in 1961 with the EEC application. The Commonwealth complicated the negotiations, as Britain sought to retain imperial preference, which contributed to De Gaulle's veto in 1963. Macmillan, correctly, feared political and economic isolation because the US strongly supported political integration in Europe, as a bulwark against the Soviets. The US, after more than 150 years of protectionism, had moved towards free trade in 1934 and consistently opposed imperial preference, before, during and after the war.

The Brexiteers claim to be free traders, but just like the protectionist Tariff Reformers, they are willing to abandon the best free trade arrangement, which is actually available and on their doorstep. The evidence shows that, unlike emerging markets which suit capital goods exports, the EU single market is the best match for the UK's mix of exports.

The single market Norway option is available to the UK, but it is very difficult to see how the British political class could live with being a rule taker, with no political input into decisions affecting the City. The referendum call to 'Take back Control' would become 'Losing all Control', because all the key EU rules would still apply.

If the UK remained in the customs union, like Turkey, it would preclude UK trade agreements, and open UK markets to third countries with no guarantee of reciprocity. Either option would split the party.

The Canada option, possibly with some additions, is all that is likely to be offered to the UK, because the EU27 will not compromise the integrity of the single market. However, it would give very limited access for the 40pc of UK services exports to the EU, and consequently would not be approved by the House of Commons.

Thus, Britain will face a stark choice this year. A return to the geopolitical position it last faced in the late 1950s, adrift in the world, politically isolated and economically weakened.

Alternatively, the difficult decision, possible but far from certain, that the UK votes again.

Blair Horan is secretary of the trade union Charter Group which campaigns for a social Europe. This article is based on a paper titled, 'The Peelites, the Tariff Reformers and the Brexiteers: the history of Tory party divisions over trade and the implications for Brexit' issued later this month

Sunday Independent

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