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Does Brexit really mean Brexit?

  • Asia
  • Brexit

12-12-2016

The future is another country. You can't tell what they will do there. But you can make informed predictions about the UK government's future policies.

Of course, all predictions are based on a stable economy - the government can only pursue policies if it can pay for them. But post-Brexit, the UK economy remains steady. Unemployment is at an eleven year low and consumer confidence strong. The UK is the world's fifth largest economy. It will ride Brexit.

Theresa May has long worked with the same advisers, including the clever (spectacularly be-bearded) Nick Timothy and formidable former Sky journalist, Fiona Hill. We can sketch May’s likely priorities from ideas developed with them:

1. Joseph Chamberlain

He modelled a gold monocle, chain-smoked Havanas and sported orchid buttonholes. Yet a century after his death, Chamberlain inspires the Prime Minister’s governing philosophy. He was Birmingham's flamboyant mayor, creating new housing and infrastructure. Then he became a radical Conservative Unionist, reaching out to the "great working classes" to cure "excessive inequality".

2. The Governing Idea

Nick Timothy wants to update Chamberlainism and give the Conservative Party an “Erdington modernisation”. Erdington is a working class Birmingham constituency, with a small Labour majority. For Timothy, Erdington modernisation means "adopt[ing] a relentless focus on governing in the interests of ordinary, working people". Reaching out to them in "Brixton, Birmingham, Bolton or Bradford" to improve life chances and reduce inequality.

There were strong Erdington echoes in May's first prime ministerial speech. She spoke to "ordinary working class famil[ies]": "The government I lead will be driven, not by the interests of the privileged few, but by yours."

The approach brings another advantage. As the Brexit vote showed, many working class voters have shifted to the right of the Labour Party. That could make Erdingtonism electorally magnetic in Labour heartlands, perhaps the greatest Conservative election-winning opportunity since Spandau Ballet were wearing puffy pants. If most decisions have to pass the Erdington test - "What does this do for ordinary working people?" - a number of policy positions follow.

3. Brexit

Brexit policy is driven by the government's analysis of the reasons for the Leave vote. Many Brexit voters were at the sharp end of zero hours contracts, low wages and unaffordable housing. They often face fierce job competition from young, better qualified EU nationals. The benefits of globalisation had not reached their stagnating areas and were not working for them.

So the government is absolutely determined both to deliver Brexit and address their economic and social needs. This gives Erdingtonism an even more relevant bite.

The road to Brexit is hard and winding, but Theresa May's government has good reasons for confidence. At home, the Prime Minister has a 28 point lead over the Labour leader. Scottish opinion has not, as was feared, moved in favour of independence. There is a cross party consensus that Brexit must be delivered and MPs have just voted to serve Article 50 before March 2017. Now, only the type of Brexit is in vehement dispute. This stable domestic background is matched by an international order shifting in the UK favour.

Take one issue as an example. Senior EU politicians and officials are determined that the price of free market access will be free movement of people. For the UK, this is the Brexit negotiations’ Catch 22.

However, the government has given itself much more flexibility on this issue than at first appears. It constantly says the referendum was a clear message to get “more control” of EU migration. But “more” can mean anything from minimal to massive. It is also possible the EU’s free movement red line may not survive the French, German and Dutch elections - all due soon. In a world where Trump is now top, the UK’s capability to contribute to EU security may also become a useful negotiating card. David Davies, the Brexit minister, has now said plainly that would be prepared to pay for single market access. Together, these elements may unbind the free movement versus Single Market knot.

The negotiations themselves must be orderly, transparent and build in a transitional period. This avoids “road runner risk” – a cliff edge deal suddenly appearing under the sector’s flailing feet. Jamie Dimon, the JP Morgan chief executive, has lobbied Philip Hammond directly (as has the BBA) for a long transitional period. Without it, banks and financial services businesses may be forced to plan for the worst case scenario – and nobody wants that.

So the government should approach the Brexit negotiations boldly but subtly, securing sector by sector deals for the UK’s core industries. They are right to be confident that they can secure the balanced Brexit Britain needs.

4. Immigration

The referendum revealed a visceral desire to control EU freedom of movement - the Erdington philosophy will guide the way. May has dismissed the expected points system. So a combined package of immigration reduction policies now looks likely: probably a blend of stricter visa/work permit control, anti-abuse measures (building on her Home Office work) and ultimate government flexibility to impose further restrictions. The government may seek to favour EU nationals as part of fishing for a deal on single market access.

5. Infrastructure

The government is undoubtedly still committed to regional regeneration and investment. After all, it aces the Erdington test by helping the UK's ordinary working people to flourish. The government has confirmed the trans-Pennine rail link and May has mooted infrastructure bonds. The government has shown its infrastructure colours by backing Heathrow, HS2 and Hinkley Point C. Infrastructure remains a huge opportunity for investors though, with the UK needing to address a £45 billion annual infrastructure spending deficit.

6. Real Estate and Welfare Reform

The UK's ageing population will struggle to sustain the current welfare system. John Godfrey, May's Head of Policy, has suggested extending auto-enrolment for people to contribute to their own life cover, income protection and so on. This would restore Chamberlain’s long-desired link between welfare contributions and benefits and could be achieved by tax incentives and "soft compulsion". Investors in real estate are well placed to capitalise with long-term real asset returns perfect for matching future mass liabilities.

7. Conclusion

The UK government has ambitious rebalancing plans for the UK economy to reduce geographical and social inequality. Internationally, the UK is committed to global free trade and to the encouragement of inward investment. This makes the UK and Asia natural partners. In a world at risk of becoming more closed, the UK is determined to be ever more open for business. Any country hoping to build a successful international economy must be deeply engaged and open to China and Asia. This truth transcends Brexit and ensures the UK and Asia will have a long term and lucrative relationship for centuries to come.

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