Brexit Britain will pay a heavy price for limiting free movement

Debate about ‘trade’ seems to have forgotten that a good three-quarters of the UK's GDP comes from the service industry and that free movement of people is essential for this to occur 

Click to follow
The Independent Online

As matters stand, Boris Johnson’s mouth is probably the most important single organ of any government in the world. For it is the sole source of reliable, we assume, intelligence about the Government’s policy on economic life after the European Union. Mr Johnson is often ridiculed and, by his political mistress, castigated for his outspokenness, deliberate or accidental, but we should be grateful for his incredible unstoppable candour. It is he who has now told the world, via a Czech newspaper, that the Government thinks that Britain will “probably” leave the EU customs union, an assumption many have already been making on the basis of what we think we know about the instincts of the International Trade Secretary, Liam Fox. From the tone of his questions as a member of the newly minted Brexit Select Committee, it is also the view of Michael Gove, hoping as he does for a “quickie” divorce.

Life outside the customs union, though, is some way away from the ambition of the Prime Minister to secure the greatest possible access to the single market. “Greatest possible” may mean “not much”. It is a logical impossibility for the British to want to retain tariff-free access to its largest market for goods and services, but to wish to opt out of that customs union so far as the common external tariff is concerned. That is not a customs union. This contradiction seems to have been at last recognised by the Brexiteers. The implications of it, though, have not been publicly admitted; namely that opting out of the customs union does indeed make life much more difficult for those who wish to do business in Europe.

The British insistence on scrapping the free movement of people obligation is also not going to be a one-way affair, no matter how much Mr Johnson thinks it can and should be. Contrary to his opinion, the free movement of labour is indeed a founding principle, enshrined in the 1957 Treaty of Rome. If EU nationals cannot easily come to work and live in Britain, then a reciprocal arrangement with the rest of the EU is going to be commensurately more difficult achieve. So much of the debate about “trade” with the EU concerns goods and tariffs that it seems to have been forgotten that a good three-quarters of the UK's GDP and the UK’s exports to the rest of the EU comprise services, and that the free movement of people is often essential to that – notably in financial services. It is not impossible for a country’s citizens to be outside the EU and have access to the UK, as the number of Japanese and American bankers in London readily demonstrates, but it is not going to be the same with the Europeans. If the UK is going to impose visas and the rest on the EU, then they will do the same to UK citizens, and those resident and retired for that matter on the Spanish costas.

One route for the UK would be to become a more unilateral free-trading nation in goods and services; Ms May hinted at this in her Mansion House speech earlier in the week. But even if Britain were to do so, that once again begs too many questions about the movement of people. The day when it is easier for a German engineer or banker to find a home and accommodation in France than in Britain – as will soon be the case – is the day when a significant comparative advantage for the UK will be surrendered. We can try and offer subsidies, to offer lower income and corporation tax rates, to scrap bureaucracy to compensate for the losses; but that is simply to restate the way that the UK will pay for Brexit as an unforced error in economic policy. Looking at the UK’s restrictive visa policy towards China and India, there seems little chance either that the loss of human capital from Europe will be made up by a new wave from the much-vaunted fast growing leviathans of the East.

Brexit may mean, true enough, that Britain will regain control of its borders – but it will also find fewer people actually wanting to come to Britain to work. There will be a high price to pay for limiting immigration. That, as with so much else about Brexit, is becoming a bit of an open secret.

As it becomes clearer that the UK will not obtain anything like the deal the Brexit campaign suggested was possible, the case for a second referendum grows ever stronger. When the terms of exit are negotiated and agreed, then an informed decision to confirm withdrawal can be taken by the British people. So far, the signs are the British will be offered a rather meagre settlement, and that ministers are coming to face that reality, if not to confess that truth to the rest of the nation, of the abject position the country finds itself in.

 

Comments