ft election

Britain has spent much of the past 75 years in a struggle to avoid adjusting its international ambitions to diminished economic circumstance. Managing relative decline, this is sometimes called. Others prefer to talk about “punching above our weight”. Ask serious students of defence why Britain is modernising its Trident nuclear missile and has just launched two aircraft carriers and the answer is summed up in two words: national prestige. Standing alone in 1940 looms large in the nation’s collective memory. A stubborn reluctance to surrender imperial pretensions has battled a weak economy at home and decisive shifts in the geopolitical balance abroad. It has usually taken a series of economic crises to realign grand ambitions with actual capabilities. The shock of Brexit may well force another such reassessment. There was nothing complicated about the outcome of this month’s general election. In Boris Johnson, the voters were offered a Conservative chancer waving the flag of English nationalism. Labour leader Jeremy Corbyn’s pitch was that of a hard left ideologue who generally sees the west as a villain. Anyone with an acquaintance with George Orwell could predict that the working classes might well break the habit of a lifetime to lend their votes to the Tories. Re-elected with a handsome parliamentary majority, Mr Johnson has confirmed January 31 as the date for Britain’s EU exit. The parting of the ways after 47 years will demolish the European pillar of Britain’s foreign policy. The prime minister says it will be replaced with an expansive vision of “Global Britain”. So far this amounts to no more than an empty slogan. What is needed instead is a hard-headed assessment of how best to safeguard the national interest once Britain sits outside the framework of the EU — and a subsequent willingness to realign once again aspirations with available resources. Mr Johnson seems to think that all will be well if only the country “gets its mojo back”. In truth, if Britain wants to keep hold of a reputation as a well respected nation it cannot continue to pretend to be a great power. The over-reach is obvious in the shape of the armed forces, calculated to convey the appearance of a pocket superpower. Refusing to admit that Britain no longer possesses across-the-board, or full-spectrum, forces, successive defence ministers have hollowed out many essential capabilities. The money is being spent on aircraft carriers without any obvious strategic purpose and on hugely expensive state of the art American fighter planes to sit on their decks. Modernisation of the submarine-based Trident nuclear missile system is swallowing another large slice of the budget. What unites the two programmes is that they say a lot more about burnishing Britain’s prestige abroad than about meeting real threats to its national security. If the latter were the priority the resources would be going in to cyber warfare, airborne and seaborne drones and space defence. The election changed decisively the arithmetic at Westminster. Everything else, though, remains the same. Mr Johnson’s insistence on an end-2020 deadline for negotiations with Brussels means the best Britain will get from the EU is a bare bones deal covering trade in goods. The damage to the economy inflicted by Brexit will thus be at the pessimistic end of expectations. The facts of geopolitics are likewise unaltered. The Pax Americana is ending as power shifts to China and other rising states and the US grows ever more reluctant to assume global leadership. The rules-based international system is fragmenting. Coming decades will more closely resemble the great power competition of 19th-century Europe than the end-of-history liberal order many imagined would persist after the end of the cold war. These are all trends that will leave Britain — a middle-ranking nation with widely dispersed global economic and security interests — more vulnerable than most comparable democracies. The last time the UK claimed a serious global role was during the 1960s when it operated a string of military bases across the Middle East and south-east Asia. After sterling’s devaluation in 1967, Harold Wilson’s government beat an enforced retreat from the last outposts of empire east of Suez. The withdrawal from Singapore and the Gulf marked Britain’s admission it was a European rather than a global power — a shift cemented by joining the European Community. Half a century later, Mr Johnson’s government proposes to turn things on their head. Britain, we are to suppose, is once again a global power. The prime minister intends to send one of the navy’s carriers for a brief spin in the South China Sea to prove the point. American F-35 fighter planes will fill many of the spaces on deck because the government cannot afford to buy sufficient aircraft for both ships. This charade will soon reach beyond absurdity. The 2016 referendum and the election have settled the issue of EU membership. Britain is leaving the union. But the facts of economic life and national security have not changed. The EU27 will remain Britain’s largest economic partner; and the main threats to its security will come from within or just beyond the European neighbourhood. The Nato alliance with the US will remain the vital pivot of national defence. Outside as much as inside the EU, Britain’s overall security will rest on these two sets of relationships.


The economic divide between London and the rest of the UK widened last year, according to official data released on Thursday, underlining the challenge facing the new Conservative government, which has pledged to prioritise investment in the poorer regions that helped propel them to a resounding victory over Labour in last week’s election. The UK capital recorded a 1.1 per cent annual rise in output per person to £54,700 in 2018, increasing the per capita gap with the poorest region — the North East — where growth was only 0.4 per cent to £23,600 per head, according to data from the Office for National Statistics. “Today’s figures confirm the scale of economic performance gaps across the UK, which are belatedly — and rightly — attracting a lot of political attention,” said Charlie McCurdy, researcher at the Resolution Foundation.  The worst performance was in Northern Ireland, the only one of the 12 UK regions where real GDP per capita dropped, down 1.1 per cent last year to £26,000. In contrast the West Midlands and the East of England were the best performing regions, with both outstripping London in terms of per capita output growth. “It’s great to see strong growth in some regions — especially the West Midlands. We will invest across the country to level up and unleash opportunity and prosperity,” said Sajid Javid, the chancellor. After securing 59 seats from Labour, mainly in Leave-supporting areas of the Midlands and northern England, that helped the Tories secure an 80-seat Commons majority, Prime Minister Boris Johnson pledged to spend a large chunk of a £100bn infrastructure investment fund over five years in those areas. Thursday’s ONS data underlined the challenge to bridge the gap in regional output, not only in per capita terms but also as a contribution to the national economy, given the stronger population growth in London. Overall, London GDP rose 2 per cent last year, compared with 1.4 per cent nationally. In the North East that figure was 0.9 per cent, while in Northern Ireland it fell 0.5 per cent.  The regional disparity “poses a real challenge to the new Conservative government, especially as Brexit looms”, said Ron Martin, professor of economic geography at Oxford university. “Geographically unbalanced growth means not only lower prosperity in much of the UK outside London, but has undoubtedly been a source of popular disaffection.” Mr Martin argued that “although much political rhetoric has been directed at addressing this spatial imbalance since the coalition government was elected in 2010, little obvious improvement has occurred”. Last year, London was 41 per cent richer than the national average, up from 37 per cent in 1998. The capital region now accounts for 23 per cent of the output produced in the country, up from 19 per cent in 1998. “Whilst there has been evidence of regionalisation for some time, the disparity in economic performance between London and the South East and the rest of the UK appears to be accelerating rather than receding,” said Seamus Nevin, chief economist at Make UK, a manufacturers organisation.  “Such a disparity has major implications for the productivity and growth prospects across the UK, especially those regions furthest away from London and who have the most ground to make up.”


When Boris Johnson won his majority last Thursday the initial assumption of many commentators was that he would pivot to a softer Brexit. There were two reasons why people took this view. First, observers assumed the prime minister would use his large majority to face down the Brexit hardliners in the European Research Group, allowing him to go for a closely aligned free trade agreement with the EU that safeguards the British economy. Second, some took the view that the election of large numbers of Conservative MPs from areas with a high reliance on manufacturing industry would pile pressure on the PM to protect supply chains by ensuring a frictionless trade deal. In the past few days the mood has changed. Two factors suggest that Mr Johnson will continue to seek a hard Brexit when he negotiates with Brussels on an FTA — with the added risk of a no-deal outcome.  First, he has ruled out the possibility of extending the 11-month standstill transition that begins after the UK formally leaves the bloc on January 31. Technically that transition could be extended until December 2022. But the government is legislating in its revised Withdrawal Agreement Bill that it can’t be extended, implying there will be a hard deadline for a trade deal this time next year.  Second, senior government figures are letting it be known that, far from wanting a soft Brexit that leaves UK regulations in high alignment with the single market, they want a clean break. In a briefing today for Eurasia Group, Mujtaba Rahman says senior government figures see the “capability to diverge” as the big “prize” in future UK-EU negotiations. He quotes one cabinet minister as telling him: “In certain areas we will be European; in other areas we will choose ourselves. Japan and Canada have commercial relationships. That is what we want.” This is a high-risk choice by Mr Johnson. He seems to think that the EU will agree a zero-tariff, zero-quota free trade agreement next year, even if the British make no commitment to dynamically align with EU regulations in future. But it’s very hard to believe that member states will agree to this.  As Peter Foster writes in the Telegraph: “The EU has made clear that the ‘size and proximity’ of the UK to Europe means that the UK will need to sign up to EU rules to guarantee the ‘level playing field’ if it wants to be the only country outside the EU’s customs union to get ‘zero/zero’ access to the single market.”  So there could be a stand-off, and it is possible that no mutually acceptable landing zone will materialise by the end of 2020. Mr Rahman therefore assigns a 15 per cent to 20 per cent risk of there being no UK-EU deal next year, and that the UK will leave and revert to WTO tariff schedules.  I find it hard to believe that Mr Johnson will end up going down the no-deal road, imperilling the UK economy — and the living standards of his northern English voters — just a year after winning such a handsome victory. But potential investors in UK assets will be depressed to find that 2020 is about to be another year of uncertainty for the UK economy. Indeed, last week’s euphoria on stock markets is already fading.

Britain will suffer more than the EU if the two sides cannot broker a trade deal by the end of next year, the president of the European Commission has warned in a response to Boris Johnson after the UK prime minister ruled out extending talks. Ursula von der Leyen said the timetable for building a future relationship with Britain was “extremely challenging”, given that the UK’s post-Brexit transition period will expire at the end of 2020. She said negotiators would do their best in the “very little time” available. Mr Johnson this week categorically dismissed the possibility of asking for any extension, and senior UK government ministers such as Michael Gove have insisted that there is enough time to do a deal. But EU officials have warned that the deadline will limit the scope of trade talks, as the two sides will have to concentrate on preventing a breakdown in core economic relations. Speaking to the European Parliament on Wednesday, Ms von der Leyen made clear that the UK stood to bear the brunt of the damage if a deal were not reached in time. “In case we cannot conclude an agreement by the end of 2020, we will face again a cliff-edge situation,” she said. “This would clearly harm our interest but it will impact more the UK than us, as the EU will continue benefiting from its single market, its customs union and the 700 international agreements we signed with our partners.” Those international agreements provide European companies with a web of market access rights to non-EU countries, covering everything from fishing to aircraft take-off and landing slots. Britain has been racing to negotiate replacement deals for at least some of these before the end of the transition period. Speaking in the same European Parliament session, Michel Barnier, the EU’s chief Brexit negotiator, made clear that the entire future relationship negotiation could not realistically be wrapped up by the end of 2020. “We can’t do it all, but we will give it our all,” he said. “If we want to give this relationship all its dimensions, we need to give it more time and continue beyond the end of the transition, continue to work with the British and negotiate,” he said. On the trade negotiations, Mr Barnier said the EU’s willingness to open its market would depend on how far Britain was willing to stick close to the union’s regulatory standards. “Does it want to distance itself, and if so how far, from our regulatory model?” Mr Barnier said. “It is the answer to this question that will determine our level of ambition.” Ms von der Leyen said Brussels would organise negotiations “to make the most of this short period” before the end of 2020. Brussels hopes that its draft mandate for the negotiations will be approved by EU governments in February, allowing talks to begin on March 1. Ms von der Leyen’s comments were her first on Brexit since it became clear that Mr Johnson will legislate to ban himself from extending the transition period. Under the terms of Britain’s EU divorce treaty, the UK would need to make any extension request before July 1 next year. Commission officials on Tuesday briefed EU27 diplomats that, for legal reasons, it would be difficult to grant an extension after July 1, even if trade negotiations were bogged down in the second half of the year and both Britain and the EU agreed that more time was needed. Two EU officials told the Financial Times that a British extension request made after July 1 would need to be handled through the negotiation and ratification of a new international treaty. A cliff-edge scenario “is clearly not in our interest”, Ms von der Leyen said, adding that she hoped that Britain and the EU would be able to build “an unprecedented partnership”. “I want us to become good neighbours with our friends in the United Kingdom”, she said.

The Bank of England is counting on a post-election boost to the UK economy, with policymakers leaving interest rates on hold on Thursday despite mounting evidence that growth ground to a halt in the final months of the year. The central bank said it expected gross domestic product to rise “only marginally” in the fourth quarter of 2019 but added that this was still consistent with its November forecasts, which predicted that growth will pick up in the spring, assuming “combined support from lower uncertainty, easier fiscal policy and somewhat stronger global growth”. Minutes of the Monetary Policy Committee’s latest meeting said that despite a breakthrough in US-China trade talks and developments on Brexit in the UK, it was “too early to judge how material that would prove to be for the economic outlook”. A majority of the nine-member committee voted to leave interest rates unchanged at 0.75 per cent, with two external members — Michael Saunders and Jonathan Haskel — voting for a quarter-point cut, which they also argued for at the MPC’s last meeting in November. The BoE maintained its message that interest rates could move in either direction when it became clearer how companies and consumers were responding to the latest developments — suggesting that it will fall to governor Mark Carney’s successor to set a clearer course for policy. If global growth failed to stabilise or if Brexit uncertainties remained entrenched, further monetary support might be needed, the BoE said. However, if the economy recovered in line with the BoE’s central forecasts, gradual rate rises might eventually be needed to check inflation. Yet a quarterly assessment of the economy by the cental bank’s agents, published alongside the MPC minutes, reinforced recent evidence that the UK economy was stalling in the run-up to last week’s election. The agents found that consumers had held off big purchases of cars and household goods after the election was called. Companies had cut discretionary spending — from marketing to Christmas parties — while spending more in preparation for post-Brexit changes to customs and other regulations. The agents’ score for the manufacturing sector remained at its weakest for more than three years, while the score for construction output fell to is lowest in six and a half years, the report said. Although the labour market remains relatively strong, more companies told the agents they were either freezing recruitment or cutting their headcount, or hoarding labour in the hopes that demand would pick up. However, they also reported an ongoing shortage of workers in areas such as warehousing and social care due to reduced availability of workers from the EU.

Early on Monday morning, when it was still dark, more than 100 Conservative MPs began a new weekly commute. From the north of England, Wales and the Midlands, freshly minted members, many of whom never imagined they’d be elected last week, descended on Westminster. The arrival en masse of these “Teesside Tories” — named after a region in the north-east of England that is emblematic of the new cohort — is proof of how British politics has shifted. While a traditional Home Counties Tory might nip up to London in the Range Rover, most of the new MPs took the train. For Lee Anderson, elected last week as member for the Nottinghamshire seat of Ashfield, it was a two-and-a-half-hour journey. The same for Sarah Atherton from Wrexham in north Wales. It took Jacob Young three hours to reach the capital from Redcar. While Westminster continues to digest Prime Minister Boris Johnson’s election victory, both Downing Street and Conservative central office are acting to shore up their new working-class vote. Having turned great swaths of what used to be Labour’s “red wall” of provincial seats blue, they now need to consolidate those gains. But no one, especially not the new MPs themselves, thinks it will be easy.  There are three broad priorities. First is “getting Brexit done” — an effective campaign slogan that disguises an infernally complex process. The UK will leave the EU on January 31, whereupon voters will expect to see tangible changes, such as tougher border controls, straight away. Yet many of the most important choices Brexit forces on the UK have still to be properly discussed, let alone made.  The other immediate push will be to change the image of the government. Mr Johnson warned staffers on election night that, “We have to change our own party, we have to rise to the level of events”. A major cabinet reshuffle is coming in February and the Teesside Tories hope it will reflect the party’s new complexion. Then there are the deeper policy challenges. Many of the new intake won by promising to tackle local concerns — reopening hospital accident and emergency units, for instance, or adding extra lanes to motorways or protecting factories. But delivering on these pledges will depend on decisions taken in Whitehall or by local councils.  Mr Johnson is an avowed fan of François Mitterrand-style grand projets and will probably turn on the spending taps for the HS2 high-speed railway line and the Northern Powerhouse rail programme. But although gleaming bullet trains might make for great headlines, many MPs are wary of their electoral benefits. “The sort of projet we need”, one senior Tory says, “are the ones that happen the quickest, not the grandest. Lots of places we won aren’t cities and lots of our new voters never go on trains.” As for local government, slashing council spending is widely seen as one of the Tories’ gravest mistakes. Since 2010, England’s local authorities have seen their budgets cut by more than a fifth. Improving bus services and reviving high streets is a priority for many newly elected MPs in February’s budget. “Town centres are the barometer of the economy,” one says. “Until that is addressed, most people won’t feel like their lives are changing.”  Finally, Westminster has to prove that its interest in Teesside and beyond is not fleeting. One way of doing that would be to take party conferences out of cities. A typical three-day gathering in Manchester injects £32m into the local economy. The benefits of moving them to towns such as Blackpool or Gateshead — each of which has a large conference venue — would be significant.  Those who voted Conservative for the first time last week are waiting expectantly. They are frustrated, often angry and have voted twice for radical change — first in the Brexit referendum and again in the general election. “Westminster has got it wrong ever since the expenses crisis,” a senior Downing Street official says. “Politicians and the media need to take a hard look at themselves. Parliament didn’t listen to the desire for change then or after the referendum. Now it has no choice.”
Britain’s Labour party is in complete meltdown after last week’s general election. Given the scale of its defeat, this is no surprise. Jeremy Corbyn’s party lost 59 seats and is now down to 203 MPs, its lowest figure since 1935. In 1983, the party plunged to a similar figure — 209 MPs — under Michael Foot. It subsequently took Labour 14 years to win power. The same challenge faces Labour again. This analysis for the Fabian Society published at the weekend recognises that the party could be out of power for a further 10 years or more. The race is already on to replace Mr Corbyn as leader. It seems certain that Keir Starmer and Rebecca Long-Bailey will run. So too will Emily Thornberry and possibly Yvette Cooper. Predicting who will win at this early stage is difficult. But Sir Keir, a former director of public prosecutions, is the candidate with the most gravitas and acumen — and the one who would immediately convince the national media that Labour is serious about power. In interviews over the past 24 hours, Sir Keir has shown he understands the three things Labour needs to do to get back on track. First, the party needs to accept the reality of Brexit. Britain will leave the EU in January. Labour therefore needs to spend the next few years lobbying for the closest possible economic and trading relationship with the bloc. As Sir Keir puts it in The Guardian today: “We will argue, as we argued before, for a deal that protects our economy, protects our jobs, and working standards, the environment and consumers.” Second, a new leader needs to repudiate the party’s disastrous record on anti-Semitism under Mr Corbyn. As Sir Keir says: “We didn’t deal with anti-Semitism and that became a question of values and a question of competence.”  Third, the party needs to return to being a “broad church”. Sir Keir has pledged not to abandon Jeremy Corbyn’s “radicalism”. But he will want the party to recognise once again why Tony Blair won three elections. All is not lost for Labour. At the next election the two factors that hampered the party’s prospects in 2019 — Brexit and Corbyn — will be out of the way. And it’s worth remembering that we live in an age of high voter volatility in which citizens switch their allegiance more than they have in the past. But Labour needs to recognise the two fundamental political achievements of the Conservatives. Under Boris Johnson they have reinvented themselves to stay in office. And, like the Tories, they have to start being a party that genuinely wants power.