Gove’s Brexit Plan – 2020 Means All The Pain, None Of The Gain

Leave aside for the moment who you’d like to see as next PM. Leave aside as well who you think would make a good PM. Meaning that we can put aside Boris’ ability to do detail, Gove’s to rally the troops and all that. Think for a moment solely about Brexit policy, the existential question being faced currently. Gove’s idea of waiting until – or up until if necessary – late 2020 to gain a deal is taking all of the pain and getting none of the gain.

For what kills economies is uncertainty.

Michael Gove tells Cabinet ministers he is prepared to delay Brexit until late 2020

No, that’s a really bad idea:

Michael Gove has told Cabinet ministers he is prepared to delay Brexit until late 2020 rather than leave without a deal on October 31, The Telegraph has learned. The Environment Secretary has told colleagues that a no-deal Brexit in October risks triggering a General Election that will put Jeremy Corbyn in Downing Street. His position puts him directly at odds with other Brexiteer leadership candidates including Boris Johnson, the former foreign secretary, who have committed to leaving on time with or without a deal.

Note that it’s a really bad idea even if you think that Brexit shouldn’t happen at all. The uncertainty over the when and what terms is so damaging that it’s better we make the decision now, whatever that decision is.

In the theory, the largest variable by far in GDP is business investment. In turn this is driven by Keynes’ animal spirits of businessmen. It is uncertainty about the future which kills such investment. Note that uncertainty is different from probability. It’s not that we think there’s a 50/50 chance of our new investment working. It’s that we don’t and can’t know what the environment it’ll be working in is. So we can’t even calculate the risks.

We don’t know if we’re leaving – we’re pretty sure we will be in name but little more than that- we don’t know the terms and we don’t know when. So, most investment will be put on hold until we know more.

And, yes, large falls in business investment are quite enough to cause a recession all on their lonesome.

We’v even got a practical example here. British Steel went bust because of Brexit. Buyers didn’t know whether their orders would need to pay import tariffs or not upon delivery in x months time. It was impossible to gain a firm and fixed price. Therefore they went and ordered elsewhere. B Steel goes bust through lack of orders. The lack of orders being a result of simple uncertainty.

Whatever the Brexit outcome would have been better than that. Some customs union, single market, whatever deal, no tariffs, all is good. Hard exit to WTO, tariffs. Oh my. But WTO terms is a significant change in the terms of trade for the country as a whole. Sterling will fall. A fall in sterling prices B Steel back into the market – a bit to a lot at least – against those tariffs. In an uncertain world sterling has only fallen a bit.

It’s uncertainty that kills a business, an economy.

Sure, I’m hugely biased here, I don’t think we should ever have joined the EU, I don’t think anyone ever should have done. I’m adamant that we should leave and that so should everyone else.

But leave all that aside. Delaying the whether Brexit, the terms of Brexit, to late 2020 is the worst of all worlds. It’s the worst policy on the subject possible. Whatever the decision actually is we should do it now. I think hard and to WTO – you may disagree. But we still need to be doing whatever it is right now before the economy crumbles under that uncertainty.

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Leo Savantt
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Leo Savantt

Gove’s suggestion of a delay most certainly perpetuates uncertainty yet it also makes it much more unlikely that the UK will ever leave. Just as kicking a can down the road risks damaging the can, booting Brexit into the future risks no Brexit at all. The present Commission maintain that they will not change the Withdrawal Agreement (WA), so if they remain true to their word the UK leaves, either under the terms of the WA or without being bound by its terms, inaccurately defined as a “No Deal” Brexit, on 31st October. To prevent this Gove would have to… Read more »

Quentin Vole
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Quentin Vole

Kicking the can down the road is the standard EU response to tricky problems (i.e. problems that are not soluble within the context of the grand projet of ‘ever closer union’). Observe their response to the difficulties inevitably arising from the fundamentally flawed eurozone. The Germans have been kicking the can down the road at half a trillion € a kick. Inevitably, they will run out of road (or lose the can, but perhaps the metaphor is being stretched, here) but, with luck, that may become someone else’s problem.

Leo Savantt
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Leo Savantt

Luck will indeed be required and with luck Gove won’t be PM and Brexit won’t be kicked into the long grass, down the road or anywhere at all, except into the back of the net of leaving the European Union.