Many people have analysed the impact of Brexit. This graph shows the government’s own analysis: any form of Brexit does economic damage, and harder the Brexit, the more damage it does. A no-deal Brexit is of the same order of magnitude as the Global Financial Crisis.
Let’s just consider one sector. In the UK, the automotive sector employs approximately 800,000 people. And it could be devastated. Honda, PSA, Ford, Nissan and Jaguar Land Rover have all indicated that major plants may need to close. And once they are closed, they are unlikely ever to re-open. The industry is in peril. And for every job which is lost in a car plant, a further seven are at risk in the automotive supply chain. The damage in this sector alone should be enough to make us reject a no-deal Brexit.
And now the Institute for Fiscal Studies has analysed the impact of no deal on government finances and concluded that it would push UK debt levels to a 50-year high and be used to justify yet another round of austerity to preserve the state of government finances.
Surely, in such circumstances, no government would consider the possibility of crashing out with no deal, let alone deliberately aim for it?
But this is to miss the point. Austerity is a feature of the government’s strategy, not a bug. The current cabinet is dominated by market fundamentalists: people who believe that markets are the best way to allocate resources, and therefore the state is not. Taxation is theft, and government spending is money that they should be spending personally. (If this sounds far-fetched to you, I sympathise – but please read Chapter 4 of 99% in which market fundamentalists set out their views with startling clarity).
Since austerity has already become very unpopular because of its enormous human costs, further dramatic reductions in the role of the state would need a plausible justification. And the chaos that would follow no deal exit will provide that justification.
For market fundamentalists, as well as protecting their tax breaks and giving them once-in-a-lifetime buying opportunities, a no-deal Brexit means that it becomes far easier to justify continuing rolling back of the frontiers of the state in the name of unaffordability.
Lower growth means that more people have personal experience of economic hardship, which makes it more plausible when politicians say that spending is unaffordable. A serious-looking politician will stand up and say something like, “Hard working families and businesses around the country are having to tighten their belts, it is only fair that Government should tighten its belt too.”
And it sounds plausible. But each person’s expenditure is someone else’s income. If families, businesses and Government are all tightening their belts, we have a society all trying to cut their own expenditure. A society where we are all busy cutting each other’s income. That’s why austerity doesn’t work.
And once we have accepted the supposed need for more austerity, tax reductions and spending cuts seem more attractive. And the consequences in terms of poorer services and lower growth merely reinforce the effect.
As one international investor wrote to The Financial Times,
“… the real prize [from a no-deal Brexit] for investors is surely for the UK to cut loose from EU regulation and compete as a low-tax haven on its doorstep. This has manifold attractions to international investment firms, like my own… Further, without EU controls on bonuses, London will surely retain many more banking stars. In a weakened post-Brexit economy, the UK may only be able to deliver higher public spending via more privatisation. With such rich pickings, it’s hard to see too many banks and investment houses being so keen to relocate. This is an investment agenda, sadly not yet debated in public. But if this is indeed the Holy Grail of the new government and its City backers, no deal with the EU may really ever do.”
A no-deal Brexit paves the way to a dystopian future for the UK as a low-regulation, low-tax, low-wage economy with little remaining social safety net and ruinously expensive healthcare. And the remaining wealth concentrated in ever fewer hands.
But for some people, that is an attractive outcome.