William Wallace asks whether Brexit could split the Conservative party, even though we have voted for Brexit. The reason why this is still conceivable is clear to all except those who tweet ‘get over it’ or who are silly enough to think Brexit means Brexit has any meaning. There is, in economic terms at least, a world of difference between a Norway style deal or hard Brexit: thousands of pounds worth of difference for the future average UK household in fact. (Making trade more difficult with your immediate neighbour will reduce trade overall, which in turn will hit productivity growth and therefore living standards.)
Which option Theresa May chooses will be down to politics rather than the economic welfare of UK citizens. This is why the Conservative party will not split. Divisions over Europe have not split the party for the last two decades, and are much less likely to now that the Europhobes have had their victory. Nor will any decisions be made quickly, because the exact trade-off between single market access and free movement depends on the stance taken by the EU.
The EU could conceivably rule out membership of the single market under any account, in which case some form of hard Brexit would be inevitable. If the main objective of the EU is to ensure that the British economy does badly as a result of leaving, to offer a warning to those in other EU member states tempted to go down the same path, then the UK is simply screwed. However if the EU takes a more constructive line, along the lines of this Breugel paper, then the issue becomes how much of the single market the UK can get with some form of limits on EU migration. A simple model of the subsequent debate will be that Remainers within the cabinet will push for more single market and less restrictions on migration and the Leavers vice versa.
At first sight it appears bleak for the Remainers. Two Leavers, Fox and Davis, have been put in charge of working out what Brexit actually means. Are there any reasons to be optimistic from a Remain point of view? The answer is that there are quite a few.
- Remainers have the big guns at the cabinet table: principally Hammond as Chancellor and Johnson at the Foreign Office. (Yes, Johnson was the lead campaigner for Brexit, but he neither wants to leave the single market nor restrict immigration. He did, however, want to become Prime Minister.) No Prime Minister likes overruling her Chancellor on economic matters. It will be May, not Fox or Davis, that will make the final choice of the point on the trade-off she is given in negotiations with the EU
UK business will overwhelmingly want to retain single market access, and in many cases also free movement, and this would normally be a powerful influence on any Conservative government. Some Conservative MPs are prepared to argue this case.
At their meeting yesterday the cabinet agreed that restricting immigration will be a red line in any negotiations. But this is the same party, led by the same politician, that has put immigration control as a key objective for the last six years, and has in practice failed to control non-EU immigration. Judged by what she has done during her period as Home secretary rather than what she has said, May is not too concerned with actually reducing immigration.
Part of the reason the Conservatives have focused on immigration in the past is because of the UKIP threat. But it has become clear that UKIP in practice is probably more of a threat to Labour than the Conservatives.
Yet having said all that, I cannot help feeling that I’m clutching at straws here. The Treasury nowadays often seems to only really care about the deficit and the City, and it is highly unlikely other EU countries will pass up the opportunity of stealing a lot of City business The rest of UK business can perhaps be bought off in other ways. As home secretary May’s efforts to restrict immigration may have been hampered by the concern of others (including Osborne) to help business, and she may be itching to now call the shots. And with Corbyn as Labour leader, she really has nothing to worry about in electoral terms. UK productivity stagnated under Cameron and Osborne for the first time since WWII, and she may be content to just be no worse that her predecessors on that score. So from a Remain perspective, and the prospects for UK living standards, hope is not yet lost but it is walking out of the door.