Labour's embrace of a customs union could end the Brexit fantasy

The UK was always going to stay in a customs union with the EU the moment that the EU put the Irish border as one of the three items to be settled at the first stage of negotiations. The logic is straightforward. Putting it at the first stage meant that the EU would not sign any trade agreement which resulted in a hard border. To avoid a hard border Northern Ireland has to be in a customs union with the EU and in the Single Market for goods. There is no wish in the UK to have a sea border between Northern Ireland and the rest of the UK. Parliament will not allow a No Deal Brexit. So any deal will have to involve the UK being in the Customs Union.

It is clear that Theresa May will try and avoid that logic for as long as possible because she wants to keep the Brexiters on board. She hopes she can do so until we have formally left the EU. That was always going to be very difficult, but Labour have now added an additional hurdle: parliament could vote to stay in a customs union before 2019. I will leave it to others better qualified than I am to work out whether that will happen, and what the consequences of that would be.

I just want to make two points: one for Remainers and one for Lexiters. It has frequently been suggested by some Remainers that Corbyn is an entrenched Lexiter and as a result that he would never allow Labour to stay in the Customs Union. Too many people have an image of the Labour leadership as hard edged and uncompromising. In contrast I have always argued that Labour remains a centre left party that just happens to be led from the left, because the Labour leadership above all else want to change the UK. You can only really change the UK by being in government, which is why we had a populist Labour manifesto in 2017. Once in power you can only make changes that the PLP are happy with because of parliamentary arithmetic.

For that reason I have always talked about Labour triangulating over Brexit, and I argued recently that this strategy would require a move to support staying in a customs union. [1] Labour’s move to do just that suggests not only that Labour are triangulating, but also more generally that the Labour leadership are prepared to compromise to achieve power. Remainers that had written Corbyn off need to adjust their view, and realise that stopping Brexit is only possible if Labour supports it.

For Lexiters this is a wake up call. There are still too many people in the Labour party that are as prone to brush aside the costs of Brexit as Brexiters are. Some believe, for example, that the argument that with Brexit we would have less tax and therefore less government spending is austerity talk. They are wrong. Fiscal expansions can counteract periods of deficient demand, that may be created by Brexit uncertainty for example, but not slower growth coming from the supply side because of trade destruction. A Labour government having to preside over a slow growth economy is almost sure to disappoint the high expectations that will be placed on it.

Even worse are Lexiters who have listened to too much MMT type rhetoric, and think that ‘taxes do not finance spending’ and that therefore slow growth and less taxes put no constraint on what Labour can spend. This is nonsense even in an MMT type world, because trade destruction would mean inflation would become a constraint on spending much more quickly. In the real world where the Bank of England controls inflation, ignoring a lower tax take would result in higher deficits and borrowing which is ruled out by Labour’s very good fiscal credibility rule. Labour will try to stick to this rule, which means government spending will be much tighter after Brexit than without Brexit.

Avoiding that outcome has always been implicit in Labour’s ‘economy first’ stance, and what that means has now become more explicit. Labour’s move could start to unravel Brexit. Remainers should not bemoan that Labour has not gone further, but instead focus on building on the elements of reality that Labour have thrown at the Tories Brexit fantasy. For example the emphasis that Labour put on avoiding a hard Irish border requires staying in the single market for goods. If this is helpful for goods, why not services which are the UK’s comparative advantage? We need doctors and nurses from the EU to save our NHS. Each time we take a step further to BINO (Brexit in name only) it becomes clear it is better to have a seat at the table. This is the only way that Brexit can end.

[1] The cost to Labour in votes of moving to support a customs union may not be that great, particularly as few voted for Brexit so that the UK could do its own trade deals. As Corbyn said yesterday when asked what he would say to Leavers who had voted Labour and might feel betrayed by his endorsement of a customs union: think it through. I wish politicians would say that more often, particularly for probably the most not thought through policy in the UK’s recent history.