Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday 6 August 2019

Does Brexit represent an alliance of Rentiers?

One of the striking features of Brexit is that it is harmful to most productive capital and those who work with it: the capital embodied in firms that trade for sure, but also the capital that produces stuff for firms that trade and so on. In so far as Brexit will impoverish the UK as a whole, it is also harmful to any firms that produce for the UK market. Yet the party that has traditionally been thought of as supporting UK productive capital, the Conservative party, is the one promoting Brexit.

There are of course moneyed interests who provide active or financial support, and even bankroll, Brexit. Among owners of UK firms they tend to be individuals who have a particular beef against the EU. You will also find a few hedge fund managers. The most notorious financial backer of Brexit, Arron Banks, made his money through insurance.

Among those who voted for Brexit, there is a large group who are well off and retired. Your typical Daily Telegraph reader if you like. Being retired, their main source of income is their pension and their savings. At this point I can hand over the William Davies in a fascinating recent article in the New Statesman:
“What this group shares with the Johnson-Farage backers is a lack of any immediate interest in labour markets or productive capitalism. What’s the worst that could happen from the perspective of these interests? Inflation or a stock market slump would certainly harm them, but they may have forgotten that these things are even possible. Jeremy Corbyn terrifies them even more than the prospect of Remain, as they believe he will tax capital, gifts and inheritance into oblivion (they are less concerned with income tax as they don’t pay it). Where productivity gains are no longer sought, the goal becomes defending private wealth and keeping it in the family. This is a logic that unites the international oligarch and the comfortable Telegraph-reading retiree in Hampshire.”

He goes on:
“This suggests that support for Johnson and Farage is a symptom of prolonged financialisation, in which capital pulls increasingly towards unproductive investments, relying on balance sheet manipulation, negative interest rates and liquidity for its returns (aided substantially by quantitative easing over the past decade). To put that more starkly, these are seriously morbid symptoms, in which all productive opportunities have already been seized, no new ideas or technologies are likely, and no new spheres of social or environmental life are left to exploit and commodify.”

This is very neat. The ‘puzzle’ that Brexit is detrimental to productive capital is in some sense solved. It is the ‘unproductive’ elements of capitalism that is bringing productive capitalism down. Like all ideas, and particularly neat ones, this needs some healthy skepticism. The rest of this post is a contribution to that critique.

Let me start with the well off Telegraph reader, living off their savings and pensions. It is true that a good chunk of that pension and savings may represent financial assets in a different currency, and so when fears of a no deal Brexit leads to a fall in sterling this part of their wealth increases its sterling value. But I suspect for most the majority of their wealth will be UK based: either shares in UK based companies or UK government debt. Very few will have the wealth to invest in hedge funds. As many savers will tell you, it is low interest rates that are the immediate threat to their financial wellbeing, and the fundamental cause of low UK interest rates is austerity.

The well off Telegraph reader is certainly better protected against the impact of a No Deal Brexit compared to someone who works for a UK car maker, but they are not immune to the impact of a No Deal Brexit either. If their pension comes from a UK company, they could be quite vulnerable. I think Davies is right that they probably worry more about the financial threat from a Labour government, but that alone does not make them a supporter of a No Deal Brexit.

What is probably true for many is that the financial threat to them of a No Deal Brexit is more opaque, mediated through stock markets or investment funds, than it is to a worker on universal credit or a worker who might lose their job. But this is also true to the poorer pensioner who depends on their state pension, given the current rules for uprating these pensions (and the political power of those with a high propensity to vote). For both groups it makes sense to try and insulate them from domestic shocks, but a political consequence may be an impression of invulnerability to these shocks.

If we move from voters to financial supporters of No Deal, it is not the case that No Deal benefits the UK financial sector as a whole - far from it. Like much of the UK service sector, it benefited considerably by being in the Single Market, and will be hard hit by any hard Brexit. Of course most of the large firms involved can move, and in many cases have already moved, some of their operations to EU capitals, but this is something they have been forced to do and so it does not make the sector a champion of Brexit. The Association of British Insurers has warned that a No Deal Brexit could cause lasting damage to the industry.

The article talks about “maverick entrepreneurs (bosses of JCB and Wetherspoons)” but perhaps the same should apply to all those who have encouraged Brexit. There is no reason why neoliberal ideology that suggests regulations just get in the way of business should just influence politicians, and it is capital that often has to meet these regulations. In addition you will always find hedge fund managers wanting to make serious money out of any large change, and perhaps foreign powers able to find vehicles of influence.

It is difficult to think of any sector that will be better off after a no deal Brexit, except perhaps funeral directors and debt collectors. No organisation or institution, beyond the think tanks of the right, is championing this cause. Instead we just see mavericks from various sectors speaking on behalf of a no deal Brexit or providing financial backing. The key question then becomes how a few maverick wealthy individuals and a minority of politicians can hijack the political process so that it works against the interests of nearly everyone else in the country?

The first answer is a society where individuals are allowed to make huge sums of money such that they can, by their own spending, have a huge impact on politics. Finance is partly why 1% inequality has grown, but the reason taxes on the rich were cut is political: the rise of neoliberal governments. The way this political influence is typically put is that 1% inequality gives the few an incentive to distort the political process so they preserve their wealth, but equally it can also allow a minority of the same individuals to bend politics to fit their own, sometimes maverick, ideas. Wealth also allows those who bend politics to walk away if it all goes wrong, as Farage said he would. Perhaps globalisation has increased the chances that those who meddle in the political process of one country can escape when things go wrong.

Money alone is not enough to persuade a large section of society to vote for acts of self-harm. The second answer is that you must have considerable control over the means of information. Brexit is the product of the obsession of a handful of men who over a long period of time have used their newspapers to denigrate the EU, and in recent years have turned these same newspapers into propaganda weapons for leaving the EU. Too many, on the left and centre, fail to acknowledge that without our right wing press, Brexit would not have had a chance of happening. Of course this partisan media also needs something to persuade people with, but the age old tools of nationalism and the demonisation of some ‘other’ seems to suffice.

In a developed democracy even all this may not initially give our mavericks a majority of the voting population. They will, at first, only have partial control of the media and the institutions that represent capital, along with many others, will be against them. The third answer to how a few individuals can gain great influence and enact huge harm is to capture a political party in a two party system. Once this is achieved they can use a badly designed voting system and their partial control of the media to push themselves or their policies through. Trump did this in the US (he lost the popular vote) and a no deal Brexit will happen if the anti-Brexit forces split by more than the pro-Brexit forces in a General Election.

For those that like their history to be about grand forces rather than maverick individuals this kind of explanation is hard to take. But there is an underlying force involved here, a force of ideas rather than interests. It is neoliberalism, and in particular the idea that the state and regulations just get in the way of prosperity for all, that is powering many of these mavericks to inflict great harm on their fellow citizens.


  1. Most of the older generation of Leave voters have been brought up during an era of autocratic style of management. Controlled at school with beatings from a cane. And more often than not, very controlling parents. Therefore, anything that resembles any type of control over them, brings back that same childhood trauma that autocratic management caused during their childhood and will cause them to over react, like voting in disregard for our countries economy. Like a milder form of PTSD.

  2. What about buy-to-let landlords? Do we have any data suggesting that they lean one way or the other wrt. Brexit?

  3. Do you really think that those who voted for brexit are so dumb that the media could so easily persuade them? Fox News was the main reason Trump won? Consider the possibility that perhaps a lot of people are reflecting on their personal experiences and aren't thinking about GDP projections when it comes to brexit / globalization. Many will vote in favor of protectionism even if the GDP falls by a quarter if it means they can have a job they are proud of. Experiences of other countries in reviving cities (like east germany) should tell you that it is difficult to pull off. Fiscal policy and redistribution won't cure the malaise that people feel when globalization or immigration robs them.

  4. My guess is, it just represents an alliance of old timers who resent crowding and perhaps some of the changes they see in the fabric of their society. Unfortunately, this would be an alliance of a group that is more likely to vote than the average population.

  5. This is a great post. Thank you, Simon.

  6. I have come across suggestions that people with interests in the fossil fuel industry have backed Brexit. They are said to be hoping for a relaxation of environmental controls to make it easier to frack, for example.

  7. Remainers like to award themselves a moral superiority by attributing racist views to Leavers but, strangely, Remainers seem to have no problem with ageism.

    Stereotyping a group of people is morally abhorrent whether that stereotyping is based upon skin colour or age.

    This article denigrates old people by attributing only selfish motives to them.

    At the last election I found myself in the difficult position where I might have been compelled to vote Conservative for the first time. If Mrs May was prepared to break the impasse on care funding by making older people take more responsibility for the cost of care, then I felt an obligation to support her, despite my advanced years. (My dilemma was regrettably resolved by her U-turn.)

    Contrary to the assertions in the article I believe that my current financial situation would be best served by a Jeremy Corbyn Government. If interest rates were to return to the levels they were before the GFC then my income would be some 30% higher. In my judgement higher interest rates would be far more likely under a Corbyn Government. However, I will not vote for him because I genuinely believe that he would be a disaster for the country. You may disagree with my logic, but please do not attribute selfish motives to me or to old people in general.

  8. I think it might help look at small groups (newspaper?) rather than broad classes (labor vs. capital). Is there really no special group that stands to benefit a lot from Brexit? A lot of trade policy tends to be driven by such groups regardless of impact to GDP or distribution of income. So, perhaps there is something to be found there. It'd be very surprising if ideology is the only driver of brexit (or even the primary thing at play). Far more likely that something more venial is hiding behind the scenes.

    Economists have talked a lot about the impact of brexit on GDP. But what about the distribution of income? My understanding is that the standard model says that protectionism means more of the income goes to labor, which is my guess why the Left / Corbyn sided with Brexit in the first place. Conservatives clearly don't have protectionism in mind when they talk about Brexit; they want to lower trade barriers with the US. But what about Labour? If you think of the Brahminical Left (socially liberal, economically conservative) as the core support base of Labour, then yes, Labor should oppose brexit. But if Labour is the party of the less then well paid workers in manufacturing, then brexit followed by protectionism makes sense more sense, although it'll probably push the urban liberal voters to LibDem.

    Whether brexit benefits rentiers really depends on what comes after brexit; protectionism or a trade deal with the US.

  9. This article suggests that the author has little idea how older people think.

    Firstly, older people have lived longer and gained more experience. They know that the companies who are threatening to leave the UK now are the same companies who threatened to leave the UK unless we joined the Euro. They have lived through the ERM debacle and were frankly astounded that the Treasury short term forecast should predict both a fall in the value of the pound and a fall in employment in contradiction to what had happened previously. Because older people were correctly sceptical of the Treasury doomsayers they were more open to the Leave arguments.

    Many older people have suffered a reduced income from reductions in interest rates enforced for the ‘common good’. For some of them, the economic risks of Brexit appear trivial by comparison.

    More importantly, older peoples’ financial habits do not correspond to those suggested here.

    “But I suspect for most the majority of their wealth will be UK based: either shares in UK based companies or UK government debt.”

    In 2007, many people experienced a big hit on their investments. They now understand that they are getting a poor return on their savings accounts but they do not wish to risk a bigger hit by investing elsewhere. Also many have been involved with managing their parents’ capital and they understand that complex financial arrangements will not be practicable as they themselves get older. They see that the best strategy is to move their money into ISA savings accounts so as to reduce the need to file tax returns as they become less able.

  10. “It is neoliberalism, and in particular the idea that the state and regulations just get in the way of prosperity for all.”

    Let us remind ourselves that 10 years ago Unite was in dispute with a major oil company who chose to employ hundreds of workers from Italy and Spain and accommodate them in barges moored off the Lincolnshire coast, an area which was experiencing rising unemployment at that time.

    Freedom of Movement is a laisser-faire policy where the government control over the size and composition of the workforce is entirely subjugated to the whims of big business.

    A Deustche Bank report recently noted that ‘The data shows that most of the recent [wage] gains have accrued to lower income workers. ... Brexit has delivered very nicely so far for many of the left-behind.’


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