Business Brexit Blues

Project Fear was the device that allowed those arguing for independence for Scotland to ignore the short term fiscal realities [1], and it was the device used by Leave to discount the countless warnings that Brexit could make the UK significantly poorer. The device was indulged by the broadcast media, who now duly quote it back at businesses who warn that jobs are at stake with any kind of hard Brexit.

There are good reasons why so many businesses have finally decided to make their concerns public. They have lost all faith that the government knows what it is doing, and they have recently lost faith in parliament restoring any kind of sanity. Hence the warnings from Airbus, BMW, and the society of Motor Manufacturers. This is no posturing, as figures for car industry investment show. These numbers will only jump back up once Brexit uncertainty ends if the final deal is a positive one as far as car makers are concerned. A UBS survey suggests that car makers are not unusual in this respect. 

So why are firms not excited by the opportunities a Tory Brexit will bring in terms of less regulation and ‘global Britain’? They know global Britain is a myth: they can export perfectly well outside the EU as it is, and they are more likely to get a good trade deal with third countries by being in the EU than outside it. Those who say that a post-Brexit UK could do trade deals tailor made to UK business misunderstand what trade deals are mainly about nowadays. They are about harmonisation of regulations. And if a country is going to harmonise its regulations, it will do this with the EU rather than the UK because the EU is a much larger market.

Which is why the prospect of a regulation free post-Brexit UK has little appeal to businesses that trade. What business wants is harmonised regulations, giving them less costs and a large market. The EU is really all about harmonisation of regulations. These include regulation on working hours or the environment because all these things are required to get a level playing field for business and therefore a true single and very large market.

As Anthony Barnett in a very interesting essay argues, the sovereignty argument for Brexit involves a huge misconception. What the EU does (human rights aside) is harmonise regulations. Most people, including Leavers, have little problem with that. What Brexiters did was relabel this as giving away sovereignty, which sounds bad. I often ask Leavers if they can name any EU law ‘imposed’ on the UK that they do not like, and I have yet to get anyone to respond with one. It is the principle, one said. But their inability to quote an example of loss of sovereignty reveals an underlying truth. The EU is about harmonisation of regulations, regulations that most people have no problem with.

I do not think this was just a deliberate bit of Leave deceit, although there was plenty of that. I suspect this was also a genuine lack of understanding among our out of touch, privileged elite. Partly as a result, when businesses ask for harmonised regulations in the form of the single market they are nonplused. Hence the response of the government to these warnings. They include the “fuck business” of Boris Johnson and Jeremy Hunt saying the warnings were “completely inappropriate” because it could undermine the prospects for a good deal! These replies reflect the bewildered fumbling of an elite that thought they were pro-business and suddenly finding that they are doing it considerable harm.

The irony is that any deal that is done will involve the UK still being subject to EU regulations, only without the UK having any effective say in how those regulations evolve. For the leavers who equated regulations with sovereignty, we will be less sovereign as a result of Brexit than we were before. Brexit as a project has failed. We continue with it simply because of a flawed referendum and because politicians cannot admit the truth to save their own reputations and for fear of the reaction of the Brexiter press.. 

It should also be the end of Project Fear, for those at least who still have an open mind and who do not believe everything they read in the Brexit press (which I admit may rule out around a third of the UK population). Project Fear, in the two main contexts that it has been used, is equivalent to the claim that we don’t need experts. Just as Faisal Islam reacted to Gove when he first talked about having enough of experts, so other journalists should react when Project Fear is used to bat away major expected costs based on expert analysis. Otherwise we just normalise a kind of Republican anti-science attitude that is now official US policy.

[1] although, to save a lot of comments, the term itself was invented by those arguing against independence.

Junior doctors: asking the right question

A government source (anonymous of course) has told the BBC that junior doctors, in their long running dispute, are really trying to topple the government. It appears some in this government really think that this dispute is their version of the 1984 miners’ strike. A compromise to trial the new contract, which would have almost certainly led to the strike being called off, was rejected by Jeremy Hunt as ‘political opportunism’.

It is natural when this kind of standoff happens to choose sides. The government is trying to introduce a 7 day week culture into the NHS: are they trying to do this ‘on the cheap’ by suppressing pay (and safeguards against excessive hours), or are the doctors being unreasonable and putting lives at risk?

I think that is the wrong question. A much better question is to ask how this dispute came about in the first place. The mine workers had a long history of strike action, but this strike by doctors is unprecedented. Unlike coal miners, doctors are not in a declining industry, and they are not led by the likes of Arthur Scargill. Instead they are a key part of a sector where demand continues to rise, and technology (for the moment at least) tends to add rather than reduce costs.

In this context, this government and its predecessor have tried to do something pretty radical, which is to reduce the share of NHS spending in GDP (for a chart from the Kings Fund, see here, and for details of the NHS squeeze see here). It is part of their attempts to reduce public spending, initially under the pretext of deficit reduction but in reality to allow tax cuts. In their typically Orwellian way, they call this ‘protecting the NHS’. Their hope is that this squeeze on resources will reveal and end inefficiencies which until now vested interests, lethargy and bad management have maintained.

An alternative way of achieving the same goal is to embark on a top down reorganisation that you believe will make the system more efficient.

The 2010 coalition government tried to do both at the same time. You do not need to be an expert on the health service to guess that trying both at once would be a disaster. Any kind of successful wholesale reorganisation of a large organisation costs resources in the short term, even if it brings benefits in the longer term. Predictably, according to the experts, this reorganisation was “distracting and damaging”.

Did the new (2015) government learn the lesson? Silly question. Introducing a 7 day week culture into the NHS may well be a good idea in principle, although the evidence is not nearly as clear as Hunt suggests (which is why trials are a good idea). Using dodgy statistics to suggest to the public that going into hospital at weekends rather than a weekday was dangerous was an extremely irresponsible thing to do. To the extent that there is a problem it is unclear whether doctors are critical to it. But even if the reform itself is justified, it is another reorganisation that requires resources in the short term.

Aneurin Bevan, who set up the NHS, said that to persuade reluctant doctors to accept the idea he had “stuffed their mouths with gold”. Reorganising doctors’ contracts was bound to create winners and losers, and in a profession with considerable solidarity that would not be agreed to without extra money to compensate the losers. To try and do it while starving the system of resources was just crazy, and allows doctors to tell themselves that they are striking to save the NHS rather than to protect their pay.

The only similarity with the miners strike is that the doctors also cannot force the government’s hand. The more they escalate the dispute, the more their solidarity and public support will fragment. Jeremy Hunt has already got away with putting party interest above public probity once in a previous job, with Cameron’s active assistance, and he may profit this time as well. If he does demoralised UK doctors will leave in increasing numbers for more congenial working conditions overseas, and gaps will be filled by doctors trained overseas (if the home secretary lets them in).

The question to ask is not which side is right, or whether the strike is justified. The critical question is how did we get to this situation, and what that tells you about this government’s competence. The NHS works on relatively meagre resources because of the goodwill of those that work within it. Do we really think that facing down UK doctors is the way to get a better NHS? If the government does not compromise, the only losers in this dispute will be you and me.

Postscript (29/4/16) This by Ben Dean in the Telegraph makes similar points, and even questions whether the new contracts are better than the old in achieving a true 7 day week goal. 

Is this the right way to shrink the state (NHS edition)?

In terms of changes since his July budget, the basic story of the Autumn Statement is that George Osborne has used more favourable tax forecasts from the OBR to ease up a little on planned spending cuts. The stress here is on ‘a little’. This is why my piece for The Independent focuses on the big picture. (There are a number of minor points that I think are interesting, and I’ll comment on those in a later post.) We still have sharp fiscal tightening, with the OBR’s estimate of the cyclically adjusted budget deficit showing a turnaround worth 4% of GDP between 2015/16 and 2019/20. (That is nearly as much as the contraction from 2009/10 until 2015/16. The turnaround in the actual deficit is slightly larger.) While the US and Euro area ease off on fiscal consolidation, George wants to carry on.

For regular readers there are two new points that I make in The Independent article. The first is about the myth of ‘protected departments’. It is classic spin: employ words which the media will use endlessly that do not mean what most people think they mean. The second is that if the goal is to reduce the size of the state, this seems a remarkably incompetent way of doing it. Rather than look at what the state does and strategically decide what we could do without, the method seems to be to keep cutting until a crisis becomes visible. I do not think enough is made of this government’s incompetence. I want to illustrate both points by looking at health.

Let’s start with this nice chart from John Appleby of the King’s Fund. It should be shown every time anyone claims that NHS spending under this government has been protected.

For reasons that are well known, the share of spending on health pretty well everywhere has been rising steadily since WWII. Try to reverse that and you get a crisis. Try to reverse that when you are also slashing local authority spending for community help, so that elderly patients cannot be discharged into local authority care, and you get a major crisis.

But that is not the only sign of incompetence. Under the coalition Cameron undertook a massive reorganisation of the NHS, which was badly conceived and used up precious resources. (Perhaps the biggest political failure of the Liberal Democrats in coalition was to allow this reorganisation to go through: see this Institute for Government report aptly titled ‘Never Again?’) Then before the last election the Conservatives thought it would be a clever strategy to establish a ‘7-day a week’ health service. To try and justify that policy, health minister Jeremy Hunt made dodgy use of data to argue that health outcomes were worse if you were admitted to hospital at the weekend. Did no one tell him that this might lead some to do themselves harm by trying to delay going into hospital?

There is no money to fund this new policy, so Hunt has tried to restructure junior doctors contracts to pay for it. With many junior doctors already leaving the UK to work overseas, this was the last straw and they have voted overwhelmingly to go on strike. (Watch this video if you think picking this fight is clever politics.) In 2012 training places for nurses were cut, so now hospitals have to use more expensive agency nurses. All this indicates basic incompetence by those who ultimately are responsible for the NHS.

It was this kind of thing that I had in mind when I wrote: “It is difficult to know which is worse: duplicity to achieve an ideological goal or pursuing that goal incompetently.”

Postscript: More detail on the small print of the spending review settlement from Sally Gainsbury here.