After the Peterborough victory, has Labour’s Brexit policy been redeemed?

In the 2016 EU referendum, Leave got about 61% of the Peterborough vote and Remain 39%. In 2017 Peterborough became a classic Labour Tory marginal where other parties were nowhere to be seen. It was exactly the kind of marginal that Labour’s policy of supporting Brexit is designed to keep. If you ask those who support Labour’s current Brexit policy, nearly all their marginals are like Peterborough.

The only thing that might confuse people is that Peterborough is not really part of the ‘North’, where if you believe some simplistic accounts is where all the Leave constituencies are. As I showed in my last post, this is something of a myth. If there is a UK divide, it is between Scotland, Northern Ireland and London where Remain has clear majority support and the rest of the UK, where there is a slight tendency for the Leave vote to be higher in the East than the West.

If Labour had lost in Peterborough, there were plenty of excuses ready. One would undoubtedly have been that by-elections are not like General Elections. But in fact the stakes were pretty high in Peterborough. If Labour Remain voters did not vote for Labour, there was the clear prospect of giving the party of Nigel Farage its first seat in parliament. This was not just of symbolic importance. As nearly all Remainers will know, the balance of voting in parliament is close. If you allow the Brexit party to capture a Labour seat, you make it harder to vote down No Deal and get a majority for a People’s Vote. If there was a time for Remainers to vote tactically for Labour, Peterborough was it.

In this sense you could argue that this by-election was for Remainers like a General Election, where the first concern is not to let the Conservative or Brexit party win. Does victory in Peterborough mean Labour's Brexit strategy is therefore working? The honest answer is no. The Liberal Democrats vote rose by a factor of over 3 compared to 2017. Labour won with just 31% of the vote. The main reason they won was that the Brexit vote split between the Conservatives and the Brexit party.

Will the Brexit vote split in a similar way in any future General Election, allowing Labour to win its Leave marginals with a much reduced vote? Maybe, or maybe not. We know the Conservatives will do whatever they can to avoid that outcome, and that may include cooperating with Farage so they do not fight in the same seats. It would be foolish indeed for Labour to assume that Brexit disunity saves the day for them in all their Leave marginals in any General Election.

The other important point is that the latest polling suggests that opinions have changed since 2016, with in particular many financially insecure voters turning away from Brexit. When you take that into account there as many marginals in Remain constituencies as Leave constituencies. These findings appear to be not on the radar of many supporters of Labour’s current Brexit policy. We have yet to see what would happen in these equally important Remain marginals.

Some supporters of Labour’s current policy can be very dismissive of polls. I find polls to be very informative, but only if they are carried out in an impartial way. This very recent poll described in the New Statesman by Christabel Cooper and Christina Pagel is more revealing about how the country as a whole currently feels about Brexit than the Peterborough by-election. It shows that since the 2016 vote, feelings about Remain have hardened with 70% of Remainers strongly preferring Remain to alternatives, while 24% of Leavers would prefer Remain to their least favourite Leave option.

This reinforces my point that the 2016 referendum is not a mandate for any particular form of Leaving. Any compromise deal is going to be disliked, and perhaps hated, by large numbers of Leavers and Remainers. (Leaving with No Deal will also be disliked by many Leavers as well as Remainers.) Another important result from this analysis is that among 2017 Labour voters, 72% of Remainers would mind “a lot” about leaving the EU, whereas only 25% of Labour Leavers mind “a lot” about Remaining. With as many marginals in Remain as Leave areas, why is Labour choosing to support a Leave option?

Beliefs about Brexit

I have nothing to say on yesterday’s agreement that cannot be found in what Chris Grey or Ian Dunt writes. The difference in tone between the two seems to me to depend on different assessments of how far down the road the Irish border issue can be kicked. What I want to do instead is ask why public opinion seems oblivious to the failures of all those claims before the negotiations that ‘we hold all the cards’ compared to the reality that the UK has largely agreed to the terms set out by the EU.

I think as good a place to start as any is this poll result from ORB.

The view of the overwhelming majority of economists, and all the analysis from serious academics, the OBR, IMF, OECD, and now even the government, is that leaving the EU will involve significant economic costs. Yet despite all this the poll above shows as many people think we will be better off leaving as think we will be worse off. This is the kind of polling that should stop everyone in their tracks, much like the polls before the US election that said more people trusted Donald Trump than Hillary Clinton.

The result in this poll is all the more incredible because so far people are worse off as a result of Brexit. They are worse off because a depreciation immediately after the vote led to higher import prices that have not been matched by rising nominal wages. We have moved from the top to the bottom of the OECD growth league table. A belief that we will be better off has to involve Brexit in some way reversing what has already happened.

I can think of two classes of explanation for this apparent paradox. The first is that people are fully aware of what experts and the government thinks, but ignores this because they simply do not trust experts. Instead they fall back on simple ideas like there will be less immigrants after Brexit so they will be better off. Ideas that experts also say are wrong, but where experts are again ignored.

If that is the line you want to take, then it has a clear implication. The implication is never hold a referendum on anything. It is not normally a good idea to take decisions where you ignore all expertise.

There is however a second and much simpler explanation for the poll result shown above. I know about the view of the overwhelming majority of economists, the analysis from serious academics, the OBR, IMF, OECD and now even the government, and so do most people reading this blog or who read the Financial Times and a few other newspapers. But do people who pay far less attention to economics and politics know this? How would they know this?

They will know very little about it from reading the papers that campaigned so hard for Brexit in the first place. At best the information will be reported in a dismissive way with some reference to how economists always get things wrong. (Hence, by the way, a distrust of economists, because most of the media is either unable or unwilling to make the distinction between conditional and unconditional forecasts.) Against such reports will be a constant stream of comment and reporting extolling the imagined benefits of Brexit.

This propaganda could be countered by informed and informing reporting by broadcasters. Unfortunately, with the exception of Sky News, the standard of reporting by broadcasters on Brexit has been very poor. In particular the BBC treats Brexit like any other Westminster based issue, with an additional touch of nationalism. We hear a great deal from May, Fox, Johnson etc, with virtually no expert analysis of what the true state of negotiations are.

I’m not an expert on international trade, but because I read some of the now numerous people who write stuff on Brexit who are experts, or who have made themselves experts, I feel I am reasonably well informed. I have never seen the same level of expertise from the broadcast media. If I just listened to the BBC or read any newspapers bar two or three, I would know almost nothing about what was really going on in the negotiations.

Let me give a personal example. I missed the importance of the Irish border until September last year. I do not think I was unusual in this respect. I suspect I did so because I was influenced by the UK line that this issue was really a phase 2 problem, a line we heard over and over again on the MSM. What the MSM rarely did was ask what people in Irish Republic felt about the border, and hence why it got to be a first stage issue in the first place.

Once I realised its importance, I could see that the Irish border issue would have a fundamental influence on any final deal, and so could many other experts. But the BBC in particular seems unable to incorporate expert opinion, either directly or indirectly, into its coverage of the negotiations, in much the same way as they failed to do so before the referendum. As a result, most voters are left with bland and uninformative coverage. I see the same Brexiter MPs over and over again being interviewed by the broadcast media, but I cannot recall any occasion in which they have been reminded of the false claims they made before the vote.

The idea that the media can heavily influence popular opinion is not new. It has been widely acknowledged that people think crime is always rising, and overestimate the number of immigrants in the UK, the extent of benefit fraud and so on. These mistakes are almost always in the direction you would expect if people were far too influenced by newspaper headlines. We also now have published papers that demonstrate that the media influences rather than just reflects voters views. (See here for Fox News, and here for the UK press. Here is another study that also finds the Murdoch switch to Labour had large effects. Here is a study about how the media influenced attitudes to welfare after the 2011 riots.)

I also think this is not the first time in recent memory that the media has failed to accurately report what was going on and what experts thought. Before the 2015 election the media accepted the idea that getting the budget deficit down was the most important goal of macroeconomic policy, and that the economic fundamentals were strong. Few experts would agree with the former, and the latter was simply false. What I call mediamacro swung the election for the Conservatives.

The UK government wants a Brexit that will involve the UK not just ending free movement, but leaving the Single Market for goods and services and leaving any customs union with the EU. It is a form of Brexit not dictated by the referendum result but by the wishes of the Brexiters in the Conservative party. The only people who can stop this happening are other Conservative MPs, but many have said that these MPs will only be able to defy their government if public opinion swings against Brexit.

But that is not going to happen. So far the shift in the public’s view of Brexit has been small, and is largely down to previous don’t knows making up their mind. This is not surprising if as many people think they will be better off after Brexit as think the opposite. The most obvious explanation for this is that people remain unaware of the overwhelming expert opinion that they will continue to become worse off after Brexit. That in turn represents another victory for right wing press propaganda, and another critical failure from most of our broadcast media.

Economists and the Euro: for the record

Almost every time I write something about Brexit, I get at least one comment along the lines of ‘you economists got it wrong on the Euro, so why should we take any notice of you on Brexit’. This is beginning to annoy me, because in reality the opposite is true: it was because of economics and economists that we didn’t join the Euro in 2003. So the next time someone says the same to you, send them this blog post.

As far as I can see, the source of this ‘you got it wrong’ line is a poll that the Economist magazine did of academic economists on whether the UK should join the Euro in 1999. In that poll 65% said yes, and 35% said no. It was a good piece of journalism and a sensible survey, and it roughly corresponds with how I viewed academic opinions at the time. Claims by Andrea Leadsom that the Bank and IMF also recommended joining are simply wrong.

This poll has zero relevance to the Brexit issue for the following reasons:

1. Academic economists split 2 to 1 in favour of joining in 1999. In the case of Brexit, for every one economist that thought leaving was a good idea, there were 22 that said the opposite. So while a majority of economists favoured joining the Euro, the overwhelming consensus was that Brexit would involve economic costs.
   
   
2. Ask any academic about the Euro, and they will tell you that there are pros and cons, and it is largely a matter of judgement whether the pros or cons win. A key issue which I did some work on (with Rebecca Driver) was whether countercyclical fiscal policy could deal with asymmetric shocks. Our work suggested they could to a significant extent, but that made the proposed Stability and Growth Pact a concern. Others, looking at other types of risk, might come to a different conclusion.
   
   The contrast with Brexit is total. There are no major economic pros that need to be compared with the cons. Instead there are just economic costs, and the debate is about how large these will be.
   
   
3. Euro membership involved macroeconomics. Membership of the EU is mostly about trade. These are different branches of economics with little in common. Brexit involves the impact of geography on trade (gravity equations) and the impact of trade on productivity, while Euro membership involves the macroeconomic response to asymmetric shocks. It is a bit like refusing to have your hip replaced because your flu jab didn’t stop you getting flu.
   
   

The poll was in 1999. The UK did not decide to make a decision whether to join the Euro or not until 2003, and thankfully it did more than take a poll of economists on the issue. The Treasury was given plenty of time to analyse the pros and cons of entry, and it did so by undertaking a large number of studies. This is how policy advice should work in the absence of delegation: you do not ask the expert what the decision should be, but instead ask what the issues are and let the politician make the decision. I have discussed the so called 5 tests process, overseen by Dave Ramsden, in detail here. Most of the studies were done ‘in house’ by Treasury economists, but advice was sought from a large number of leading academics in the field. Peter Westaway was brought in from the Bank to write a couple, and I wrote a study on the optimal entry rate, extending and developing work I had begun back in the days before we entered the ERM.

The analysis was at the highest level, and I could detect no overt bias one way or the other. Some studies found significant benefits from joining, and others found significant costs or concerns. Although it is easy to be cynical, I have talked to some of the actors involved and it does seem as if the economics, encapsulated in these various studies, was critical in first convincing Gordon Brown and then Tony Blair that now was not the right time to join.

So the reality is that studies that summarised state of the art academic economic analysis stopped the UK joining the Euro. Without that, the decision on UK entry would have been down to politics, much like the formation of the Euro itself, and who knows how that would have gone. The economic analysis anticipated some of the problems behind the Euro crisis but not all. Economics is far from perfect, but that is no reason to ignore it when it says things you do not like to hear.