With the nation, or most of it, briefly united this week by the funeral of Queen Elizabeth II, the UK prime minister Liz Truss can now get on along with her programme of dividing the nation once more by shovelling cash on the well-off and deregulating every thing that strikes.
Shifting swiftly on from yesterday’s sadly statist power rescue for companies, Truss’s authorities has mentioned that tomorrow’s mini-Funds will embody an extension to the 2021 freeports programme. Already appropriately derided by commerce economists as extra prone to create distortions than prosperity, the freeports — which have particular planning, tax and customs privileges — will probably be outmoded by wider “funding zones” the place extra inconvenient boundaries to progress are eliminated.
Intriguingly, a number of the briefing has included the concept of weakening environmental safety inside these golden citadels. Along with bits of performative post-Brexit deregulation, akin to lifting the cap on bankers’ bonuses, and the standard bracing rhetoric about free commerce, that is presumably supposed so as to add as much as a morality play about internationally aggressive high-growth world Britain.
In actuality, the worldwide characters within the drama are unconvincing. The EU makes little look on this theatrical narrative besides as a pantomime villain who insists on sustaining the Northern Eire protocol, which the UK is legislating to override. However the elephant from throughout the Channel will nonetheless be galumphing round backstage constraining what the actors can do.
For one, if the programme of “full-fat freeports” (Truss’s phrase) actually does contain weaker atmosphere and even labour regulation, which materially impacts worldwide competitiveness, the post-Brexit EU-UK Commerce and Cooperation Settlement (TCA) permits Brussels to impose “rebalancing” actions and withdraw commerce privileges.
For an additional, the wellbeing of UK households and companies within the brief to medium time period goes to rely closely on the power shock, the place EU governments have an enormous position to play. The bailout programmes will soften the affect of rising fuel prices however not take away it: for the reason that authorities has not imposed on a cap on power costs for shoppers, payments will nonetheless go up within the winter and there could also be outright shortages.
Truss’s issuance of latest drilling licences for oil and fuel, along with looser guidelines on fracking, should not going to supply any significant improve in home gas output for years. Extra imminently, the disaster has revealed what few policymakers had targeted on — that having allowed its personal fuel storage capability to degrade, the UK has basically used the EU as an offshore fuel depot by pumping fuel there and shopping for it again through the winter. Britain is dashing to reopen its personal “Tough” fuel storage facility within the North Sea, however that may in all probability come too late for this 12 months.
The wellbeing of British households in coming months is thus depending on fuel shares within the EU, significantly the Netherlands and Germany, being sufficiently plentiful that suppliers are assured in pumping it again. Germany is making much more progress in growing fuel storage and LNG dealing with capability than many anticipated, however the extent of any surplus remains to be unclear. In that context, it’s in all probability a nasty thought to alienate the EU by choosing a battle over Northern Eire.
The remainder of the UK’s commerce coverage doesn’t have a lot so as to add to the expansion story, and likewise displays the extent to which the financial system stays enmeshed with the EU. Truss this week admitted what commerce folks warned years in the past, that Washington’s present antipathy to any and all commerce offers means there isn’t a prospect of a US bilateral settlement within the foreseeable future. The UK is speaking a great sport about encouraging digital commerce, having signed a deal on that topic with Singapore. But it surely might want to proceed cautiously if it needs to retain the EU’s adequacy discovering which permits private information to be transferred backwards and forwards with continental Europe.
The federal government is discovering that Brexit has given it little freedom to create a significant worldwide aspect to its unimpressive progress technique. Except it decides to go for a radical unilateral discount in commerce boundaries in one thing like agriculture, the UK’s liberation from the EU’s commerce regime has given it primarily notional freedom. Because the fuel provide situation exhibits, it’s laborious to spend a long time in shut engagement with a big neighbour financial system with out creating dependencies which could solely turn into evident at instances of stress. Extra are prone to emerge because the years progress.
The buccaneering world Britain rhetoric will little question proceed. However as this week will present, the UK has struggled to search out any technically doable, politically palatable and economically significant method for commerce coverage to spice up progress.
Join Commerce Secrets and techniques, the FT’s publication on globalisation
