To defend living standards the priority is to remain in the Single Market

Notes from the front of 16-01-2017

To defend living standards the priority is to remain in the Single Market

Prime Minister Theresa May is due to make a speech on 17 January (tomorrow) that, according to media previews, will set the stage for a hard Brexit. This orientation, to removing the UK from the Single Market when it leaves the EU, was also implied in her first interview of 2017, on 8 January to Sky News.

May carefully avoids giving details of her Brexit negotiation priorities and so far has not made any explicit statements about Single Market membership, but the necessary implication of her red lines, on prioritising immigration control and ending European Court of Justice jurisdiction, is that she is willing to pull the UK out of the Market.

Germany and other EU states have firmly indicated they will not be offering the UK its current level of access to their markets outside of the Single Market and its four freedoms, which includes freedom of movement. As with any market the EU Single Market operates under a common set of rules, which in this case are enforced by the European Court of Justice.

Sterling is again falling as currency markets anticipate the UK economy weakening from a hard Brexit. In the days following May’s Sky News interview the UK currency fell 1.3 per cent against the dollar and the euro, sliding to a three-month low.

Trade with the rest of Europe and the movement of people and capital are essential to the UK economy. The Single Market is the UK’s biggest export market. Jobs, investment and public finances all depend on it. It is a Brexit fiction that these markets can easily be replaced outside the EU without a complete transformation of the UK economy. However fast a Donald Trump US administration can push through a US-UK trade deal, it is not a realistic replacement for UK’s current economic ties within Europe.

Trump’s intervention, in his Times interview on 16 January, extolling Brexit as a ‘great thing’ and expressing his belief that other countries will also leave the EU, reflects a US desire to weaken its European competitors.

Jeremy Corbyn in his first speech of the year, on 10 January in Peterborough, said he will push to maintain full access to the European Single Market. This should be Labour’s number one priority goal in the forthcoming Brexit negotiations. Labour’s push for full access is important, but as this level of access is only available to members of the Single Market Labour should explicitly fight for the UK to remain in the Single Market. The sooner this demand is made the better, preferably before Article 50 is triggered. The UK will lose its influence over the terms of its economic relations with the EU when it leaves.

Labour needs a clear orientation into the Brexit negotiations that attacks the government’s hard Brexit orientation and fights to stay in the Single Market.

Labour’s electoral support

Support for Labour has significantly fallen since the Labour right launched their coup attempt last June. The offensive against Corbyn and the domination of the political agenda by Brexit and not austerity have created considerable difficulties for Labour.

On the issue of Brexit Labour has to take account of the divisions amongst its supporters – at the EU referendum 63% of 2015 Labour voters backed Remain whereas 37% backed Leave. It is very risky to signal a pro-Brexit orientation to its Remain-backing supporters or to tell them Brexit can work and make them better off. Similarly at present it could be counterproductive to simply tell its Leave-voting supporters they got it wrong. Labour should engage with them on the importance of the Single Market.

Labour should not block the triggering of Article 50, but move the agenda on to the key demand for the exit negotiations – continued membership of the Single Market. That should be Labour’s bottom line, to protect jobs and living standards. Without Single Market membership as an aim Labour should vote against the government’s proposals. Voters expressed no views on a hard Brexit on 23 June. Labour can explain it respects the referendum vote and is fighting to protect the economy and people’s living standards.

The pattern of support for political parties has significantly shifted since last June. A Fabian Society paper published this month, which in most respects is not serious analysis, however includes a useful estimation of the flows of voters from the general election to now based on YouGov polls from October to December 2016. The line of the paper (titled: ‘Stuck: How Labour is too weak to win, and too strong to die’) is a right wing polemic, including the wild suggestion that Labour might secure less than 150 seats at the next parliamentary election. It is just the aggregated polling data that is informative.

Based on this polling it is estimated that UKIP has lost approximately 400,000 votes to the Tories since the general election and the Lib Dems have also lost 100,000 to the Tories. Over the same period Labour has lost 400,000 votes to the Lib Dems, 200,000 to the Tories and 200,000 to UKIP.

The Tories, the majority of whose supporters backed Brexit at the referendum (58% of 2015 Tory voters to 42%), have effectively positioned themselves as the main pro-Brexit party, pushed back UKIP and risen in the polls.

UKIP has lost support to the Tories and fallen in the polls.

The Lib Dems are positioning themselves as the main pro-Remain party and have also risen in the polls.

Labour has lost support both to parties identified as against and for Brexit in approximately equal measure. On economic grounds it should not try to compete with the Tories and UKIP to be the leading pro-Brexit party. Clearly electorally it cannot successfully compete anyway given the majority of its supporters backed Remain. Labour needs to intelligently frame arguments against a hard Brexit in particular to convince Leave voters of the necessity for Single Market membership and that this is the bottom line in the exit negotiations.

Freedom of movement

On the issue of freedom of movement the Tory priority is to get rid of it, even at the cost of leaving the Single Market, job losses and lower living standards. Labour should position its fight on an alternative terrain where the Single Market and people’s living standards, jobs and public services come first. Whether there will be free movement, or not, should not be its principal framework. Labour has to fight for the overall economy, in which free movement is just one positive component.

As a subsidiary but important point, Labour’s position on freedom of movement still needs to be based in economic reality and not prejudice. Free movement contributes to growth and sustains living standards. Blocking people’s movement across national boundaries is no more rational than blocking movement across county boundaries would be. It is reactionary because it harms the economy. Labour cannot stand for free movement of goods, capital and firms and yet seek to restrict the right of workers to freely move within the same market.

UKIP and the Tories scapegoat migrants to divert attention away from the role of big business and government in lowering living standards. Significant parts of the Labour right concede to this approach. The various calls for reductions in foreign nationals coming to the UK and for new systems of immigration controls reflect that capitulation. It blames migrants for the current crisis, not business and an austerity government. It is a recipe for Labour to lose votes, not attract new votes. The way to beat UKIP is not to echo its arguments, but defeat its false claims.

Corbyn in his Peterborough speech said ‘Labour is not wedded to freedom of movement for EU citizens as a point of principle, but I don’t want that to be misinterpreted, nor do we rule it out.’ The media reported Corbyn was shifting away from his past defence of free movement – which does not help Labour amongst its base. Whether Labour is wedded or not to free movement is however not the main issue that confronts the party. It faces the same fundamental choice as the other parties. The Tories and UKIP are prepared to sacrifice economic prosperity in order to get new immigration controls agreed. Labour should champion the alternative choice that defends living standards, which means membership of the Single Market and in which case free movement has to accepted even by those who do not grasp that it is actually a positive economic factor.

An unambiguous campaign for the Single Market would help put Labour on the front foot in this current difficult period.



Speculation that Trump will boost US growth is just that – speculation

The main trends in the financial markets have gone into sharp reversal in recent days. The US Dollar had been rising against all major currencies, global stock markets rallying and the yield (or interest rate) on US and other government bonds had been rising. All of these trends were related to the widespread sentiment dominating financial markets that a Trump presidency will cut taxes, boost US government spending and lift investment. The assumption was that this would also push the US Federal Reserve into further interest rate rises. This widespread consensus has faced a reality check, and the trends have gone into reverse at least for the time being.

One immediate cause of the reversal, which saw the US Dollar and stock market fall and the yield on US government debt fall, was Trump’s shambolic press conference. This veered between threats to China and fending off lurid allegations made against Trump himself. But market speculators took fright as there was not a word about the economic policy on which they had so confidently based their trades.

Trump is likely to be a viciously anti-worker president, and include big tax breaks for companies and the very rich in his economic policy. This is designed to boost the profits of big business, both before and after tax. But it is not a strategy to boost dismal levels of US economic growth. As a result, the Federal budget deficit will rise. But it is far from clear whether there will be any increased government spending outside of military spending. ‘Obamacare’ funding is threatened with the axe. At the same time, Western governments in general continue to talk about increasing investment without ever acting.

At the very least the speculators may have made their bets very prematurely on Trump growth. As the US already has too few resources to maintain living standards and current spending, any significant increase in military spending alone would need to come from overseas. A wider spending programme would require vast resources from overseas. The judgement is that the financial and economic turmoil of the Trump presidency has only just begun.