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 vitality rescue for companies, Truss’s authorities has mentioned that tomorrow’s mini-Finances will embody an extension to the 2021 freeports programme. Already correctly derided by commerce economists as extra more likely to create distortions than prosperity, the freeports — which have particular planning, tax and customs privileges — shall be outdated by wider “funding zones” the place extra inconvenient boundaries to progress are eliminated.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 same old bracing rhetoric about free commerce, that is presumably meant 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 legislation, 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 one more, the wellbeing of UK households and companies within the quick to medium time period goes to rely closely on the energy shock, the place EU governments have a giant function to play. The bailout programmes will soften the influence of rising gasoline prices however not take away it: for the reason that authorities has not imposed on a cap on vitality costs for customers, 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 gasoline, along with looser guidelines on fracking, aren’t going to supply any significant enhance in home gasoline output for years. Extra imminently, the disaster has revealed what few policymakers had targeted on — that having allowed its personal gasoline storage capability to degrade, the UK has basically used the EU as an offshore gasoline depot by pumping gasoline there and shopping for it again in the course of the winter. Britain is dashing to reopen its personal “Tough” gasoline storage facility within the North Sea, however that can in all probability come too late for this yr.
The wellbeing of British households in coming months is thus depending on gasoline shares within the EU, notably the Netherlands and Germany, being sufficiently plentiful that suppliers are assured in pumping it again. Germany is making much more progress in growing gasoline 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 foul concept 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 economic 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 any prospect of a US bilateral settlement within the foreseeable future. The UK is speaking a very good recreation about encouraging digital commerce, having signed a deal on that topic with Singapore. However it might want to proceed cautiously if it needs to retain the EU’s adequacy discovering which permits private knowledge 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 gasoline provide situation reveals, it’s exhausting to spend a long time in shut engagement with a big neighbour economic system with out creating dependencies which could solely develop into evident at instances of stress. Extra are more likely to emerge because the years progress.
The buccaneering world Britain rhetoric will little doubt proceed. However as this week will present, the UK has struggled to seek out any technically doable, politically palatable and economically significant approach for commerce coverage to spice up progress.
Join Trade Secrets, the FT’s e-newsletter on globalisation