The Tories shouldn't celebrate until there is growth for all, not just for some

If this is a recovery, the voters will ask, why aren't we feeling it? Cameron and Osborne need to offer answers.

It was just six months ago that many economists feared the UK would suffer a triple-dip recession. Now, after estimated growth of 0.8% in the third quarter, the economy is growing at its fastest rate since 2010. Output is still 2.5% below its pre-recession peak (in the US, by contrast, it is 4.6% above) and the recovery has come three years later than promised, but George Osborne has been the beneficiary of low expectations. 

Yet as Labour will repeatedly point out today, for most of the public this is no recovery at all. In the most recent month, average weekly earnings grew by just 0.7%, a real-terms cut of 2% and the lowest figure on record. Incomes are not expected to rise until 2015 and and will not return to their pre-crash levels until 2023. The minimum wage is worth no more than it was in 2004 and 4.8 million workers are paid less than the living wage. If there is growth, the voters will ask, why aren't we feeling it? 

The charge that this is a recovery for the few, not the many, is one the Tories are particularly vulnerable to. It was Osborne who chose to cut the top rate of tax at the same time as presiding over the longest fall in living standards since 1870. The Conservative response to Labour's cost of living offensive is to deride it as a distraction from the primary task of fixing the economy, but this message is ill suited to a time when 11 million people have had no increase in their real earnings since 2003. Rising GDP is no longer a guarantee of rising wages. By successfully framing the debate since the conference season, Labour has positioned itself to take advantage of this trend. 

The Conservative hope remains that higher growth will feed into higher wages in time for the election, but before then they need emblematic policies to convince voters that they are on their side. On the fringes of the party, there is much good thinking taking place. The Conservative campaign group Renewal, which aims to broaden the party’s appeal among northern, working-class and ethnic-minority voters, recently published a pledge card calling for the building of a million new homes over the course of the next parliament, a significant increase in the minimum wage, a "cost of living test" for all legislation and action against "rip-off companies".

But by deriding intervention in the market as "Marxist", the Tories risk positioning themselves as the defenders of a failing system. When Margaret Thatcher assailed her left-wing opponents in the 1980s, she did so in the confidence that her free-market policies retained popular support and were delivering rising living standards. Cameron does not enjoy that luxury. To avoid being repeatedly trumped by Labour, the Tories will need to replace dogma with action. 

Chancellor George Osborne during a visit to AW Hainsworth and Sons on October 24, 2013 in Leeds. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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What is the EU customs union and will Brexit make us leave?

International trade secretary Liam Fox's job makes more sense if we leave the customs union. 

Brexiteers and Remoaners alike have spent the winter months talking of leaving the "customs union", and how this should be weighed up against the benefits of controlling immigration. But what does it actually mean, and how is it different from the EU single market?

Imagine a medieval town, with a busy marketplace where traders are buying and selling wares. Now imagine that the town is also protected by a city wall, with guards ready to slap charges on any outside traders who want to come in. That's how the customs union works.  

In essence, a customs union is an agreement between countries not to impose tariffs on imports from within the club, and at the same time impose common tariffs on goods coming in from outsiders. In other words, the countries decide to trade collectively with each other, and bargain collectively with everyone else. 

The EU isn't the only customs union, or even the first in Europe. In the 19th century, German-speaking states organised the Zollverein, or German Customs Union, which in turn paved the way for the unification of Germany. Other customs unions today include the Eurasian Economic Union of central Asian states and Russia. The EU also has a customs union with Turkey.

What is special about the EU customs union is the level of co-operation, with member states sharing commercial policies, and the size. So how would leaving it affect the UK post-Brexit?

The EU customs union in practice

The EU, acting on behalf of the UK and other member states, has negotiated trade deals with countries around the world which take years to complete. The EU is still mired in talks to try to pull off the controversial Transatlantic Trade and Investment Partnership (TTIP) with the US, and a similar EU-Japan trade deal. These two deals alone would cover a third of all EU trade.

The point of these deals is to make it easier for the EU's exporters to sell abroad, keep imports relatively cheap and at the same time protect the member states' own businesses and consumers as much as possible. 

The rules of the customs union require member states to let the EU negotiate on their behalf, rather than trying to cut their own deals. In theory, if the UK walks away from the customs union, we walk away from all these trade deals, but we also get a chance to strike our own. 

What are the UK's options?

The UK could perhaps come to an agreement with the EU where it continues to remain inside the customs union. But some analysts believe that door has already shut. 

One of Theresa May’s first acts as Prime Minister was to appoint Liam Fox, the Brexiteer, as the secretary of state for international trade. Why would she appoint him, so the logic goes, if there were no international trade deals to talk about? And Fox can only do this if the UK is outside the customs union. 

(Conversely, former Lib Dem leader Nick Clegg argues May will realise the customs union is too valuable and Fox will be gone within two years).

Fox has himself said the UK should leave the customs union but later seemed to backtrack, saying it is "important to have continuity in trade".

If the UK does leave the customs union, it will have the freedom to negotiate, but will it fare better or worse than the EU bloc?

On the one hand, the UK, as a single voice, can make speedy decisions, whereas the EU has a lengthy consultative process (the Belgian region of Wallonia recently blocked the entire EU-Canada trade deal). Incoming US President Donald Trump has already said he will try to come to a deal quickly

On the other, the UK economy is far smaller, and trade negotiators may discover they have far less leverage acting alone. 

Unintended consequences

There is also the question of the UK’s membership of the World Trade Organisation, which is currently governed by its membership of the customs union. According to the Institute for Government: “Many countries will want to be clear about the UK’s membership of the WTO before they open negotiations.”

And then there is the question of policing trade outside of the customs union. For example, if it was significantly cheaper to import goods from China into Ireland, a customs union member, than Northern Ireland, a smuggling network might emerge.

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.