24 November 2021

David Frost is right about Brexit – but not for the reason you think

The UK can't thrive if it tries to marry its pre-Brexit economic model with a very hard Brexit.

David Frost is right. The government’s de facto Brexit Secretary gave an intriguing speech on Monday (22 November) in which he warned that the United Kingdom would not thrive after Brexit if it simply tried to operate in the same way it did as a member of the European Union: the UK’s present economic model presupposes membership of the European Economic Area and the customs union, and it won’t work very well now we have left both of those things.

But he is almost certainly wrong in his preferred response: lower tax and a smaller state. I’m not saying these things can’t work in theory: I don’t really think it’s worth giving that question much houseroom, because in practice, you collide with the very real political constraints that have made it harder for the Conservatives to continue shrinking the state since 2015.

While the 2015 general election was a political victory for the Tory party, which won its first parliamentary majority since 1992, the governing parties together lost both seats and vote share. A year later, defeat in the Brexit referendum brought to a sharp halt to the careers and policy programmes of many of the key players in that government. In 2017, when the Conservatives went back to the country pledging to continue the cuts, they lost their parliamentary majority. The 2019 election result was down to many things – the unpopularity of Jeremy Corbyn, a desire to put Brexit behind the country, and much else besides – but it also helped that the Conservatives did a good job of making it appear, at least, that the era of further and deeper cuts was at an end.

If you want to be radical about tax cuts, you do also have to be radical about spending cuts. Whether you believe, as Rishi Sunak and Rachel Reeves do, that spending does ultimately have to be paid for out of tax, or you believe that the only real constraint on government spending is inflation, you need some degree of relation between what you do on the spending side and on the tax side.

One difficult truth for Brexiteers who think that the way for the UK to thrive after Brexit is by abandoning the “European model” is that the British electorate’s passion for what you might call “the European way of life” -– a certain standard of public services, a broadly social democratic approach, mixed economy and so forth – pre-dates our membership of the EU. In many ways, balancing the expectations that British voters had and running the economy well is one reason why British politicians decided to pursue membership of the nascent European Union in the 1960s and 1970s. As far as weaning the British electorate off aspects of the European model, the most successful period for the British right since the advent of universal suffrage came during our EU membership in the 1980s and 1990s.

There is no compelling evidence to suggest that the British electorate is ready or willing to support the levels of reduced spending needed in order to seriously change the amount that the UK is taxed, unless you make some fairly heroic assumptions about growth and tax revenues. So while Frost is right that the United Kingdom will struggle if it wants to maintain the European model outside the European project, it’s far from clear that a low-tax alternative is even deliverable.