As the UK’s Conservative government dances to the tune of domestic and international crises, it has arguably made more progress in working out its role in international affairs than in developing a post-Brexit economic model at home.

Don’t mention the big picture

Last month’s Windsor Framework settled in large parts a long-standing, economically harmful and politically poisonous dispute between the UK and the EU related to trading across the Irish land border.

US President Biden, who last week visited Europe to attend the 25th anniversary of the Good Friday Agreement that the US helped broker in 1998, duly welcomed the development, having exerted considerable pressure on the UK to move further towards amicable relations with Brussels.

Full implementation of the Framework will require considerable investment in infrastructure as well as enforcement, especially on the part of UK authorities. And, close inspection of the legalese certainly throws up some questions, for instance on the ultimate practical value of the so-called Stormont brake, designed to allow Northern Ireland’s politicians to object to new EU goods rules.

Overall, however, the agreement has been widely and rightly heralded as yet another step towards something resembling normalisation in EU-UK relations, in line with the improved mood music that has been audible since Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt restored basic levels of competence to UK politics in the autumn of last year.

That said, the nature of the US President’s remarks during his visit to Europe is a timely reminder of the sensitivity of the Windsor Framework in a broader political context.

Despite the Brexit-induced shake-up of relations between the UK and the EU, with Ireland caught in the middle, and a wide range of open questions on intra-European and transatlantic relations, Biden noticeably refrained from drawing any big-picture conclusions on what the future might hold regarding the UK’s relations with the bloc, let alone the transatlantic partnership.

Rather, in his address at Ulster University as well as in his remarks at Dublin Castle last week,  the US leader limited himself to carefully scripted remarks on the economic and cultural dividends of peace in Northern Ireland itself.

Biden’s reading of the rooms – appreciation of US involvement in the region’s affairs mixed with a sense of apprehension regarding the bigger question of things to come – and his subsequent decision not to wade into the wider debate is easy to understand.

For the route that post-Brexit – and, hopefully, post-populist – UK chooses to take is as sensitive as it is open. Crucially, Britain’s decision to leave its continental base occurs in the context of a rapidly shifting global order, featuring economic and political rivalries between newly forming and heavily competing regional networks.

From the perspective of the UK, the twin task of developing an economic model outside the EU Single Market and re-calibrating its position on matters of global security is of paramount importance, inviting a look at some recent developments to glean the direction of travel.

Fixing economic emergencies has come at the expense of long-term thinking

The present UK government came to power last September amidst a period of populist frenzy and rare political instability. Long-term visions and genuine discussions of the trade-offs involved with political and economic choices were low on the list of priorities.

Prime Minister Sunak’s vision of the UK’s economy is thus perhaps best pinned down in a rare big picture speech delivered during his time as Chancellor of the Exchequer in early 2022.

Sunak, in his own words, calls for an economy prioritising around “Capital. People. Ideas,” and a “future economy built on a new culture of enterprise” – in contrast to a state that is “a permanently bigger presence in the market and in our lives”.

This mind-set arguably goes some way in explaining Sunak’s early support for Brexit, which would, in this economically libertarian view, allow for regulatory divergence in areas of British economic strength.

Small steps towards this vision are certainly visible: investment in education and skills, for instance, featured heavily in Sunak and Hunt’s first budget towards the end of last year.

And the government’s most recent budget of March this year again focussed on strengthening the UK workforce, notably by providing historically high levels of childcare support while at the same time seeking to incentivise the elderly to return to work.

Overshadowing these developments, however, is a hard-hitting cost-of-living crisis, brought about by a combination of shocks to the global economy (high energy costs and inflation) and the slowly emerging consequences of Brexit (notably frictions in trade, a significant drop in investment and labour market shortages).

The UK’s toxic combination of high inequality and long-standing economic stagnation (household income, GDP per capita and real wages have not risen in the UK since the financial crisis in 2008) have exacerbated the impact felt by households up and down the country.

This heavy and immediate burden on UK households required the government to step in with significant support to protect at least the most vulnerable parts of the British population, notably by shouldering a large portion of households’ energy costs and raising benefits in line with inflation.

As a result, the last year has seen a fiscally conservative UK government acting largely against its own small-state instincts. Instead, it has been forced to oversee a significant rise in the size of the state as the tax burden rose to historical highs and spending on borrowing reached record levels. This focus on tackling emergencies makes it hard – if not impossible – to discern the contours of a new, post-Brexit economic model.

While the new government is credited with restoring competence and dealing with immediate crises, it has been unable to project a bigger vision for Britain’s economic future. At a deeper level, some of the UK’s current crises are exacerbated by previous, ill-thought-out economic visions.

This includes flaws in the original vision of Brexit – think Singapore-on-the-Thames – which the Conservative party as a whole is finding difficult to come to terms with, let alone rework.

Adding to the difficulties, the UK will need to closely observe regulatory developments in the EU and adapt to them rather than co-design them from within. While this new state of affairs is widely acknowledged in expert circles, the sensitivity of any discussion on the consequences of Brexit makes this a politically impossible message for the Conservative government to convey.

With the UK economy “unmoored,” in the words of the Resolution Foundation, one of the UK’s leading economic think tanks, space has arguably opened for the Labour Party, currently riding high in the polls.

The vision posited by Keir Starmer, pushing for the UK to develop into a “growth superpower” through a “Green Prosperity plan,” may be promising, but it still lacks detail, let alone a genuine discussion of the trade-offs it would entail. Labour’s alternative position on the economy has yet to take form in the minds of British voters, who expect to go to the polls towards the end of 2024.

The UK’s global positioning is clearer but underfunded

If the domestic agenda is largely driven by crisis-management, what can be made of the UK’s post-Brexit security and defence vision?

Sunak’s  government set out the broad contours of its policy in a refreshed version of the Integrated Review that was published by the Johnson government in 2021.

Acknowledging the need to respond to “a more contested and volatile world,” it argues that “unless democracies like our own do more to build resilience and out-cooperate and out-compete those that are driving instability, the global security situation will deteriorate further, to the detriment of all states and peoples.”

The revised strategy doubles down on the UK’s Indo-Pacific tilt that featured prominently two years ago, adding what is acknowledged by defence experts to be genuine substance: Japan, for instance, has joined a UK cooperation with Italy to build new generation fighter jets, and the UK will co-design nuclear submarines with the US and Australia as part of the AUKUS pact.

Crucially, however, the refreshed strategy connects the Indo-Pacific focus with one primarily trained on Europe, arguing that protection of the Western liberal order against authoritarian threats will above all require cooperation between Europe and middle-ranking powers.

The UK, then, in a key departure from its position in 2021, now prioritizes the “security and prosperity of the Euro-Atlantic” but argues that the latter “cannot be separated from a free and open Indo-Pacific.” This exercise in winning-over powers outside the Western (EU and US) and Eastern (Russia and China) axes has been interpreted by security experts to include countries such as Brazil, India, Saudi Arabia and Turkey.

Taken together with the decision to shun the grandiose tone of the Johnson government (the presumptuous notion of “global Britain” is no longer mentioned) and the UK’s widely respected moral and strategic clarity on matters concerning the war against Ukraine, the security strategy appears at least conceptually to be more coherent and persuasive than its domestic economic counterpart.

While Labour’s shadow defence spokesperson has announced a further review if Labour comes to power, current rhetoric within the opposition party suggests no major policy shift if there were to be a change in government.

Critical questions, however, have centred on the UK’s ability to fund and implement the approach, which reverts to the ongoing search for a sustainable economic model to generate the necessary financial and human resources the UK will require to act decisively abroad.

The road ahead after Windsor

Ridding itself of the dispute around the Northern Ireland protocol is certainly a further step in detoxifying the UK’s relations with the EU. The follow-up decision to retreat from the retained EU law bill, a prime example of the unworkable, populist-driven performance politics that has plagued British politics since at least 2016, will reinforce the trust-building exercise with the EU.

This in turn will, without a doubt, help the UK’s case when it comes to tweaking the Trade and Cooperation Agreement (TCA), which governs EU-UK economic relations, a review which is scheduled for next year. Restoring stability in trading with the EU Single Market is of central importance to British businesses and will impact their investment behaviour.

In and of itself, however, an improved TCA will not help the UK’s economic predicament significantly. Even capitalizing in full on the economic opportunities that die-hard Brexiters (including the Prime Minister) expect from regulatory divergence from the EU in financial services will not deliver the silver bullet that optimists like to proclaim.

Rather, long-term investments in education, innovation and skills – specifically in areas where the UK has world-class capacities, such as in scientific innovation, particularly in the life sciences – would support the UK to come-to-grips with its historic struggle of adjusting to de-industrialization and shifting to a sustainable, knowledge-based economy.

Devolving powers away from Westminster to facilitate both regional growth strategies and a more equal distribution of income would constitute further worthwhile measures to navigate the UK out of its economic cul-de-sac, in much the same way as it is beginning to do in the broader field of international affairs.

About the author

Jake Benford is a member of Bertelsmann Stiftung’s Europe Programme, where he currently focusses on economic cohesion in the EU as well as more broadly on relations with the UK. He previously developed the foundation’s work on impact investing.

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