Straws in the wind – reports from the Tory Party Conference in Birmingham

There has been some good on-the-fly speculation and reporting on the speeches and discussions at the Tory Party conference. It’s needed because so little is known about the approach May and the three Brexiteers will take to manoeuvring us out of the EU.

So we are left to decode signals, infer from comments and wonder, over and over, if some of the stupidity on view is a smokescreen or, as you fear, a terrible combination of entitlement, ignorance and arrogance.

Sadly some of the best stuff is tucked behind the FT firewall – but this from Robert Peston deserves“>note:

The Tory conference is barely a day old, and there is already quite a lot to absorb and contextualise. Here are my initial thoughts.

1) Theresa May made it unambiguously clear that – barring capitulation by the rest of the EU – we are heading for a “hard” Brexit (even though she hates the hard/soft distinction). That was clear from her seemingly innocuous declaration that we would take back control of what’s written on food packaging, because such autonomy on product specification is at odds with the rules of the EU’s single market.

2) We are also on our way out of the EU’s customs union, the free trade area that allows goods to be shipped across borders without country-of-origin checks. That was what the foreign secretary Boris Johnson said when, with seemingly breathless excitement, he referred to “taking back control of our tariff schedules in Geneva, so that we can galvanise free trade”. This reference to negotiating new World Trade Organisation tariffs would be incompatible with customs union membership.

3) Businesses and banks, who are desperate to keep us in the single market and customs union, have made a disastrous mistake in directing their lobbying at the Chancellor and the Treasury (admittedly they were encouraged to do this by the Treasury) – because they have only belatedly found out that the Treasury has been marginalised in Brexit preparations. As it happens, the Chancellor and the Treasury – like big multinationals – believe that there will be a significant economic price to pay as and when we withdraw from the single market and customs union. But the Treasury is being ignored. The loci of power on the hows and whys of leaving the EU are David Davis’s Department for Exiting the EU and, above all else, 10 Downing Street.

4) We are in an unprecedented period, in the modern era, when there are literally no rules controlling how much the government can borrow – because the Chancellor has torn up George Osborne’s fiscal rules, as he confirmed again this morning, but has not yet replaced them. Philip Hammond has signalled that Osborne’s plan to generate an overall surplus in so-called normal years is a dead duck – because he believes that being prohibited from being able to borrow to make investments that generate sustainable increases in our prosperity would be bonkers. He wants the freedom to borrow to invest in housing and infrastructure (and is announcing a bit of this today). But he won’t tell us how much borrowing freedom he will have. All he will tell us is that that he will borrow more than Osborne would have done over the coming few years, and that there is no chance of the budget being in balance by the end of the Parliament. Now just think how the City would have reacted if this lack of fiscal certainty happened when Labour was in power – there would be mayhem. So arguably this fudging and mudging by the government on the balance between spending, taxing and borrowing is economically dangerous.

5) The Chancellor sounded profoundly uncomfortable when talking on the BBC’s Today Programme about the health of the economy. He plainly believes that a serious Brexit-induced economic slowdown is just around the corner, but felt it would be disloyal to be explicit about it. But he signalled – as I’ve mentioned – that he would like to respond to the pressure from big companies to offset that slowdown by facilitating and financing substantial investment in housing and infrastructure (far more than he and the Sajid Javid, the Communities secretary, are announcing today).

6) The Treasury, in the May government, is less powerful than it’s been for many decades. In fact I cannot remember when the Treasury has had less authority within government than at present – which is extraordinary given that the economic challenge of managing withdrawal from the EU by the newly set timetable of March 2019 is huge. I am struggling to remember when the relatively power of 10 Downing Street in relation to the Treasury has been so great – possibly at various points in the 1980s when Thatcher was in her pomp, but I am actually not sure. Economic and industrial strategy are being run by Theresa May and her close advisers, Nick Timothy and Fiona Hill. If they know their history they will be aware that previous attempts to cut the Treasury down to size have tended to end in tears, but (dangerous phrase) maybe this time it will be different.

7) Today’s further fall in the value of the pound – which is investors’ response to May’s signal that our Brexit will be a hard one – is a double edged sword. Exporters will be helped. But come the new year, when companies protection or hedges against currency movements unwind, it will lead to higher prices in our shops, and therefore a squeeze in living standards. Given the huge importance of consumer spending to our economy, it is this anticipated squeeze in living standards that is likely to cause a substantial economic slowdown.

8) May’s approach to Brexit will only be properly tested in the court of public opinion as and when that economic deceleration materialises.

Now, the things is, do they mean what they say?

Straws in the wind – reports from the Tory Party Conference in Birmingham

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