May is about to lose the Tories all their economic credibility

  • No responsible prime minister would plunge the country into crisis for the sake of politics – but it looks like she just might

  • Chuka Umunna MP

Brussels was the easy bit relative to what awaits the prime minister in Westminster. She saw off attempts by the Spanish government to “veto Brexit”. There was talk of her having made concessions to them but the truth is that Spain couldn’t actually veto the withdrawal agreement, which was signed off unanimously yesterday by the European Council – and it doesn’t enjoy the support on Gibraltar which the Republic of Ireland enjoys on the vexed issue of the Irish border.

The House of Commons is another matter: we do have a legal veto on the withdrawal agreement. As things stand, the PM has nowhere near the numbers to get it through, and MPs will block it.

After May’s statement to the House last week, an email with a letter from the PM popped into by inbox. In it she declared that the “political declaration delivers on the referendum by taking back control of our money, borders and laws while protecting jobs, security and the integrity of the United Kingdom”. Some business leaders have bought this line and are arguing that, for the sake of certainty, the Commons should agree to this botch job simply for the sake of getting an agreement and avoiding “no deal”.

I spoke to a representative of a major business organisation in the manufacturing sector who privately parroted this mantra from No 10 to me. Sensibly, this particular group has not parroted this line publicly because the political declaration is just that – a declaration of aspiration and no more. It is not a legally binding part of the withdrawal agreement and therefore delivers very little indeed.

Even the PM conceded in her letter to me and other MPs that it is far from a legally binding document. She wrote that it will “provide instructions to negotiators which will deliver a legal agreement to be implemented by the end of 2020 covering an economic partnership, a security partnership, and specific agreements on cross-cutting cooperation”. Whether it is “delivered” and done and dusted by 2020 is pure speculation on her part.

When I asked her in the Commons whether she could guarantee such a legal agreement would be implemented by the end of 2020, she couldn’t – for obvious reasons. It is highly unlikely she will still be prime minister in 2020; the political composition of the EU Council of leaders will have changed; the personalities on the other side of the table will almost certainly be different; and there will be a new European parliament in place.

In any event, senior EU Commission and EU Council officials I have met with have told MPs that a free-trade deal will take at least three years to finalise – so the earliest we can expect to see a legal agreement on the future relationship will be mid-2022. No wonder Nicole Sykes, the CBI’s head of EU negotiations, argued there was “no need to give credit to negotiators” because what is currently being put before the Commons is “not a good deal”.

The inescapable fact is that, as an EU member, the current deal we have is far better than the alternative being offered by the PM. The former Brexit secretary Dominic Raab, who helped to negotiate it, has even acknowledged this, and a fully independent economic analysis published today suggests May’s agreement with the EU could hit the UK economy by £100bn a year by 2030. That is why so many in business have joined demands for a People’s Vote with remain on the ballot.

So, in light of all of this, how on earth does Theresa May expect to secure the consent of MPs to her agreement? Through the extraordinary spectacle of a Conservative prime minister precipitating an economic crisis to force through what she wants.

George Osborne’s former chief economic adviser, Rupert Harrison, describes the approach as the “Tarp model”. Tarp (Troubled Asset Relief Progamme) was the term used to refer to the US plan to bail out the banks in 2008 in the midst of the global financial crash. Initially, Congress rejected the plan, causing the markets to tank and financial chaos to ensue. So President Bush brought it back to Congress and it passed on the second attempt three days later.

The Bush strategy could be employed by May, in terms of Brexit, like so: the latest we are hearing is that the Commons vote on the withdrawal agreement is due on Wednesday 12 December. If it fails to get through, although the markets here have priced in some political turbulence, there is likely to be an immediate economic shock with sterling and UK equity markets plummeting.

Many businesses are simply unprepared for a no-deal Brexit and will therefore panic, cancelling orders and so on, as they worry it is about to become a reality. If she is still in place after such an event, the PM can go back to the EU Council, which is due to meet again on 13 and 14 December, to seek further concessions. Then she can put a revised withdrawal agreement to parliament in another vote before we rise for the Christmas recess on Thursday 20 December, or just after we return in early January.

Notwithstanding the fact there is no majority in the Commons for no deal, and there are ways to avoid this, May’s gamble will be that MPs will similarly panic in the midst of crisis and vote through her agreement on the second attempt. Et voila – the Tarp strategy achieved.

It would be the height of irresponsibility for a prime minister to knowingly precipitate an economic crisis like this in attempt to impose the executive’s will on the legislature, but that is precisely what appears to be her plan. It’s important to note that if she does this she will shred whatever is left of any claim the Conservatives may have to economic competence.

On Black Wednesday on 16 September 1992, a falling pound and sterling’s exit from the exchange rate mechanism wrecked the Tories’ economic credentials – that will be nothing compared to the damage done to whatever economic credentials the Tories have left if a Tory PM, following the Tarp model, deliberately precipitated an economic crisis now. It would destroy the Conservative Party for at least a generation, and deservedly so.

Some Labour folk might welcome this, but the fallout for our constituents would be appalling, and the impact on jobs and businesses would be very much against the national interest. May could choose a different course – which she has conceded is an option – and let the people decide with a vote on the final deal. For the good of the country, I hope she does.