Wages soar in

Sunak’s Brexit problems run far deeper than ‘Swiss deal’ rumours

Nearly three years after the UK left the EU, the battles around what Brexit means in practice are still very much rumbling on in the background. 

Be it the Northern Ireland protocol bill, the outstanding issues over EU retained law, or the rows over what to do with migration, Brexit, while relegated from its mainstay spot on the front pages, never truly got “done”. 

The problem for Rishi Sunak is that the Brexit fall-out may now decisively burst onto centre stage, as reports suggest that the government is preparing a bespoke “Swiss-style” deal with the EU.

The Swiss model would see the UK gain further access to the single market in return for liberalising EU migration, payments to the EU budget and greater oversight from the European Court of Justice.

The reports prompted forceful ERG protestations and strained government denials. 

But it is worth looking at the bigger picture here. 

Last week saw a series of headlines that put the quality of Britain’s post-EU economic landscape in a difficult light. First there was George Eustice’s brutal swipe at the UK-Australia free trade agreement, then came the OBR’s comments that Brexit has had “significant adverse impact” on UK trade, and finally there was a YouGov poll which found that one in five who voted for Brexit now think it was the wrong decision. 

As each story broke, it became clearer and clearer that Brexit and its fall-out are still very much alive. Sunak’s line that Brexit is “delivering” for the British people is under profound assault. 

The Brexit-scepticism behind the autumn statement

The financial turbulence caused by the mini-budget heightened scrutiny on the UK’s post-Brexit economic landscape to a level not seen since 2016. 

Truss’s new economic proposals were about forging an economic niche for the UK post-Brexit as a low-tax, low-regulation hub: what supporters referred to as “Singapore-on-Thames”. 

In constructing her package, Truss took pride in ignoring the British establishment’s received wisdom. The opposition of the “blob” and the market loop-the-loops were really evidence that her strategy was working. Britain’s sluggish financial regime was being shaken to its core — finally, Truss will have thought, a Brexit-infused golden economic era is upon us. 

But the implosion of Trussonomics brought the “Singapore-on-Thames” dream crashing down. Brexiteers for whom a low-tax, low-regulation landscape was the overarching dream that inspired their euroscepticism were left reeling from the market’s bruising indictment. 

How now would the UK exercise and perform its post-Brexit sovereignty?

As the mini-budget was carefully and deliberately picked apart by Jeremy Hunt last Thursday, it became clearer the chancellor wanted to return to a simpler economic time: a time before Johnson, before Truss and before Brexit. 

No longer would the party sidestep advice or the infamous “organisations with acronyms” which provoked the ire of Michael Gove during the referendum campaign. In this bitter lesson in financial prudence, Jeremy Hunt simply could not get enough of experts!

In the end, the autumn statement was tantamount to an admission that the Trussite rationale behind Britain’s departure from the EU was ill-thought-out. Austerity was back — Brexit opportunities be damned.

It is little surprise that insiders are pointing their fingers at the treasury for the source of the “Swiss deal” leak. Indeed, asked on Friday if rejoining the single market would boost growth, Hunt said that “unfettered trade” was “very beneficial”.

But leaker or not, it is clear that the chancellor is taking a more Brexit-sceptical approach to Britain’s economic situation — a stark contrast to the buccaneering pro-Brexit attitudes of Johnson and Truss. 

Many pro-Brexit backbenchers are not happy. 

ERG-ie Bargie

Over the past 30 years, the European Research Group (ERG) has exercised significant influence on the Conservative party, pushing consecutive prime ministers to adopt harder and more inflexible positions on Europe. 

Predictably, the “party within a party” has not been pleased to learn that the government is planning to rejig Britain’s economic ties with the EU. 

Responding to the Sunday Times scoop, ERG leader Iain Duncan Smith said: “The Chancellor needs to himself slap this story down, this should never have got going and if he meant it or not, he needs to make it clear this is not what the government is about”.

It is clear where IDS thinks the story came from. 

The ERG were also some of Truss’ most trenchant supporters in the summer — expecting the then-foreign secretary to deliver on post-Brexit opportunities and carve a path to “Singapore-on-Thames”. 

So in a post-Truss world, the ERG is looking for a purpose. It is telling that the grouping could not decide between Penny Mordaunt and Sunak when it came time to replace her.

But Brexit purity is the ERG’s speciality, and the “Swiss deal” leak has injected some enthusiasm into the group’s pro-Brexit bloodstream. Promptly, the organisation convened on Monday afternoon for a meeting. I imagine that the softening of the government’s position on Brexit was on the agenda.

Fishy Rishi

For veterans of the 2016-2019 Brexit battles, the Sunday Times’ scoop will have conjured unwelcome flashbacks to Theresa May’s ill-fated “Chequers” deal. As one ERG member has commented: “Effectively, this is the rejected Theresa May deal by a different name”.

A prominent adviser in May’s administration also made the comparison, writing on Twitter: “Switzerland without freedom of movement is basically chequers. We tried that. A lot”. Indeed, the scale of the opposition to the Chequers deal back in 2018 was so overwhelming that any attempt to revive its proposals, or try something similar, is surely doomed. 

However, a question hangs over Sunak’s positioning here, who as a junior minister during the May era voted for the Chequers deal on all three occasions. 

Sunak has always been more at home with the CBI than the ERG, and the suspicions of the Brexit-backing elements of the Conservative party are telling. The PM is no ideologue, and his technocratic tendencies understandably frighten the more dogmatic corners of his party tent. 

So while returning any form of Chequers 2.0 is untenable, it is far from beyond the realm of possibility that Sunak will champion a closer trading relationship with the EU. In any case, expect noise from Brexiteers both within and without the party from now on. 

The Farage factor 

It is worth recalling that throughout 2016-2019, the Conservative party’s approach to Brexit was conditioned and moulded by the Faragist threat on the right. 

Since the UK left the EU, that threat has dissipated but never truly disappeared. As a primetime anchor on GB News, Farage has been able to both apply populist pressure to Conservative prime ministers and simultaneously insist that he has retired from frontline politics. Truly very clever stuff. 

But the truth is that Farage has never been far away from a full-fledged comeback. And there will be few happier about the Sunday Times scoop than the former UKIP leader. The routine is familiar: cry “crisis” and “Brexit betrayal” while hinting at a smash-hit comeback tour to “crush” the Tories once and for all. 

On cue, Farage has told The Sun: “I’m not ruling anything out… If they really do betray Brexit, I would have to do something”. 

But even without Farage, the existence of parties like Reform UK and Reclaim means there is no shortage of potential political homes for disgruntled Brexiteers. Sunak will have to be careful. Already some 840 people have joined Reform UK since Hunt delivered his autumn statement on Thursday — and, if Brexiteers sense that the PM is really going soft on Brexit, more will undoubtedly follow. 

What next for Brexit?

The “European question” has always prompted political difficulty, especially for Conservative prime ministers. The difference now is Brexit was supposed to have been settled. A key problem for Conservative politicians, therefore, is not Brexit “fatigue” per se, but a forceful public outcry against the party rerunning old arguments and reopening old wounds. 

And unfortunately for the PM, a Brexit showdown is looking increasingly inevitable. 

The economic situation will lead to calls from his party left (which appears to include his chancellor) for closer economic ties with the EU. But on the party right, ERG members will want a return to the optimistic, buccaneering pro-Brexitism of Boris Johnson. Nationalism has always been used as a distraction tactic at a time of economic misfortune. 

Sunak will be caught, as he so often is, between these two competing factions — and it is ultimately a zero-sum game. ERG members and the Faragist right want nothing less than total victory. 

In this sense, talk of “Swiss deal” is just a distraction. The main Brexit arguments are to come.