Autumn Statement: Economy

Lord Taverne Excerpts

Tuesday 29th November 2016 Lords Chamber

[Lord Taverne (LD)]

My Lords, supporters of Brexit have attacked the Chancellor’s Statement as being too pessimistic. I believe that it may be too optimistic, mainly because of the political background.

Suppose it begins to dawn on markets and investors that we are likely to end up in 2019 with a hard Brexit, outside the single market and the customs union, with no prospect of an early free trade agreement with the European Union, no passports or licences based on equivalence for our service companies to operate in the world’s biggest market, no cherry picking or special exemptions from tariff, non-tariff and bureaucratic obstacles for key export industries, and no transition agreement. That is a far from inconceivable scenario. The word from Brussels and most of the 27 is that they are in no mood to help us achieve a soft Brexit or to concede a quick transition agreement. That will be just as difficult to negotiate as a free trade agreement, and the Canadian free trade agreement took more than seven years. Temporary arrangements have a habit of becoming permanent. Of course, their mood may change. Theresa May too might do a U-turn and give single market membership or access top priority over immigration control. However, that is not quite the feeling she has expressed in the past or at the Conservative conference, and I would not bet on it.

Suppose further that we find that those who promise a wonderful free-trade bonanza after Brexit are living in cloud-cuckoo-land. Who welcomed Brexit? Donald Trump, whose battle cry is “America First”—something he is not going to go back on—and an end to America’s traditional noble role as the champion of world free trade. Marine Le Pen, arch-nationalist and protectionist, welcomed it, plus all the other nationalists and protectionists whose influence in the European Union is growing. Free trade is linked with unpopular globalisation and the likelihood is that we will not face a world with more free trade but one with more protectionism.

What, then, would be the consequences if the market began to take the prospect of a hard Brexit seriously? Probably a further drop in the pound, a further reduction in investment, a major emigration of companies based in Britain, a rise in interest rates, inflation and unemployment—in fact, a Brexit recession. I am not saying that it will happen—of course, we are living in a world of unparalleled uncertainty—but it is too feasible a possibility. Even without that scenario, the IFS has forecast that we face the longest spell of no wage increases that we have seen for 70 years. The poor will suffer most, as the noble Lord, Lord Livermore, and many others have pointed out.

Of course, Brexiteers immediately attack anyone who contradicts their vision of a glorious post-Brexit future. They promptly denounced the IFS as a Brussels lobby group. I should declare an interest because in 1971, when the IFS had been incorporated and had no staff or money, I was approached, as a former Financial Secretary when Roy Jenkins was Chancellor, to be its first director and get it off the ground. One of the things I am rather proud of in my political life is of having acted as the midwife at the birth of an infant who has grown up to be such a formidable adult, with an international reputation for independent, objective expertise.

However, whatever the cost of Brexit, currently conventional wisdom holds that a referendum is the ultimate expression of democracy, and that the so-called advisory June verdict is binding and must be irreversible. According to some tabloids, even to suggest that it might be reversed is an act of treason against the will of the people. But why should a referendum vote be any more sacrosanct than the result of a general election, which at least gives us a clear choice among detailed manifestos? Those who most loudly denounce any challenge to “the people’s will” have been the first to challenge it themselves. Before the June vote, Nigel Farage declared that if Remain should win, he would never accept the verdict. Much more important, it is an essential underlying principle of democracy that no decision should ever be irreversible. Autocrats declare that people must never be allowed to change their minds. Democracies allow people to admit that they made mistakes and to change their minds if circumstances change.

Furthermore, we should learn from history. Ever since the Enlightenment, there has been a rift between the followers of the English philosopher, John Locke and the disciples of the Genevan philosopher, Jean-Jacques Rousseau. Locke argued that we should have regard not only for the view of the majority, but also for the rule of law and the protection of the rights of individuals and minorities. His followers regarded parliamentary democracy, with its careful checks and balances, as the best guarantee of freedom. Rousseau declared that the will of the majority must always prevail and the individual has no right to disobey it. Locke proved the inspiration of liberal democracies and has been at the root of our own constitutional traditions. Rousseau, and belief in the unchallengeable supremacy of the people’s will, have always appealed to autocrats. Hitler represented the will of the German people before the war. Was Hitler a democrat? Thank God Germany is now a successful democracy with a central role for an independent judiciary and a deep respect for the rule of law and the rights of the individual.

Stalin was revered by the Russian people. Was he a democrat? Among the most popular national leaders at this time are Putin and Erdogan. Are they democrats? Of course, times have changed. Nowadays most democrats accept the occasional use of a referendum. I too, somewhat reluctantly, accept it. But we should also remember that an invocation of the will of the majority as sacrosanct tends to lead to the denial of the rule of law and the suppression of individual rights. The Daily Mail, for instance, showed its devotion to Rousseau when it denounced the independent judiciary, who are, after all, our ultimate guardians of the rule of law and the rights of the individual, as the “enemies of the people” because they dared to interpret the law in a way which the Mail thought defied the people’s will, and its own views. There was a whiff of fascism about that screaming headline.

If the OBR forecasts and the IFS predictions prove wrong, as, of course, they well may, and if there is no change in the public mood, the June verdict will stand. However, if they are proved right and Donald Tusk was right, that in the end we face a choice between a hard Brexit with a very unpleasant series of consequences or Remain, and if there is a major shift in public opinion, I put, in conclusion, a question about a possibility which many will regard as unthinkable. What should a rational, sensible Government, who are concerned for the welfare of the country, do in two and a half years’ time if their policy has become deeply unpopular and is clearly proving disastrous? Would they continue blindly staggering towards Brexit? Or might they decide that their duty was to follow Sir John Major’s advice and ask the country to think again? In those circumstances, another vote before a final decision, preferably a second referendum, would be fully justified. Indeed, to deny it would be undemocratic and the Government would be failing in their duty to the nation.