The strain is between two only partially aligned visions of Brexit Britain: the cohesion country versus the start-up nation.
The strain is between two only partially aligned visions of Brexit Britain: the cohesion country versus the start-up nation.
COMMENT:
Anyone wishing to understand the tensions slowly building in the British government should study the policy arguments of the past few days.
The divide is not as simple as the often suggested one between free marketers and interventionists. There are few non-interventionists in Boris Johnson's administration.
The rival policy principles are visible in the debates over allowing Huawei into the UK's 5G network, immigration controls and the future of HS2, the high-speed rail project connecting London to big cities of the north. On one side is the notion of a re-engineered competitive economy with new high-tech industries. On the other is the more prosaic imperative of fixing the social problems that presaged the Brexit vote.
For many Leavers, Brexit was always about social cohesion, immigration and sovereignty. Those who claim an economic benefit have struggled to move beyond the conceptual case. For some the dividend would be new free trade deals, especially with the US.
The closest thing Brexiters have to an economic case is the start-up vision. In it, the UK is forced to become more competitive, even though this ironically was the same argument originally made for British membership.
In this view Brexit serves an adrenalin shot to the nation's sluggish economic heart, though it will need to be quite a jolt to make up for the 4.9 per cent lower growth over 15 years anticipated by the Treasury under a Canada-style trade agreement with the EU of the type the prime minister seeks.
The foremost advocate of the start-up nation is Dominic Cummings, the prime minister's chief strategist. He sees the UK as a buccaneering spin-off from an over-regulated European megalith. It is a nation of innovation, high ambition, pioneering science and less bureaucracy; government projects are data tested and product managed; people move fast and break things. He sees public spending on research and development doubled to £18 billion ($36.2b) over five years.
Even so, conditions are not ideal. UK growth is likely to remain sluggish. There are limited funds for a moonshot.
The conflict between this and the cohesion country narrative is a tension, not a war. Cummings also argues for levelling up the UK economy with infrastructure investment for the north and Midlands. In the Venn diagram of these imperatives, policy will often land in the overlap. Investment in skills, which chancellor Sajid Javid favours, is in the sweet spot.
The new enthusiasm for free ports, championed by Rishi Sunak, the probable next business secretary, is a cohesion play for the regions couched in the language of the start-up nation.
But not every issue is so well located and nowhere is this more obvious than in Brexit trade negotiations. The start-up nation view wants regulatory divergence, not least for biotech and scientific innovations. It sees opportunities in sloughing off the EU's regulatory and protectionist instincts and will accept costs to existing businesses for this freedom. This view is unsentimental: some ministers talk blithely of accepting hits to "legacy industries".
British Prime Minister Boris Johnson. Photo / AP
A country focused on cohesion may prefer to hold on to existing manufacturing jobs until the new ones look less theoretical. For now the two sides are talking tough ahead of a deal both want. But the lure of divergence looks strong to Brexiters. The stories we spin round our dreams can convince even the authors.
The Huawei decision, made in defiance of security concerns and strong US pressure, was a win for the start-up nation. But ranged against the supposedly containable security risk were the demands of a competitive economy for superfast broadband. The start-up nation felt it could not wait.
The HS2 rail project ticks the infrastructure box. But it is bloated, expensive and speaks to many of the concerns about top-down pet projects. A start-up nation can think of better ways to spend the money. But those who support cohesion country want HS2. Its most powerful supporter is the Tory mayor of the West Midlands.
Last week also saw the government-commissioned report on a new immigration system. Start-up nation supporters can point to moves to secure more high-skill migrants, but other limits on inflows are intended to increase wages at home. One minister argues that this will boost productivity: "Too many businesses are hooked on cheap labour so don't look for ways to become more efficient." Probably more important to most supporters is that higher wage costs translate into higher incomes. The blue-collar conservatives of cohesion country like this.
But a lean business controls costs. Add in increases to the minimum wage and the shelving of a corporation tax cut and the investment landscape is more nuanced. The digital services tax on the UK revenue of tech giants is popular policy with a fairness narrative — pure cohesion country — but it is a wrinkle in US trade talks and unlikely to attract venture capitalists.
Where possible though, the government will attempt to inhabit the overlap of its two visions or at least say it is doing so. Johnson is, after all, a fan of having and eating cake.
For now his government is talking the talk of a start-up nation. But when the imperatives clash he knows that the legions who voted for him were cohesion conservatives rather than radical technocrats.
