stuck between an unreliable US and a mercantilist EU

Good afternoon and welcome to my last newsletter. After almost exactly five years of weekly chronicles on the State of Britain, I’m off to another part of the FT to try to help make sense of Donald Trump’s efforts to rewire the networks of global trade. “Good luck with that,” as one dear colleague put it. 

It’s been a fascinating five years, though not always uplifting, watching the UK struggle into its new life outside the European Union. 

What started as the Brexit Briefing, then became Britain after Brexit and now is just plain old State of Britain, but try as we might it is hard to escape the ongoing consequences of that 2016 referendum for UK trade, investment and wider politics. 

Only yesterday I found myself writing a story with my Brussels colleague Andy Bounds about the EU threatening to time-limit any ‘veterinary agreement’ offered to the UK unless it gets a long-term deal on access to UK fishing waters.

It’s an absolute classic of the genre that could have come from any of the EU-UK negotiations 2017-2020, where the EU uses its leverage to twist British government arms in a way that has the capacity to get up even Remainer noses. Welcome to life outside the club!

And since Labour has decided the UK is not ready to engage with rejoining the single market or forging a customs union, this is the future: a scratchy equilibrium, at least until prime minister Farage enters Downing Street (see chart). 

For now, the relationship is held in tension between a tendency to ever closer union as economic gravity takes hold (starting with that veterinary agreement and the relinking of EU and UK carbon markets) while at the same time the centre of British political gravity — anti-immigration and prone to the continued appeal of fabulists like Farage — keeps it from ever fully being repaired.

And that messy halfway house sums up the position in which the UK now finds itself as it tries to make a post-Brexit case for itself: piggy-in-the-middle between an unreliable and disengaging US on which Britain nonetheless depends for its security, and an increasingly mercantilist European Union.

The lived experience of the past five years is that that is a tough place to be in an era of successive external shocks: first the Covid-19 pandemic, then war in Ukraine and now Trump returning to demonstrate that it’s not just the UK that can trash its reputation for reliability.

British politicians still like to make claims for the benefits of ‘nimbleness’ — including those in the current government when seeking a tariff reduction deal with Washington — but thus far, the numbers say otherwise. 

Since the Brexit vote UK business investment has barely surpassed 2016 levels; trade openness (the share of UK GDP from trade) underperformed the G7 average and public investment fell off a cliff.

(Pothole avoidance is now an essential skill for the British motorist. Public toilets are being closed. This autumn, the lime tree-lined streets of Brighton, where I live, were slippery and matted with rotted leaves that the council can no longer afford to sweep up. There is an inescapable sense of decay in the public realm.) 

And the truth is that Labour’s “reset” with Brussels, as it stands, is not really going to change that. The Labour manifesto talks about “tearing down” the barriers to trade, but this is really the status quo with a few barnacles shaved off where politically possible. 

At the same time, Labour’s immigration policies and economic growth agenda remain in obvious and unresolved tension with each other.

The nascent industrial strategy is a step in the right direction but in a competitive global environment, where size equates to stability, it gets ever harder to be heard above the cacophony. The UK is now a small boat in a tempestuous sea.

As one senior executive at a global pharmaceutical company put it to me wearily recently: “There’s good things going on here, but taken in the round it’s become harder and harder to make the case for the UK in the global boardroom.” 

All those challenges were present before the election of Sir Keir Starmer’s Labour party in a “loveless landslide” (60 per cent of the seats on 30 per cent of the popular vote) last July and Trump’s re-election last November.

And yet the outcome of both those elections has surprised on the downside. In an alternative universe, this valedictory newsletter might be reflecting on how the UK was now “turning a corner” under Labour in partnership with a stable government in Washington.

As it is, Starmer has become unpopular, quickly, squandering the chance to deliver the hoped-for counter-momentum to the turbulent Tory years, while Trump is back in office performing policy flip-flops that have proven even more head-spinning than most feared.

According to Stephen Hunsaker, trade expert and economist at The Policy Institute at King’s College London whose work for the UK in a Changing Europe this newsletter has often cited, that’s a very challenging world for the UK to find itself still trying to establish its post-Brexit relationships. As he puts it: 

“Global trade turmoil will continue to grow, which will be a stern test of whether the UK can make a convincing case to investors and trade partners that it will be a stable and reliable partner going forward.”

If that all sounds rather gloomy, it’s because it is. The UK’s problems are, of course, widely shared across post-industrial democracies — an ageing population that burdens creaking public services that rely on taxes raised from an economy with flatlining productivity.

That presents immense challenges to all governments, as incumbents of all stripes have discovered in elections across advanced economies, but the Starmer administration’s response to those challenges has tended inexorably towards triangulation and timidity. 

With the possible exception of planning reform, on many of the long-standing issues — council tax reform, social care, university and college funding, repairing Brexit, social housing, energy prices — Starmer has not dared to make the bigger arguments for change. 

The Labour leader, we know, is not a politician who sets the pulse raising, but his tanking poll numbers are further proof that populists seem to have a monopoly on political storytelling. Change may come in increments, as the bureaucrat in Starmer well understands, but progressives need to find ways to tell big and enticing stories too.

But now Trump is trying his stories on the whole world. Unpacking what that means is the next leg of the journalistic journey for me, so a stellar list of FT colleagues from a range of briefs will be keeping you in the UK policy loop from now on.

Thank you to everyone who engaged with the State of Britain over the past five years, publicly and privately. Deeply appreciated. 

Britain in numbers

This week’s chart tells the story of how the UK’s newfound political volatility has played out over the past five years, more of which will be on display as tonight’s local election results roll in if Nigel Farage’s Reform party performs as well as the polls suggest it might.

As Rob Ford, professor of political science at Manchester university, observes, the most obvious thing the chart shows is that governing over the past decade has proved hard: when parties get into office, their popularity declines.

When Starmer won his big majority last July some hoped that after 14 years of Tory turbulence and failed moonshot promises, the electorate might have found the Labour leader’s determinedly stodgy style reassuring. But apparently not.

Ford makes the point that in the 1970s — another turbulent decade with its oil shocks, inflation and global economic crisis — the economic volatility had the effect of dampening political volatility. Not any more. 

The political moorings that anchored voters for life to their respective political parties are no more. 

“People don’t remember the failures for very long now,” Ford adds. “There is a deep structural problem in all our democracies: how do we give a middle majority of voters enough for them to be satisfied with the economic status quo?”

Given that volatility is the new certainty it would seem brave to predict the future — just look at Canada’s election result this week — but polling by the Electoral Calculus now suggests that it is “odds on” no party will have a majority in the House of Commons in 2029. 

“Electoral Calculus predicts that the most likely outcome, Reform winning the most seats, would leave it 81 short of a parliamentary majority,” writes the psephologist Professor Richard Rose in a thought-provoking blog on how the UK’s first-past-the-post voting system will yield increasingly unstable results in a three or four-party British politics. 

If that’s correct, the state of Britain seems destined to be in a near-permanent state of political flux, and everyone can see it — a tough place for a small, open trading nation to be when you’re trying to sell certainty to the world.

The State of Britain is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.