How Britain Stumbled

Many have scratched their heads in amazement as the United Kingdom, previously so pragmatic, reliable, and, well, boring, seemed to descend into ungovernable chaos. The six years since the Brexit referendum in 2016 witnessed more than their fair share of turbulence. And in the last four months alone, the country has seen the departure of two prime ministers. Boris Johnson was replaced by Liz Truss in September. She lasted a mere 44 days, being driven from office when her so-called minibudget spooked markets, raised the price of British government bonds, and sent the pound tumbling.

The Economist entitled an October issue, “Welcome to Britaly,” (prompting Italian friends to take offense); the German weekly Der Spiegel led with a picture of a banana topped with the Elizabeth Tower (popularly known as Big Ben) and the headline “Banana Island.” Needless to say, the messiness of the last couple of months, if not years, have not been a good look for the United Kingdom.

Now, with Rishi Sunak’s accession to prime minister, a temporary hiatus from political turbulence seems to have arrived. When it became clear he would win, the value of the British pound rose. Yet the United Kingdom is still navigating turbulent economic—and political—waters. It is, perhaps, experiencing the calm before the storm.

In March, even before the collapse of Johnson’s government, the Office for Budget Responsibility (OBR), a government body that provides independent analysis of the United Kingdom’s finances, warned that living standards were set to fall by 2.2 percent in the coming year. But rather than confronting this challenge—particularly that of rapidly rising energy prices—the Conservative Party decided instead to spend the whole summer engaged in a leadership contest from which Truss emerged victorious.

Now the scale of the economic challenge the country faces has become clear. Some two million British households will face steep rises in mortgage costs over the next two years. And, according to the Resolution Foundation think tank, around 14 million Britons may be living in poverty next year—an increase of three million since 2021–22. The spiraling cost of living has prompted widespread industrial action. Railway and postal workers have been intermittently striking and will soon be joined by a range of public-sector workers; late last week, the members of the Royal College of Nursing voted to authorize a strike for the first time in its 106-year history.

Meanwhile, the National Grid, responsible for transmitting and distributing electricity and gas, has warned of the possibility of rolling three-hour blackouts during winter. Even with the government’s energy price cap, a scheme introduced in September to help the public deal with soaring energy bills, the average household will pay the equivalent of almost $3,000 annually for energy, a significant increase compared with the $1,500 average bill in 2021. Adding to the uncertainty is the decision in mid-October by Jeremy Hunt, the new finance minister, to provide the cap for only six months rather than the original two years.

Brexit lurks in the background of all debates about the country’s political entropy and economic decline. For staunch “remainers,” who wanted the country to stay in the EU, the decision to leave in and of itself is responsible for the current political and economic woes. Foreign observers, particularly those in Europe, have chimed in along similar lines. Brexiteers, for their part, have claimed that government timidity and a failure to grasp the full benefits of being outside the EU account for the current situation.

Yet Brexit is clearly not the single, simple explanation for all that is going on. Although it has hurt the British economy, it is certainly not a major driver of the current cost of living crisis, nor of soaring energy costs. Those can be attributed largely to the lingering effect of COVID-19 and the war in Ukraine. Nor does Brexit directly account for the turbulence within the Conservative Party, which stems at least in part from the practice of allowing party members—who numbered around 172,000 in September 2022—to choose their leader. As the election of Truss illustrated, the preferences of party members can differ from those of Tory members of Parliament as well as the wider electorate.  

Brexit continues to undermine attempts to handle the economic crisis.

But Brexit does continue to directly and indirectly shape developments in the United Kingdom. The OBR has estimated that leaving the EU will reduce the long-run productivity of the country by four percent relative to what it would be if the country had remained in the EU. Around two-fifths of this has, in its view, already been felt. There is little doubt among serious economists that Brexit has affected the United Kingdom’s overall economic and fiscal position, making it more vulnerable to the economic shocks currently buffeting Europe as a whole.

And Brexit continues to undermine attempts to handle the economic crisis. Desperate to prove it was “seizing Brexit opportunities,” the Truss government introduced the Retained EU Law Bill, which opened the possibility of dropping or modifying all laws inherited from the EU by the end of 2023. Assuming the bill is substantive and not merely performative (a sop to Brexiteers that can subsequently be watered down), this promises profound uncertainty for businesses about the regulatory landscape in which they are operating. At the same time, a trade war with the EU might result if there is a standoff over the Northern Ireland Protocol, the legal arrangement that governs Northern Ireland’s new trade status post-Brexit. In this way, Brexit posturing continues to impede honest economic debate.

Brexit also encouraged an “evidence-lite” approach to policymaking. From misleading claims about the cost of EU membership to the infamous 2016 statement from then Minister Michael Gove that the country had “had enough of experts,” the pro-Brexit campaign prefigured the Truss administration’s challenge to economic orthodoxy. Johnson famously adopted what he termed a “cakeist” approach to policy, meaning he could have his cake and eat it, too, failing to address difficult choices and the tradeoffs they implied. His 2019 manifesto promised increased spending and ruled out tax increases, implying a sobering collision with economic reality at some point, albeit probably not the car crash Truss and her chancellor of the exchequer, Kwasi Kwarteng, engineered just weeks ago.

All of which points to perhaps the most profound implication of the decision to leave the EU. Brexit was in many ways a political revolution, a revolt against what many saw as forms of political and economic orthodoxy that had failed the country. Anyone who lived in the United Kingdom in the summer of 2016 knows that austerity and its effects drove a desire for change at all costs. A reversion to pre-2016 orthodoxy after six years of Brexit battles is, however, probably not what those people had in mind.

DO YOU HEAR THE PEOPLE SING?

I wrote for Foreign Affairs in July 2016 that Brexit was based in part on a “palpable desire to ‘stick it to them’ on the part of those who have felt excluded from politics for so long” and that politicians “need to respond to the howl of protest.” Johnson’s 2019 victory seemed to be that response. With his promise to deal with regional inequality and to “level up” the country, a new government full of unfamiliar faces, orthodoxy either challenged or simply ignored, and with austerity consigned to the dustbin, Brexit seemed—finally—to have prompted real change.

Yet almost three years on (and six years since that referendum), there is little to show for the Brexit revolution but a litany of scandals and crises. Johnson talked a good game but failed to deliver. Truss sensed the desire for “radical change” but not the demand for a fairer system. She was, in effect, a rebel who had misunderstood the cause.

And, having ridden the revolutionary Brexit wave, the Conservative Party now wants to quell the uprising. The public defenestration of Truss was born from panic in the face of market turmoil and has heralded an attempt to return to the dividing lines of the past. The Sunak government seems to have pared back commitments to leveling up and fixing the economic imbalances in the country, and familiar figures from the pre-Brexit era are now selling spending cuts and austerity as painful but necessary medicine to a public they hope might again come to believe in the Conservatives as the party of fiscal rectitude.

Yet there are profound differences between now and when this experiment was last tried a decade ago. There is very little state spending left to cut and even less appetite on the part of the public for slashing it. The Conservative Party has trashed its own reputation for economic competence.

And of course, there is the revolution. The Conservatives built a government on the support of those who had voted to end the old status quo. The decision by party members to reject Sunak over the summer was, in part, a rejection of the idea of being governed by a “Davos man” in Prada shoes. Brexit, in other words, fundamentally changed the terms of the debate. Ignoring that desire might herald even more political instability to come.

YOU SAY YOU WANT A REVOLUTION

A Conservative government promising a painful bout of austerity. A home secretary who has publicly stated a desire to bring immigration down to “the tens of thousands.” A fraught relationship with the EU. Britons could be forgiven for thinking they’d woken up in 2014. Then, challenged by Nigel Farage’s right-wing populist UK Independence Party (UKIP), David Cameron promised a referendum on EU membership to head off the threat from the right—a pledge that helped him secure an unexpected majority in the election of 2015. 

The same threat from the right that Cameron faced may be about to reappear, but things are different this time. There is much gossip about the possibility of a Farage comeback. Might he yet return to challenge the Tories on everything from immigration to the government’s commitment to net-zero greenhouse gas emissions? Richard Tice, leader of the Reform UK Party, the successor to the Brexit Party (itself a successor to UKIP) that he and Farage once led, announced that it had amassed over 4,000 new members since Truss was ousted as prime minister.  

But Sunak has far less room for maneuvering than Cameron enjoyed. He cannot easily and simply appease these Tory voters who might defect to the Farage-led cause. And this for the simple reason that today’s Tories are challenged on both flanks. In 2015, the Liberal Democrats failed to mount a challenge from the left because they had alienated their natural supporters as a result of their participation in the coalition government. Recent by-election victories, however, suggest that the party is becoming a meaningful force again. Now, the Liberal Democrats are targeting southern Tory seats in hopes of winning over Conservative voters concerned about the rising cost of mortgages and the effect of Brexit, among other issues.  

Meanwhile, the Conservative Brexit coalition is beginning to crumble. This is partly because, while it was united on so-called values issues such as Brexit itself, it is far less so on economics—and economics is the name of the political game these days. And, crucially, increasing numbers of voters are coming to see the decision to leave the EU as damaging to the economy. Brexit supporters, briefly buoyed by Johnson’s election, are still waiting to see the benefits of that supposed revolt against the system. And in strained economic times, Sunak will find it harder than ever to deliver. The revolution may not be done with its children quite yet.