Taking back control? It’s the markets that are sovereign over Brexit Britain

If I had been a member of the Conservative and Brexit party eligible to vote in its leadership election – which thank the Lord I was not, sir – I should have marked my ballot paper “none of the above”.

In a variation on Mark Antony’s observation that the evil that men do lives after them, Boris Johnson and his Brexit have wreaked so much damage on the Conservative party that only Brexiters stood a chance of being elected.

The coronation of Rishi Sunak has been greeted with relief after the farcical performance of Liz Truss and her henchman Kwasi Kwarteng, but the rot will soon set in.

First, let us be clear that it was not the recent collapse of confidence in the financial markets that threatened the Conservative party’s reputation for economic competence. That reputation was destroyed not by Truss and Kwarteng, but by the ill-judged decision to hold a referendum on our membership of the EU, and the calamitous consequences.

As Stryker McGuire, the former London bureau chief of Newsweek, has written: “Virtually all the economic arguments in favour of Brexit looked specious at best and cynically misleading at worst.” He added: “Brexit is a kind of original sin that sits at the heart of today’s UK economy.”

The markets gave their vote on Brexit and the Tories’ reputation for economic competence by beginning the long decline in the pound immediately after the referendum result. The Truss-Kwarteng growth plan was the reductio ad absurdum. Sovereignty regained? Oh no it wasn’t. The Brexiters were not sovereign: the financial markets were.

The markets forced the 1967 devaluation of the pound under prime minister Harold Wilson, and the 1976 recourse to the International Monetary Fund under prime minister James Callaghan and chancellor Dennis Healey. They also forced the pound’s ignominious exit from the exchange rate mechanism on Black Wednesday in 1992.

One of the most-remembered episodes of the 1970s was the way that Healey “turned back at the airport” to face the music – the collapse of confidence in the pound – and never went to Manila for the annual meeting of the IMF. But he had recourse to the fund for loans which rescued the situation. And when he discovered that the Treasury had subsequently revised its economic forecasts – in a more hopeful direction – Healey convinced himself that, if only the better forecasts had been available in time, he would never have had to borrow from the IMF to calm the markets.

He stuck to this view to his dying day, but his senior official, permanent secretary Sir Douglas Wass, while no lover of the markets, was convinced they had to be pacified, whatever the forecasts indicated.

Which brings us back to the present day. Kwarteng did not turn back at the airport; he flew to the annual IMF meeting. A lot of good it did him! Liz Truss was sharpening her knife while he was away. And a lot of good it did her … If the two had listened to Sir Tom Scholar’s warnings about their plans, instead of sacking him, they might still be in office. He was a successor to Wass in the top Treasury job; such people do not get to high positions by being as foolish as Truss and Kwarteng.

And so to new chancellor Jeremy Hunt and even newer prime minister Rishi Sunak – also one of our recent chancellors. Whereas in the 1970s there was the prospect of abundant revenues from the North Sea, there is now the enormous blow to the nation’s finances from the Brexit that Sunak is so keen on.

A recent study by Peter Marsh of the thinktank Made Here Now finds that an overwhelming proportion of British private businesses regard Brexit as a “disaster”. Former Bank of England governor Mark Carney has cited an estimate that whereas in 2016 the UK economy was 90% the size of Germany’s, it is now less than 70%.

To calm the markets, we are being prepared for more austerity, although the 2019 manifesto, which Sunak affects to honour, promised there would be no more. The head of the CBI, Tony Danker, has warned of a “doom loop” of tax increases and spending cuts.

And what is really inhibiting growth and fiscal flexibility? Why, it is none other than the Brexit that has knocked 4% off productivity (per the Office for Budget Responsibility) or up to 5.5% (per the National Institute of Economic and Social Research) with serious repercussions on tax revenues, and some 15% off overseas trade.

Brexit is madness. We need to re-enter the single market and customs union. The Labour party should stop shilly shallying over the issue. Or is Labour scared that if the government did have a change of heart, the beneficial impact on the economy would improve the Conservatives’ electoral chances?