Is Brexit an existential threat to the new (including digital) Establishment?

The Brexit vote was an attack by the English Working and Lower Middle Classes on the British “Establishment” (from Oxford and Russell Group PPE graduates, Guardian Readers and the BBC, through the Digiterati, Big Business and City to Whitehall and the Treasury). It was not “just” a vote to leave the EU.

The evolving British Establishment has survived since 1688 by riding and manipulating the waves of change, not by fighting “the will of the people” and risking overthrow.

So how was it caught by surprise? And how long before its members re-align to reflect the new balance of power?

The main reason was that a combination of the BBC and the Internet had wiped out the local media which not only reflected and amplified local prejudices but provided the wetware feedstock for the national media. Most of the generation of senior journalists who are now retiring learned their trade on local and regional newspapers funded by the classified advertising that has migrated to Amazon and eBay. The result has led to the London (not just Westminster) bubble losing touch with most of the rest of the population of England. The relationship is now more akin to that of Singapore and Malaysia than to a capital City and its regions.  The BBC move to Salford is too recent to have had a balancing effect – but the influence of the BBC is waning and the mindsets of Manchester do not reflect those of Birmingham, Leeds or Newcastle, let alone of Cardiff, Norwich or Plymouth and their respective hinterlands.

The result has led to a split between those politicians who believe voters are intelligent enough to discern between the lies and half-truths fed to them at every election, (not just during the referendum campaign) and the pundits believe they should be telling the voters what to think. Meanwhile  The CBI and the Civil Service are fighting to preserve a world fit for “those who know best” – lobbyists, consultants,  economists, academics, intellectuals and bureaucrats.

The “Digital Establishment” is right to feel threatened by the threat of revolt from those who  grow and make “things” and create (not just shuffle, tax and spend) wealth. The natural reaction of the digiterati is that of a outsource consultancy told to produce what the end-users want, not what their sales team negotiated with the customers’ procurement team and had written into the contract.  Such a concession would threaten orderly the IT world order of “strategic partnerships” and PFIs. It might even threaten the business models of the Internet Cartel, which “knows” what is good for us before we do – thanks to their all-seeing big data algorithms.

In consequence discussion on the impact of Brexit on UK  IT suppliers and users appears stuck in a rhetorical treacle of dishonesty and obfuscation.

Those who lost the referendum are desperate to sabotage Brexit but are less than open about what is that they most desperate to keep.

Those who won are still shy about the policies and regulations their supporters were most anxious to scrap lest they give ammunition to the Remoaners.

We therefore have a proxy fight between those who wish to negotiate in secret, producing a deal for the hoi polloi  to humbly accept, and those who want the open agreement of a deal that reflects the wishes/aspirations/hopes/fears of the majority. The latter approach, however, threatens to open up a raft of messy compromises quietly agreed in Brussels, well away from democratic scrutiny, before we have left the EU and can embark on regulatory reform at leisure.

So what do the headline phrases mean and what is really at stake for the IT industry :

1 The Customs Union, A Customs Union or Tariff Alignment

The prime difference between “the customs union” and “tariff alignment” appears to be “right” to route on-line profits and taxes through Luxembourg (3 – 17% VAT) or Dublin (12.5%  Corporation Tax for trading income). “A customs union” appears to be an Alice Through the Looking Glass expression for the compromise that will emerge. The continuation within the EU of forms of territorial licensing and price discrimination which were made illegal for the motor trade decades ago means that the digital single market remains a myth. Paradoxically Brexit could lead to more open access across the rest of Europe as well. Simple electoral mathematics mean the UK will not erect a hard border in Northern Ireland on “our” side of 1920 demarcation lines which have never been formally reviewed, let alone agreed by the local populations who were supposed to have been consulted. That would leave the European Commission (the members states will stand well back) to take on Sinn Fein and the IRA if they were to try to force the Irish Government to erect a hard border their side. Meanwhile almost all cross-border trade now flows along the globally administered supply chains  in sealed containers with digital manifestos organised by transaction handling and freight fowarding operators. Sooner or later the rhetoric in the negotiations will have to touch base with reality.  Hence the importance of the expertise of the City of London (home to most of the world’s global trading expertise outside Dubai, Hong Kong, New York and Singapore) in organising trade across whatever obstacles politicians create.

2 Freedom of movement

Given the pledges already made regarding the rights of EU Citizens in the UK in return for reciprocity, it is difficult to see what is really at stake beyond the right to claim benefit for dependents not yet born and the requirement to advertise public sector job opportunities across the EU at the same as locally. That is not, however, what the Brexit vote was about. It is no longer politically acceptable for the UK to rely on imported talent for the skills needed by employers today, let alone in the future, while saddling those entering the world of work with debts of up to £57,000. {this will be the subject of my next blog] Meanwhile the digital skills of the future are in short supply across the rest of the world, not just Europe. Even if we wanted to, we could not import the quantity and quality we need. Calls for “freedom of movement” from the CBI and other High Tech companies look suspiciously like wanting to divert attention from efforts to preserve the “right” to undercut indigenous IT consultants by importing those with offshore tax and expenses advantages. The majority of tier 2 visas are, however, granted to Indians, most to a single company. More-over the problem was created by HMRC (IR35 et al) not Brussels.

3 Regulatory Alignment

The opposition to change comes from those who do not want past compromises re-opened. Many, perhaps most, such compromises were negotiated between trade associations representing big business and socialist groups representing trades unions, with limited inputs from well-organised consumer and environmental groups.

The momentum from change comes from those left out.  These include:

• innovative SMEs not in the supply chains of dominant players,
• high street shopkeepers being driven out of business by on-line retailers who pay neither business rates nor UK VAT,
• fishermen who want marine reserves
• those who want agricultural support focussed on small farmers who help preserve the countryside, not agribusinesses which farm the subsidies.
• those trying to provide joined up care for an aging population
• those who want to be able to identify and discriminate against animal products form livestock raised and housed in conditions that would be illegal in the UK.

But few of the groups have got their act together because, until the unexpected Brexit vote they did not think they stood a chance. The Establishment wants to make sure they do not get that chance until it has worked out how to survive in power by “managing” the pace of change.

4 Devolution of Power – the passing of IT budgets and spend from Whitehall to Town Hall, County Hall and their procurement consortia 

The UK is a uniquely centralised, steam age nation state (even more so than France or Germany), hence many of our problems with the rest of the EU which its regionalisation agenda. The threat of powers being passed from Brussels to the Welsh or Scots assembly, let alone to Town Hall or County Hall runs counter to all the traditions of Whitehall. This IS a genuinely existential threat to the London-based establishment, The City of London can survive a transition to a United Kingdom. The City of Westminster would find it much harder, especially if Parliament moves away for a few years while its buildings are refurbished. That said, the Civil Service is currently busy recruiting youngsters, including former junior lobbyists whose Brussels careers have come to a halt, to handle an expected post-Brexit boom in regulatory and administrative activity – as well as negotiations with  the EU. Who say they do not plan ahead?