Yesterday morning John Humphrys interviewed Mervyn King, the former Governor of the Bank of England, on the Today programme about Brexit. Humphrys began by asking Lord King whether he still thought the government’s handling of the Brexit negotiations was ‘incompetence on a monumental scale’, and what were the consequences for the economy. King started as he meant to go on: ‘Well, I think the incompetence seems to have spread beyond the government to Parliament as a whole. The fact that they simply can’t make a decision is pretty extraordinary.’
We decided to transcribe King’s calm and rational explanation of the issues around Brexit to have on the record. The full interview follows here, verbatim.
John Humphrys: They would say it’s been made infinitely more complex than it need have been because of the way MPs themselves have been behaving, protecting their own interests?
Mervyn King: Well, in part that’s true. But I think if you go back to 2016 the obvious point was that whether you believed in Remain or whether you believed in Leave, the only way to retain a negotiating position was to make sure in a calm and quiet way that the United Kingdom would take all necessary preparations so that we would be able to leave without a deal. Not that we necessarily wanted to do it, but that we would be able to do it, so that when we negotiated we could say to our partners in Europe that we have a fallback position, and if the deal that you offer us is not acceptable then we will go for the fallback position. And those preparations were not made, the government took a conscious decision and the Chancellor was very explicit about it, that he wasn’t prepared to spend money in making those preparations. And that is a disastrous decision in any bargain. And I think if we had done that, then the position today would look very different because the two bargaining chips that the United Kingdom has are, one, the £39billion divorce payment which we’re about to give away if we pass the withdrawal agreement. And secondly, the Irish border issue. And the point about that is that if we were able to say to Europe, ‘Look, we’d like a free trade agreement. We think it makes sense to have that. We could, if we were to leave and trade under WTO rules, have a temporary arrangement to continue tariff-free trade while we go through the negotiations, it will take time to discuss a free trade agreement.’ If they say yes, then we . . . there’s no problem with the border, and basically we carry on as we are until we’ve reached a free trade agreement. If Europe were to say no, the implication is very clear: that the European Union will have to set up a tariff and customs border between the Irish Republic and the rest of the European Union. And that is the benefit of keeping ‘no deal’ on the table – the problem becomes that of the European Union, not of the United Kingdom.
JH: What would be the effect on the British economy of leaving without a deal?
MK: Well, it depends whether we’ve prepared for it properly. If we had prepared properly . . .
JH: (interrupting) But at this stage we know where we are.
MK: Well, it depends when we leave. My own personal preference would be to go back to Europe and say, ‘We have a clear strategy, which is we want to leave without a deal. But we would like to take six months to complete the preparations to avoid the dislocation . . .’
JH: (interrupting) So a six-month delay, in other words?
MK: I think we would have to take advice from the government and officials as to how long they now think it would take before our country is ready to leave without a deal.
JH: Could you really do that in six months?
MK: Well, it depends on how far the preparations have got and the government hasn’t been as explicit about that as they might. And what matters is that everyone in the country knows about it, but we don’t.
JH: The last time I spoke to your successor, he told me that there were a very large number of companies that were actually . . . had actually done virtually nothing, because they didn’t know what they were meant to do.
MK: No, and I think that’s very fair. And I think that is why people won’t prepare until they know what the outcome is going to be. So I think we have to state clearly . . . so I would like to see us say that we will leave without a deal, at a certain distance ahead, which will give the country time to make those preparations. And then I think we’ll be in a much stronger position.
JH: And if not, what’s the effect on the economy going to be?
MK: If we were to leave without making the preparations, well, there’ll be some short-run dislocation costs, yes, it’s hard to know how serious that would be. I think the more wild, exaggerated view that somehow we’re going to have queues of lorries on the M20 for five years or more, well, it is pretty absurd, if we can’t cope with that, I mean, heaven protect us from what, you know, the country is capable of doing. But there would be some short-run dislocation cost, which is why I favour a delay before we leave without a deal. But the important thing is that I don’t believe that with adequate preparation, or in the long term, that the economic costs of leaving would be very different from staying in the European Union. The issue is . . .
JH: (speaking over) Really?
MK: Yes. The issue should not be about economics. One of the sad things about this whole debate is that the country’s been deeply divided. People are passionate about it on both sides. They’re not passionate because they have views about the economic effects; I’ve never met anyone who’s said, ‘I’d be in favour of Brexit if I thought the impact on GDP would be less than 2 per cent, but I’ll be in favour of Remain if I thought it was more than 5 per cent.’ It’s the issues of identity and culture and politics that are motivating people. Which is why I think that MPs have rather somehow lost the plot, because when we hear people talk about, you know, the consequences of leaving without a deal as ‘national suicide’, I wonder sometimes if the political class hasn’t suffered a collective nervous breakdown and lost confidence in the country.
JH: That is interesting. So you, as an economist, a former Governor of the Bank of England are saying that actually the effect on the economy, generally speaking, has been overstated?
JH: It has been a bit of a scare story?
MK: It has been a scare story and I think it’s very unfortunate, because there are arguments for staying in the European Union and there are arguments for leaving, but they’re about politics, they’re about, ‘Do we want to belong to this club?’ and one of the odd things about our debate is that you would think people would be debating what is going on in the European Union. Is it a club that we want to be a member of? Where is it going in the future? We’ve heard almost nothing about that and of course the European Union faces terrible challenges of its own, which is what it would like to concentrate on. The . . . all the major countries in the European Union apart from ours, are in the monetary union, and it’s the challenges of making the monetary union work that is the big headache for the European Union. They don’t have any answers to it, the economic challenges have led to disaster in Greece; GDP in Italy is no higher today than it was 20 years ago when it joined the monetary union. These are disastrous outcomes for the monetary union. Do we really want to be in a club like that? Now, maybe some people who want to be in a federal Europe would like that. That’s fair, it’s a reasonable point of view, but that’s what we should be debating, not exaggerating.
JH: But there’d be jobs lost, surely?
MK: I don’t think it’s obvious that there’d be jobs lost at all. If you look at what’s happened since the referendum, and we were told there’d be a recession if we voted to leave, what’s actually happened is that the British economy has grown since the referendum by slightly more, just a little more, than Germany. Now the idea, therefore, that voting to leave has been an economic disaster doesn’t match the facts. And if you look at the exchange rate of sterling, one of the extraordinary facts about it is that the average value of sterling against other currencies is exactly the same this week as it was the day I left the Bank of England in the middle of 2013.
JH: Mervyn King, Lord King, thank you very much indeed.