Time for a National Government? Lessons from 1931

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It is an interesting question as to whether the formation of a National Government would help solve the current Brexit impasse. It has certainly worked in the past.

In 1931 a National Government was formed to get us out of the Depression and overall it did a pretty good job. Britain recovered faster than any other major economy, helped by coming off the Gold Standard, restructuring War Loan, tax cuts and embarking on a housebuilding boom.

When the crisis began that year there was a minority Labour Government, the pound was under pressure and the Cabinet was divided. An Austrian bank called Credit Anstalt had gone bust and contagion had spread to London’s financial markets. The budget deficit was spiralling out of control due to faltering tax revenues and the cost of rising unemployment benefits.

During the summer, the Prime Minister Ramsay MacDonald was trying to get agreement among his Labour colleagues to cut government expenditure and raise taxes. Balancing the budget was a prerequisite to the approval of an emergency loan being arranged by JP Morgan in New York. The Conservative and Liberal parties refused to countenance the £100m in tax rises which the Cabinet agreed to and instead demanded further economies.

Throughout August the political arguments raged and there was an impasse. The critical intervention finally came from King George V, one of the most underrated monarchs in our history. The best narrative of events is in Kenneth Rose’s excellent biography of the King.

On Saturday August 22nd, having only just arrived in Balmoral, the King turned straight round to see MacDonald at Buckingham Palace the following morning.

The Prime Minister tried to resign, but the King talked him out of it at two meetings on the Sunday. The second one took place after the King had a private dinner with Edward Peacock, a director of the Bank of England and partner in Baring’s Bank, who helped manage the King’s affairs. Left-wingers claimed that Peacock was at the centre of a “bankers’ ramp” and had a role in advising the King what to do. He had been summoned at short notice, but he himself said that all they talked about at dinner was the recent fluctuation in wheat and barley prices.

The King told MacDonald he was the only one who could lead the country at that time and he believed he could depend on Conservative and Liberal support. The King then summoned all three parties to a meeting at Buckingham Palace the following day. The Conservatives were led by Stanley Baldwin and the Liberals represented by Sir Herbert Samuel, as their leader Lloyd George was convalescing from an operation.

The King told MacDonald that it was “out of the question” he should resign and told the three men to go into a room, to come to an agreement and they were not to emerge until they had drafted a communiqué which would restore confidence at home and abroad. This took about an hour and the three agreed to form a National Government under MacDonald. This was not a formal coalition, but a “co-operation of individuals” to tackle the economic emergency.

Lord Wigram, the King’s private secretary, noted in his diary:

“His Majesty congratulated them on the solution of this difficult problem, and pointed out that while France and the other countries existed for weeks without a Government, in this country our constitution is so generous that leaders of Parties, after fighting one another for months in the House of Commons, were ready to meet together under the roof of the Sovereign and sink their own differences for a common good…”

Amen to that.

The Labour party subsequently split, but the National Government won a landslide victory in an autumn election demanded by the Conservatives. Churchill transformed it into a “Grand Coalition” in 1940 and it remained in office, broadly successfully, until 1944.

Would such an approach work now? It is hard to see either the Queen intervening or the current party leaders taking a similar approach. But anecdotally, the public appetite for “banging MPs heads together so they sort things out” is very high and they are not immune to this sentiment. It is also noteworthy that first steps in cross party co-operation, both by backbenchers and in formal talks between Theresa May and Jeremy Corbyn, have already been taken. Let’s see what happens in coming weeks.

Introducing Section 20 of the EU Withdrawal Act

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Extending Article 50 is easier and more likely than some people let on.

The Conservative party conference is going about as expected, with the Prime Minister reportedly booed at the Association chairman’s dinner; Boris Johnson giving a witty, tub-thumping speech which ended, incongruously, with a call for everyone to back Theresa May; and every Cabinet minister jostling for leadership attention.

Nothing has changed. I doubt anyone is watching much at home. Certainly, I noticed that the YouTube figures for Boris’s speech topped out at 1,896.

None of our political leaders wants to focus their minds on the matter at hand. What happens on 30th March 2019, the day after we are scheduled to leave the EU?

Theresa May wants us to believe we will be out of the EU, but in some sort of limbo. Having handed over a cheque for £39bn, we will have won in return a political declaration for her Chequers proposals which are a complicated and unsatisfactory. Failing that, we will supposedly walk away without a deal.

Boris Johnson wants us to be in exactly the same limbo position. Only “negotiating properly” for a “Canada style free trade deal”. He apparently has no answer to the questions about the Irish border or why the EU would agree to anything he proposes. Perhaps this is why some call it “Blind Brexit”. 

Markets are sanguine

Here is another scenario, which explains why, relatively speaking, markets remain so sanguine. It is easy, from a legal point of view to extend Article 50. Even if Chequers and Canada Plus etc all fall by the wayside, there is still a strong likelihood that Britain will be limping along, obeying all the rules and doing as it is told without any say in the matter.

No wonder the IPO market remains open. Sterling is hovering around $1.30. 10-year gilts are yielding 1.6%. The economy is still plodding along.

Section 20 of the EU Withdrawal Act

The provisions the EU Withdrawal Act, paragraph after paragraph of them, all pivot on “Exit Day” which we are told in Section 20 “means 29 March 2019 at 11.00 p.m.” But later, it goes on to say that:

“A Minister of the Crown may by regulations amend the definition of “exit day” in subsection (1) to ensure that the day and time specified in the definition are the day and time that the Treaties are to cease to apply to the United Kingdom.”

Flip the pages on to Schedule 7, Part 2 (14) and the Act says:

Power to amend the definition of “exit day”.
14. A statutory instrument containing regulations under section 20 (4) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.

So, put simply the Government of the day can change the day we leave the EU, as long as it gets approval from Parliament. More likely, Parliament would compel it to do so if dropping out without a deal looked probable.

What about the EU? How would it respond to a humiliating appeal from the British Government, perhaps initiated by Parliament, to extend Article 50?

Well, the relevant powers are in Article 50 itself. The third paragraph says:

The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

Is No Deal really likely?

Clearly businesses have both a fiduciary and regulatory duty to prepare for No Deal. One cannot help feeling that, in reality, Limbo Land is much more likely. Extending Article 50 does not require primary legislation by either side.

If everything else falls over, our plan to use the UK’s existing membership of the European Economic Area by applying to join the related European Free Trade Association (by far the best option for 30th March 2019) remains on the table. If only politicians would admit it.

We have published Norway then Canada, a new strategy to avoid a Brexit smash, with a foreword by David Owen, on Amazon LINK.

Making the City work for women…and men

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The City and business are in a stew over women. Although it is in part a PR issue, it goes deeper than that and as a working mother with two young daughters my personal view is much of the debate is not grounded in reality. Instead it is dominated by a handful of high profile voices in the media.

What began in Hollywood, #Me Too, swiftly became a catalyst for change not just, and quite rightly, in relation to fighting abuse but as a call to arms about the lack of equality in the workplace.

Since then the gender pay gap has been revealed and, confirming all our suspicions, the skew is towards men occupying the majority of senior positions, thus accentuating the pay gap and forcing questions over why this is the case and what can be done to rectify it.

The cause is admirable. There should be equality in the workplace. Men and women should get paid the same for the same job. Not many would quibble those statements.

Targets aren’t the answer

However, what a large but silent group of people do quibble with is targets. Hiring targets, board quotas etc don’t help women if there is not an underlying change in culture or ambition for working women – and men.

A recent comment piece by Clare Foges in The Times hit the nail on the head about what workplace equality means: “Real equality in the workplace isn’t a numbers game; it is simply the removal of our sex from the question of whether we are right for the role. As Dorothy L Sayers put it: “Once lay down the rule that the job comes first and you throw that job open to every individual, man or woman, fat or thin, tall or short, ugly or beautiful, who is able to do that job better than the rest of the world.”

As the same article says, headline targets do not create equality. Rather they create the impression that women need special treatment and, of greater concern, imply that women may get jobs for being women rather than because they are genuinely the best candidate for the role. 

 Flexible working for mothers (and fathers)

Targets though are just one part of the problem with the current debate. The real crux of the matter is how to encourage women to join the traditionally male-dominated City and then how to retain them, especially as choices concerning motherhood and balancing family life come into focus.

This is the elephant in the room as it requires meaningful change, not just for women, but for men too. It requires change if true equality is to be achieved and everyone treated the same.

Target setters need to answer questions about what they are prepared to do to encourage women into City roles and then how they will retain them. What genuine changes are they willing to consider to see women and men climb through the ranks? Will they consider flexible working in roles that have typically demanded long hours? Will job sharing become more common? What allowances will be made for family commitments? Should childcare be tax deductible? Can employees be set up to work from home?

These are the sort of changes which should be considered given that so many women, in particular, wrestle with these issues. If they are not considered and addressed, then targets are empty and meaningless.

A comment piece in The Sunday Times this weekend, “Bringing up baby is for Facebook bosses. Working parents get a nanny or get the push,” reveals that these are indeed hard choices for firms, even supposedly innovative ones such as Facebook. Their leaders may make all the right noises about the importance of family and flexibility but the charge from employees is that the digital company, “…actively resists flexibility.”

Couriering breast milk. Really?

It is easy to see how this can quickly turn into a contentious communications issue, both internally and externally as employees and the public feel disenfranchised from the headline debate. Firms need to be careful how they address it and show some empathy.

For example, the recent news that a well-known city institution will courier breast milk to babies of working mothers just shows how wide of the mark firms can be. It quoted an employee that, said institution, “…really is good to women now.” I wonder how many women would concur.

The debate needs to be turned on its head. Employers need to re-evaluate their values and their culture. They need to decide what kind of person they want to employ, what the career path is and how best to retain them. This is not about men and women. It is about people, making life work in and out of the office, for them and their families.

Once firms have fathomed all of the above, they need to engage and explain it to the people they are trying to attract. Communications can help, but the real issue is change.

 

Norway then Canada, a new Brexit strategy

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I have published a short book on the Amazon platform, called Norway then Canada, a new strategy to avoid a Brexit smash. Lord Owen, the former Labour foreign secretary, has kindly written a Forward.

I wrote it over the summer, when the weather was dodgy in the Isle of Wight. I advocate that Britain should fall back on the so-called Norwegian option. This is our existing membership of the European Economic Area Agreement, which Britain signed in 1992. We can then use that as a platform to negotiate a more flexible Canada-style free trade partnership with the European Union.

Brexiteers in Parliament have apparently been misled into thinking the EEA is not an option. The points I make are:

  • The Government, including the Prime Minister, has been disingenuous about our membership of the EEA. The only reason it will no longer operate when we leave the EU, as she claims, is that Britain has not applied to make it operative by joining the European Free Trade Association (EFTA).
  • The Prime Minister is apparently attempting to remove a vital Brexit option and negate an international treaty by subterfuge or by mistake. EEA membership is superior to the so-called No Deal, World Trade Organisation proposals, her Chequers plan or delaying Article 50.
  • The EEA is a commercial treaty with the EU, which also delivers Brexit.
  • We would gain control of our borders. British passports would come back and we can use the treaty provisions to opt out or limit freedom of movement, just as Lichtenstein has done.
  • We would gain control of our laws. Although we would be aligned with the single market, the EEA includes rights of adaptation and veto on new rules. We would be outside of the jurisdiction of the European Court of Justice.
  • We would gain control of our money. There is no obligation to pay into the EU budget. Any payments to the EU would be in return for participating in particular programmes. George Yarrow, an Oxford University economist, has estimate Britain’s net payments to the EU would fall from some £9bn to £1.5bn.
  • We would gain control of our trade. The EEA is outside the customs union and we would be free to make our own trade deals.
  • We would be outside of the Common Agricultural Policy and the Common Fisheries Policy.

In his Forward, Lord Owen says: “This paper is an excellent explanation of a complex, serious and important Brexit option that urgently faces Parliament. Continued membership of the European Economic Area Agreement, given the nature of Article 50, is the only rational option and it should be put into legislative form by a cross party motion supported by as many MPs as possible.”

Lord Owen adds that the Government should then approach the other contracting parties, the EU itself, the other 27 members, and the four members of the EFTA to make our EEA membership operative. But he says this should be temporary, while a more flexible free trade deal is negotiated.

Norway then Canada has been published to coincide with the launch of a new campaign for the Norway Option, led by Conservative MP Nick Boles, called Better Brexit.

Some of you may have had sight of earlier drafts. Thank you for your input. The final version has been updated substantially.

The Amazon platform allows you to download Norway then Canada to Kindle, or to order a hard copy.

Falling back on the EEA, or Thucydides

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Two weeks ago, ahead of the Chequers summit, we warned that it would be a miracle if one or more Cabinet ministers did not resign. And so it has proved.
 
The subsequent Parliamentary chaos, we did not predict. The conduct of all sides in the Brexit process now reminds me of a passage from Thucydides History of the Peloponnesian War when he described the impact of the disastrous wars with Sparta on Athens and on Greek unity.
 
“Thus revolution gave birth to every form of wickedness in Greece. The simplicity which is so large an element in a noble nature was laughed to scorn and disappeared… In general, the dishonest more easily gain credit for cleverness than the simple do for goodness; men take pride in one, but are ashamed of the other… At such a time, the life of the city was all in disorder, and human nature, which is always ready to transgress the laws, having now trampled them under foot, delighted to show that her passions were ungovernable, that she was stronger than justice, and the enemy of everything above her… When men are retaliating upon others, they are reckless of the future and do not hesitate to annul those common laws of humanity to which every individual trusts for his own hope of deliverance should he ever be overtaken by calamity .… The cause of all these evils was the love of power, originating in avarice and ambition, and the party-spirit which is engendered by them when men are fairly embarked in a contest… For party associations are not based upon any established law nor do they seek the public good; they are formed in defiance of the laws and from self-interest…’
 
Thus it is with Brexit, conjured up by the Conservative party, incompetently executed, yet nobody seems capable of finding a solution. Sometimes it is tempting to side with Tony Blair and call the whole thing off. Yet common sense suggests that would be a disaster too.
 
Just to add to the ruin in the nation, the Labour Party has spent the week having a somewhat repellent row about the definition of anti-semitism.
 
While not being personally involved in Brexit, though knowing people on both sides of the argument, I have therefore been suggesting both on the CapX blog and on Twitter, that temporarily falling back on our existing European Economic Area (EEA) membership, combined with the European Free Trade Area as a solution. For those not up to speed on this, EEA is a commercial treaty between Norway, Iceland, Lichtenstein and Switzerland and the member states of the EU.
 
The Pro-EEA argument is simple. As we are already party to the EEA, we would be able to junk the whole Theresa May plan, including the three year Transition and start again with proper negotiating optionality. As it takes us out the of the Customs Union, out of the jurisdiction of the ECJ, and includes a provision for putting an emergency break on immigration, it is compatible with the referendum, while also offering a solution to most of the issues.
 
I am glad to say I am not alone. Rupert Darwall has written a similar piece for Reaction; Paul Goodman has done so for the influential Conservative Home and my ex-colleague Philip Johnston has done so on the comment pages of the Telegraph. However, the clearest and best exposition of the strategy comes from the distinguished Oxford economist George Yarrow. I strongly recommend his paper, here.
 
Falling back on temporary EEA membership is a simple idea which would work. Simplicity may be so large an element in a noble nature, but plainly, this is a long shot. The only hope is that a credible Brexiteer rival to Mrs May, such as Boris Johnson, picks it up. He gave his resignation speech yesterday and it was well-judged. All I can say is that I hope he is listening, although he has not yet endorsed the idea. Senior Remainers are also engaged.
 
One thing is for sure, without a collective change of course, I fear we are in for months if not years of the sort of political depravity recounted by Thucydides.
 

Common sense has been suspended in Westminster and volatility has returned to the betting market

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We have not sent any Boscobel bulletins recently, as the firm has been flat out on the campaign to extend the runway at Heathrow, instead of building a 3rd Runway. We won the support of most business commentators and of numerous MPs because the concept is cheaper, quicker, quieter and simpler to construct. It has sadly thus far been thwarted by the Department for Transport and Heathrow Airport Ltd itself. Following the significant vote in Parliament for the 3rd Runway, our client is examining various legal options and has already complained to the Competition and Markets Tribunal.

In the meantime, our thoughts now turn to Friday 6th July when, not only will England – hopefully – be preparing for a critical World Cup game, but the Cabinet is scheduled to meet at Chequers to decide its strategy for EU negotiations.

If we don’t have a Cabinet resignation either before, during or after the meeting it will be a miracle.

The matter at hand is to agree what sort of Customs relationship we are trying to negotiate with the EU. At this stage, nobody has properly asked the EU for their view. This will also need to be agreed by Parliament via an amendment to the Trade Bill in coming weeks.

Customs and Chequers

Until yesterday, two verbally inelegant solutions were on the table: either a) the New Customs Partnership (effectively inside the Customs Union, remitting revenues to the EU but allowing lower UK duties via a return mechanism with HMRC) favoured by the Prime Minister; or b) a Maximum Facilitation arrangement, outside the Customs Union but using enhanced software to enable smooth-running trade. The latter is favoured by Brexiteers.

Having spoken to various CEOs who actually import and export items, including as part of complex supply chains, I am convinced this is a bizarre argument. One retail CEO explained to me how large companies in Asia use “bonded factories” to ensure no duty is paid during the manufacturing process. A CEO of a large port has explained that only two containers were opened on his quaysides last year, because all import/export is conducted via trusted trader schemes and policed at place of origin or destination.

So, this issue has become a political cultural war, a linguistic proxy for re-fighting the referendum via other means. The front line may be in the Cabinet, but vast divisions have been mobilising miles away. Just to make things easier, massive egos are also involved and the Prime Minister sits in the middle, apparently unable to make a decision, and refracting everything through the lens of her own survival.

Just to make things even more complicated, my understanding is that the issue of the Customs Border in Ireland isn’t really about Customs at all, but alignment in goods regulations, especially agriculture.

I sit on the advisory board of a think tank called Open Europe and we have proposed what I believe is a sensible compromise, whereby the UK remains aligned with EU goods regulations, but goes for an equivalence regime for services, as that is where the bulk of our competitive advantage lies. On Customs, we have proposed a Max Fac type arrangement. This idea has been well received by nearly everyone we have spoken to.

What is not commonly appreciated is the Cabinet is not only divided on Brexit, but other matters too, including the small matter of tax and spending. There are also divisions within the factions too. The Tory Remainers are also divided, between those who are leaning towards “enough already, let’s just get on with it” and those in the Treasury and the Department of Business who wish to draw out Brexit as long as possible in the hope it goes away. There is no economic strategy to speak of.

Intrigue in the betting market

Late summer, early Autumn is the traditional time for a Conservative leadership contest. Thus far, one has been avoided for four reasons: the need to get on with the EU exit bill; the fear among moderates that it would result in Boris Johnson as Prime Minister; the worry that it would result in three months of turmoil; and the lack of a credible alternative to Mrs May.

All these obstructions have suddenly fallen away. The Bill has been passed and the question is now who will implement the next stage of the strategy. Boris Johnson has apparently been skewered by the Heathrow decision and made to look foolish by the principled resignation of the trade minister Greg Hands. As Brexit day gets closer next March, 1940 custom and practice is likely to override the actual rules of a leadership contest and thereby provide cover to avoid both a vote of the Conservative party membership and an immediate General Election.

Critically, a potential alternative to Mrs May has emerged in the form of Sajid Javid, the new Home Secretary, who has got off to an excellent start. His “pulled-myself-up-by-my-own-bootstraps” background and apparently Thatcher-esque economic views have created a whiff of excitement.

Media interest in Mr Javid has also excited the range-bound political betting market, which like Westminster has been in stasis since the General Election last year. Over the weekend, after he topped a poll of Conservative party members, the Betfair website pushed him into the favourite position as the next Conservative leader, with an implied probability of 20%, ahead of the next most popular, Michael Gove, with a probability of 15%.

The price has since dropped back. Despite Mr Gove’s reputation in popular culture as a treacherous fellow, Tory MPs trust him to get things done.

In politics, as in markets, late summer/early autumn is the traditional time for brouhaha. We advise watching not just the news, but prices, for signs of further volatility.

 

 

 

 

 

It is official – Brexit squabbling is damaging the economy

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The British economy is slowing. There. I have said it. After repeatedly writing upbeat pieces for CapX to counter the doom and gloom mongers in the last two years, the facts are changing and so is my mind.

I would go further and say that the weakness of the economy, much of it Brexit-related, is going to put the skids under the tedious stasis which passes for political activity in Westminster these days. Voters are going to be cross.

Extreme Remainers and Brexiteers in Parliament better watch out in case they get the blame. And horror of horrors, Jeremy Corbyn’s claim that there is something fundamentally wrong with the way the economy is managed might yet land on fertile ground.

The full article was published on CapX and is available to read at this link.

How bad will the local elections be for the Conservatives?

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An interesting poll of London voters has been published, slightly changing the working assumptions about the Local Elections next Thursday, May 3rd. The results could be the most significant for a local election since 1990, in which a rout in the capital and other major cities prepared the way for Margaret Thatcher being removed from office six months later. Rows over Europe predominated, she had fallen out with her chancellor, interest rates were rising. You get the picture.

Received wisdom is that the elections this time are going to see the Conservatives receive a drubbing, for a host of obvious reasons I have commented on before but which we need not dwell on now. Today’s poll by YouGov in partnership with Queen Mary University of London, gives Labour 51%, a massive 22 point lead in the 32 London boroughs, but down from 26% in February (the last poll).

In inner London, Labour’s rating is down 8 points to 59% and the Conservatives up five to 22%.

On these numbers, the Conservatives would apparently lose Barnet council, retain Westminster and cling on in Wandsworth. If that were the case, despite a disastrous performance, Theresa May could claim that she had done better than expected. A 29% vote share would be the same David Cameron won in 2014.

It ought to be a source of deep concern to her, however, that the Labour lead among BME voters in London is an astonishing 62%.

My experience is that the further you get from London, the more popular is Theresa May. James Kanagasooriam, a political adviser to Ruth Davidson in Scotland, tweeted recently “the Tories aren’t at risk of losing all councils. Bexley+Bromley likely to stay blue. Expect big Tory gains in Havering/Sutton. Hillingdon looks like a hold. Kingston, Richmond, Barnet, Wandsworth and Westminster all v.close”. Lots of people say: “I wouldn’t want her job, it looks horrible.”

There are reasons for caution and not drawing too many fixed conclusions at this point:

  • It is a poll of only 1,099 people
  • London is very hard to poll
  • Just because the London-based media is howling on about things, doesn’t mean everyone else is. That said, the media remains a significant demotic power base in its own right and Labour are skilful at manipulating it (especially social media).
  • One fifth of all Jewish people in the country live in Barnet. Is that borough really going to vote for a Labour council as this poll apparently suggests? I will only believe that when I see it.
  • Anecdotal evidence, especially in Richmond, is that the Lib Dems may put in a strong showing. This poll doesn’t seem to have picked that up, giving them an unchanged 11%. I can tell you that Barnes, for instance, is a forest of Lib Dem signs. My guess is that the Lib Dems could do better than many admit.
  • Unlike in the EU Referendum and in the General Election, EU citizens are allowed to vote. In the past, they have mostly stayed at home. What will they do this time?

As ever, we will have to await the results.

It is 1956 and all that again in Westminster

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The Establishment may be having a wobble, but things could be much worse

It hasn’t been this bad since the Suez Crisis. That is what some are saying in Westminster. What we still call the Establishment is divided and demoralised, awaiting “clarity” on Brexit. Britain is arguably involved in another international escapade which is being executed incompetently and with insufficient vigour or realism.

There are those who hope, somewhat ungallantly, that the Prime Minister might resign due to ill health, like her predecessor Sir Anthony Eden after the botched Anglo-French-Israeli attempt to reclaim the Suez Canal. The papers are full of treacherous speculation.

As in 1956 those in positions of leadership in politics, in business and even charities are doubly nervous because of changes in the media. They have some sympathy for Theresa May. Who will the media mob turn on next, they ask? Today, it is social media; in 1950s it was television.

Eden was overwhelmed by a censorious global media firestorm. According to the UN, by 1960 there were 56m television sets in the United States and 11m in the United Kingdom, twice the number five years before. The end of Empire was broadcast live on the CBS Evening News and at home on ITN and on BBC News.

60 Tory rebels
In the 1950s, a group of some 60 Tory backbenchers called the Suez Group (sound familiar?), was founded, whose activities were animated when Britain negotiated a withdrawal from the international Canal Zone, which the British Government part-owned and administered.

Eden has since been represented as an Imperial dinosaur, but actually his policy was organised withdrawal from Empire, leaving behind a string of bases (including in Suez), some hopefully friendly governments and that amorphous thing traditionally prized above all else by the British Establishment: “influence”.

But Eden was at the beck and call of the Suez Group, and Sir Winston Churchill, who made way for him as Prime Minister in 1955, was their idol. As ever, Churchill’s policy was to never to surrender. On the other side was the pro-Soviet and anti-Western President Nasser of Egypt who nationalised the Suez Canal in July 1956. There was widespread indignation in Britain and in France and a fear that trade with Asia would be cut off.

The role of the media was to argue for resolute action when the Suez Canal was nationalised, but as the affair unfolded it dramatically turned on the Government until only the Daily Express (circulation, 4 million copies a day) supported Eden.

The Treasury and the Bank of England don’t like it
The Treasury and the Bank of England were both against military action by Britain and France without American support. Although the economy was recovering from the war and unemployment was at a record low, the pound was fixed to the dollar at $2.80. The fear was it would not survive a speculative attack.

The economic situation was exacerbated by the fact that half our oil supplies came through the Suez Canal (as did much of our goods trade). Traffic was blocked and the oil price went through the roof. Petrol rationing was introduced. Many ex-colonial countries and corporates had sterling deposits which they began to withdraw from London and soon the Bank of England’s foreign exchange reserves started to dwindle.

The IMF found a role
The International Monetary Fund likes to claim that Autumn 1956 was its baptism of fire, the first time it provided emergency lending. Initially, the Americans (who had always opposed colonialism and saw the British and French as playing into Russian hands) blocked a loan to support sterling. This was the proximate reason why Britain and France halted military action in November 1956. They had sent their air forces, a naval task force and paratroopers to the Canal, supposedly to prevent Israel and Egypt from fighting each other. This was a ruse.

Gaitskell was no Corbyn
However, the comparison between now and 1956 has its limits and should not be taken too far. Eden had in fact just won an election the previous year handsomely, with a majority of 60 seats and a majority of the popular vote. A change of party leader did not bring with it the risk of a collapse of the Government and letting in a Jeremy Corbyn-style figure. The Labour leader was Hugh Gaitskell, a charismatic moderate who played both the press and international opinion skilfully.

The stakes are much smaller now too. Eden lying to Parliament about the covert agreement with France and Israel to intervene is surely worse in magnitude than the infamous “£350m for the NHS” claim. No military action is in prospect today; nor isolation at the United Nations; nor a bailout from the IMF. And President Trump publicly supports Brexit, whereas Eisenhower opposed the Suez campaign. In other words, this time round a sensible outcome should theoretically be possible to negotiate, at some point, as long as we take a global approach and work to keep international opinion on side (not much sign of that).

Markets don’t like weak governments
That said, the parallels are instructive. Markets do not like weak governments and it is noticeable that the Government’s recent travails have left the FTSE 100 underperforming global markets. It is also remarkable that the British economy has so far withstood the constantly negative outpourings of the financial press, business lobby groups etc. One wonders how long it can do so. The construction industry PMI, for instance, last month showed activity is flatlining and new housebuilding has gone off a cliff.

As 1956 turned to 1957, the front runner to replace Eden was actually RAB Butler. But Harold Macmillan, the cunning chancellor, was the person who was surprisingly supported by most of his colleagues to be Prime Minister. Macmillan had been pro-military action but then changed his mind after the Americans failed to support it.

Who is Macmillan now? My guess, for what it is worth, is Michael Gove. He may be the Harold Macmillan of Brexit, the only man with the attention to detail and ability to appeal to both sides of the Conservative party.

A diplomatic resignation
Macmillan had a reputation for deviousness and subsequently noted that if Eden had not resigned due to ill health, a “diplomatic resignation” might have been required.

A “Theresa May resigns through ill-health” scenario might be cowardly, but it is convenient for some. A resignation on health grounds, accompanied by some liberal dollops of spin and hypocrisy, would avoid a vote of no confidence among Conservative MPs. A prolonged leadership election in which Tory members can vote might also be avoided, to be replaced by a coronation. There is one issue: public support for Mrs May is deeper outside the Westminster bubble than inside it. Sometimes it seems her critics, rather than she, are having a wobble.

Macmillan leads a recovery
Macmillan actually recovered well from the Suez debacle. Perhaps helped by a positive relationship with President John F Kennedy, he adapted to the requirements of television. He actually accelerated the withdrawal from Empire and ostentatiously ordered the Polaris independent nuclear deterrent. He rebuilt the “special relationship” with America. He went on to win the 1959 election with a 100 seat majority accompanied by the soundbite “we have never had it so good”, before coming unstuck himself four years later.

Until the Vietnam War and oil crises threw the West off course, the 1960s were a time of relative social and economic idyll. Macmillan re-oriented Britain towards membership of the European Economic Community – at the time, a trade partnership – as a new anchor for British foreign policy. Which takes us back to where we are today. Who has the strength and vision to re-anchor Britain now? We will have to wait and see and in the meantime console ourselves with the ultimate lesson from the Suez Crisis: things could be a whole lot worse.

Tweaking MiFID II post-Brexit

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Today signals the deadline for MiFID II compliance, new regulation that has been causing a sense of disquiet in some areas of the City, especially amongst advisers to and investors in smaller companies below the FTSE 250. A question worth asking is will Brexit allow some of the anticipated consequences of MiFID II to be addressed?

MiFID II covers numerous uncontroversial areas. But one stands out. Company research. From today unbundling means research will be priced separately from execution, putting pressure on fund managers to justify their research spend.

While this is unlikely to affect large companies, for the myriad of smaller companies the risk is that fund managers don’t really want to pay for research in hundreds of securities that they may never buy. Some fear this will make it even harder for smaller companies to get attention from investors.

One of the best-known figures in the small companies’ market is Katie Potts, who founded and runs the Herald Investment Trust. In its latest annual report, its Chairman said: “…the regulatory shock of the impending introduction of MiFID 2 has led to dire illiquidity, and commensurately wide discounts for smaller company trusts in general.”

This is more than an idiosyncratic issue for a minority of investors. If the smaller companies market dries up, it is hard to see how we can enhance UK productivity and invest in the innovation, entrepreneurship and new ideas of the future.

The domino effect of reduced research for small caps is potentially serious. With less research there is less liquidity. With less liquidity the attractiveness of a growth business looking to launch an initial public offering (IPO) disappears. In effect, a go-to source of funding for growing British businesses is removed. The result? Companies could turn to the debt markets or even a listing in the US to raise money. Some just may not bother to grow at all.

In the short term, while the UK is still a member of the EU or “in transition” until 2021, Brexit would not make any difference to the implementation of MiFID II. Large international firms are not going to countenance any move that will hinder their trading with the EU and nor should they.

However, after that, things may change. One of the most creative legal thinkers about Brexit is Barnabas Reynolds, a partner at Shearman & Sterling and was a contributor to Prosperity UK, a politically independent platform bringing together business leaders, academics and policy-makers to look constructively at a future outside the EU. He has written several papers on the subject and says that the UK should opt for an “equivalence regime” with the EU. This is the same status as countries like the US, Switzerland and Japan, and allows access to markets if regulations are broadly aligned.

The key thing about equivalence is it does not mean “identical”. It therefore allows some flexibility to change regulations which relate to domestic activity. Depending on how the trade negotiations go, and whether an equivalence regime is agreed or something more prescriptive, MiFID II could indeed be tweaked.

We will have to see how the deal comes out in the end.

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