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In defence of John Redwood and Jacob Rees-Mogg on Brexit

July 24, 2018

With Brexit getting closer, allegiances and hostilities within, and across, the two main British parties become ever more interesting. One group in our currently fractious parliament is the European Research Group, a pro-Brexit group whose position is that, while a deal would be preferable, no-deal would be still preferable to remaining within the EU. To enunciate that position in a more detailed way I think the ERG would approve of: leaving the EU, with a clean break, will provide the best long-term economic situation; but, if a deal could be decided before departure, then an interim period of increased tariffs and quotas would be avoided. That deal, as far as the ERG is concerned, should have no ties that prevent Britain's clean break from the single market, customs union, and the jurisdiction of European Court of Justice. It should also be said that what is being bandied about as "no-deal" is not a general absence of a deal, crashing out with no plan - it is merely the absence of a special deal between the UK and the EU and the implementation of a World Trade Organisation deal, which is already the way in which the UK trades with its single largest export market: the United States of America.

 

John Redwood and Jacob Rees-Mogg are two of the most well known members of the ERG, and Mr Rees-Mogg in particular has garnered significant public support, due to numerous television appearances showcasing his charisma, erudition and impeccable manners, in addition to a significant number of his parliamentary contributions on YouTube. Alas, with great popularity comes great mud-slinging from those with differing points of view. The problem with the swamp of misinformation surrounding the Britain-and-Europe row is that plenty of mud sticks, when even the most basic of research quickly dispels the mud-originating myths. Specifically, I refer to two instances regarding our two individuals of concern: an article written by John Redwood suggesting investors would do better to abroad in countries other than the UK, and the opening of a fund in Dublin by Somerset Capital Management (co-founded by Jacob Rees-Mogg). The charges, vague as they must be to avoid proper scrutiny, are something along the lines of: "these two Brexiteers are running down Britain in their private and business capacities, while declaring Brexit to be good for Britain; Redwood and Rees-Mogg are lining their own pockets behind the scenes, acknowledging that Brexit will cause economic calamity in certain actions and publications while cheerleading Brexit in public". These charges may seem inviting. After all, these are two leading Brexiteers' - truly ripe pickings for any Remainer. However, to save one from adopting an unreasonable position, I encourage the reader not to take these charges seriously until they have considered both properly.

 

Let's begin with John Redwood. The title of his infamous article in the Financial Times is: "Look further afield as the UK hits brakes”. This title is, obviously, with regard to international investments. Although articles attacking Redwood, such as one written in The Independent written by Benjamin Kentish on Wednesday 15 November 2017, include very few quotes from Redwood's article itself, those few are cooked up to a tasty Remainer broth which stinks of Redwood's treachery. Since there are only three direct quotations from Redwood's article, I will be charitable and include some other references made, and address each of Mr Kentish's piece of evidence in turn. Firstly, he says Mr Redwood "condemned George Osborne’s decision, as Chancellor, to introduce new taxes on buy-to-let properties, second homes and luxury property investments, saying it had had a 'big adverse impact on turnover in and commitment to such investments'". This isn't a comment on Brexit, the effects of Brexit, nor is it even a controversial thing to say. Introducing more punitive measures on property buyers discourages prospective buyers from buying and letting, and results in there being fewer homes to rent. There is also a lower demand for housing generally, so fewer are built, and therefore fewer available to buy. Hardly the ideal situation for a country apparently already facing a crisis of there being too-few-houses. This is a simple statement of fact, which anyone honest who has considered buying to let since Osborne's changes were made, or anyone who worked in conveyancing during the implementation of the change, would attest to in an anecdotal fashion. When things are more expensive to buy, fewer people buy them. In a similar vein, Redwood's criticism of the government's punitive taxes on diesel cars is brought up as though it is relevant to Brexit. It is again a statement of fact to say that government implemented obstacles to citizens' purchases of diesel cars will negatively affect the sales of cars. Whether such taxes are warranted on environmental grounds is a separate question, and even if it is deemed justified, that does not change the negative economic consequences. On to the next supposedly incriminating piece of evidence: Redwood praised the authorities of other countries for having better policies. Trump's White House, Abe's Japanese government, and the European Central Bank all earned Redwood's praise in implementing policies which stimulate their respective economies. As directly quoted by Kentish in his article, Redwood says: “Mario Draghi, ECB president, is now doing whatever it takes, not just to rescue the euro but to promote a much-needed economic recovery.” Since when was praising foreign economic policy an act of treachery? It seems, to me, to be an entirely reasonable thing to evaluate the economic situation of various countries. Mr Kentish, in his humility, does admit in his article that "Mr Redwood made no mention of Brexit in discussing the UK's economic prospects." This begs the question: why respond to it through the lens of Brexit, then? 

 

This is the sum total of evidence provided in this particular article, and it is true that the original article in the Financial Times by John Redwood has nothing in it which is any more incriminating. Nevertheless, this "evidence" provoked fury from a significant number of readers no doubt, and perhaps the author too. Although we should credit Forbes contributor Frances Coppola by assuming she has read all of Redwood's article, she too seems to have flown off the handle, as Kentish references her as saying: “The Rt. Hon. John Redwood MP advocated a course of action by the UK Government that he knows would seriously damage the UK economy. This is not the only time he has advocated such a course of action: he is a prominent advocate of 'hard Brexit', insisting that anything less is not really Brexit... And to protect his job as an investment manager, he warned his wealthy clients to get their money out before the disaster hits... To me, this smacks of disaster capitalism. Engineer a crash while ensuring your own interests are protected, then clean up when it hits... This is despicable behaviour by a lawmaker. The Rt. Hon. John Redwood MP is putting his own interests above those he represents. He is unfit to hold office. He should resign." It is truly bewildering that separate issues can be knitted together in some Frankenstein of a political hit piece like this, so let's break down what is really going on here.

 

John Redwood wrote an article criticising the then-current domestic economic policy of Britain, indicating that the restrictions on economic freedom implemented made other countries more attractive for investors. For this attack on Redwood to go anywhere, one must accept Ms Coppola's premise that Redwood's suggestions "would seriously damage the UK economy", which there is no good reason to do. If the UK government had not done the things which Redwood criticises them for doing in his article, the country's economy would certainly have been set on a more prosperous course than it was after the changes were implemented. She then goes on to the unrelated subject of Brexit, saying that if Redwood's ideas on the domestic economy were so destructive, then naturally his (presumed) preference of a hard-Brexit would be just as destructive. Stretching the assumptions ever further, she then claims his full knowledge of said destructive Brexit is informing his maligned decision to protect his job and his own interests, and engineer a crash. What the alleged mystery motivations are for this, I don't suppose we will ever know. Then - boom - she says he should resign. That escalated quickly: from a criticism of Osborne's budget to a swift resignation. Throw a 'capitalism is bad' sentiment in there, and you can be sure you're plenty credible enough for a significant number of people.

 

Allow me to state the obvious in that, even if one insists the EU is relevant to Redwood's observations somehow, that Redwood is criticising the Britain that is currently inside the EU. That position is entirely consistent with a desire to leave the EU. Redwood isn't fond of regulation as it impedes economic activity, as he made clear in his article. The EU is an originator of reams of regulation, hence his desire to leave it. By pointing to successes in other countries, Redwood is showing what the UK could be as an independent nation, with proper self-governance, on the world stage. The UK government would currently be legally unable to make many of the changes to economic policy made by other countries, because of EU law. The EU is protectionist, sets legal minimum rates of VAT, enforces punitive taxes and regulations and continues to introduce new ones - all of which are the very things Redwood was criticising the UK for in his article. If he were to criticise the EU based on these principles, and not the UK government, then he would be fairly described as a hypocrite. As it stands, he is writing and acting in line with sensible, long-established economic principles. It is truly hypocritical that Remainers will ignore or reject Redwood's objection to excessive, unnecessary or punitive taxes, but they will simultaneously warn that doom is inevitable should a hard Brexit result in World Trade Organisation compliant taxes on goods and services - tariffs. To accept Redwood's principle against greater taxes on goods in one instance, when it suits the remain argument, and to ignore or reject it in another is plainly dishonest. Are higher taxes good or bad for an economy? The empirical answer is long answered: bad; but, the Remainer should really make their mind up about whether they'd prefer to be consistent on economic realities or consistent on a false principle, rather than change tack with whichever way the wind is blowing. Ms Coppola also claimed that John Redwood warned his clients to "get their money out before disaster hits". He never claimed disaster would hit, and has repeatedly said publicly that the UK would be more prosperous post-Brexit, in line with the rest of his positions on the topic. However, putting aside this blatant lie, it is reasonable to presume Redwood may have said, on or off the record, along with any good financial advisor, that Brexit, like any change in the political landscape, creates less certainty than the status quo would have done and could therefore negatively affect confidence in UK markets. Uncertainty results in a loss of confidence - that does not mean the outcome of the uncertain situation is doomed. It simply means that investors prefer predictability. Sensible investment decisions do not have to appear in superficial agreement with political positions for them to be permissible.

 

Many of the points made in defence of John Redwood above apply to Jacob Rees-Mogg, whose affiliated capital management company has set up a fund in Dublin, Ireland. One major difference exists here, though, which makes the defence of Rees-Mogg much more terse: he doesn't advise anyone to do anything. His company manages funds, and acts on the requests of clients who have made their financial decisions on their own or with assistance from a financial advisor. The Guardian criticised Somerset Capital Management on 14 June 2018 for a prospectus which warned in regards to Brexit: “During, and possibly after, this period there is likely to be considerable uncertainty as to the position of the UK and the arrangements which will apply to its relationships with the EU.” It should be clear to anyone that this statement is true, and it says nothing about the speculated success or failure of Brexit. It simply states that political uncertainty can cause financial uncertainty. The article in the Guardian does go on to say that the above was, according to Rees-Mogg, "'not a policy statement by SCM', but guidance to investors that was drafted by lawyers." If his clients want funds all over the world, as they do, then Somerset Capital Management will set up funds all over the world, as they have. If the detractor insisted, with no evidential basis, that Somerset Capital Management are acting in a covertly nefarious way by setting up off-shore funds, then the aforementioned point regarding Rees-Mogg and Redwood taking measures now, while the UK remains inside the EU, proves nothing other than that the many national and international economic variables in the current climate make other countries attractive to investors. That a single variable, namely speculation on post-Brexit Britain, is more potent than all other variables, worldwide, combined, is quite an extraordinary claim. The world is bigger than Brexit. Furthermore, Jacob Rees-Mogg's own statement on LBC with Nick Ferrari was that the Ireland fund was "nothing to do with Brexit", and that it was "in the pipeline since before we had the vote on leaving the European Union" - which removes suspicions of speculation on the part of Somerset Capital Management on post-Brexit Britain anyway. If anyone has any evidence contrary to that, I'm sure it would have been all over the media by now.

 

If either Rees-Mogg or Redwood were truly profiting from the effects of Brexit, for example by shorting Sterling if it were to fall again (which would not be surprising, given the short-term uncertainty caused by the UK's departure, which could cause some loss of confidence in the Pound), the Remainer might have a ghost of a point - at least their charge would be factually accurate. They would still, however, need to make the argument as to why it is wrong to partake in profitable, mutually voluntary transactions off the back of our currency becoming cheaper - especially considering a devaluation in currency is not necessarily a bad thing, as our recent massive rise in exports shows.
 

 

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