The King of the North

The King of the North

As widely expected, Prime Minister Starmer’s accident prone time at the top dribbled to a conclusion this week. At the time of writing, Andy Burnham, former mayor of Manchester, is the heir apparent. Admittedly, a nano-second is now a long time in British politics. Nonetheless, the King of the North’s selfie with much of the parliamentary party (including the current Chancellor) behind him in Westminster suggests he has the numbers. Now a decade on from the EU referendum vote, we take a look at how Brexit is shaping our economy and politics, whilst taking a few guesses at what may be to come.

Blame Brexit?

In the 37 years between 1979 and 2016, Britain had 5 prime ministers. In the decade since the Brexit vote, we’ve burnt through 6. Each certainly had their faults but they were mosty distinct, helping the sense that the problem is systemic rather than individual. Many will argue that low to non-existent growth, in part a result of the agonies of extricating ourselves from EU membership, is to blame. They will point to a variety of studies, the most recent of which comes from some big names from Stanford University.¹ The problem with at least some of these efforts is in the attempts to build a counterfactual economy – a Britain that voted remain. What these reveal is the difficulty in summarising the British economy using peers.

Brexiteers will point to the fact that the UK economy grew faster than Germany in the period since 2016 as validation for exit. However, this is surely flattering the UK – this period has seen Germany’s export model wilt under the glare of Chinese industrial policy, whilst her reliance on Russian gas has proved unhelpful to say the least. On the other side, the ‘doppleganger’ economy used to illustrate the UK that remained appears to substantially accelerate immediately after the EU referendum. The best we can likely say is that the vote to exit the EU has provided a headwind this last decade, for a range of reasons, but the size of that hit is a lot smaller than widely advertised.

What else could it be?

It was once argued that the arrival of the internet meant trouble for authoritarians. Abundantly available information, combined latterly with the frictionless networking possibilities of social media, should have made it harder for the average tyrant to keep on top. However, this mix of new technologies amidst the waves of the latest information revolution has proved a problem for all authority, not just authoritarians.

The plunge in communication costs has facilitated the rise of performative politics, with divisions based on personal characteristics rather than beliefs about how the world works. To that extent, it was only natural that we voters began to conflate our political preferences with our personal identity. At the same time, the decline in organised religion has sent many scrambling for community and meaning with today’s politics offering opportunities for faith and frequently a belief in the supernatural…

Re-industrialisation?

Andy Burnham is frequently associated with the idea of reindustrialising the UK. Many will see little to argue with here. I’ve lost track of the number of times I have been asked ‘why Britain’s doesn’t make stuff anymore?’ over the years. Such misplaced nostalgia rests on a still popular misunderstanding of the respective roles of manufacturing and financial services in Britain’s first industrial revolution and period of global dominance.²

It is not too surprising that financial services lost a good deal of their economic (and wider) allure in the wake of the Great Financial Crisis of 2007-09. We were painfully reminded of the fact that crises spawned in the banking sector, thankfully one of the rarer breeds of recession, come with a much heavier economic price tag vs. the more garden variety recessions.^[3] For a range of reasons, impairment of the so-called ‘transmission mechanism’ inflicts scars on the private and public sector that take much longer to heal. Just as it took the combined jolts of World War 2 rearmament and the New Deal spending programmes to wake America up from its post-Wall Street crash depression of the 1930s, the COVID spending programmes may well have performed the same feat for our world, still concussed from the blows of 07 – 09.

However, the omission of finance and the wider service sector from the discussion of Britain’s early economic lift off dates back to well before this last financial crisis. In describing the progression from hunter-gathering to pre-capitalist structures and moving on to agriculture, commerce and industry, much of the literature has always obsessed over the transition to industrial capitalism.^[4] The further back we stand from this period of rupture, the more the temptation to emphasise the efforts of the incredible inventors and the heroic first industrialists - it is inevitable that we focus very literally on industry when studying the industrial revolution. In amongst all of this, there is also the persistent behavioural tendency to overweight the physical, the tangible over the less visible and measurable at work. Services tend, in the words of Adam Smith, ‘to perish in the very instant of performance’ after all.^[5]

However, when scouring the evidence for things that were different about Great Britain in the run up to first take off in the 18^th and 19^th centuries, it should still be impossible to ignore financial services. The late, great American economic historian Charles Kindleberger suggested that Britain was about a century ahead of France in evolving modern financial institutions.^[6] The first decades of the eighteenth century saw rapid expansion for the East India and South Sea companies and Lloyd’s as the international centre for underwriting. The resulting improvements in credit and commercial services boosted the shipping industry in turn, further bolstered overseas trade and assisted the balance of payments by generating invisible earnings.^[7] London was the centre of this financial revolution, both as capital and main port. The proximity of Westminster, the courts and the departments of state to the city was particularly helpful in allowing the new financiers to influence policy in helpful directions. Furthermore, improved credit and cheaper money became a centrepiece of Britain’s defence strategy, a learning from her earlier tussles with the Dutch, the only country with a comparable lead in financial services.

The path ahead?

This is a correction to the popular narrative around the industrial revolution being vital when it comes to the path ahead. Thanks to the centuries of comparative advantage in financial and legal services, alongside Britain’s incredible array of top tier universities, Britain is a knowledge sector superpower. As luck would have it, this is where the current frontier of technological change is likely to supercharge the most in the years ahead. When the focus inevitably moves on from the inventors of this new technology to the adopters, the UK will likely be one of the key beneficiaries. This has little to do with whoever inhabits no.10 Downing Street. As before, it will then be up to the private sector to make the most of the opportunity via experimentation, adoption and ultimately process re-design. The government’s role in all of this will primarily be about providing stable background conditions to whatever extent possible and a safety net to continually re-equip, re-tool and support the workforce through what will be a challenging but exciting period of change.

¹ Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, Gregory Thwaites, and Sasha Abrahams, "The Economic Impact of Brexit," NBER Working Paper 34459 (2025), https://doi.org/10.3386/w34459.
² The current difficulties in classifying manufacturing and services are for another day – See Diane Coyle for in depth discussion
³ Reinhart, Carmen & Rogoff, Kenneth. (2009). This Time Is Different: Eight Centuries of Financial Folly. Working Paper 13882 NBER
⁴ It is interesting that still today we talk of ‘industrial revolution’ when referring to the latest developments that are surely more accurately described as an information services sector revolution
⁵ Adam Smith Wealth of Nations – Chapter 2
⁶ Kindleberger, Charles P (1984) – ‘Financial Institutions and Economic Development, a comparison of Great Britain and France in the Eighteenth and Nineteenth Centuries’ Expl. Econ. Hist 2
⁷ Ralph Davis, The Rise of the English Shipping Industry in the Seventeenth and Eighteenth Centuries (2^nd edn. 1972) pp 389 – 90; Simon Ville, ‘Michael Henley and Son, London Shipowners, 1775 – 1830: With Special Reference to War Experience’ (Ph.D. thesis, London University, 1983)