So, are UKIP dead, or are they playing dead?

I have been disappeared for too long, completely failing to deliver on my intention or commitment to publish once a week. I will not be able to make good, but hopefully I can at least pick that intention up and carry it on from here.

Today I want to write about UKIP. It is something I have debated long and hard whether to do. 

Should I even acknowledge UKIP by writing about them? Do they deserve that exposure? As much as I despise most of their views, they have the support of a significant percentage of the UK population, were instrumental in engineering the Brexit referendum and are therefore a force to be reckoned with in UK politics. As a UK immigrant, I guess continuing to ignore them, although good for my mental health in the short term, is not sensible in the midterm.

Common wisdom is that UKIP have had their day, have served their purpose and will now disappear from UK politics. However, I am not so sure. I think that Mrs. Nuttal and Farage, although they are in my view certainly Nuts and a Farce, are a lot more dangerous than they look at first sight.

It is clear that there is a lot of anti EU sentiment in the UK, I could argue and prove that in another post, but I think most people, after the referendum, are probably prepared to accept that, so long as I limit the statement to:  ‘A significant percentage of the UK population are anti British membership of the EU’. UKIP preaches to this constituency. If you listen to their new mantra (now that the £350Mn a week for the NHS, etc. have banished), they continuously repeat the following, which I paraphrase in the interest of brevity: ‘We are here to ensure that Theresa May delivers the Brexit deal the UK want. She may not, and if she does not, we will be back’. So, a failure by Theresa May to deliver the deal UKIP and many Brexit voters believe they should get, would see UKIP come back stronger than ever. Can Theresa May deliver that deal? Basically, is the UK in a position to get all they want from the Brexit negotiation?

Again, if you listen to Paul Nuttal, yes, definitely. The argument, repeated again in the election radio debate today, goes like this: ‘The UK has a big trade deficit with the EU. The EU sells more to the UK than the UK sells to the EU. Therefore, the EU needs the UK more than the UK needs the EU. Therefore, Theresa May has a strong negotiating position and should deliver the deal Brexit voters expect’. This all seems logical at first sight. If the first statement is true, the others may well seem to logically follow… The EU is making money out of its relationship with the UK, so how could they not want to make a deal?

As often, however, first sight appearances can be deceiving. Populism prays on lack of analysis. So, what does analysis tell us? What are the facts? (I am at least returning to my commitment of writing about facts, and yes, I admit the first part of this article is too opinionated, but, from here on, we are going to deal in facts and allow you to make your own mind up).

Firstly, what is the real trade situation between UK and non-UK EU? The numbers from the Office of National Statistics (https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/mar2017) are as follows: UK exports to the EU for goods and services were £242bn , whilst imports were £302bn in 2016. A £60bn deficit. So, Paul Nuttal’s first statement is right. The EU is making money out of trading with the UK. Is his conclusion right, does this fact put the UK in a strong negotiating position with the EU? To understand this, we need some more numbers. This is what is commonly known as context, something most politicians (some more than others) and many voters (idem) often ignore.

Visits and research in a number of sources (IMF, Eurostat, Office of National Statistics, https://tradingeconomics.com/united-kingdom/gdp, (http://www.nationaldebtclock.co.uk/),  (http://data.worldbank.org/region/european-union and (http://www.eudebtclock.org provide the following information about the 2 economies (all in Billions of GBP per annum, 2016 numbers).

UK and EU macroeconomic numbers in billions of  GBP

For a lot of people, these large macroeconomic numbers don’t mean a lot, so things are easier to understand if you turn them into smaller numbers, such as those used by a family or a small company.

Let’s take the UK first, and imagine it is a small company, UK Company Ltd, which has total annual revenues of £100,000 from sales (that would be the total export). If we translate the rest of the numbers to the same base, UK Company Ltd is buying in £110,182 in total, and therefore losing £10,182 per year from trading. UK Company Ltd is selling £44,000 per year to EU Company Ltd, its biggest customer. Imagine a situation in which the contract with EU Company Ltd was cancelled (the equivalent to a super hard Brexit). Now, suddenly, UK Company Ltd is selling £56,000, whilst spending £110,182. The loss has gone up to £54,182, nearly the same amount as the total revenue. To break even, UK Company Ltd, would ,have to increase its sales to other customers by 96.7%.

Now let’s look at EU Company Ltd, also with revenues of £100,000. It is buying in £94,830, therefore making a small profit of £5,170. Its biggest customer is UK Company Ltd, to which it sells £16,787. Imagine a situation in which the contract with UK Company Ltd was cancelled (the equivalent to a super hard Brexit). EU Company Ltd is now selling £83,213, whilst spending £94,830. The loss has gone up to £11,618. To break even, EU Company Ltd would have to increase its sales to other customers by 14%.

The question you have to answer is, which party stands to lose more from a cancellation of the contract? Which company needs the other more?

Now let’s look at imports and what a lack of a trade agreement may do, by introducing tariffs. For this example, I can use a family. The UK family has 2 working parents with total budget for the year of £50,000, to use a number familiar to many (its GDP). It spends £5,278 per year with its electricity supplier (EU PLC). Suddenly, due to an oil crisis (Brexit and introduction of tariffs), there is a 25% increase to its electricity cost. The family now has to find an extra £1,319 per year to pay for electricity, but wages are constant.

Down the street lives the EU family, which also has 2 working parents with total budget for the year of £50,000. It spends £749 per year with its electricity supplier (UK PLC). Suddenly, due to an oil crisis (Brexit and introduction of tariffs), there is a 25% increase to its electricity cost. The family now has to find an extra £187 per year to pay for electricity. The parents get an annual wage increase of 2.5%, or £1,250.

The question you have to answer is, which family stands to lose more from a tariff increase by its electricity supplier? Which will struggle more? Which family is therefore in a better position when going to the negotiating table and risking the introduction of such a tariff?

The point is that, whilst exports from EU to UK are bigger than the other way in absolute terms (if we forget the billions, £302 and £242 respectively), as a percentage of the UK and EU economies, both exports and imports from the EU are much bigger for UK, than the other way, because the EU economy is so much bigger.  To drive the point home, £242 (the UK exports to EU) mean a lot more to a guy who earns £2,861 per month, or £17.88 per hour (the UK GDP) than £302 (the EU exports to the UK) mean to a guy who earns £16,152 per month, or £100.95 per hour (the EU GDP). In a poker game where the player who earns £17.88 per hour in his day job has £242 on the table, and the player who earns £100.95 per hour in his day job has £302 on the table, the second player is going to be a lot more relaxed, £302 makes no real difference to him. This, of course, is not a poker game. It is a serious negotiation between 2 political entities which have a lot at stake, but it seems that the strong negotiating position is with the EU, and that Theresa May will bring back the deal that the EU want, which may well not be bad for UK, but which will most definitely not be the one Brexiters want, since they want it all in exchange for nothing.

The final question, which you also have to answer yourself is: Does Paul Nuttal really not understand this? Or are UKIP deliberately massaging the truth to set up Theresa May for failure, in the expectation that such failure would bring hordes (I choose the word carefully) of angry, disappointed voters, back to the UKIP ranks?