Wednesday 14 December 2016 4:59 am

A fairy tale of the future: How Brexit transformed Britain… into Germany

When Britain voted to leave the European Union, few people expected it would result in the UK becoming more like Germany, the country that runs the show. But that’s what ended up happening, and it was in 2017 that the process really began.

Industrial strategy was the first step. Theresa May’s government decided that Britain’s ever-increasing trade deficit was a luxury that an independent nation could no longer afford. Already, in 2016, Philip Hammond had begun to deviate from decades of Treasury orthodoxy by announcing £23bn of investments into infrastructure, skills and research.

Over the course of 2017, the UK invested effectively in downstream R&D, identifying its real industrial strengths, focusing big government budgets like health and energy on innovation, and sowing the seeds for a revival of productive business growth. These ideas had been kicked around for a while, but the bracing exigencies of Brexit inspired the government to give them a go – and they worked! (Just as they had in the US, Finland and, of course, Germany.)

The great Teutonic shift was not just about economics, as constitutionally Britain also took a leaf out of Germany’s book. Scotland, unhappy at being ejected from the EU against its people’s will but still wary of the economic consequences of independence, leveraged its legal power over the Article 50 process to demand total devolution. Westminster’s control over English cities also receded: the gradual move to city region government that began with the Northern Powerhouse gained momentum.

The patchwork of urban devolution created its own headaches: some cities had a devolved NHS, some had a metro mayor. This was settled with a constitutional convention that established formal powers for regions and codified deals for Scotland and Wales. The new deal was a messy British compromise, but when one pundit heralded it as the “Bundesrepublik of Great Britain”, the name stuck.

For most cities, assertiveness paid off. Public investment was increasingly spread across the country, and places outside the South East saw the benefit. It turned out that a fair chunk of the North-South divide was not an inescapable fact of British economics, but the consequence of government after government favouring London.

Rebalancing worked, when we gave it a chance. London continued to be a global metropolis, but terms of trade with Europe and stricter migration rules dampened the City’s swagger. But Britain’s other cities, buoyed by transport and regional R&D investment, thrived. Rather than being a place where ambitious people went Dick Whittington-like to the capital, Britain became – like Germany – a country with several buzzing industrial cities.

The timing turned out to be fortuitous. The freewheeling global capital markets that played such a big role in London’s growth in the 1990s and 2000s had already begun to silt up after the 2009 crisis, lowering productivity in the UK as a whole. The shifts in the international order that began in President Donald Trump’s first term made life as a global finance hub less commercially attractive.

But Britain’s increasingly impressive industrial revival, to the surprise of many, filled this gap and then some, and in particular reversed Britain’s ever-worsening balance of trade. Export-led growth became one of the government’s proudest economic accomplishments. It was considered tactless to point out that in the decades before Brexit this too was a characteristic traditionally more associated with Germany than with the UK.

All this was, of course, helped by the changing international situation. The shocking – though, in retrospect, grimly inevitable – election of Marine Le Pen as President of France threw the EU into confusion, and made it easier to conclude a long-lasting transitional trade agreement. Industry breathed a sigh of relief that the complex European supply chains they relied on could go on indefinitely, as an end date was elegantly fudged by all concerned.

The British government embraced its liberal tradition as a way of attracting highly skilled migrants to keep the economy ticking, both from the increasingly illiberal US and France. Britain and Germany, having seemed on a collision course at the end of 2016, found increasing common ground in the face of rising extreme right-wing populism and growing anti-Nato sentiment, striking accords on joint defence, trade and diplomacy.

For many of the politicians who supported Brexit, it was never meant to be this way. Leaving the EU was going to unleash English laissez-faire, turning us into a sort of North Atlantic Hong Kong. For some Brexiteers, Germany exemplified everything they loathed about the EU. But in the end, Brexit brought the UK closer to Germany, economically, politically and constitutionally, and it ended up the better for it. Who’d have guessed it?

This prediction is part of a series from Nesta looking at the trends, tech and ideas that will shape 2017. The full series is available at nesta.org.uk