aprés moi le déluge.
In the aftermath of the referendum, it’s clear that the short-term macroeconomic forecasts by the Bank of England of what would happen immediately after the Brexit referendum were too pessimistic. The assessments assumed that the referendum results would create greater uncertainty in markets and reduce consumer confidence more than it did.
Inward investment stock in the UK was more in 2018 than in France and Germany combined, at almost £1.5 trillion. The UK’s economic growth is predicted to outperform the entire eurozone, with Germany — only recently sidestepping an official recession — heading towards stagnation. Unemployment is the lowest it has been for 45 years and the unemployment rate just a little more than half of that for the eurozone as a whole. Wages are at last rising.
the impact of the brexit referendum.
Having said that – Project Fear’s seemingly overblown claims aside – the Brexit referendum and the resulting political paralysis has damaged the economy. Studies on the effect of the referendum show a reduction in GDP, trade and investment, as well as household losses from increased inflation. According to a December 2017 Financial Times analysis, the Brexit referendum results had reduced national British income by between 0.6% and 1.3%. A 2018 analysis by Stanford University and Nottingham University estimated that uncertainty around Brexit reduced investment by businesses by approximately 6 percentage points.
Now that the Withdrawal Agreement Bill has received royal assent and become law, that element of uncertainty is in the past – although the tone and details surrounding Brexit are by no means set in stone (Sajid Javid said there would be ‘no alignment’ with the EU, for example – then he gave some different signals on the level of divergence, while Downing Street is still adamant that the ability to diverge will be key to any deal). How is Brexit going to affect employment in the UK? Are there going to be any winners from Brexit? Who are going to be Brexit’s losers?
UK worker wages.
Appearing in front of a Treasury Select Committee, the former leader of Britain Stronger in Europe (BSE) and Marks & Spencer boss, Lord Rose, was asked by the Labour MP Wes Streeting: ‘‘If free movement were to end following Brexit, is it not reasonable to suppose that we could see increases in wages for low-skilled workers in the UK?” To which Rose replied, “If you’re short of labour, the price of labour would go up. So, yes.” He’s right. In the medium-term, we should all benefit from higher wages as the pool of EU talent starts to become shallower.
winners: UK financial services.
Eurocrats have never had much sympathy for financial services and City firms have committed to move at least 7,000 jobs out of the UK to prepare for Brexit. It doesn’t look great. But in the future, what will happen as Euro regulations take effect – a financial transactions tax, a ban on short-selling, restrictions on clearing, a bonus cap, windfall levies, micro-regulation of funds? Waves of young financiers will bring their talents from Frankfurt, Paris, and Milan to the City.
Why shouldn’t the City thrive? Guernsey does. As later as the 1980s, Guernsey had no financial services industry, and its economy rested on tomatoes and tourism. Since then, it has built up a highly successful services sector without being covered by most EU directives. Like Switzerland, but unlike the UK, Guernsey is excluded from some aspects of the single market in services. But the flipside is that it doesn’t have to apply Brussels rules that threaten, for example, managed funds and smaller banks. The economy grows by 3% a year, their GDP per capita is one of the highest in the world, unemployment is in the hundreds, and crime is virtually non-existent.
If the financial service industry in a small nation like Guernsey can flourish outside the EU, then the UK’s FS sector certainly can. Afterall, Britain has the fifth-largest economy on the planet.
winners: UK charities
Brexit might be bad news for mega-charities, NGOs, think-tanks, giant corporations, and professional associations and lobbyists who have learned how to make a living out of the Brussels system. But on the other hand, one of David Cameron’s first initiatives as prime minister was to use the uncollected money in forgotten bank accounts to fund charitable initiatives. He had to drop the idea when he was told it would conflict with EU law. Smaller charities in the UK might benefit from freer regulation.
exporters - digital/india exporters.
Exporters should benefit from Brexit in the long term. Never before has geographical proximity mattered less. In the Internet age, a company in Luton can as easily do business with a firm in Lucknow, India, as one with Ljubljana, Slovenia. Indeed, more easily. The Indian company, unlike the Slovenian one, will be English-speaking. It will share the British company’s accountancy methods and unwritten business etiquette. If there is a dispute between two parties, it will be arbitrated according to common-law norms with which both are familiar. When it comes to investment, the natural affinities between the UK and India – affinities of kinship and migration as well as law and language – are palpable. Britain is the third-largest investor in India. India, for its part is the third-largest investor in the UK, owning more here than in the other members of the EU combined.
Post Brexit, Britain can negotiate to buy and sell goods tariff free with India – we will have the right to sign independent trade agreements that we gave up when we joined the EEC in 1973. The EU has been slow to negotiate trade deals with our major trading partners. Of Britain’s top ten non-EU markets, Brussels has trade agreements in place with only two – Switzerland and South Korea. That has restricted trade.
Won’t EU trade suffer? Well, yes and no. The EU will continue to shrink as one of our export markets, as it has been doing for years. In 2006, 54.7% of Britain’s exports went to the EU. In 2015, it was 44.6%. Where will it be in 2025?
Britain differs cyclically and structurally from other EU economies. Our massive investments in and from the US make our economy an Atlantic rather than European. Our services sector has no equal on the Continent. In addition, we are one of only two member states that trade more outside the EU than inside it (and that disparity is growing). Britain is free trading, with global supply lines and food and commodities imports from outside the EU.
winners and losers: UK tech professionals.
Remember when MEPs voted to turn down Britain’s requirement that Internet companies provide filters so that parents of young children can screen out obscene sites? With Brexit, legislation like this could again be on the cards. That will mean plenty of project work for the relevant experts. And
disapplying the EU’s rules on data management could make Hoxton the global capital for software design.
But speaking in Davos, Sajid Javid said he will go ahead with the introduction of a digital services tax, as a temporary tax which will “fall away once there is an international solution”. The tax will be a 2% levy on the UK revenues of search engines, social media platforms and online marketplaces. It’s not exactly pro-growth.
winners and losers: UK manufacturing and construction.
As a result of EU policy, we have some of the highest electricity and gas bills in the world, driven up by renewable targets and through direct legislation. As a result, a medium sized business in the EU pays 100% more than an equivalent firm in the USA. Artificially high energy prices have already closed almost the whole of Britain’s steel industry – and threaten other high-energy manufacturing sectors. It’s not just businesses that suffer: in 2012-2013, the NHS spent £630 million on energy bills. Leaving the EU may well be good for paper mills, glass production, ceramics, and cement. Outside the EU, our Atlantic ports, Glasgow and Liverpool, should enter a second golden age as transatlantic trade grows.
On the other hand, a row is brewing over the Government’s plans to impose new restrictions on low-skilled migrants moving to the UK after the Brexit transition period ends. Theresa May had promised a temporary extension of the current rules until 2023. However, this Government feels no urge to dance to the tune of big business and instead plans to set the rules. If we want more homes to solve the housing crisis, we have to ask, who’s going to build them? While the government has indicated any EU nationals who came to the UK legally, under rules which existed at the time of entry, will be welcome to remain in the UK – it seems inevitable that it’s going to get harder for construction labour to cross the channel.
what will change?
The truth is that, as Lord Rose admitted at the lunch of the ‘Remain’ campaign (before horrified spin doctors could shut him up for disproving all the dire warnings about the immediate consequences of leaving):
“Nothing is going to happen if we come out of Europe in the first five years, probably. There will be absolutely no change.”
Indeed. The main, immediate, effect of leaving the EU will be that Britain begins to follow a different trajectory, less dependent on the eurozone and more focused on the rest of the world.
it's the election...
Perhaps the general election will have more bearing on people’s job prospects than the referendum result? What are the Conservatives planning to do with that whacking majority of theirs? Expectations of a go-ahead for HS2 soared after Sajid Javid threw his weight behind the giant infrastructure project that could slash journey times from London to Birmingham to under 45 minutes. There’s talk of dropping the four-hour waiting target for Accident and Emergency. The A&E waiting target is being missed badly.
good job prospects 'for weirdos'.
Dominic Cummings, Boris Johnson’s chief adviser, called for “weirdos and misfits with odd skills” to apply for new jobs within No 10 recently, outlining a set of “unusual” qualities he wishes to see in applicants. Cummings wants to bring in “super-talented weirdos” – “some true wild cards, artists, people who never went to university and fought their way out of an appalling hell hole, weirdos from William Gibson novels like that girl hired by Bigend as a brand ‘diviner’ who feels sick at the sight of Tommy Hilfiger or that Chinese-Cuban free runner from a crime family hired by the KGB. He wrote: “We want to hire an unusual set of people with different skills and backgrounds to work in Downing Street…”
Crystal ball gazing is difficult because we still don’t know what Brexit will look like. Britain needs a very long period of certainty and we can’t hope to get it until we get past Brexit. In the meantime, the only prediction we can be certain of is that the weirdos are going to do well.