13th Dec 2016

Is the UK set to receive a Brexit dividend?

One of the positions taken by Leave campaigners in the recent EU referendum was that if there were any economic penalties from leaving the EU they would be, in effect, be a price worth paying to win back control of our borders and our laws, as determined by the UK Parliament. 

Nonetheless, a saving of £350m a week - £18.2 billion a year – was claimed for investment in the NHS alone, regardless of any other savings.  It was though later acknowledged that this figure was incorrect, because it omitted the funds flowing back into the UK from the EU.  

We do now know that the direct cost of the arrangements for Brexit is £57.9 billion. The government’s advisers now consider that the costs to the economy will be considerably more than that, and that this may well then be reflected in people losing their jobs and their businesses, and lower standards of living.  

We don’t yet know if there will be a corresponding economic upside. Of course, in the case of some developments it may be said that they were happening anyway, and the concern was that Brexit would halt it – as with the Nissan investment.  History judges on a long perspective, and we’re still at a point where people’s views on the effect of Brexit are coloured by the political stance they take.

The majority opinion in the referendum accepted the economic costs were a price worth paying, and time will tell of course what the extent of that cost is and who bears the burden.  Certainly, there are also those – including people like the Brexit Secretary David Davis - who are confident that there will be opportunities to balance or outweigh the costs.  Assuming that it is still the role of the courts to interpret the law in the UK, the jury is still out and will be out for a long time considering that verdict.

What we’re hearing in our own interactions with business all seem to be tending in one direction, and that is to business dependent on international trade being damaged, at least in the short to medium term. This is a worry, because many businesses don’t have the resources to ride out lean times, or won’t be able to develop until the longer term, if it’s positive, rolls around.

We’ve heard technology companies from overseas, looking to bring business to the UK, putting their plans on hold till there is certainty on what’s happening, and instead keeping their focus on the United States and Europe; as one said to us, if it’s a question of investing in the UK with a market now reduced to 60+ million, or Germany with a market of 500m, they will naturally tend to Germany now.  Whilst this might be a simplistic calculation, and after trade negotiations might turn out differently, this is the gut-calculation on which these businesses can be expected to operate.

Another overseas business in the same sector spoke to me brightly of her expectation that the Supreme Court would reverse the Brexit decision; but I had to explain that the decision was simply over whether parliament remained sovereign and got to vote on the triggering of Article 50 and the exit terms, not over Brexit-or-not.  She also said that in her country, the previously positive feeling towards doing business in Britain had cooled because of uncertainty and the out vote.

And a big UK company sourcing clothing from overseas which it had to pay for in US dollars is finding that retailers to whom they sell have no inclination whatsoever to pay more to compensate for the fall of the pound against the dollar; so unless the customers pay more – which in some cases, like the Marmite-eaters, they will have to – the business caught in the middle pays the cost and is itself endangered, with the livelihood of its employees alongside.

We are, therefore, in precarious times; and so too, or course, are those economies tied to the Euro; and of curse those looking for a predicable level of policy from the United States.

Though the referendum was some months ago, it is uncontroversial and non-political to accept that the outcome has engendered substantial uncertainty, and that uncertainty itself is damaging for businesses, prosperity and livelihoods.   The uncertainly may resolve itself in the longer term but in the meantime, is in the balance, for informed or uniformed speculation. 

After a lull and a wait-and-see, the impression we have from what we are now seeing and hearing, as well as the factual content of the cost of Brexit arrangements, suggests that the Brexit dividend could be more than belt tightening, and in some cases, might be trouser-losing as well.  UK businesses will certainly expect to work yet harder to retain stability and maintain their markets in this new world we’re in.

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