Truth about Life after Brexit

Truth about Life after Brexit

We continue to hear toxic nonsense about Brexit. Here is the truth about Life after Brexit:

As I predicted, the impact of the Brexit vote itself has been slight so far – despite some market turbulence.

Most analysts have had to eat their words, together with many political leaders, the IMF and a host of global CEOs – after being proven so spectacularly wrong.

Despite constant warnings before and after the vote of instant economic meltdown, chaos, immediate recession, national and EU crisis, we have seen the exact opposite.

Three months on from the Brexit vote, UK stock are higher than before the vote, the currency has remained lower, and the economy has grown. Ordinary people are spending, and life feels generally normal. 

Why Many Brexit Forecasts Continue To Be Biased

These same people, who incorrectly prophesied immediate doom and disaster, are of course embarrassed (or should be) and continue to talk down the future prospects for UK Plc. In my view there continues to be a bias in much of their forecasting and many are at risk of compounding their first mistake with an even bigger one.

In particular, many continue to warn in dire language about the massive risks from a so-called “Hard Brexit”.  By this they mean leaving the EU without a single new trade agreement in place with the EU or anyone else. Such forecasts of course create a risk of spooking investors and consumers, and becoming self-fulfilling. 

So it is even more noteworthy that the economy has been so resilient, in the storm of such constant negativity in the media.

Here Are The Facts About Brexit:

1) The only effective way to negotiate terms in a street market is of course to walk way, as if without a care in the world. It is fatal to any negotiating position to look too keen or anxious. 

Thus the only sound way to negotiate the best terms for Brexit, is to go on repeating that “Brexit is Brexit”, and show that we are well prepared for an independent, free and prosperous future. That I predict will be the primary UK government position.

2) While the EU leadership has said it is up to the UK to say what they want, (ie come with a begging bowl) and so they can respond (ie say “no”); actually it is of course more effective for the UK to take things the other way round.  

“If you want preferential trading terms to sell to us, you need to talk to us now, but don’t imagine we will reverse our commitment to controlling migration in our own way. You have far more to lose than we do, and we are not that worried one way or another. Here are the reasons why…..” 

One reason why is that the EU sells EU16bn more goods every year to the UK, than the UK sells to the EU.

The same issues apply to other matters such as tourist visas. It is absurd for UK media headlines to scream that UK citizens may have to apply for EU visas to go on holiday, without pointing out that the EU would then be hit by identical measures when EU citizens visit the UK. Common sense will prevail over a lot of these things.

However the truth is that there IS no united EU position on any of these matters. Indeed, whatever trade agreements are negotiated by the Commission, will have to be independently approved by all countries individually. And within each country there are many different opinions:

- Firstly, politicians who want to prop up the EU by punishing the UK, because they are so afraid that other nations might follow the UK example. (Actually this is a terrible strategy – and simply reveals the fundamental weakness of the EU). Then there are other politicians that are worried about jobs in their countries and want to trade. Some are also worried about huge migrations into their own nations.

- Secondly, business leaders and managers who are afraid that the value of their companies will be affected if they are hit by 5% UK import tariffs, on top of the big impact of a falling pound – significantly damaging one of their most important markets.

- Thirdly, ordinary people who want to be able to travel, invest and so on, who are afraid that a “Hard Brexit” will make their own lives more difficult. And those who are worried that loss of exports to the UK will mean loss of their jobs. 

To make matters worse, France has an election in May next year, and Germany some time from August to October so one could say there is little point really in triggering any two year Brexit process until both new governments have been in post for at least 10-12 weeks. That would mean waiting until the end of 2017. In practice the UK government is unlikely to wait long.

3) Why “Hard Brexit” works so long as it happens with good notice period: 

Worst case for UK manufacturers is that an average 5% import tax is imposed on everything we want to sell to the EU. However, the pound has fallen 10%, and is likely to continue to trade lower than before Brexit. 

What Will Happen After A "Hard Brexit"

Assuming it stays there, this is what happens after a “Hard Brexit”, with no special trade agreements with the EU:

- British goods are 5% cheaper for anyone in the EU to buy than before (10% discount from currency fall, less 5% added import taxes). Result: more UK sales to EU. Even better, from now until Brexit actually happens, all UK exporters are winning a 10% price advantage due to the fall in the pound against the Euro without a penny in extra taxes. Every week of delay in Brexit is a week of extra profit for UK manufacturers and an extra week of pain for the EU.  Such currency benefits could double the profitability of some exporters.

- EU goods are 15% more expensive for anyone in the UK to buy after Hard Brexit than before(10% rise from sterling fall in value, plus 5% added import taxes imposed by UK government against EU exports. Result: less EU sales to the UK. Boost to UK companies. Boost to manufacturers outside the EU who are now competing on an equal basis with the EU in selling to Britain. Such impact could wipe out all profitability for some EU manufacturers on what they sell to the UK.

- The impact on British services sold into the EU will be more complex and harder to forecast. Firstly, the EU is a mess in any case when it comes to cross-border service company deals within the EU. That mess will be even greater after Hard Brexit. Secondly, for reasons above, all UK services are likely to be cheaper by 10% less any EU taxes – net impact would therefore be lower cost.

- Impact on banking, insurance and the future of the City of London: many are worried about the loss of so-called “passporting” after Brexit. That means a UK bank or financial services company will have to have a branch somewhere in the EU, or some kind of joint venture arrangement, if they don’t have such facilities already.

So what? It does not of course mean that entire offices or HQs have to move. Anyway, where would they actually move to? 

There is no other city in the world apart from New York that is as attractive to global bankers as London. How many other cities are there where your children can walk to school without seeing a single policeman or woman carrying a gun? Where English is spoken? Where crime is so low? Where there is such a cosmopolitan and vibrant city “buzz”? Where there is such a concentration of financial genius and FinTech expertise? Which so well placed to interact with East and West time-zones each day?

So how do we work around passporting?

Take a huge investment fund, which gets 50% of its money from EU pension funds. The EU part of the fund can technically be managed by an office of 10 in Cyprus or Frankfurt. Decisions about what stocks to buy or sell can be made by a huge team of thousands in London, with “advice” relayed to the EU team. So technically the entire fund is run inside the EU, while all the real work is carried on outside the EU.

In 2018, a range of new financial rules come into play in the EU, allowing many types of financial services to be carried out by companies based in nations outside the EU – so long as they have the same regulatory standards (which the UK does). So the UK can also benefit from this route.

You can be sure that an entire new legal / consulting industry will be created over the next 24 months to re-engineer UK financial services to fit the new EU reality. But this will take some time to get going, and more time to implement with new companies being set up, new licences applied for. Therefore delay is absolutely in the interests of the City of London.

In summary, the truth is that banking in the City of London will be far less affected than the dire predictions you have heard. Yes of course we will see high profile announcements that some teams of 1-2000 people will relocate, and maybe some HQs. But national banking will continue. Global banking will be far easier outside of the EU constraints, and will grow. Much of EU-related banking will also continue in some shape or form, as I say, with all kinds of ingenious ways of doing so. 

Final Outcome Of EU / UK Trade Agreements

It will take at least 10 years from today to conclude all the trade agreements that both the EU and the UK seek – maybe 15 years or more in some cases. During this time, every year the importance of the EU to the UK will be eroded even further. The EU will be left even more lifeless, even more bound by red-tape and oppressive employment policies, even more distracted by urgent needs to prop up poor or failing economies, and the ever-present challenge of uncontrolled people-movements.

Let us be absolutely clear. The future of the UK cannot be in mainland Europe because the future of Europe cannot be in Europe. 

In 10 year’s time, 85% of all humanity will be living in emerging markets, which are where almost all global economic growth will come from. 

Every year for the last decade, the UK’s trade with emerging markets has grown as a percentage of the total, while trade with the EU has fallen - now less than 43% of all our exports. So the EU is becoming an irrelevance to the UK, and will be even more so by the time trade treaties are finally signed. This process of looking East and South will be accelerated by Brexit.

In conclusion then, it is likely that Brexit date will be pushed as far into the future as the UK governmentcan manage, mainly to give financial services companies as much time as possible to create new structures to continue their EU operations.

The EU system is likely to try to “punish” the UK by making trade agreements almost impossible to complete, even though the greatest economic damage by far will be to the EU as a result, and even though many CEOs of large EU companies protest that they need better terms to trade with Britain.

The EU leadership may also try to encourage breakup of the UK, offering a carrot to an independent Scotland and an EU member - and the breakup of the UK continues to be more likely than not at some point in the next decade, if oil prices and revenues recover, which are needed to balance Scotland’s governmentspending.

The UK will continue to welcome large numbers of migrants from the EU and the rest of the world, to fuel economic growth, supply much-needed talent and skills.

https://www.globalchange.com/life-after-brexit-why-i-was-right-about-brexit-and-what-next.htm - full article and access to more on Brexit


Verena Charvet - MBA, financial regulation lawyer

Regulatory Lawyer with EU and UK expertise ● International Regulatory and Contract Specialist - Business Strategist, Advisor & Lawyer ● ESG expert ● Governance advisor

8 年

Very bullish - as noted by others we have not left so really nothing more than another opinion even if I agree with some of it and hope he's right. Hope, however, is not a sound basis for such a monumental decision but it seems to be how politicians (all of them) approached this. No modelling, no scenario testing, no additional capital calculations- we all know what our boards and regulators would say if we approached business decisions this way. And then we are criticised by career politicians.

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Sheenagh Gordon-Hart MA BFP FCA

Independent Director at The Directors Office

8 年

Non

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Huw Watkins

Building Better Experiences

8 年

Talking about Brexit at the moment is akin to talking about religion. Lots of faith, lots of feeling and no conclusive evidence in either direction. Similarly, zealots on either side are to be mistrusted. However, unlike religion, we will know within the next five years

Matt Quantick

Business Improvement @ Screwfix

8 年

Some very bright powerful people all talking about things that no one and I mean no one can predict, even down to when article 50 will be triggered and what the short, mid and long term impacts will be! No matter which angle you look at this it could go one way or the other! Good article some good responses but we all just have to wait and see!

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Anita Pickersgill MCICM

The Debt Collector with a Heart ???Keeping cash flowing** award winning ***Credit Processes** Dispute Resolution *** Speaker ** Business Supporter *** Network Host The Three Cs Group

8 年

no single market no immigration control and don't want to think about the financial passport rights easy said is new relationship as is master of your own destiny but I'm not convinced article 50 will be triggered either

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