Brexit, it’s everywhere; Brexit means Brexit, Hard Brexit, Soft Brexit, Red White and Blue Brexit. On January 17th Theresa May acknowledged that leaving the EU would involve, as she called it, “trade-offs”, and indicated some of the choices she would make. She will pursue a Hard Brexit and her Gov’t will be taking the United Kingdom out of the Single Market and the European Courts (remember her history as Home Secretary?).
So Hard Brexit it is (or as it has been re-branded, Clean Brexit).
But should we be worried about a Hard Brexit?
No-one has much of a clue what the UK’s post-Brexit relationship with the EU might look like. For a UK negotiation to be successful, it needs willing and constructive co-operation on both sides. But, as we have seen from the rhetoric coming out from other EU leaders; Boris Johnson and May seemingly intent on upsetting and insulting the EU, this does not seem likely. The primary intention of the EU in the negotiation process is unlikely to be benign for the UK, as it will seek to make sure that the UK does not get a better deal outside the EU than as a full member, in order to deter other states from exiting. The EU will accept the short term negative impact of decreased trade with Britain in exchange for the long term benefit of continuing to exist as the EU. Another factor that clouds the negotiations are two critical elections, one in France (where the far right Front National are making gains) and in Germany. Both Merkel and Hollande have consistently offered a hardline toward the UK over Brexit.
But one thing is certain, it will affect Sterling. As everyone who has been following the Brexit debacle knows, immediately upon the announcement of the referendum result last June, Sterling nose-dived.
And has since barely recovered.
And Sterling continued to take hits EVERY TIME May or the Brexiteers hinted at a Hard Brexit.
Opinion is divided amongst economists as to whether Sterling will experience another Flash Crash on the triggering of Article 50. Some believe that the Pound will fall further until it reaches parity with the Dollar, whilst others believe that Sterling is now undervalued and will recover (but not to pre-referendum levels). It should be noted that, after May confirmed the type of Brexit the UK would undertake, Sterling improved (aided mainly by inflation and the weak Dollar).
TIMELINE OF STERLING POST BREXIT
1. June 24: Sterling collapses more than 12 per cent to a 30-year low after Leave win confirmed.
2. August 4: Bank of England launches QE programme to prop up the economy and cuts the interest rate further.
3. October 6: “Flash crash” — pound collapses to $1.14 in the space of a few minutes.
4. November 3: High Court’s Article 50 ruling against government boosts the pound.
5. January 9: Pound fluctuates again as May confirms Hard Brexit.
British citizens have not yet felt the full impact of a devalued currency – unlike British pensioners living in other EU countries like France and Spain that felt it in their pockets the very next day after the referendum. But this is set to change.
The first inflation statistics after the ref result, from the Office for National Statistics back in September showed the annual inflation rate rising from 0.6% to 1%, its highest for almost two years. The ONS said, at that time, that the cost of living had yet to be much affected by the drop in the value of the pound seen since the EU referendum, but the Bank of England, the International Monetary Fund and City economists believe that inflation will rise above the government’s 2% target in early 2017 and will reach at least 3% by the end of the year.
And experts are expecting more depressing news in January 2017:
“Inflation is expected to have finally reached the Reserve Bank’s 1% to 3% target band when official figures are released on Thursday.” More
The fact that inflation, so far, has not risen to the same levels as the devaluation of Sterling (inflation always follows a currency devaluation) can be attributed to a number of reasons. Businesses always try to keep short-term currency fluctuations away from the consumer, by buying in bulk, at a fixed exchange rate etc. But these measures are running out, hence the expected inflation rise. Other factors involved was the price war between the major supermarkets and the same with petrol station forecourts, but again these are coming to an end (The price of Crude has already increased, and we buy Crude in Dollars and this will, as always conflate the inflation).
Obviously, any inflation will hit the poorest and most vulnerable the hardest. And this in a country that has seen the worse fall in living standards in more than a century.
Typical working households were £345 a year worse off than before the economic crisis, according to the ONS in 2016 – the same as the previous year. Middle-income working-age households saw their incomes grow by just 1% last year. Pensioner households were £656 better off after a 3.1% rise in median incomes, from £21,114 to £21,770. More
Also, more than 2.3 million families are living in fuel poverty in England – the equivalent of 10% of households, according to government statistics. And again this situation will only get worse when the inflation really starts to kick in. And all this comes at a cost to Government finances.
And Brexit is happening at a time when the working poor and people on benefits are having to resort to using Food Banks at record levels.
One of the cruelest ironies with Brexit is that the 2 demographics that voted for it in the highest numbers, the elderly and the poorly educated, are most likely to suffer the most from it.
It is pretty much a certainty that the Pound will take another hit on the triggering of Article 50. The one thing that is certain from any type of Brexit is that inflation will increase, on a Hard Brexit even more so than a Soft. And if we have to resort to World Trade Organisation rules, that will mean tariffs, and again that will conflate an already bad situation for millions in the UK.
So far, since the referendum result, the UK economy has defied expectations and remained relatively strong – much to the delight of Brexiteers and the believers of the ‘Project Fear’ rhetoric from the Leave camp.
Indeed, official figures have shown the economy was outstripped only by the US among the large economies last year after growth in the third quarter was upgraded to 0.6%. Another surprising result was that consumer spending actually increased after the referendum result.
But behind these figures lies a disturbing reality. Even though UK incomes have been stagnant, consumer credit grew at an annual rate of 10.8 per cent in November, according to Bank of England figures, the highest growth rate since 2005. In short, this consumer boom has been built on an unsustainable level of credit.
Twice before, and both times under Tory governments we have seen this – the Barber Boom of the early 1970s and the Lawson Boom of the late 1980s and BOTH times the economy became overstimulated, creating a bubble which then burst. And both times led to economic chaos. Although there are signs that this consumer boom is already slowing, sales in December 2016 were actually down from the previous year as the inflation starts to hit people’s pockets. This may prevent a credit bubble burst, but as the UK’s economic growth has been led by spending, it will impact growth further.
Another reason put forward for the higher than expected growth after the ref has been that the collapse in the value of Sterling has helped exports. This is true, exports have increased…except the Trade Deficit has not reduced, in fact it actually increased.
The gap between the UK’s imports and exports hit £4.7bn in August, up from £2.2bn in July, the ONS reported in its second monthly trade bulletin since the Brexit vote. The deficit with the EU grew by more than £1bn to £8.4bn. UK manufacturers have reported a rise in both domestic and overseas demand, but imports are now more expensive as sterling depreciates more. The ONS stated there was “only limited evidence so far” that the fall in the pound’s value had led to a “marked increase in UK exports”.
One of the reasons for the poor export increase is due to the fact that the UK’s economy is not diverse enough. The UK does sell more services abroad than are imported – but this is not enough to counter the bigger deficit in the value of the goods sold abroad, compared with the value of the goods imported.
Of course the majority of UK service exports are from the banking/insurance industries, the very same that are at most threat from Brexit – if on a Hard Brexit the UK loses its EU Financial Passporting rights (more on this later). Financial services are one of only two surplus industries the UK has, the other being the car manufacturing industry.
Another statistic used by Brexit supporters as to the benefit of Brexit is the higher than expected growth. And the fact that growth was expected to fall, but as yet has increased. Except this growth is still smaller than forecast before the referendum. We have already seen that growth has been aided by an increase in exports (minimal as that has been) and that the majority of the growth has been consumer led, and that by a marked increase in credit. Also, immediately after the Referendum the Bank of England increased quantitative easing (QE) to unprecedented levels to prop the UK economy up (by £60bn to £435bn). But one thing the Brexiteers never mention is that WE HAVE NOT ACTUALLY LEFT THE EU YET! Brexit represents a long-term supply side shock for the U.K. through less trade, migration and investment from the EU.
The UK exported £220 billion in goods and services to other EU countries at a worth of about 12% of the value of the British economy in 2015, and £230 billion or 13% in 2014. This has vast implications for the UK on a Hard Brexit, even more so if we do not achieve a trade deal with the EU of at least WTO Prefered Partner level (which would reduce the level of Tariffs). And, it must be born in mind that, outside of the EU we will have NO TRADE DEALS WHATSOEVER with the rest of the world and will have to begin from zero.
One thing that Brexiteers fail to mention is that every trade deal outside the EU that we have is because we are a member of the EU, the UK is NOT a full member of the World Trade Organisation. In order to join and start negotiating trade deals the UK will have to make a raft od tariff proposals, and then, all 161 countries that are in the WTO will have to ratify them (some like Argentina will see this as an oppoutunity to address old grievances, like the Falklands). Also the trade deals we enter in to straight out of Brexit will not be negotiated from a position of strength. The world will know that we will be desperate for trade, and will have far more power in determining the details of any deal struck than we do.
Free Movement is already becoming an issue in any future trade deals with both India and Australia demanding that a relaxation in immigration legislation be a requisite for a free trade deal. And Trade Deals are not quick, they take many years to complete, the UK risks entering the Brave New Brexit Dystopia with absolutely no deals whatsoever, and could be forced to go zero tariff just to continue, with the all thee negatives to the UK this would bring.
Oh and that trade deal with the USA…remember Trumps Inauguration Speech?
Oh dear, not looking good is it?
Another concern is the impending black-hole in Public Finances. The Times warned on the 11 October 2016
“Cabinet ministers are being warned that the Treasury could lose up to £66 billion a year in tax revenues under a “hard Brexit”, according to leaked government papers.”
This estimated figures is just over half of what the UK spends on the NHS. In fact, some believe that the UK Govt will further cut Welfare Spending to cover this deficit for the next THIRTY YEARS. More austerity for the masses while the Tory Govt is cutting Corporation Tax to 17%. Even a cut in corporation tax is not guaranteed to stimulate investment into the UK, quite the opposite, data has shown that cuts lead to businesses hoarding cash and investing less. A Hard Brexit will undoubtably make the loss in tax revenues much worse, and this will impact public services drastically (on a side note, Arron Banks, the Leave leader has an insurance company, think about that and the potential loss of the NHS).
That bus is becoming more and more bitter as the facts about Brexit emerge
There have already been job losses associated with Brexit. Hewden: The machinery rental business went into administration blaming the Brexit vote for poor trading. Rivington Biscuits, the maker of Pink Panther wafers, has gone into administration, blaming the fall in the value of the pound following the Brexit vote. And more, with more businesses expected to fail over the coming months and years.
By far the two industries most at risk from Brexit are the Financial/Banking industries and the UK Car Manufacturing industries. Indeed, Ford have already threatened that they may have to close plants in the UK. And Nissan, after stating that they will build the Qashqai model at their Sunderland plant even with the ref result have now decided, during the 2017 Davos meeting that they will have to reconsider the plants viability after a Hard Brexit. The cold irony of this is that both these companies are located in towns (Sunderland, Dagenham, Bridgend) that actually voted to Leave. The car industries face a double whammy from a Hard Brexit, one with the Tariffs on completed vehicles, and another to the supply chain for the parts needed to actually make the cars. The numbers employed in these industries are in the thousands.
The UK financial industries are also set to cause unemployment. During the Davos meeting in January 2017 the UBS Chairman Axel Weber said that about 1,000 of the Swiss bank’s 5,000 employees in London could be affected by Brexit, while HSBC Chief Executive Stuart Gulliver said his bank will relocate staff responsible for generating around a fifth of its UK-based trading revenue to Paris. Germany’s Handelsblatt newspaper also reported that Goldman Sachs is considering halving its London workforce to 3,000 and moving key operations to New York and continental Europe, particularly Frankfurt, where it could move up to 1,000 staff. More. This will be a massive hit, not only to the thousands employed by the banks, but also to the UK’s Tax receipts, 12% of the total comes from the City.
Three MILLION jobs in Britain depend on trade with the EU, with many economists reckoning that the true figure is actually higher. Obviously not all the the jobs will be lost, trade will continue after Brexit, But more job losses are inevitable, more so on a Hard Brexit.
Brexit And Rights
One of the reasons Theresa May has used for her stance on a Hard Brexit is for the UK to leave the jurisdiction of the EU Courts. For many years the UK tabloids have been filled with lurid stories of foreign criminals being allowed to remain in the UK due to ECHR judgements. Take this screaming headline from the Sun for example:
“Britain has lost more than 200 cases in the European Court of Human Rights, at
a cost of £4.4million to taxpayers. Strasbourg judges have ruled in favour of — and awarded compensation to — murderers, terrorists, paedophiles and rapists.”
But these stories, gleefully leaped upon by the gutter press are the minority, the EU Courts have actually protected UK citizens on many. many occasions. When we leave the EU Courts, no UK citizen will have recourse there. Here are 11 times the ECHR changed the UK for the better. And most recently, May’s flagship ‘Snoopers Charter’ legislation was deemed illegal due to EU Human Rights legislation.
And it is not only legal rights that have been protected, embedded in EU Legislation are rights that govern employment, health and safety, privacy, the list goes on and on. We risk losing all these protections on a Hard Brexit. Especially as the current UK chancellor of the Exchequer has threatened to turn the UK into a low rights tax haven on a Hard Brexit.
Should we be worried about a Hard Brexit? Damn right we should be worried, the potential (inevitable) economic chaos will only serve to make the majority poorer. Job losses are a given, our Public Services are under threat, our Rights are threatened, our standing in the world threatened, our security threatened. Putin is lurking in the shadows, rubbing his hands in glee at Brexit. President Trump’s rhetoric is becoming more and more isolationist. The EU is hardening its stance toward the UK. Of course, this is not an exhaustive list of the potential dangers of a Hard Brexit, and no one actually knows what will happen when Article 50 is triggered in March. It is certain that the current Govt have no mandate for a Hard Brexit, no mandate to put the UK at such a great risk. The referendum was advisory only and if the polls are to be believed, a great many Brexit voters now regret their vote. The referendum was Cameron’s attempt at finally ending the internecine Conservative Party civil war over the EU – it blew up in his face badly. The Leave campaign was defined by its lies and reliance on people’s emotions rather than the facts, people were sold a lie.
And remember the rise in Hate Crimes after the referendum? Imagine what could happen on a Hard Brexit and everyone suffers for it.
When Brexit does not deliver what so many Brexiteers think it will deliver, who will they turn against next?