Are we sleep walking into lunacy?

A newspaper article today was headlined, ‘MPs walk out of committee after gloomy Brexit forecasts’. I must admit, its not been easy reading newspapers and other media of late. It forms a depressing start (and end) to the day, particularly as I have been a fervent supporter of UK’s continued relationship with Europe. And given the uncertainties surrounding the future of our nation, none of the commentary is stable (no matter what side of the aisle you sit).

But I have also been a believer that one must read / listen to alternative views to get a more balanced view on things as there could be some merit in the opposition (which I completely agree with and my last blog was on the importance of a strong opposition). And reading alternative views in today’s world isn’t a hard task – the media has become more partisan than ever. Brexit debate certainly has divided us and our thoughts like never before.

As the Prime Minister triggers Article 50 today, the next couple of years will not be comfortable either. Perhaps more uncomfortable than the last few months, although I hope that’s not the case. Change is hard but change of such magnitude can be devastating too – there’s a very fine balance. It won’t be easy for the ministers to come up with plans which fulfil their promises during the Brexit debates. Now is the time to make true those fiscal, societal and regulatory statements which proved to be the steroids of the Exit campaign.

The Great Repeal Bill will bring into UK statute around 19,000 European laws. Some say only for the UK government to ease it for the UK businesses. What does that even mean? Firstly, how long would it take for us to get to a point where that is true and secondly, what happens to those businesses who are reliant on exports into the EU? For the industry I know of, there is talk of equivalence or passporting of EU regulations in order for the banks and other financial services participants to continue doing business in the EU markets. Not that I know much about farming, dairy and other such sectors, but would those businesses not need to comply with European laws, standards and regulations if they want to export goods into those markets?

Some estimates suggest that there are more than £100BN of costs to comply with EU laws on an annual basis, which might be true. But how much of it is really removable?

There are clearly lots of questions and I’m merely skirting on the surface with mine. In the next few years, we are going to have to redefine the business model of the UK. Globalisation is here to stay (despite the rise of populism) and any future shape of our economy must be ready to accept that as a fact. A standalone country with no trade barriers, reduced regulation and low taxation – a model which could work but what does that mean for immigration which has been at the heart of the Brexit debate? To what level can we only have skilled labour as part of our immigration policy? What would that do to the cost of living and the living standards across the country? Is that even a model which would pass international test? Would the nations be willing to give us a free trade pass and also accept our tough stance on immigration? May be, may be not. We don’t hold as much clout as the US in terms of economic power or the size of the consumer market.

We either will come out as smart negotiators or realise quickly that something’s got to give. Businesses don’t like uncertainty. People don’t like change. Demographics are hard to reverse. A smooth transition would mean overcoming all the barriers imaginable – and it would be very important for the economy to not have any bumps along the way.

A hard task indeed – but I hope not something that ends with a hard Brexit.

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It’s time we gave this a serious thought

UntitledWith the impending EU referendum vote on June 23, the activity on both sides of the campaign is reaching fever pitch. I’m pro-EU and with all its flaws, its still a union which allows us to trade freely in the world’s largest trading blocs. And for the UK, this trading bloc is vital given the level of our exports into the EU (with about half of all UK exports going to the EU).

There have been many studies recently outlining why leaving the EU would be disastrous / catastrophic etc. etc., so I won’t go into all the metrics and people’s arguments that those studies are projections and we all know how projections can go wrong (no one projected the downturn of 2008!). But I would like to point out some highly likely outcomes in case we take the disastrous decision of leaving the EU. Some possible scenarios below:

  • Cost of living could go up as the sterling depriciates (based on recent market movements – so not projections)
    • Sterling has seen a huge amount of volatility in recent months, with recent reduction in value driven by market worries about UK leaving the EU
    • Insurance against moves in sterling against the dollar has reached the levels of 2009
    • The cost of your basket at the supermarkets could go up, holidays will become expensive
  • Tax receipts would be hit hard, investments into the UK could be reduced, consumer spending could take a hit – all this takes me me back to the not-so-good-memories of 2008
  • This will be a big shock to the economy when we are just getting out of the previous recession
    • Various estimates suggest that the UK economy, along with the EU economy, is expected to shrink for the next few years
    • It’s the uncertainty and negative sentiment that hits the markets more than the fundamentals; the market sentiment is against UK leaving the EU

Brexiteers call this fear tactics / scaremongering, but this is the reality we’ll have to live with folks. Consequences are not the most attractive, with potentially significant negative implications on the economy and even a question mark over the union of the United Kingdom (will the Scots rethink their decision of staying the UK if we were to leave the EU?).

As Great as Great Britain is, the world now doesn’t work on an isolated basis. We live in a connected global economy with a globally mobile population and shared economic fortunes (at least for the more developed economies with spill over effects of ill health of one felt on another ). We may be the world’s fifth biggest economy, but there’s a reason we occupy that position in the world and receive the investments we do – the UK plays a vital role in a connected world and is at the centre of activities of some of the most important sectors (e.g. finance, tech). We dare not move away from that advantageous position.

It’s time we think through this most important decision of our generation (or for many generations to come). This is a structural shift, not a short term decision while we assess its impact. This could change our world as we know it – working together to address the issues of today to build a strong future is far better than being observers from the outside as the world reshapes itself, without us.

 

 

Source: Photo courtesy StrongIn.co.uk