Richard Patient imagines two people, called John and Carolyn, who happen to run the CBI.
“Carolyn, when you tell the PM that she can’t go for No Deal, say that you fear that it will hit small businesses hardest. She will have to listen then.”
“But John, the CBI doesn’t have many small businesses as members, not any that I know about anyway, so how can we say that small businesses will be affected?”
“Carolyn, don’t let little details like that get in the way of a good bit of PR. I know all about small businesses after all – many of the suppliers at the supermarket I run in my other job are small. If we tell a small porky about the concerns of small businesses, it will deflect attention away from our real concerns, which is the need to protect our members’ interests, and they want us to stay in the EU to prevent the rise of those pesky disruptor competitors.”
“You mean we actually want EU regulation? Isn’t that crony capitalism?”
“Yes, of course we like regulation – the more the better. Our members have the resources, the time, the money and the compliance officers, whereas any smaller competitor companies will be smothered by the mass of paperwork.”
“But we’re the voice of business, aren’t we? Surely that means all businesses.”
“Er, no. For starters, we dropped that slogan after those two whipper-snappers said we were the voice of Brussels. And we don’t actually represent that many businesses in the grand scheme of things.”
“Actually, don’t worry, I’m seeing the PM later today, as part of my Brexit advisory role at No. 10.”
“How on earth did you get that job? I thought you told me there was nothing good that could come from Brexit?!”
“I know, it’s hilarious. Still Mark has done a good job, hasn’t he? 10% rise in food prices! She can’t go for No Deal after that bit of scaremongering, oh… I mean that bit of excellent considered analysis.”
“10% rise? But didn’t the British Retail Consortium tell us privately that food bills would actually go down, with things like cheaper veg?”
“Luckily, the BRC are not saying that publicly yet. And who needs to look at the detail of the No Deal tariffs when it’s so much easier just to tell Mark to include a nice round number like 10% in his report. Meat prices will definitely be higher.”
“Yes, but only by a few pence.”
“The great thing is that there will be massive reductions on all that wine we import. Hopefully the population will be too sozzled to notice the price cuts.”
“I’ll drink to that, John. And I think you’ve done a great job giving her the line that it’s Brexiteers that should be blamed for stopping Brexit, when we all know the choice we face now is between Mrs May and Brexit.”
“Thank you. The great thing is that the voters’ memories are so poor that they forget that nearly everyone voted for the two things that make Brexit legal – Article 50 and the Withdrawal Act. A bit of conjuring and the PM has been able to blame Brexiteers for everything, by not backing the indicative votes, when we all know the PM didn’t have to take a blind bit of notice of those votes. If we keep her in power for a bit longer, she’ll probably go the whole way and revoke Article 50. We can blame the Brexiteers for that as well. Mind you, our friend Corbyn has helped us.”
“Maybe we need to take a crate of that cheap booze to Corbyn?”
“Yes, let’s Carolyn. Unlike our united view on staying in the EU, our members are divided on Corbyn, with many being firm Corbyn fans.”
“John, I know. Our next trick will be to make the PM love Corbyn.”
“She’s ahead of you there. She already does.”
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Talk to anyone in business, Leaver or Remainer, and they will say that they want the Government to get on with it.
In fact, that’s true of anyone you speak to, in business or not. Just get on with it.
That’s what the Prime Minister used to say. At the National Conservative Convention in Oxford at the end of February, she made much of the feeling in the country by telling the assembled throng that the thing that most people say is “Just get on with it. She got a big cheer and a standing ovation.
And last night, she said it again. “The public want us to just get on with it”. Having earlier that day asked for an extension and decided not to get on with it. Obviously.
Business is buoyant (despite Brexit, of course). But at the MIPIM property conference in Cannes last week, where thousands of the property industry gather, the mood was optimistic yet sombre. Optimistic – because business would know where they would be by the end of month; but sombre – because the past two months have been slow as people have put off decisions until the end of March.
The rational question has been: “Why invest now if in a month’s time everything changes? What happens if the pound falls, or rises – I would look pretty silly, and I could lose my job.”
Whilst we remain in the epicentre of uncertainty, why would corporates make any investment decision at the moment?
So for business, they either want a long Article 50 extension, which means they can get on with the job of earning money (although obviously a long extension or no Brexit would be catastrophic for the Tory Party); or to leave, so they can get on with the job of earning money.
What the Prime Minister wants now, an extension until the end of June, is the worst of all worlds as it just prolongs the agony of indecision.
Business is ready to leave on 29th March 2019. Talk to people in the pharmaceuticals industry, and they will tell you that there has been so much information that any business in that industry cannot have failed to prepare. And we all know that Matt Hancock has been the largest buyer of fridges.
Talk to people in the banks and the City. They’ve been preparing for over a year now and they will be ready.
Talk to people in small business. They will tell you that MTD (Making Tax Digital) is far more onerous than Brexit.
And the smart ones in the service industry, from corporate lawyers to PR companies, should be cracking open the Champagne, with their training seminars on how to make your business WTO compliant.
Business has seen the tariff schedules. They’ve made the investment. They’ve put in the hours.
Now please, Prime Minister. Please leave, as you said you would 108 times, on 29th March 2019.
Business will cope. Nay, business will thrive.
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We live in febrile times, but in many ways it is just the calm before the next storm, each one battering at the very foundations of the edifice we know of as the United Kingdom. We as Britons are very fortunate to have managed to build a system of government envied by many in the rest of the world for its stability; a stability given to it by the careful balance between the power of the individual and the state.
We owe this to Magna Carta, the Glorious Revolution, the Common Law, the Acts of Union, Simon de Montfort, John Wilkes, suffragettes and many other events and people in our history. However, over the last 45 years the EU has come like a bull through this and has not just upset it, but as we try to leave is threatening to destroy it.
We, the people, elect representatives to Parliament to run the country on our behalf, yet over the last 45 years they have increasingly delegated this responsibility to Brussels without declaring in many cases that this is the case. They have in many areas been reduced simply to ciphers for the Commission in Brussels. Nearly four years ago Parliament voted to put this situation to a referendum and give the people the decision as to whether the UK and its institutions should be fully independent of the EU. Three years ago it was decided quite clearly that this was so and all decision-making that had moved to the organs of the EU should return to the UK.
Now, nearly three years later, due to EU intransigence – with, one can only assume, a certain complicity on the UK side – a Withdrawal Agreement and Political Declaration have been proposed that is not Brexit. It is Remain with a Brexit wrapper, converting our membership to that of a colony that can be asset stripped with impunity by the EU without repercussions. It is a disgrace and epitomises a deep low point in British statecraft.
We have got to this point because MPs and the Government have consistently taken the easiest option. They voted for a referendum, thinking it would be won by Remain, and then backed the triggering of Article 50 because they knew they could not look the voters in the eye if they didn’t. In voting through Article 50 and then the EU Withdrawal Act they set a deadline of 29th March to leave with or without a deal with the EU.
Now that the choice is between a No Deal exit on WTO terms or the Prime Minister’s flawed deal, many MPs and ministers are trying to backslide on their previous commitments. They quote business as being the reason, the need to avoid chaos or the devastation that will be caused by No Deal etc. I write this as someone in business importing assemblies and components from all over the world and exporting more than two-thirds of our turnover to more than 120 countries around world. Whenever I ask who it is that is going to cause all these problems, no one can tell me; initially it was going to be due to delays at the Channel ports due to extra checks, but the port operators, Border Force and HMRC all say “Not us, Guv”!
With any changes, such as applying new procedures to almost anything, there is always an element of disruption – but it will be small in the overall context and in a few months’ time we will look back and wonder what all the fuss was about. However, what we are witnessing is a groupthink bubble that has been inflated to such a size that those propagating it have to keep inflating it, because if we do leave on WTO terms and it is as I expect a relatively straightforward change, they will be shown to have been crying wolf.
I can understand that ministers and MPs are continually buffeted by the professional lobbyists of the CBI and others who are looking at any way of preserving the status quo. For them the fear of sudden change is paramount; they can happily cope with the drip drip draining of sovereignty and they may whinge about bad regulation, but they find it hard to handle change that might adversely affect their vested interests and the status quo.
However, ministers and MPs have been charged by the electorate, who under our system are ultimately sovereign, to take back control. They seem reluctant to take on the extra responsibility that this entails; they appear to think that they are not able to do it. How do the other 165 non-EU countries of the world cope? Instead they wriggle and fidget in every way possible to try and thwart the wishes of the people, using every sort of excuse from the downright arrogant – that Leave voters are stupid – to telling us that if we had known it was so complicated, we would not have voted Leave. It is only complicated because they have chosen to make it complicated. Instead of carping, they all need to concentrate on making departure under WTO on 29th March as smooth as possible. The irony is that because it is the only option we in business can plan for, it is the only one we are prepared for.
It is worth remembering that these are the same MPs who say that we must increase voter participation at elections. Yet when we had the highest turnout in a generation for the EU referendum, they attempt to ignore it!
There is considerably more at stake here than just leaving the EU, there is the whole fabric of what makes Britain what it is and that is worth more than a possible temporary shortage of lettuce. The problem is that at each stage the Government and Parliament have made the mistake of never seriously addressing our relationship with the EU – in part because our membership is based on a lie, that it would not affect sovereignty, over which politicians have always been in denial. An ever-increasing proportion of the population, meanwhile, have smelt a rat especially as whatever the politicians say we have seen more and more areas of policy drift out of our control.
Now in theory in the departure lounge, we see the same pressures coming into play because what has been presented as a Withdrawal Treaty plainly is not, so the only escape is to leave on WTO terms. As the date for departure was set two years ago, this has become a totem from which any slippage will be seen by the voters as betrayal.
The time for kicking the can down the road has come to an end and MPs – especially in the governing party – have to look over the edge at the train of events that they are going to set off if they don’t hold out for No Deal and leaving on 29th March.
The first thing is that the Conservative Party would be finished for at least a generation, if not ever; and secondly, the UK would probably be finished: the SNP-run Scottish Government say they will call a referendum in the event of a No Deal. They are looking for any excuse, but the likelihood of them winning it is probably higher in the event of No Brexit, a delayed Brexit or even under the terms of the proposed treaty. Thirdly, society would become ever more polarised between Leavers and Remainers. Fourthly, the very roots of British democracy, envied around the world, would have been cast aside, and the votes of 17.4 million people disregarded by an arrogant elite.
The EU has behaved just as Yanis Varoufakis predicted and in turn the UK has fallen into the traps he predicted. There is only one way out and that is to go WTO on 29th March, otherwise the conversation between MPs and voters is going to go something like: “Sorry old boy, I am afraid your vote didn’t count but mine did so we are staying in”. That would set off a chain of events over which politicians of all parties would have little control.
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Lost amongst all the drama and excitement expressed in the coverage over the last fortnight of defections from Labour and the Conservatives to The Independent Group (TIG), has been the voice of British business.
The overwhelming majority of British businesses just want the Government to get on with delivering Brexit, and finally get back some certainty as to what rules are going to apply to them. But unless the Government is able to provide this certainty, investment decisions for this country will be held back until the picture becomes clearer. That makes all of us poorer.
For the Prime Minister to now give MPs the opportunity to frustrate our exit should cause every real business in the country real alarm. Achieving certainty, clarity and finality must be the priority.
This is why the Alliance of British Entrepreneurs is making the case for exiting the EU on WTO terms, rather than signing up to the Prime Minister’s Withdrawal Agreement with its dangerous backstop. We now have over 450 businesses who have signed up to publicly support our various campaigns against the prevailing myths about where business stands on the deal. Despite operating purely on word of mouth, we represent more businesses (from more sectors and regions) than the CBI or Number 10 have been able to generate in all their joint letters seeking to push Project Fear on the British people. This gives an indication of the level of anger and frustration amongst the business community about political dithering.
Unless the backstop is replaced, the deal won’t bring any sense of finality to Brexit. It will have the UK cascading through possible delays, possible extensions to implementation periods, possible participation in a customs union (via the backstop or otherwise) and possible reversal of the decision to leave, in its entirety, throughout the process. There will be no certainty about the direction of travel for the UK at any point ahead of the next general election in 2022, at least. That is not satisfactory for the British people or its business community.
The TIGger plan is even more troubling for business. To re-run the referendum and have a second vote now cannot be taken seriously as a suggestion for how to bring finality to the issue of our relationship with the EU. Even in the event of a Remain win (this time), there is little if any reason to believe that voters would buy that outcome as more legitimate than the result the first time round. Businesses don’t need more divisive debates. We need to move on, however hard that is for some to come to terms with at present.
The public seem to agree too. If you check out the polling when the public are asked about support for a second referendum, they have pretty consistently rejected it – it only gets supported where people aren’t sure whether that would be a referendum on Leave or Remain, or Leave or May’s Deal, or even all three. When those questions are asked instead, support for it falls away.
However, one thing the public are clear on is their desire for by-elections when MPs opt to resign from their manifesto commitments! Both Survation and YouGov ran polls last week, where a clear majority supported TIG MPs going back to their voters to see whether they agreed with their decision to defect. The polled support for this is far higher than has been achieved in any of the “People’s Vote” polls for supporting a second referendum.
The case for business certainty, and the ability to make long-term plans, would favour this too. If MPs want to walk away from their commitments – to honour the referendum and have the UK leave the EU – the people and the business community should be able to hold them accountable at the ballot box. Bizarrely, though, the TIGgers are arguing themselves that now is not the time for elections or by-elections – because of the uncertainty they think that would be thrown up by them! This while explicitly calling for a hugely divisive national plebiscite. The fact they can say this publicly without widespread ridicule shows we live in truly extraordinary times.
While all the attention last week was on the TIGgers, businesses are at least reassured to see other Members of Parliament, including one-time die-hard Remainers, reconciling with where we are, being prepared to do the hard work and make compromise across their party, including with those with whom they previously openly strongly disagreed. Sensible-minded business people are relieved to see MPs like Nicky Morgan embrace pragmatism, and genuinely act in the national interest. These MPs deserve our vocal support. They have accepted the result and are now seeking genuine, grown-up solutions alongside their eurosceptic colleagues. That is how good outcomes are achieved in the greater interests of the country, not through breakaway-party ego-trips.
The reality is that the typical British business is not represented by the CBI or the variety of pro-EU talking-heads constantly popping up on our TV screens. These are groups with a vested interest in remaining bound to Brussels rules, because it works in their favour. Multinationals spend millions upon millions lobbying that system to rig the rules so they can keep out competitors. Fortunes are spent on professional lobbying each year to prevent disruptive start-ups and SMEs from encroaching on established industry groupings, at the expense of the consumer. The policy-making machine in Brussels has been totally captured by these groups, with no real say or control for voters, or indeed British business. Want an example? There are two and a half times as many financial services lobbyists in Brussels alone as there are MEPs.
Only one in twenty UK businesses even trades with the EU – the idea that all business people want to keep everything up in the air to have their rules set by Brussels is for the birds. They certainly don’t want to do it at the cost of being able to get on doing business in the interim.
What’s needed now is certainty. Talk to any business, in any sector, and they will tell you the same. Nothing is more damaging to jobs, investment and innovation than this hopeless, endless malaise; this death by a thousand cuts as drip by drip confidence trickles away. Certainty can only be achieved by ditching any ideas of referendum re-runs or reversal or delay. We need to just get on with it, and take back control.
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Even before Honda had a chance to say a single word, many pundits and politicians rushed to blame Brexit for the car company’s decision to close its Swindon factory. But when it finally came, the official statement failed to make any mention of the UK’s departure from the EU. Score one more for the genuine industry specialists and trade journalists who, in my view, have been covering these stories relatively well.
We’ve been here before. Nissan’s U-turn on building the X-Trail in Sunderland also had little to do with Brexit. Yes, Nissan did say that ‘the continued uncertainty around the UK’s future relationship with the EU is not helping companies like ours to plan for the future’, which is obviously true. But the company also stressed that its decision on the X-Trail was made for other ‘business reasons’, unrelated to Brexit.
In particular, the X-Trail is a large sport utility vehicle, predominantly run on diesel, which has been struggling to comply with new EU emissions targets. Given the deteriorating outlook for European demand, there was simply no longer a strong enough business case for producing this model here, or indeed anywhere else in the EU. Internal politics within the company may have played a part too. Nonetheless, Nissan is pressing ahead with its other investments in Sunderland, including the next-generation Juke and Qashqai, and its best-selling electric car, the LEAF.
These sorts of ‘business reasons’ also lie behind the planned closure of Honda’s Swindon factory. The company itself has said the move was ‘in response to the unprecedented changes in the global automotive industry. The significant challenges of electrification will see Honda revise its global manufacturing operations, and focus activity in regions where it expects to have high production volumes.’ That’s clear enough for me.
The sad reality is that the Swindon plant is operating well below capacity and has never fully recovered from the global recession. Indeed, the auto industry is in crisis across Europe. According to the latest IHS Markit PMI, output and new orders in the European autos and parts sector are now falling at their fastest rate for many years.
While Honda is obviously important to Swindon, Swindon is no longer important enough to Honda. The company’s growth markets are in Asia and the US, not Europe. To the extent that Honda’s decision is telling us anything important about Brexit, perhaps it’s that the UK should also be focusing on new opportunities in the rest of the world.
Some are still pointing to Honda’s earlier warnings that new trade barriers under a ‘no-deal’ scenario might cost it ‘tens of millions of pounds’. However, the company also stressed at the time that it was still ‘committed’ to the Swindon site – despite these concerns. In any event, Honda will continue producing at Swindon until 2022, so it is hard to argue that the uncertainty over what might happen in the next few months is a game-changer here.
The new EU-Japan trade deal might be more significant. This came into force at the start of this month and will gradually phase out EU tariffs on cars imported from Japan. At face value, this undermines the case for continuing to make cars in the UK for export to the remainder of the EU. However, the EU-Japan deal will not eliminate tariffs overnight, and Honda would have known it was coming for a long time. Brexit is only an issue here if there is a significant risk that the UK and EU fail to strike their own free trade agreement over the coming years. It would seem odd, or at least premature, for Honda to make that call now.
In addition, if the Swindon decision is about the new ability to exports cars to the EU from Japan tariff-free, remaining in the EU would not help the UK. Note that Honda is not moving elsewhere in the EU and is also ending production of the Civic at its plant in Turkey, with the longer-term future of operations there in doubt too. So much for the importance of remaining in a customs union with the EU, or producing on the doorstep of Europe.
The UK Government still deserves some flack here. Japanese companies rarely take these decisions lightly, especially when they might involve a loss of face or appear to let valued partners down. Brexit uncertainty is clearly holding back investment across the whole economy and this would not have been as big a problem if the negotiations with the EU had been handled better. But the closure of the Swindon plant was highly likely to happen anyway, regardless of Brexit. Honda itself has just confirmed that.
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The Alliance of British Entrepreneurs (ABE) and Leave Means Leave (LML) have issued a joint statement supported by 300 plus business owners – businesses large and small – asking for a managed no-deal exit from the EU. The reaction to this from Jim Pickard of the FT has reminded me why I chose, at great personal cost, to campaign to leave the EU – unbelievably a decision I took three years ago and still it goes on. Jim, a sharp and competent journalist, has chosen to belittle sole trader entrepreneurs, who actually make up a substantial proportion of the economy. This reaction is a classic one of our establishment.
Looking back in fairness, I had always been a eurosceptic, albeit also a regular visitor for over thirty five years to the Brussels bureaucratic machine and actually with some very good friends within the matrix that is the EU.
As Director General of the British Chambers of Commerce (BCC) and in 2014 anticipating the EU debate, I set about with the researchers and economists at the BCC to find out the facts about the UK economy, politics and the EU in all its aspects: trade, regulation, migration, sovereignty etc. Much of this I knew from forty years in international business, but I was shocked by some of the results in areas with which I was not familiar. For example, our look into migration and population trends pointed towards half of the UK population being migrants or the children of migrants by 2040, a very rapid transition which would no doubt change and challenge the nature, values and culture of British society forever. The lack of official insight was shocking, one might suspect even deliberate, but such as it was, it pointed to a substantial burden on taxpayers arising from migrant workers in low-skilled jobs.
In 2015, when David Cameron declared he would start negotiations with the EU, I wrote to him on behalf of the BCC an open letter, setting out our expectations from this process. When he returned, as I had anticipated, we at the BCC were able to issue a statement in January 2016 indicating that his efforts had fallen far short of our expectations. The scene was set.
My major concern personally (as for the majority of Brexit supporters I have met) was that of sovereignty, which I had seen eroded over the decades to the point where the UK Parliament was appearing to be the equivalent of a county council in relation to the EU. It is ironic that the Parliament that allowed this to happen without any real resistance from the majority of MPs has kicked up such a fuss about leaving – perhaps this is as good a sign as any of a renewed democratic vigour!
But what really turned me into a campaigner, however, was the overwhelming arrogance of our establishment. The start of 2016 witnessed the all-out assault of Project Fear and the bullying by No. 10 of organisations like mine. It demonstrated an absolute desire to treat the “little people” with contempt and that our “more intelligent” “betters” had no compunction in lying grievously, or at least no respect for the facts unless they supported their world vision and vested interests. That is what led me to resign from the BCC to fight the referendum as Chairman of the Vote Leave Business Council.
The arrogance of the elite was brought home to me when giving a presentation in Brussels in January 2016 to an audience of senior EU officials. To my astonishment, the first question from the floor was to ask how we could possibly contemplate allowing people who are not college-educated to vote in a referendum, which was met by murmurs of approval from around the room.
In my many lunches with Lord Heseltine in his role within the Business Department, mentoring Greg Clark and directing people, it became clear that he considered democracy to be merely a tool, a rubber stamp for the will of the ruling class, a way of obtaining “buy in” so as to effect a smooth delivery. This I witnessed again and again amongst what is the new establishment of the liberal, metropolitan elite, no longer the noblesse oblige of landed classes of yesteryear.
One of the first pieces I wrote for the press during the referendum campaign was for the Evening Standard. It compared the mutiny of the Brexiteers to the Medieval Peasants’ Revolt. I ended the piece by warning that the establishment are vicious in pursuit of their own vested interests and so it has proved to be.
I came to mistrust our establishment so much that I continued to campaign even after we won the referendum with Leave means Leave – and a good job it is that we continued our vigilance, since there has been a determined effort by the establishment to reverse Brexit, to ignore democracy, simply because it doesn’t suit them.
The reaction of the FT to the statement by business supporters of the ABE and LML calling for no deal was just such a continuation of the dismissal of “the little people” who inconveniently just happen to be voters.
The statement fits very well with my experience of business, large swathes of which want to leave the EU. Many dare not stick their heads above the parapet, so viscous has been the Remainer backlash. Those that are willing and able tend to be business owners, entrepreneurs large and small. Not, you will note, the salary men who run the corporate multinationals, focused on their bonuses and the three-year cycle before they move on.
Family-owned or -run businesses make up the vast majority of the UK economy from sole traders to large companies. They trade around the world and domestically. They are the backbone of the economy. They are the innovators and risk takers. They are the future. Watch out establishment, they don’t believe in you anymore.
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The Society of Motor Manufacturers and Traders (SMMT) has swung into full ‘Project Fear’ mode with its latest claims that ‘UK Automotive (is) on red alert as ‘no deal’ threat sees manufacturing and investment plummet’ and ‘Brexit uncertainty has already done enormous damage to output, investment and jobs’. Not for the first time, the SMMT has gone completely OTT.
Let’s deal first with the actual data. UK car sales and production did fall sharply in 2018. But it is misleading, to say the least, to attribute to this to the ‘no deal’ threat. As the SMMT itself acknowledges, the global auto sector is reeling from multiple shocks, including the diesel scandals and a sharp decline in demand from China. Indeed, when commenting earlier on the UK sales figures, the SMMT barely mentioned Brexit at all.
Some further context: 2016 marked a cyclical peak for the UK car industry, with sales flattered by cheap finance deals, the launch of new models and the last of the pent-up demand from the recession. A correction was overdue, regardless of Brexit. And while the UK was the weakest of the major European markets in 2018, sales data from the European trade association ACEA show that the decline of 6.8% here was matched in both Norway and Sweden.
What about the reported collapse in ‘investment’, down almost half on 2017 to ‘just £588.6 million’? To be fair, there is plenty of evidence from other sectors of the economy that Brexit uncertainty has made companies more cautious, and it would be no surprise if this has impacted the auto sector too. But these statistics still need a major health warning. They are not hard numbers for actual spending.
Instead, they are ‘SMMT calculations based on new, publicly announced investment decisions in 2018 covering genuine commitments to fresh spend on new product, tooling, equipment or facilities’. Even taken at face value, these numbers are likely to be highly volatile from year to year.
A lot has also been made of the shutdowns planned for April as a precaution against ‘no deal disruption. Again, a sense of perspective is badly needed. Jaguar Land Rover (JLR), for example, is planning to extend its usual seasonal shutdown by just one week. To put this in context, JLR closed its main Solihull plant for two weeks in October last year, due largely to the slump in demand from China. It also extended the usual break over the Christmas and New Year holiday period by one week.
Nonetheless, all of this has been used as evidence that a ‘no deal’ Brexit in particular represents an existential threat to the UK automotive industry. Unfortunately, the sector has form here. The car makers warned in 2000 that they would leave the UK if we did not adopt the euro. Indeed, Nissan was still threatening to do so in 2004.
Of course, leaving the EU is potentially a bigger shock than remaining outside the single currency. Nonetheless, the comparison is valid. Membership of the euro would also reduce barriers to trade with the EU (by reducing currency risk and transactions costs, and increasing price transparency). However, it would only do so at the cost of losing control over key aspects of the economy (independence on interest rates and exchange rate flexibility) and potentially being on the hook for large budget payments to other members (the Greek bailouts). Car makers might only care about the former, but politicians also need to think about the latter. At the very least, the fact that the auto industry has cried wolf before makes it perfectly reasonable to ask whether it is doing so again.
To be clear, I understand why many businesses, including car makers, are worried about Brexit and especially the extreme ‘no deal’ scenarios: the potential for new tariff and non-tariff barriers, including border delays that might disrupt complex just-in-time supply chains. They could do without the hassle and additional costs. But there are two key points here.
First, there are still many ways in which these new barriers could be minimised. Both sides would have a strong vested interest in keeping border delays to a minimum, and tariffs may not be as big an issue as many assume either.
For example, the worst case assumes that, outside the EU’s Customs Union, manufacturers would have to pay the (actually quite low) tariffs on components every time these cross the new UK-EU border. As it happens, the number of times that this happens is usually exaggerated. But in any event, this ignores the many trade facilitation arrangements that already apply to parts imported from outside the EU, such as inward processing relief, which should also protect UK-EU supply chains from cumulative duties.
Tariffs on the finished cars themselves could be more of a problem, though this may also depend on the proportion of inputs coming from the EU. But if we are talking about worst case scenarios, these usually include another large fall in the value of sterling which could maintain the competitiveness of UK exports. Indeed, research by Deloitte has suggested that a ‘hard Brexit’ could do far more damage to the German car industry than our own.
The second key point is that even if there is some additional disruption in the short term, a ‘no deal’ Brexit could simply be an alternative stepping stone to a free trade agreement that addresses all the auto sector’s concerns. In other words, even a disorderly exit, while clearly far from ideal, need not have any lasting impact on investment or jobs.
To sum up, I’m not going to tell the SMMT how to make a car. But I do think it’s right to question what the industry is assuming about how Brexit might play out, and to view their darkest warnings with a healthy dose of scepticism.
The post Don’t believe all the car industry’s prophecies of Brexit doom appeared first on BrexitCentral.
Many businesses are concerned that Brexit on WTO terms would be less than ideal. I’ve heard claims of catastrophe and others of years-long hangovers as a result, but my experience suggests that whilst there may be some short-term turmoil the outcome will be very much more positive.
We’re a third-generation family-run business which supplies de- and anti-icing fluids to the aviation sector. And when winter hits, it’s our business which keeps the majority of UK and Irish airports open. We’ll continue to be the global leader in this safety-critical task after Brexit, and we’ll continue to serve markets across the world. That won’t change, regardless of the type of connection we choose to have with Europe.
It has been claimed UK-EU air traffic will grind to a halt after 29th March, but this simply won’t be the case. I understand the sector better than most, and I know that if planes could suddenly not land on either side it would potentially cost billions of pounds each day. It’s absolutely not in the EU’s interest to halt air traffic.
Likewise we’ve been warned that trade and cross-border commerce will stall; however what will actually happen in the event of a WTO-terms Brexit is just that – we’ll continue to trade with the EU on WTO terms.
Our company operated successfully before we joined the EU, and I know that we’ll do so, well after we leave, continuing to sell products from the UK, to Dubai to New Zealand. In fact, I chose to back Brexit in the 2016 referendum precisely because I was excited by the global opportunities it would offer for future trade deals.
My concern has been that the Government’s proposed Withdrawal Agreement, and particularly the so-called Northern Irish ‘backstop’, would hinder the UK’s future trading options and tie us into the Single Market and Customs Union. This would effectively stop us making free trade deals with the rest of the world, and we can’t allow that to happen.
After all, the UK has always been an outward-looking, global, dynamic trading nation, and it’s right that we seek the greatest freedom and opportunities available to us. This is a once-in-a-generation chance and one I hope that we seize.
The post Rather than a deal tying us into EU structures, let’s embrace a Brexit on WTO terms appeared first on BrexitCentral.
As reported in the Telegraph at the end of last week, last Wednesday night the Chancellor, the Business Secretary and the Brexit Secretary had a conference call with a group of 330 businessmen, within 2 hours of the largest defeat of a government bill in the history of the UK Parliament. Is this even news? If the Chancellor had been saying to them “sorry about that, looks like you should continue preparing for the UK to leave the EU on WTO terms,” the call could have easily been brushed aside – but unfortunately that is not what was discussed.
Instead the Chancellor was explaining the process of taking the option of “no deal” off the table using a backbench MPs bill tabled on Wednesday with further amendments about to be tabled. He also talked about how they could possibly extend Article 50 after reaching across the Commons, surprisingly he did not mention reaching out to the 118 MP’s from his own party who also voted against the Withdrawal Agreement.
Some parts of the transcript are amusing: incredibly, one chief executive admitted he was “very much behind the Withdrawal Agreement” and was surprised that it was so resoundingly defeated. As he is a German executive of a German company, this shouldn’t be a surprise. What did surprise me was that he could not understand why British MPs voted against it. One can only marvel at the exulted distance this man must keep from average humans, their newspapers and other media outlets. How can someone run a company and know so little about the political temperature in the country that is technically their marketplace. But this is not a critique of multinational management. What I want to talk about is Crony Capitalism and why it should not be left unchecked.
Let’s start with Greg Clark – the Secretary of State for Business, Energy and Industrial Strategy – apologising to managing directors, stating that he “completely understands the seriousness and urgency of the situation that you face”. Seriousness and urgency? Surely the very successful businesses on the conference call should have been preparing for the UK to leave the EU since 24th June 2016? But the transcript of the phone call implies that this might not have been the case. We get the impression that these businesses were delaying their preparations. We get the impression that they were actually expecting the UK to give up its sovereignty, just so their companies could retain low transaction costs on their EU27 imports and exports. Surely a CEO would have to be a compulsive gambler to wait until 70 days to the deadline before starting to prepare for it? But CEOs are rarely compulsive gamblers. So maybe they had been given reason to believe that the Withdrawal Agreement would pass.
But Clark’s apology goes further as he says he knows that “some of them have had to make decisions at the expense of more productive uses of the funds you have”. But the people on this call run some of the biggest companies in the world. One can only assume half of them had the mute button on at this point as they fell about laughing at this remark. The UK has supplied these businesses with the rule of law, property rights, an international language, low levels of perceived corruption, a well-organised capital market, the lowest corporate taxes in the G7 and the second lowest in the G20, highways, airports, a transport system, free healthcare for their employees and an educated workforce – not to mention 66 million affluent customers. But Greg Clark is apologising that some of the biggest companies in the UK have had to invest in extra warehouse space or engage an import agent. Or maybe not, as most of them are large multinationals and so probably already have offices in other EU27 countries.
For 40 years, British taxpayers have been subsidising these companies’ transport costs to the EU and in some cases even their low-paid workforces – and finally the British taxpayer has said “enough!” I understand the companies’ displeasure, but they must have realised that the merry-go-round would eventually stop. Corporate life in the UK will still be better than most of the other countries in which they operate. So why is the Business Secretary making a grovelling apology to them?
It beggars belief that Amazon, one of the companies on this call, has gone from the global disruptor that changed the way that the world shops, to its UK head asking the Chancellor for assurances that the UK will rule out “no deal”, in order to placate Amazon’s global board. I wonder how often Amazon tells its business counterparties that “Amazon will not be walking away without a deal, so name your price”? If only established companies spent as much time adapting to new circumstances as they do lobbying government to keep all rules and regulations unchanged…
The biggest problem capitalism faces at the moment is the lack of competition in the market – and this is not helped if incumbent businesses are able to work with governments to develop laws that ensure their market dominance. The life cycle of private enterprise can move very quickly from disruptor company to entrenched incumbent: in cahoots with the ruling party, having a chatty conversation on a first name basis with the Business Secretary, all leading to strategising how backbench MPs will bring forward motions that thwart the Government’s own manifesto commitments in order to enforce the status quo for the incumbent corporate elite.
This transcript would have been less shocking if the politicians on the call had been from opposition parties contesting government policy; but they weren’t. The politicians were the Government. Not only were they Cabinet Ministers, they included the Chancellor of the Exchequer, the second most important member of the Government or – possibly, if they pull off this coup – the most important member of the Government.
The head of Siemens wants confirmation (for his board, of course) that the UK will not go by default into a “no deal”, the head of Amazon complains that he has “incurred quite significant costs”. (His company’s third quarter revenues in 2018 were $56bn (£43bn), which is £4bn more than the £39bn that the UK will have to pay the EU according to the Withdrawal Agreement.)
The head of Scottish Power wants to know when, not if, the Government will apply for an extension to Article 50. The Chairman of Tesco is also worried about the Government not ruling out “No Deal” (How often does Tesco rule out “No Deal”? Try haggling for your groceries next time you shop there.) The head of the Co-Op wants clarity on the “end state” deal in 2020. The head of BP wants to know about the chances of a second referendum. The managing partner of McKinsey wants a clear message from the Prime Minister “in a more balanced way.”
What I very much doubt is that the people on this conference call have any interest in balance. This is Crony Capitalism at its worst: ensuring that entrenched companies remain that way. None of them want balance, they want the cards stacked, very definitely, in their favour.
However, without a doubt the most reprehensible people on this call must surely be the politicians. I am aware that since the Middle Ages incumbent business interests have sought the ear of government to ensure that regulations favour their companies. But in the 21st century I would have hoped that this practice had diminished. Sadly this telephone call makes it obvious that it hasn’t. While Greg Clark and Philip Hammond were both happy to stand on the Conservative Party manifesto promise that the UK would leave the Single Market and the Customs Union, it would appear they are content that a group of patsy backbenchers will prevent this from happening. So 17.4 million voters do not equal 330 company heads working with half a dozen backbench MPs for manoeuvrability, while a handful of Cabinet ministers ensure the direction of travel.
But what has this got to do with free market capitalism, surely this is what capitalism advocates? Well, no it doesn’t. For capitalism to work, companies must be allowed to fail. A healthy capitalist system requires some creative destruction. Capitalism must allow new market entrants and it must also stand aside as inefficient companies fail. Companies must be prepared to change when circumstances change, not lobby governments to keep circumstances rigid.
When business is writing the rules, it is unlikely to write in anything that upsets its market share or its profits. Like Amazon, it is a natural instinct for a market disruptor to itself become a market incumbent, and join the chummy phone calls to Cabinet Ministers to explain what their boards would really appreciate. And if this is such a basic instinct, then it is even more important that the heads of government don’t spend their time acquiescing to every whim of incumbent business. Government Ministers are meant to serve the country and backbench MPs are meant to serve their electorates; neither group should be caught surreptitiously working against their own manifesto to the benefit of a small group of established companies.
The post Greg Clark should not be offering Brexit apologies to some of the world’s biggest companies appeared first on BrexitCentral.
On Friday the BBC and Sky announced that Jaguar Land Rover is set to cut 5,000 jobs from its 40,000-strong workforce in the UK. There was no doubt in the minds of the presenters (and no doubt the editors that feed the lines) about what was the apparent root cause of this decision, which is fear over Brexit.
Although noting, rightly, that JLR have been faced with a multitude of factors, the spin was clear. The lay-offs were to be part of a £2.5bn plan to cut down on costs. Although some production staff may be affected, it was later revealed, by Jaguar Land Rover themselves, that most of these cuts will target how the company manages itself. Cuts to jobs in management, sales and administration, in addition to 1,500 made globally last year.
Such job losses are occurring in the car industry globally. In other news at the end of last week, though buried far lower down the newsfeeds, were reports that Ford will be cutting thousands of jobs across the whole of Europe. Surely these cuts in Bordeaux and Saarland cannot also be blamed on Brexit as well? The Ford management made it clear that this was not the case – although it does make it clear that future decisions will look into the economic impact of Britain leaving the EU, which any sensible company would do as a matter of course.
So what has caused the hit on JLR if it isn’t Brexit? They have lost about 50% of their market in China, due in part to consumers’ caution over Trump’s trade war. That lack of sales alone has contributed to this crisis.
Then there is their focus on diesel engines: following the Volkswagen diesel emission scandals, and with increasing tax takes on diesel fuel and plans to clear the streets of diesel by 2030, the resale value of JLR products has dropped through the floor.
Furthermore, JLR products in the UK offer no small car option, only luxury items, only one electric car, and that’s priced at £64k. Whereas on the other hand, competitors offer small cars and a good range of electric vehicles for less than half that price, with the Nissan Leaf at £26,995. Nobody wants to buy a car at an exorbitant price knowing that its value will drop by half in the space of two to three years.
Plans made over the course of two decades, years before Brexit, have led to Jaguar Land Rover’s downturn.
Again, nothing to do with Brexit.
This all falls in line with a global downturn in the car industry, centred around massive changes in the dynamic of how the industry operates. The traditional car dealership is unfit for purpose and as we go increasingly online for car purchases, they will eventually die out.
The potential PCP (Personal Contract Purchase) crisis will be front and centre of the dynamic changes to come. As we know, the FCA is already investigating the current and most popular way of buying a car. This financial product, as most suspect, has been mis-sold due to the product being centred on future valuations of car prices. Due to the volatility, mainly on diesel cars, this will potentially leave customers with cars in massive negative equity.
This, in itself, will change the way people purchase their cars, as trust will be lost in this product, which is what car dealerships rely on. Contract hire, cash purchases or traditional HP loans will become the new norm once more. All this before we factor in the impact of driverless cars.
This, along with everything we’re seeing in the news with Jaguar Land Rover, and Ford, all adds up to the technological changes facing the car industry; and it has nothing to do with Brexit.
The post Media spin on Jaguar job losses needs a reverse gear – the news is nothing to do with Brexit appeared first on BrexitCentral.
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