Jeremy Warner published an article in the Daily Telegraph earlier in the month, taking issue with my Global Britain paper, Why the Eurozone’s fate makes an immediate Brexit vital. He asserted that “claims that Britain could face a €200bn EU bailout bill if it fails to execute a clean, no deal Brexit are alarmist and unwarranted” and I sent a response to the article to the Telegraph. Alas they declined to print it, so you will have to read it here instead.
Interestingly Jeremy did not contest the existence of the €1trn black hole within the Eurozone financial system or the creative accounting used to obscure it. His attack was on the size of the UK’s possible bill and the likelihood of the UK not having a safeguard against paying it.
The overarching point is that the UK should exit the EU without leaving the door open to subsequent financial claims. That would be like selling a house but retaining liability for increases in council tax, water rates and so on.
Jeremy argued that a safeguard mechanism is contemplated but his wording confirmed that it is not in place now: “If we stayed in, these ‘mechanisms’ would presumably be established, and we would not be liable”. Presumptions are not givens.
The mechanism would only apply to future examples of “Union financial assistance” (“Ufa”). They have not been put in place retrospectively regarding the European Financial Stability Mechanism, the €60bn fund which is the sole example of Ufa within the €207bn mobilised amount of the Commitments Appropriation of the EU Budget. No safeguard mechanism is contemplated for the €147bn mobilised up to now in other ways than Ufa, nor for any of the €234bn still available to be mobilised under the current Multiannual Financial Framework (“MFF”) if it is mobilised in other ways than Ufa.
We do not even know what the wording of the safeguard mechanism would be. We do know that it would be in the form of an indemnity: non-euro Member States would remain as risk-absorbing parties in the front rank. They would be indemnified by euro Member States, who would include the ones whose insolvency gave rise to the claim in the first place. This is like having a car insurance policy and discovering its underwriter is the uninsured driver who just took your front wing off.
This is not alarmism, but a statement of facts.
We need to stop being a member and subjected to this sophistry, and thereby ensure that our liability cannot be escalated during any transition phase, up to a maximum possible loss of €481bn under the current MFF, or by even more if we still have ties into the next MFF. This is composed of €441bn through the Commitments Appropriation (not the Payments Appropriation) of the EU Budget, €39bn through the European Investment Bank and €2bn through the European Central Bank. €3bn of this has already been paid in, mainly as EIB capital with a very small amount of ECB capital, so the maximum call for new money is €478bn.
Ufa as the way of managing the Eurozone re-set is implausible anyway as it does not deliver enough money. There is only headroom for further €234bn of Ufa under the current MFF. Add the uncalled capital of the EIB and ECB and you have a maximum capacity across all Member States of €491bn, set against a much larger black hole of at least €1trn. This is composed of €234bn through the Commitments Appropriation (where the Member State liability is joint-and-several), plus €221bn in uncalled capital of the EIB, and €3bn in uncalled capital of the ECB (where the Member State liability in both cases is several-but-not-joint).
The UK’s maximum possible loss is close to the capacity across all Member States combined because the liability through the EU Budget is the largest component and is joint-and-several, meaning the last man standing pays everything.
I did not posit that the UK would be the last man standing, but one of nine, together with Germany, France, Belgium, Denmark, Sweden, Finland, the Netherlands and Austria. The €1trn would have to be drawn from this group, to reduce the debt burden of others.
I believe the ECB will be the first option as the platform the re-set. Using the re-based ECB Capital Keys applied to the €1trn quantum, the UK’s contribution would come out as €230bn. Again, that is arithmetic, not alarmism.
Using the ECB has the advantage that capital increases can be agreed by a qualified majority of the ECB Governing Council, upon which the non-euro Member State national central banks have no seat.
If all else fails, the EU authorities can fall back on Article 352 of the Lisbon Treaty, an emergency powers clause over which they have sole jurisdiction.
There have been several events since my paper’s publication that prove main lines in its argumentation.
Firstly, Jeremy Warner, in an article published later on the same day that he sought to downplay our paper, criticised asset bubbles caused by central banks and referenced as we did that the ECB intends to print more money.
Secondly, Annegret Kramp-Karrenbauer, leader of Germany’s Christian Democrats, criticised the ECB’s low interest rate policy and its impact on savers.
Thirdly, the German Government issued a 10-year bond with no annual interest coupon at all, and at a price of 103% of face value. The investor pays and loses the 3%, and enjoys no income. This destroys the time value of money and, in due course, destroys the currency itself.
Fourthly, we have the announcement of a transaction between UniCredit SpA and the EIF arm of the European Investment Bank as a perfect example of the EIB providing large loans through commercial banks of questionable quality.
Lastly, Deutsche Bank intends to set up a “bad bank” into which it will transfer €74bn of risk-weighted business. “Risk-weighted” means after the portfolio has been put through the bank’s Advanced Internal Risk-Based methodology and duly shrunk from its nominal value into this much smaller “risk-weighted” value. Even this is 136% of the bank’s Capital & Reserves of €54.6bn.
The UK simply needs now to leave the EU and its institutions and to have no further linkage into these matters, which is what was voted for three years ago.
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The huge financial liabilities associated with EU membership require a quick clean Brexit.
From research using publicly available figures, I have prepared a 40-page report published today by Global Britain that demonstrates the huge financial risk that the UK Government has thus far ignored in its efforts to deliver the EU’s Withdrawal Agreement that keeps Britain still on the hook. Never mind the £39 billion divorce bill, it is practically petty cash compared to the UK’s maximum possible liability now of €207 billion that could be escalated to €441 billion – or even more if our exit is drawn out into the period of the next EU Multiannual Financial Framework.
The Eurozone financial system is teetering on the edge of a renewed crisis but, unlike the one in 2013/14, this one can only be solved by the large and solvent EU Member States borrowing themselves and paying to reduce the liabilities of others. To avoid this scenario the UK needs to both leave the EU and sever its contractual connections with the EU in order not to be caught up in this “re-set”.
The UK’s likely share of such a “re-set” exceeds €200 billion, a horrendous outcome that would set the country back many years in its efforts to escape from austerity. This would be all the more unacceptable when we voted to leave the EU three years ago, and the best our negotiators have managed is a half-baked agreement that leaves us exposed to risk for at least twenty years.
The Eurozone financial system is drinking in the last chance saloon, a saloon that is a hall of mirrors in which each participant appears solvent only because it accounts for its claims on the other participants at face value. Behind this pacific façade lies a black hole of €1 trillion – the financial hangover built up over 20 years from banks and investors acquiring assets in the “Club Med” countries and Ireland for far more than they are worth now.
The apparent recovery of the Eurozone since 2012/13 is an illusion, kept intact by the European Central Bank (ECB) and the other Eurozone national central banks buying up government bonds in €trillions, reducing yields and enabling their owners – Eurozone governments – to issue new debt at subsidised rates of interest, as well as flooding financial markets with cheap money.
In turn this enables bankrupt borrowers – “zombies” – to remain alive, and for lenders into these “zombies” to rank their loans as “Performing” when the borrower cannot repay the capital or sustain a rise in interest rates. The lenders are zombies themselves, kept animate by ECB money and creative accounting.
Lending banks continue to be allowed to under-assess the risks in their businesses via “Internal Risk-Based” methodologies, and in turn to claim that they are well-capitalised when they are not. Non-Performing Loans are either massaged back into “Performing” status without borrowers paying any debt service, or are sold off in bogus securitisations where the bank continues to carry a high risk of loss.
Financial markets recognise the size of the problems in the Eurozone’s banks by valuing bank shares at a considerable discount to their book value – in Deutsche Bank’s case by 80% – and the ECB bank supervision department has quantified bad loans as being 3.6% of all loans that banks still hold on their balance sheet: both these indicators point towards a Eurozone-wide “black hole” of €1 trillion.
A meltdown could be triggered in any number of ways, but the “longstop” is a realisation in 2020/21 that it is economically and politically impossible to achieve compliance with the EU Fiscal Stability Treaty by 2030: not only Greece, Italy and Portugal, but Cyprus, Spain, France and Belgium have Debt-to-GDP ratios over 90% and only Greece’s ratio is falling.
This is the treaty that was meant to demonstrate that the Euro is a single currency and not a synthetic one, and that the countries using it are converging economically and not diverging.
Only a debt transfer from the over-indebted countries onto the stronger ones – to initially achieve a consistent 87% Debt-to-GDP ratio across the Eurozone and EU – can keep the façade intact. Even then, all countries would have to run an annual budget surplus of 2.5% consistently for 11 years to reach the Fiscal Stability Treaty target of 60% from the startpoint of 87%. This is scarcely credible but at least the initial debt transfer would enable a gentler glide path and put off the day of reckoning. The amount of debt to be transferred is again of the order of €1 trillion.
The UK must not become embroiled in this “re-set”, and needs urgently to distance itself from involvement. The way to do that is to leave the EU as soon as possible and without a “deal” – and certainly nothing based on the Withdrawal Agreement and Political Declaration.
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One would have thought that the Conservative Party would have got the message. Maybe they have, maybe they haven’t. Time will tell – but the early signs are not very good.
No sooner had three of their leadership candidates Boris Johnson, Dominic Raab and Esther McVey stated the obvious that the UK needs to leave the EU by 31st October, deal or no deal, than Jeremy Hunt went on air to say ‘no deal would be a disaster for the country’ and that he would seek to re-open Theresa May’s Withdrawal Agreement.
Then Chancellor Philip Hammond darkly implies that there is ‘no mandate for no deal’ and that he might support a vote of no-confidence in any Conservative government which tried to leave on those terms. What part of misunderstanding the desires of their core support do they not get?
65% of Conservative supporters voted Leave at the 2016 referendum. The Conservative Party saw their share of the vote drop from 23% (already an all-time low) at the 2014 European election to 9.1% when the votes were counted for this year’s contest a week ago. That is a loss of almost two thirds of their support. It was their worst performance ever since the modern party’s foundation in 1832.
Any third-rate marketing executive would tell you that if you alienate your core market, you shouldn’t be surprised if they shop elsewhere. Would Marks and Spencer be foolish enough to ditch their core clothing offering and replace it with teeny bop fashion? Or perhaps Waitrose Cellar might ditch the wine and offer just brown ale instead? Maybe Tottenham Hotspur should start to offer Arsenal shirts to please everyone?
Well the Conservative Party has done just that. Theresa May’s fixation with a non-Brexit Brexit where the UK’s ability to change even one directive would have been severely questioned, caused this mess. She did not believe in Brexit; she saw it as a damage mitigation exercise and the EU quickly spotted their opportunity to try and unwind the whole thing, with a large part of our establishment cheering them on from the side-lines.
While Global Britain is impartial party politically, we can give the Conservatives one brief free piece of advice at this critical time, as they choose their next leader. If they believe the public will tolerate a Brexit in name only, while waging war on sincere Leave supporters by treating them as though they are economically and culturally illiterate – as Hunt, Hammond and Co appear to – don’t be surprised if the two thirds of your support who voted elsewhere last week, make a permanent habit of doing just that.
The EU are very unlikely to materially change their offer in the short term. They judge that the UK Parliament largely wants to unwind Brexit and if they play hard ball, the whole process can be stopped and the UK can slope back in, and sit on the naughty step for a few years while they finish of their business of creating a fully federal EU. They see fear in the eyes of many of these grey candidates who choose spin over substance.
The EU will be clear that that is the deal, perhaps a warm hug here and a fresh promise there, but they will believe these ‘middle ground’ (continuity Remain to you and me) candidates will buckle and accept ‘colony status,’ as they have so accurately called it.
Those candidates deliberately undermine our negotiating position. They adopt the language of Osborne, Starmer and Sturgeon that ‘no-deal Brexit’ would be an economic catastrophe. They talk in such certain terms as if this was a fact.
Let’s be clear, it is only a fact in their imagination. It is a disputed thesis which was tested during the EU Referendum. The other side defined Leave as leaving the Single Market, customs union, ECJ the lot, and they said it would be a disaster. A 5% fall in GDP was predicted, 500,00 jobs immediately lost. Foreign investment would dry up. These warnings were then backed up by even more craven and unprofessional predictions by the Bank of England.
Some of the senior members of the Conservative Party continue to spout this nonsense. In doing so they are damaging confidence in the UK and perhaps the very integrity of the nation. These false warnings are picked up Nicola Sturgeon and others who seek to break up the UK.
This author runs an economic consultancy. We have consistently argued that Brexit in itself is not a major economic event, but a process which gives the UK every opportunity to perform so much better over time, than the dull under performing conformity of the EU.
If the UK follows a reasonably open, stable course with no arbitrary policy set, sensibly improving and reducing stifling EU regulation, the country can become a magnet for the world. Adopt arbitrary taxes, gold plate regulation and destroy confidence, and it will not have been a success. But frankly parrot a false thesis that ‘no-deal’ is a catastrophe and you do yourself no favours, as such analysis is economically illiterate in our judgement.
Let us briefly remind our foes what really has happened since the EU referendum. Has unemployment increased by 500,000 as the Treasury predicted? No, employment has grown by 900,000 with the rate of unemployment the lowest since 1974. Did the economy collapse by 5% as the Treasury again predicted? No, it grew each and every year – in sharp contrast to Italy and Germany. Did the consumer get squeezed? No, real wages picked up markedly and continued to do so. Indeed, so strong have the tax receipts been that the next Prime Minister perhaps has £20 billion to invest in tax cuts or public spending, or a mixture of both, dependent on choice.
If only the Remain-backing leadership candidates would look at the big picture, they might see opportunity not despair. It is an interesting question why those who seek the top job seek to talk this great nation down and with it risk confidence and growth, when the underlying position – despite their chronic lack of leadership – is so positive and strong. Surely they have got the message? If they continue down their imagined damage limitation exercise, history will see that the Conservative Party is just that, history.
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Another week and another piece of good news in the real world – not the parallel, unproductive world of Westminster. Last week the UK was acclaimed as the global number one for investment – displacing the US, an economy nine times our size. But surely it can’t be true – the UK is leaving the world, after all; are we not shutting down as a result of Brexit?!?
We operate in parallel universes. While much of Westminster, our civil service and media spout daily tales of woe as Brexit is alleged to put up walls (Chancellor Hammond used that very phrase just the other week in a speech in the US), destroy opportunity and economic prosperity in the real world – the opposite has happened.
A central plank of the Remain case was that to leave the Single Market would make Britain irrelevant to the rest of the world and destroy inward investment. It really was that simple. Why would anyone invest in little Britain when they could go to the mighty France or Germany, as part of the EU?
This claim was repeated time and time again using the simplistic logic that we needed to be part of something big to trade with other countries. This logic is both defeatist and deeply flawed.
Trade and investment is about rule of law; stable governance; transparent, relatively low and stable tax; defendable property rights; educational, scientific and cultural excellence – and of course hard work, a good idea and strategic advantage – amongst many other variables. Trade deals were of pretty minor tier 2 importance in our view and as the UK trades at a surplus with the world – but has a £96bn deficit with the EU – under any sensible negotiations, a zero tariff mutual regulatory respect deal should easily have been possible. If Canada – which trades less than 10% as much to the EU as the UK does – can achieve it, why not the UK?
We only have to see how the EU prevaricates and quakes at the very thought of a so-called ‘no deal’ to know this to be true. Sadly the defeatists in our Government and Parliament don’t see it that way.
Global Britain argued, rather modestly, that Brexit in itself was no big economic deal. Brexit is not a panacea. It is a process, but one that gives an opportunity for the UK to do so much better than the dull, under-performing conformity of the EU.
Like a tool used properly, Brexit could enhance Britain’s global position and prosperity, but only if reasonably open, stable and non-arbitrary policies were adopted. There was much to go for, over time, as the EU’s regulatory regime doubled down by stifling innovation, choice and prosperity. You can already see that is the trend the EU is taking. Misunderstanding the EU’s direction of travel is why we were one of a small number of commentators to argue a vote to leave would enhance prosperity not detract from it.
It is now over two and a half years since the UK voted to leave and the evidence is increasingly overwhelming. The Jeremiahs of Remain were completely and totally wrong on almost every front: on growth, on City jobs, on total employment, on wage growth and now on investment.
Indeed, the polar opposite to their projections has happened. The global consultancy EY’s annual survey of investment trends, now it its tenth year, for the first time ever has put the UK as the world’s top investment destination – extraordinarily topping even the US, an economy far, far bigger than ours. Foreign Direct Investment (FDI) increased 6% in 2017 (the latest available figures) over the previous year, creating an estimated 50,196 new jobs. There were 1,205 new projects against 1,138 in 2016 and only 700 in 2012. Growth was strongest outside London, especially in the South East, East and South West. The UK is the clear European market leader in attracting FDI with 18% market share. FDI created 50,000 jobs in the UK, 31,000 in Germany, 26,000 in Russia, 24,000 in France and 23,000 in Poland. When surveyed about Brexit, 6% of investors said it decreased their attraction to the UK, while 7% said it increased their attraction.
The UK is the market leader in attracting US investment (24%) against second-placed France (16%) – with the level of investment going up from the US, Germany, China, India, Japan, Australia, Canada, the Netherlands, Switzerland and Spain. Only investment from France and Ireland saw declines. Key areas for investment, again perhaps counter-intuitively, were consumer products, industrials and financial services.
In short, global investors have flocked to the UK since we voted for Brexit – contrary to the Treasury and Bank of England claim that there would be an immediate lurch into recession.
The vote to leave has, if anything, encouraged investment into the UK. Doubtless our opponents will argue ‘well we haven’t left yet, so it is no surprise’. That argument simply will not wash. Investment decisions are not made on a whim, but on long-term analysis of opportunity. One does not invest tens of millions of pounds in hard capital and plant on a short-term view. Investors have known the UK was leaving and have voted with their wallets. They are here for the long term and that is despite a pathetic response from our Government.
Ironically, some of the biggest investors in the UK have been companies from the EU. Siemens of Germany has invested £200m in its new rail factory in Goole, with 700 direct and a further 1,700 supply-chain jobs expected as a result. The Spanish company CAF has opened its £30m Newport factory, creating 300 jobs, Bombardier from Canada is increasing production, creating another 300 jobs and Talgo is committed to opening a new £40m factory in Fife and a hub in Chesterfield, creating 1,000 jobs.
Boeing opened its first European factory in Sheffield last year following £40m of investment. Boeing supports 74,000 jobs in the UK – a 33% increase in the last five years – and spends £1.8bn with UK suppliers. And now, despite all the supposed worries about Brexit being a threat to British car manufacturing, BMW is considering expanding its Goodwood production of Rolls Royce cars after record worldwide sales.
These stories are just a snapshot of real news being released every week. The reality of what is happening in British investment – and especially manufacturing – is completely at odds with what is being presented by the opponents of Brexit and much of the media. It is often said UK doesn’t make anything anymore but the statistics say different: manufacturing employs 2.7 million people, contributes 11% of GVA, accounts for 45% 0f total exports (£275bn), is responsible for 69% of business R&D – making the UK the ninth largest manufacturing nation in the world.
It is also instructive that one of the key areas of investment has been financial services. Of course, the consensual voices claimed Brexit would destroy the financial services industry as it moved to Frankfurt. They also claimed that when the single currency was born. How ironic that overseas investment in the financial services industry is one of the top three sectors for investment.
How often can these official forecasters, who are given so much media airplay, be wrong? Why are they given so much weight by the media? There are numerous independent forecasters with consistently better records. We at Global Britain like to think we are one of them!
Global Britain argued that with the right policies Brexit was an opportunity for the City in the long term and in the short term perhaps 10,000 jobs might be at risk. Others, including the Treasury, claimed 70,000 jobs would be lost, an absurd near-quarter of all City of London financial services employment. The reality is we were too pessimistic. The decision to leave has had almost no measurable impact at all on the City, which continues to enjoy almost total dominance in European financial services. As the EY survey shows, this is the case across the economy too.
Let us look at what has happened over the last two years:
- Inward investment – the UK for the first time ever is the global number 1, displacing the US;
- Investment is broadly based across numerous sectors including manufacturing, IT, financial services and business services;
- Unemployment is now the joint lowest since 1974;
- Total employment is now 32.7 million – the biggest ever, growing by 800,000 since the referendum – contrasting with the Treasury’s predicted 500,000 fall in employment immediately on a leave vote – a positive gain of 1.3 million jobs over what was predicted;
- Wage growth in February was 3.5% – the joint highest on record (with 2008) – ahead of inflation which was 1.9% in the same month;
- The UK minimum wage is the highest of any major country in the EU and twice that of Spain, three times that of Poland and six times that of Romania. No wonder the UK is a beacon for workers; and,
- GDP has grown each and every quarter, in contrast to the absurd Treasury forecast of a fall of 5%.
Contrast this with the EU:
- Unemployment is over twice the UK level;
- Germany and Italy flirt with recession;
- Monetary policy remains at an all-time extreme. 10-year German bunds yield 0.05%. Despite this, the German economy stagnates;
- Failure to stabilise the EU banking system: significant unresolved stress in Italy, forced banking mergers in Germany – and Greece on life support, with that economy 23% smaller than a decade ago; and,
- Continuing migration away from the EU’s south to the UK and the north – where the opportunity is.
Of course the UK should not be complacent; much needs to be done to strengthen the public finances and tackle regional variances, but our opponents’ theological attachment to the EU is creating a false reality. Their lens is based on a utopian vision of what the EU is not. As the Americans say, “look at the math”.
Leave has been right about economic outcomes on almost every front. The latest inward investment numbers are further proof, if it be needed. Bizarrely the Conservative Party is so in awe of its failing Brussels cousin that it has lost the confidence to demonstrate our own strengths. The Conservative Government is snatching defeat from the jaws of victory based on a false reality and shameful distortion of the facts.
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Brexit gives us a chance to become a modern, outward-looking, free-trading nation once again.
17.4 million people asked the political class to take back control over our trade policy so that we could trade freely with other countries, determine our own trade policy and develop our industries and ports so that we can open our country to the world.
Whilst we must do everything we can to move seamlessly to a new trading relationship with our friends and allies in Europe after we leave, we should recognise that we have been guilty in the past of placing far too much emphasis on our relationship with the EU’s Single Market.
The report released yesterday by Global Britain – How the EU is a drag on UK prosperity economy – makes bleak reading and shows that the Single Market has never been central to UK prosperity.
The EU institutions are so focused on their political vanity projects, such as the euro, that they’ve forgotten why they were created in the first place: to look after the needs of the citizens and businesses of Europe.
The EU is failing the countries of Europe. Before the Single Market was formed in the early 1990s, the US and Eurozone each accounted for around a quarter of the global economy. Today, America’s proportion has largely remained untouched but the EU’s share of the world economy has almost halved. Had the Eurozone continued to grow at the same rate as the US the UK could have expected to have sold £82bn more in exports due to greater economic demand.
Unemployment is rife in the EU as well. Levels of unemployment are five times higher than ours in Greece, almost four times higher in Spain, more than double in France and over 17 per cent in much of the south of Italy. More than one in every three young Italians and Spaniards find themselves without a job and youth unemployment stands at a devastating 44 per cent in Greece.
Countries outside the EU will account for 90 per cent of global economic growth in the years ahead and Brexit will give us control over our trade policy so that we can adapt quickly, engage with the emerging global economic powerhouses and prioritise the interests of British consumers and businesses.
We will, at last, be able to look beyond the shores of the EU: to forge a free trade deal with countries like the US and to take up Japan’s invitation to join the Trans-Pacific Partnership. The Trans-Pacific Partnership would link us to our Commonwealth partners and we would be the only non-Pacific country with preferential access to this huge market.
This doesn’t mean that we will be turning our backs on our close trading partners in Europe. We will continue to trade with, protect and work closely with our friends in Europe – but we shall do this as a sovereign nation, championing free trade around the world.
By unshackling ourselves from an organisation that is more concerned about super-state status than economic competence, there are no limits to what our country is capable of. And we can re-focus on raising the living standards and future opportunities of many generations to come.
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Those campaigning to reverse the EU referendum result talk of the EU as if it is the very basis of British and European prosperity. When viewed against the evidence, such an analysis is simply untenable. A new report from Global Britain, £82bn reasons the EU held back the UK, shows how.
Almost every aspect of the EU’s economic performance – not least UK trade with it – has been dismal, underperforming regularly against every corner of the globe – be it advanced or developing nations – for a very long period of time.
For many countries across the European continent, EU-induced policy – primarily designed to hold the euro together – has directly led to economic hardship, socially damaging levels of unemployment and a questioning of the very fabric of their societies. The result has been a rise in more radical politics and people leaving their countries of birth to seek better economic opportunity elsewhere. This is the antithesis of what the EU was founded to achieve.
The failure of EU economic policy has not only impacted EU nations but also cost the UK £82bn over the twenty years to 2017 due to lost economic opportunity, as weak demand has impacted negatively on UK exports to the Eurozone.
To understand the failure of the Eurozone, we need to go back to a time when it did not yet exist. In 1994 the economies of the US and the future Eurozone were of broadly similar size – worth 24.9% and 24.5% of global GDP respectively. Today the US economy is 30% larger than the Eurozone. Simply put, had the Eurozone grown at the same rate as the US, the UK could have expected to have sold £82bn more in exports due to greater economic demand. The unfortunate truth is that EU economic performance has been the global laggard over the short and long term.
By comparison, since the financial crisis, the UK economy has outperformed all the major EU economies including Germany. Overall it has grown 19% over that period compared with a 13% rise in the Eurozone. That 6% differential is worth £120bn, or to illustrate what that sum represents, just less than the entire NHS budget.
For the British people, the beneficial result of the country’s performance has been more jobs. The UK has materially outperformed the EU in both job creation and reduction of unemployment. UK unemployment is at its lowest level since 1974. French unemployment is 2.5 times the UK level, Spain 4 times and Greece 5 times higher. Since the EU referendum, 750,000 more people are in work in the UK. This contrasts with HM Treasury forecast of 500,000 job losses following a Leave vote – meaning its prediction was an embarrassing 1.2 million out.
Despite misplaced criticisms, job growth has been across the board and not just in the ‘gig economy’. More people work in manufacturing, construction, utilities, IT, health, education and the arts sectors than before the referendum. UK wage growth has started to pick up too and is growing in real terms, while the UK’s minimum wage is the second most generous in the EU.
The underperformance of the Eurozone can be laid firmly at the EU’s own door. Fundamentally, the Eurozone is not an optimal currency area; it lacks fiscal transfers and is weakly controlled with no central Treasury. The structural weakness and disequilibrium of the euro has led to sub-optimal firefighting policy choices to prop the currency up. The lack of political will and democratic accountability make it near impossible to rectify its flaws. These are structural issues that will not be easily rectified, leading to continuing divergent performance, socially damaging unemployment levels in the south and a loss of competitiveness. The problem is the euro’s construction and there is no easy fix. Underperformance is baked in.
Imbalances are growing, not reducing, be they employment levels, migration trends, fiscal strength, competitiveness and Target2 liabilities (intra-country balances).
The big myth remains that the Single Market is central to UK prosperity. It is not. Over the last 20 years, UK trade has grown 12 times with China, 3.1 times with the rest of the world ex-EU, 2.6 times with the US and just 2 times with the EU. Moreover, the UK trades with a modest surplus with the world ex-EU but has a £96bn deficit with the EU. Does it not strike you odd that UK trade not only is growing faster where it trades generally under WTO rules rather than within the EU Single Market – and is in surplus, not enduring a huge deficit?
EU citizens are voting with their feet. An estimated 3.5 million have moved to the UK over the last 20 years. Economic failure has directly led to widespread migration away from Italy, Spain, Portugal and most of Eastern Europe. People follow the opportunity and it has generally not been in the Eurozone. Again, despite claims, net EU migration has remained positive to the UK since the EU referendum.
The EU’s problems are structural and not cyclical. They are largely self-inflicted. The euro’s structure is the root cause of the problem, together with increasingly costly one-size-fits-all regulation that simply does not work for such a disparate Union. The price of preserving the euro is likely to continue to lead to low growth and poor employment prospects. Italy, as an example, has a smaller economy than 15 years ago. Such dreadful performance is fuelling economic and political dissatisfaction in Italy itself and across the EU.
The question should be: why can our policy makers not see that while we must remain friends with our European neighbours, the EU project has failed Europe? The answer is for Britain is to re-emerge as a true global trading nation.
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Labour’s autumn political broadcast Our Town told viewers “we lost control” and “we’ve been sold short by a political and economic system that has been unchallenged for far too long.” Labour’s bait-and-switch broadcast was a clear attempt to reconnect with blue-collar Leavers in marginal English seats.
Yet these voters are amongst those most alienated by Labour as it cartwheels over the horizon to the left, turns its back on 70% of all Labour constituencies and elopes with the elitist ‘People’s Vote’ campaign.
Indeed the neglect of Labour’s Eurosceptic tradition shows the party has left its erstwhile working-class supporters behind.
Activists at Labour’s Annual Conference in Liverpool who agitated for a ‘People’s Vote’ seemed oblivious to their party’s history of opposition to the European Project.
The first post-war Labour government opposed participation in the European Coal and Steel Community. Labour Foreign Secretary Ernest Bevin said: “If you open that Pandora’s Box you never know what Trojan Horses will jump out.” Labour Deputy Prime Minister Herbert Morrison said of the Community: “It is no good, the Durham miners will not wear it.”
Former Labour Prime Minister Clement Attlee summed up Labour’s antipathy to ‘ever closer union’ when he observed: “The idea of a politically integrated Europe is historically looking backward… We have always looked outward, out to the new world, and to Asia and Africa.”
Attlee’s successor Hugh Gaitskell told the 1962 Labour Party Conference the aim of the founding fathers was “federation” and “if we go into this, we are no more than a state, as it were, in the United States of Europe, such as Texas or California.” This meant “the end of Britain as an independent nation state” and the “end of a thousand years of history”.
Tony Benn called for a referendum on entry in 1970 and wrote to his constituents: “It would be a very curious thing to try to take Britain into a new political entity… by a process that implied that the British public were unfit to see its historic importance for themselves.”
Harold Wilson was forced to seek a renegotiation of Britain’s Community membership and called the European Communities Referendum of 1975. The Parliamentary Labour Party had previously voted against joining. Labour’s Conference had split two-to-one against the Common Market. Seven Cabinet members campaigned as ‘Antis’ and Wilson’s wife Mary voted out.
And under Michael Foot, Labour advocated leaving the Common Market without a referendum, a policy that subsequently became a manifesto pledge.
Fast forward to the present and the Sunday Times reported recently that Labour Shadow Chancellor John McDonnell, Member of Parliament for 58% Leave-supporting Hayes and Harlington, had held secret talks with the ‘People’s Vote’ campaign and has hosted Alastair Campbell and ‘People’s Vote’ Communications Director Tom Baldwin in his House of Commons office.
National director of Momentum Laura Parker attended a rally in November in support of a second referendum.
Then The Times discovered a motion that is being circulated among Constituency Labour Parties calling for a Special Conference with one motion on the agenda for a ‘People’s Vote’ with Remain as an option.
It is ironic that the Labour Party of Jeremy Corbyn is slowly moving towards their third-way Blairite doppelgängers on a second referendum.
Then again, why wouldn’t they? They are equally worlds apart from these totemic figures of post-war Labour history in having no attachment to parliamentary sovereignty and little real connection to Britain’s working-class communities.
Labour is now a very different party from what it once was. The very notion of Labour as a party for blue-collar voters is a social, cultural and electoral anachronism.
Firstly, when Labour talks about “Our Town” it doesn’t really have in mind the sociology of Leave-voting Macclesfield or Middlesbrough South and East Cleveland. Labour’s imaginary ‘town’ is the parallel universe of ‘high status city dwellers’ and faux left opinion formers living in metropolitan London.
Labour is politically dependent on the metropolis. In the six months following Corbyn’s election as Labour leader, 81,000 Londoners joined his party, double Labour’s total membership in Wales. Corbyn, Starmer, Thornberry and McDonnell all sit for London constituencies (two in the London Borough of Islington alone).
They share the same geographically narrow worldview as that of Stronger In whose four principle staffers grew up in London within two square miles of each other. Two went to the same school. One was the son of a Labour Home Secretary and another was Lord Mandelson’s Godchild.
And whereas in the 1970s less than a third of Labour MPs were graduates, now 90% are. When the mask slips, it reveals a prejudice about working-class Leave voters such as when Huddersfield’s Labour MP Barry Sheerman claimed “better educated people” voted Remain and when Owen Jones talks about ‘gammons’.
Secondly, Corbyn’s bien pensant ‘Global Villager’ values don’t resonate in the Brexitlands of Wales, the Midlands and the North. Harold Wilson told Bernard Donoghue: “I don’t want too many of these Guardianisms. I want my speeches always to include what working people are concerned with.”
Yet the modern left’s disillusionment with the workers has become a post-Brexit antipathy. The social democracy of earlier generations has given way to identity politics, a political style that increasingly inflects the voice of Continuity Remain.
Consequently, the pro-EU left can’t understand blue-collar political interest in sovereignty and democratic oversight of our laws, borders, trade and money.
Thirdly, the ‘peak Corbyn’ electoral coalition was beaten by the Conservatives in C2DE vote share, prompting the New Statesman to write of Labour’s middle-class populism: “the property tycoons of Chelsea must be congratulating themselves for having seen off a threat to their children’s inheritances.”
Former Vote Leave Co-Chair and former Labour MP Gisela Stuart did her party a service when she said Brexit was a “wake-up call” to Labour. But the party’s Remainist ‘People’s Vote’ tendency would re-empower the ‘lobbyists, multinationals and Brussels elites’ Labour Leavers voted to dispossess.
Indeed, according to the British Social Attitudes survey, before the Brexit victory, nearly one in two workers felt ‘people like them’ no longer had a voice in the national conversation and Brexit won in 140 heavily working-class and historically Labour districts.
Flirting with the elitist ‘People’s Vote’ is therefore potentially disastrous for many Labour MPs. A recent IQR survey for Global Britain of the 25 most marginal Labour seats found 19 Labour candidates would face defeat if Labour attempted to frustrate Brexit and 63% of voters said MP’s decisions in Parliament should respect the result.
Labour should heed the advice of UNISON General Secretary Dave Prentis who recently told Labour’s leadership to “never, ever forget your base.” Supporting a coup against five million or so of the party’s Leave voters would reinforce the perception that those who voted to take back control in the referendum would stand to lose the most control, in the political and cultural sense, from a Labour government that will only speak for Remoania.
Ironically, Labour’s Eurosceptic tradition was channelled by Vote Leave in its referendum broadcast featuring images of Clement Attlee and Nye Bevan in which voters were asked to “imagine our money being spent on out priorities”, which we could do if we voted to taken back control.
By contrast, Labour’s Our Town is part of the “give back control agenda” of a party that has long forgotten the people it was founded to represent.
The post Labour has forgotten its eurosceptic heritage and left the working classes behind appeared first on BrexitCentral.
In my last BrexitCentral article, I posed the rather obvious question to the EU: “Would you rather have a no-deal-style Irish border with or without £39 billion?” That choice, which Brussels seems not to have understood, has now come into sharp focus and it seems now that the answer is likely to be presented to them as a fait accompli.
Aside from the niceties, the fundamental objection to Theresa May’s proposed deal is the potentially perpetual lock-in to a customs union. The “joint committee” means of course that it will be for the EU to decide when or whether we can leave. It is unheard of, and utterly unacceptable, for anyone (and certainly any country) to be potentially bound in perpetuity by an arrangement that they have no ability to terminate.
In the political declaration – i.e. informally – the EU says that the Irish backstop, separating Northern Ireland from the UK by remaining in the customs union and adhering to the EU rule book, might be avoidable by either a technological solution or an appropriate trade deal. But it’s quite clear that the only trade deal that will satisfy them with respect to keeping the Irish border open is one that keeps the whole of the UK in the customs union. As a result, the UK would not be able to enter into global Free Trade Agreements (FTAs). That is precisely their desired outcome, so they are unlikely to show any enthusiasm for a MaxFac solution. At the same time, with £39 billion committed unconditionally, the UK will have absolutely no leverage.
We have no need to wait for proof of that. At the recent EU summit, Emmanuel Macron warned that if, in future talks, the UK is unwilling to make compromises over fishing, the negotiations for a wider trade deal could be slowed down, which could lead to the last-resort backstop plan coming into force.
So it follows, as night follows day, that we could be – if not forever then at least for many long years – in either a temporary or permanent customs union with the European Union. To avoid the Damocles sword of the backstop from destroying our negotiating position, we must decouple the Irish border issue from the trade negotiations. How to achieve that is by using no deal as the bridge to the arm’s length negotiation of the new relationship.
Parliament now seems very likely to reject the proposed deal. So in the absence of new legislation, therefore, we will leave on 29th March 2019 with no deal (as explained by Stewart Jackson on BrexitCentral here). So what are the implications of that?
EU short-term trade: We would have to trade with the EU on WTO terms until a free trade deal can be agreed with them. This is undesirable but not catastrophic. 39.3% of UK imports and 33.1% of exports are conducted under WTO rules with non-EU countries. Most countries in the world (111 out of 195) trade with the EU under WTO rules, including China, India, Russia, the United States and Singapore. Despite tariff and non-tariff barriers, Britain’s trade with non-EU countries is in surplus and growing, while our trade with the EU is in deficit and shrinking.
If the EU imposes a 10% tariff on our exports and we tax their imports into the UK at 10%, prices go up to the extent that not offset by significantly lower world prices than EU prices for food and commodities. 10% tariff provides a revenue boost to HMRC, to be spent to our benefit. Exports are harder but offset by a fall in sterling that boosts exports while making imports more costly – no bad thing to help rectify our appalling adverse EU balance of trade.
Meantime, domestically, the UK can think about diverging from some EU regulations. Clearly, businesses exporting to the EU will have to comply with EU product standards and trading terms but the burden of those standards need not necessarily be imposed in the 94% of businesses, representing 88% of GDP, that trade only domestically or with non-EU countries. (CETA clearly does not require Canada to impose all 100,000 pages of EU rules and regulations upon every Canadian business.)
EU long-term trade: Michel Barnier himself said, in his speech announcing the deal, that agreeing a free trade deal with the UK should be much quicker and easier than FTAs with other countries as we start from a position of complete alignment. And we have in CETA, the EU/Canada FTA, a ready-made template for the trade agreement between the EU and the UK. That is not to say that the negotiations will be easy if, for example, the EU’s demands include full access to UK fisheries, which is why it is so vital that we can back up a tough stance with a £39 billion carrot.
Friction: Queues at Dover would be bad news but friction can be minimised, for example, by trusted-trader status for regular just-in-time supply-chain consignments and number-plate recognition that opens barriers automatically on designated trusted trader lanes etc. There are four months to take steps to increase capacity (a job that should have been started two years ago), for example by establishing an inland port and protected route to the seaport.
The recent paper published by Global Britain and the European Research Group, Fact – NOT Friction: Exploding the myths of leaving the Customs Union, shows that “fears are driven by a series of myths about how customs procedures work”.
Global trade with EU partners: Much capital is made of the fact that we currently benefit from EU FTAs that allow us to trade freely with more than 40 non-EU countries. This is true but they include places like Guernsey, Guadeloupe, San Marino, Büsingen am Hochrhein, the Falklands and South Georgia. The EU has trade agreements with only three of the UK’s principal trading partners – Switzerland, South Korea and Canada. People love to proclaim the fact that “a single trade deal can take years or decades to agree” with the clear implication that that is bad news. It is not. On the contrary, for countries with whom the EU has existing FTAs, it is fantastically good news. It stands to reason that, save to the extent that the parties wish to change anything, all that is needed is to copy the current FTA between the EU and that country, change the name of the contracting party and sign it.
New global FTAs: We would be able to negotiate and enter into global FTAs at the earliest opportunity. Very many countries have expressed a desire to do so – Australia, Argentina, Brazil, Canada, Chile, China… and I’m only up to the Cs.
Global trade before new FTAs: Meanwhile we will no longer have to impose the EU Common External Tariff on imports from the rest of the world: 15.7% on animal products, 35.4% on dairy products, 10.5% on fruit, vegetables and plants, 12.8% on cereals and preparations, 23.6% on sugars and confectionery. 19.6% on beverages and tobacco.
Non-trade issues: Many non-trade issues are addressed, directly or indirectly, by the 585-page draft Withdrawal Agreement: citizens’ rights, EU access to the City, defence and international affairs, aviation, Horizon 2020 etc etc. If the EU became obstructive over many of these, it could present severe problems. As the issues have, presumably, been agreed because they are to mutual advantage, it is hard to see why the EU would consider it to be to its benefit to behave aggressively (other than to prevent the UK from leaving).
The Irish border: As Andrew Lilico pointed out on BrexitCentral, the border between Northern Ireland and the Irish Republic has some 275 crossing points. The border separates regulatory, tax and legal regimes that are very different and is controlled via a combination of administrative cooperation, whistle-blowing, auditing, site raids by customs, tax and regulatory enforcement officials. There are – currently – occasional random spot-checks on roads leading up to and at the border, as well as cameras and other physical infrastructure at the border.
Lilico also noted some UK press discussion suggesting that the EU would impose stop-and-check controls at the border, like those between the EU and Turkey. Such an attempt is certainly possible, but seems highly unlikely because of the scale of the task (275 crossing points, more than all other land crossing points into the rest of the EU from other countries); and because the Irish Government claims that the EU has given undertakings that no such controls would be introduced; and because Ireland seems unlikely to allow them to be imposed, even if the EU so desired.
There has been much talk of technological solutions that will take years to develop but the European Research Group’s paper, The Border between Northern Ireland and the Republic of Ireland post-Brexit demonstrates how each of the issues can be addressed without the need for technology not yet invented. The Irish Government and others dismissed the paper immediately as “pure fantasy”, apparently because of concerns about ability, without either a hard border or ‘new technology’ (what kind of new technology?) to prevent smuggling or the import of non-compliant goods into the EU. At present, the Republic of Ireland physically inspects only 1% of imports, so 99% of contraband and non-compliant goods are already getting through!
Some 33% of Northern Ireland’s goods exports (all sales outside the UK) went to the Republic of Ireland in 2016 and were worth around £2.7 billion (€3.1 billion). The EU’s imports from the rest of the world amount to around €172 billion and the EU’s GDP was about $17,300 billion (€15,200 billion) in 2017. In the unlikely event that 25% of all goods transported across the Irish border was undetectable contraband or non-compliant goods (pretty unlikely that), this would represent 0.5% of all imports into the EU and 0.005% of EU GDP. But it wouldn’t be 25%, would it? Who is being fantastical here?
As the ERG paper says, “no border is 100% secure against smuggling. Smuggling takes place across EU borders in Eastern Europe and the Mediterranean. Moreover, it occurs at present across the border between Northern Ireland and the Republic of Ireland. Drugs, fuel, tobacco, cigarettes and other illegal goods have been smuggled across the Irish border since the 1920s but cross-border co-operation is already used to combat criminals. The PSNI, the Garda Síochána, customs authorities and law-enforcement agencies co-operate to counter this trade. Law-enforcement agencies on both sides of the border co-operate to suppress smuggling without anyone suggesting that border posts and checks would make their efforts more effective.” And there are better ways to identify non-compliant goods than by random 1% or 3% checks at the border.
The latest ERG paper, Your Right To Know – the case against the Government’s Brexit deal, extols the virtues of ‘A better alternative – a “Super Canada” Free Trade Deal’, but misses the point. Yes, Canada-plus would be a million times better than the Chequers plan and the currently proposed Withdrawal Agreement but it does not address the Irish border issue. Although Canada-plus has been offered several times by the EU, they offered it only in combination with the backstop of Northern Ireland being separated from the rest of the UK.
I would therefore say that the two things – the Irish border issue and UK/EU trade relationship – need to be decoupled. We should leave with no deal and confront the EU with the Irish border problem in March 2019.
Thereafter there will still be issues over the nature of the trade deal – whether it will be close to Canada-plus or will have to be more limiting because of the EU’s unwillingness to contemplate anything that might allow the UK to become competitive. We would need to weigh up the benefit of a UK/EU FTA based on a customs union and common rule book against the known drawbacks – EU regulations imposed on the 94% of UK businesses, representing 88% of GDP, that trade only domestically or with non-EU countries; no say in determining future regulations or trading standards; no ability to innovate; no ability to negotiate trading standards as part of FTAs; and maybe, if remaining in the customs union, no ability to enter into global FTAs at all.
By decoupling Irish border issue from UK/EU trade relationship, the Irish border will no longer be the overriding, determining factor. It will be for the UK to decide what is in its best interests, like the other 40 countries, large and small, that have entered into widely varying trade arrangements with the European Union
And £39 billion retained will, without doubt, focus the minds of those on the other side of the negotiating table – but the £20 billion or so of net contributions that they would have received during the two-year transition period will have been irrevocably lost.
We now learn that the Treasury predicts that the country will suffer £150bn in lost output over 15 years under no deal, with Theresa May’s plan costing in the region of £40bn.
This latest manifestation of Project Fear has to be the ultimate insult to the nation’s intelligence.
With or without Mrs May’s Withdrawal Agreement, we will have the ability, within 2 years or more, to conclude a free trade deal with the EU – without a shadow of doubt a far more favourable one if we are able to negotiate while holding out a £39 billion carrot and without the Damocles sword of the Northern Ireland backstop suspected over our heads. And, dependent on how closely we decide to tie ourselves to EU standards, the ability to conclude FTAs with other countries.
The only counteracting drawback of no-deal is the short-term damage (and, conceivably, any irrecoverable long-term damage) to UK/EU trade as a result of the short-term disruption arising from the loss of the transition period. But we’d start with a saving of £20 billion or more from net contributions to the EU over two or more years. And benefit from earlier freedom to deal with our fisheries and agriculture (and, and… need I go on?)
No doubt the Treasury will, as usual, refuse to disclose its ridiculously biased assumptions.
The post We must decouple the Irish border issue from UK/EU trading relationship appeared first on BrexitCentral.
New polling on the Withdrawal Agreement commissioned by Global Britain contains no good news for the Prime Minister. Not even a scintilla of Christmas cheer.
The headline result is that more people support what is known as “No Deal” than support her supposed deal with the European Union; but just as interesting is that support for leaving the EU – deal or no deal – is now greater than on the day of the referendum in 2016.
Yes, that’s right, those wishing to give the British people a further say could receive an even bigger slap in the face than the first time round. It almost makes it quite an attractive proposition – were it not such a divisive distraction that also feeds the dragon of a second Scottish independence referendum, so let’s not go there.
Let me run through the questions to bring most readers of BrexitCentral some morning smiles.
The first question asked: “Whether or not you agree that the only options open to the UK now are Theresa May’s deal, no deal or no Brexit, out of those options only, which would you prefer as the outcome for Britain’s negotiations with the EU?” The responses were 25% for Theresa May’s deal; 32% for No Deal 32%, and 41% for No Brexit with the UK staying in the EU, with 3% Don’t Knows.
When next asked to choose between Theresa May’s Deal or No Deal – and No Brexit– the responses hardened, delivering 57% for Leaving deal or no deal and 41% for No Brexit, with again 3% Don’t Knows.
When asked “To what extent do you believe that the draft Brexit deal Theresa May has agreed with the EU will result in a true Brexit, and to what extent to do you believe that it would result in the UK staying in the EU in all but name only?”, the responses were: 49% believing it is BRINO, 20% a neutral outcome, and 25% a true Brexit.
Respondents were then asked: “To what extent do you agree or disagree that the draft Brexit deal Theresa May has agreed with the EU represents what Leave voters believed they were voting for in the EU Referendum in 2016?”
The response was that 16% took a neutral view of neither one nor the other, 18% believed it did represent their expectations – but a significant 63% believed it did not.
This was followed by the question: “To what extent do you believe that the draft Brexit deal Theresa May has agreed with the EU respects the 2016 Referendum Result where Britain voted to leave the EU?”
Some 16% were neutral, 36% believed it did respect the 2016 referendum result and 46% – a majority of 10% – believed the deal does not respect the referendum result.
To the last question, “If your local MP supported the draft Brexit deal Theresa May has agreed with the EU, would this make you more or less likely to vote for them in a general election?”, the response was 20% more likely; 37% less likely; 42% no difference; and 2% don’t know. That’s a net 17% of voters who would be less likely to back an MP who supports the Withdrawal Agreement. Let me put that in context: even if about half of that figure were to be a swing against the Conservative general election vote of 43.5% – taking it down to 35% – the Conservative Party would lose 85 seats.
The telephone polling of 2,000 people – weighted by all the usual considerations – was carried out before the EU signed off the Withdrawal Agreement and said there could be no further changes but, importantly, after the general shape of the draft deal was known. With more detail now known and French and Spanish leaders demonstrating their desire to blackmail and humiliate the UK into providing further concessions on fishing, Gibraltar and financial services, I would expect the British public’s kick-back to grow as each day passes.
Although anecdotal, it was interesting to watch a BBC Newsnight clip on Wednesday where a local outside a Stoke City v. Derby County match was interviewed and admitted that although he voted Remain he was now thoroughly a Leaver – in reaction to the way that the EU had behaved towards his country and our negotiators. I do not think this attitude is isolated.
The Prime Minister said in her recent statement to Parliament that MPs in the House of Commons had a “duty to listen to their constituents before taking a decision in the national interest”. The Global Britain poll suggests that if MPs do indeed listen, they should vote against the Government.
The Withdrawal Agreement is not a deal at all, it is only the divorce settlement – but it keeps the marriage very much alive, and as more and more people realise it so it shall become more unpopular – and the Conservative Party along with it.
Polling of n=2000 respondents with a maximum margin of error of +/- 2.2 per cent at a 95 per cent confidence interval was conducted by IQ Research by telephone from 18th to 22nd November. Respondents were UK residents and eligible to vote in UK general elections with minimum quotas set by age, gender, region, education, occupation, tenure and ethnicity – and data weighted where necessary to ensure it is representative.
Photocredit: ©UK Parliament/Jessica Taylor
The post New polling shows the public kicking back against Theresa May’s Brexit deal appeared first on BrexitCentral.
I was pleased to attend the publication of Lord Lilley’s Fact – NOT Friction in London this week; an excellent, informative paper published jointly by the European Research Group and Global Britain explaining how there are widespread misconceptions about the costs and implications of not being in a customs union with the EU. I agree with him: these misconceptions have led the Government into the wrong negotiating strategy for Brexit.
In Rotterdam the week before last, I saw how transit documents procured in advance and lodged electronically allow veterinary goods from third countries all over the world outside the EU to move predictably and rapidly into the EU, and be cleared by their import declaration and any other checks necessary in commercial premises 40km behind the border.
The three essential documents to make this run are the export declaration; the transit document to get the goods through and behind the frontier; and the import declaration that can then clear the goods once inland.
Non-veterinary goods go deep into Europe under such documents and are cleared when the import declarations are made on arrival at customer warehouses or kept in bond for future clearance.
The cost of this whole customs process is around €25 per document or between 0.1 to 0.4 per cent of value for the average consignment value of €25k depending on whether a company gets a customs broker to procure some or all of the documents, (plus up to another 1 per cent for the veterinary inspections on veterinary goods, around a third of which could be subsidised by our government if it chose to do so, being the government vet fee).
The export declaration is fairly easy for companies to do themselves, but the transit document and import declarations take a bit more customs expertise. Specific border inspections for veterinary goods can take place in authorised commercial premises well away from the frontier itself, and from the perspective of their authorisation they just need access to adequate space and facilities, government vet availability, and reasonable off-site access to professional sample testing facilities.
These processes do not require the exporting country’s domestic regulations to be aligned with the EU. EU standards need to be met for imports in the same way that goods exported to the US need to meet US standards.
What they do require for borders to remain efficient is for the documents to be prepared in advance so that lorries do not need to be stopped before leaving because they can’t be guaranteed to get through the other side.
The costs involved were corroborated by a major Japanese car company operating in the UK which told us in our International Trade Committee a few weeks ago that they can run these documentary procedures in-house for about £30 per shipment of equivalent salary cost. Multinational firms such as these are already well used to the data and documentary requirements for sourcing components globally.
I also met roll-on roll-off ferry operators in Rotterdam who have Nissan’s UK operation as a major client, who are expanding capacity to meet demand for regular just-in-time shipments and are most focused on getting their customers, who are often the freight forwarders, geared up to ensure all arriving trailers have the right pre-cleared documents. They need them an hour in advance to be able to match up their port traffic management systems with the documents of the lorries they expect to arrive.
There is no reason why similar processes could not also be effected behind the border at Calais to keep the frontier flowing freely and shipments being cleared with predictable timing as in Rotterdam, and if the authorities there want to keep their business that is what they will end up doing.
We need to get our exporters and our exporting ports and service providers geared up to have their export and import declarations and the transit documents ready in the same way. That way just-in-time supply chains are not threatened.
Businesses need to be ready with processes for generating the data to lodge electronically. Dover, Folkestone and Calais need to adjust their port inventory management so as to reconcile their traffic bookings and manifests with the documents matching the shippers’ documents. At first this might have to be somewhat rudimentary because the authorities have left preparation so late, perhaps being done by hand and needing more advance notice; however more efficient modern systems could be introduced fairly quickly.
Investing in these logistics processes will be equally useful for trade, whether, as is my preferred option, we end up with a regular free trade agreement as offered by the EU in March (and the processes can be adapted to ensure no hard border in the island of Ireland too); whether we leave the EU at the end of next March without agreeing a Withdrawal Agreement; or whether we have an “orderly no deal” with side agreements in key areas like transport and licensing which can help the logistics industry, as the “no-deal” preparation the EU has set out suggests they want. The basic requirements for borders are the same, and are what businesses all around the world manage successfully with standard processes every day.
If we prepare in this way, we will be prepared, whether we are able to arrange zero tariff and zero quantitative restriction trade with the EU before or after the end of March next year.
It is worth considering the costs of these processes in the context of the rest of the transport supply chain. They are a very minor part of the cost of the overall shipping cost, which is often many hundreds of pounds for each of the inland transport legs, from premise to port, port to premise, and the ferry or rail crossing carrier cost.
At 0.3 to 1.4 per cent of average shipment value they are also only a tiny fraction of the 12 to 24 per cent non-tariff barrier costs that were assumed in the “Cross-Whitehall Briefing” leaked in February, which were the major factor in the Government’s negative economic forecasting of World Trade and FTA scenarios for our trade with the EU.
The Government has ill-advisedly been using these hugely over-negative estimates as the reason for its negotiating strategy of high regulatory alignment and “frictionless” trade with the EU, and this has landed it in its current mess. Ironically the outcome of that mess is the idea of the customs union “backstop”, which when you read the small print contains the more costly and completely antiquated requirement for physical paper forms inspected and stamped by customs officers, for every commercial shipment between the EU and Great Britain, and every shipment across the Irish Sea.
While there may be a few teething troubles with the above processes being implemented from the second quarter of next year, with the right application by authorities and businesses costs of such high scale shouldn’t eventuate, and in any event won’t persist for 15 years as Government assumes.
In particular the car industry should be able to adapt relatively easily, and rather than prejudice our independence by worrying about overestimated costs, we should focus on getting small- and medium-sized businesses ready, and improving general business conditions. Whatever the size of business, most just want certainty as to what they need to do, and that is of far more value right now than indefinite transition, more political argument and risk.
The perfectly normal customs processes I saw, available now, without new technology and under current EU law, should be the focus. Preparing them is a far better strategy than tilting at the windmills of a never-to-be practical “Facilitated Customs Arrangement”, suffering under the illusion that economic Armageddon is the alternative, and waking up to the reality of the EU being in control of our destiny.
The post The processes exist for life outside the EU’s Customs Union – we just need to prepare for them appeared first on BrexitCentral.
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