TRACY Black, director of the Confederation of British Industry in Scotland, this week shone the spotlight again on that great big elephant in the room. Companies can see this elephant clearly but the Brexiters refuse to look at it, or acknowledge its reality, and also seem at pains to stand in front of it so voters cannot see it. The elephant, of course, is the impact of the UK’s exit from the European Union on companies, the economy and society, and people’s living standards.
Business leaders, and millions of other people, have been pointing at the elephant for a while, well aware that the Brexit effect amounts to a terrible trampling all over the already beleaguered UK economy. The effects are, of course, being felt already but they will become much more dramatic in coming months, years and decades.
Given this reality, the timing of Chancellor Philip Hammond’s Budget appears fortuitous for the Conservative Government. At this stage, the prospect of a no-deal Brexit is a very major and grave risk for the UK economy. That might not sound fortuitous for Mr Hammond but formulating the Budget would be much, much more difficult for him if a cliff-edge Brexit were already a foregone conclusion.
International Monetary Fund managing director Christine Lagarde and Royal Bank of Scotland chief executive Ross McEwan have been among those to highlight the danger of the UK economy falling into recession if there is a no-deal Brexit.
So, if a no-deal Brexit next March were an inevitability, surely the economic forecasts of the independent Office for Budget Responsibility, which was set up by austerity purveyor and former Conservative chancellor George Osborne, would be far, far worse than the already unappetising ones it will presumably have to trot out to coincide with the Budget on Monday.
In a discussion paper published this month, the OBR says: “Currently, our forecasts assume an orderly end to the negotiations between the UK and the EU and so a smooth transition from the pre- to post-Brexit worlds. This would be most likely if the UK and EU finalise the current version of the draft Withdrawal Agreement, which contains a transition period until the end of 2020. But a disorderly exit is not impossible.”
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UK gross domestic product and public sector borrowing and debt forecasts in the event of a no-deal Brexit would obviously be a further major embarrassment to this embattled and divided Conservative Government. Such forecasts would also probably prompt yet more vacuous haranguing of the messenger, similar to cloth-eared Brexiters’ reactions to the economic common sense delivered for them repeatedly by Bank of England Governor Mark Carney.
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What is more, if we were further down the line and the OBR had got to the stage of having to assume a no-deal scenario, Mr Hammond and the Conservative Government would have to do some explaining on how they were going to try to stimulate growth, and prevent public sector debt surging even further (things they have not been good at to date). They would also, surely, have to give us an idea of just how exactly they planned to mitigate the huge damage to people’s living standards and the business community from a no-deal Brexit.
We must remember that the damage, whether from a no-deal or any other Brexit scenario, stems from former prime minister David Cameron’s decision to hold a referendum on the UK’s EU membership in the first place.
The situation has been exacerbated since, obviously, by the refusal of the Conservative Government to call a halt to the sorry Brexit fiasco.
A survey published this week showed London’s popularity among European technology start-up hubs, while remaining strong, had diminished very significantly in the last year, amid Brexit fears. Brexit has rung alarm bells in the sector over UK companies’ future ability to recruit top international talent. London held on to top spot in the survey by the European Startup Initiative, a not-for-profit organisation, but only by a hair’s breadth. At a time when such leading positions are crucial to a struggling UK economy, second-placed Berlin will surely fancy its chances of leapfrogging London.
Worries among technology entrepreneurs over the impact of Brexit will also hit the likes of Edinburgh and Glasgow.
The CBI has meanwhile warned that UK businesses are nearing the point of no return on implementing Brexit contingency plans. It will be interesting to see whether the Brexiters remain in denial when companies start pushing the button on these.
Frans van Houten, chief executive of Dutch electronics giant Philips, this week warned the “UK as a manufacturing hub for the world would be at risk” as he expressed growing worries that frictionless trade between the UK and European mainland was in danger.
As CBI Scotland published a survey showing manufacturers had seen domestic and export orders fall in the latest three months, with the drop in incoming overseas business the first since October 2016, Ms Black highlighted an “alarming number of firms citing concerns over political and economic conditions abroad”.
She added: “It’s clear that continued uncertainty over Brexit is unsettling Scottish manufacturers.”
Prime Minister Theresa May told MPs this week that 95% of the Withdrawal Agreement and its protocols had now been “settled”.
In many cases, 95% would be a good place to be, and perhaps Mrs May was trying to quell mounting fears over a no-deal Brexit.
However, her comment that the Irish border was still a “considerable sticking point” made it as clear as day that 95% did not mean anything much in this context.
Michel Barnier, the EU’s chief Brexit negotiator, summed things up well in March, declaring: “Nothing is agreed until everything is agreed.”
The Irish border question certainly looks to be far from agreed, even before we get to the thorny issue of what the Democratic Unionist Party, which is propping up the Conservative Government, will accept in this context.
In any case, it is crucial to realise that even the least-bad Brexit impact is mammoth, given Mrs May’s determination for the UK to leave the single market.
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