December/January 2019

Brexit – what happens next?

The Brexit story is certainly picking up momentum. In our last edition we featured comments and views from Greater Manchester-based Economist Dr John Ashcroft. In this edition we follow John’s insights with Edwina Currie’s observations on the subject.

Edwina is a graduate of Oxford and the LSE and taught economics, economic history and business studies before serving as MP for South Derbyshire for 14 years. From there she went to the top of the political tree holding a high profile position in Margaret Thatcher’s government. In a career spent mostly in the public spotlight, and as an author and broadcaster, Edwina has always had a passion for Economics, and she is always happy to share her insights. She currently runs the High Peak Business Club and Share Club.

“By the time you read this, we will have a better idea of what lies beyond 29 March 2019, when we officially leave the European Union. At least, we all hope so. I nearly wrote, ‘By the time you read this, we will know…’ but that’s unlikely to be true. Not least because in my experience it takes ages to bed in any changes which have been agreed, and it takes even more time for most businesses to adjust to those changes.

“When the UK voted in a previous referendum, in 1975, we were already officially members of the European Economic Community – we joined on 1 January 1973 – but it wasn’t until after I entered Parliament in the mid-1980s that Margaret Thatcher obtained her rebate from the Common Agricultural Policy, and it wasn’t until 1986 that she pushed through the Single Market Act which helped bring free trade to all the member states.

“After that we had years of staying up late in the Commons voting through changes to UK standards from over 200 Directives which resulted from that important law. And it takes a while for business to adjust: not many of you, I’ll bet, can post overnight changes in prices reflecting currency or commodity price changes, and you will always find inertia fighting you when it comes to new customers  or suppliers. Persistence, however, pays off.

“So my prediction is that, even if we are a bit more nimble this time round, I suggest it’ll be at least ten years before we can really claim to know. I was a Remain campaigner, but like millions of others I accept the result of the June 2016 referendum. Those who now demand a ‘People’s Vote’ conveniently forget that we had exactly that, with 33 million people voting and both sides pledged to accept the result. We don’t rerun referendums if someone doesn’t like the outcome; Ireland, France, Denmark have done so, but it’s not the UK way. So now we should turn our minds to how to make the best of the considerable change which faces us.

“Dr Ashcroft made interesting points in his article on Brexit, but I believe he was unnecessarily pessimistic. I would suggest that economies tend to be self-righting. When one index rises or falls, that creates problems for those wedded to the status quo (let’s count a few academics and politicians here), but it also creates opportunities for those smart enough to seize them (which should include every business person smart enough to read this magazine). Let me give you a few examples.

“There is the concern about a fall in the currency, but there’s a good side to this, as to most other economic shifts. As sterling has fallen, so exports are boosted. The UK export sector boomed in 2018; as I write, the most recent data from the Office for National Statistics is for the quarter in September which shows that:

  • The total trade deficit (goods and services) narrowed from £3.2 billion to £2.9 billion in the three months to September 2018, due mainly to an improving goods balance.
  • Goods exports increased by £5 billion compared with a £2.1 billion rise in goods imports, resulting in the goods deficit narrowing £2.9 billion to £31.9 billion in the three months to September 2018. So exports grew by twice the amount imports did.
  • Rising exports resulted in the goods deficit narrowing with both EU and non-EU countries.
  • Meanwhile, the UK’s trade in services surplus scored its fifth consecutive increase when it rose to £9.86 billion.
  • In the 12 months to September 2018, the total trade deficit narrowed to £7.6 billion, due mainly to a widening of the trade in services surplus.

“Similarly, the fall in sterling boosts earnings from overseas equities. As an example the Wellcome Trust, expertly run, cannily bet against the pound in June 2016; the instant drop in sterling to 31 year lows boosted their funds by over £5 billion to £21 billion. Not bad. I had personally invested in international funds at the time and I also enjoyed a windfall. The message here is not to be too sentimental, but to assess the markets objectively.

“There is also the rise in inward tourism, and that Brits won’t go abroad as much, but that double boost to the hospitality industry is enormous. And welcome, as that’s entry level employment. We get 40 million visits  a year and they spend £24 billion (2017/18). Chatsworth welcomes over 600,000 visitors each year with 10% coming from China alone; if it’s the Year of the Sheep, they’ll buy every sheep toy and ornament from the Gift Shop they can lay their hands on.

“Tourism figures can be very sensitive to exchange rates – we saw a substantial jump in inward tourism in 2017, then in 2018 the number of visitors cooled off as sterling strengthened somewhat. The same applies to us going abroad – when sterling rises again, we’re off. During the April – June 2018 quarter, there were 19.9 million visits abroad by UK residents, the same number as in the same months a year earlier, but they spent 1% more on those trips; that included 1.1 million visits to North America, an increase of 12%. That means people like me and you jumped on a plane to New York, which was suddenly a bit less expensive.

“We need to think about Brexit’s impact on immigration, and here I have an emotional reaction: my grandfather came from Poland to the UK aged 16 in 1897, arrived in to Liverpool and couldn’t afford to go further. I know how valuable immigrants are to the economy. An end to easy migration, however welcomed by those competing in the same wage pool, will cause some employers a great deal of grief, especially at a time of full employment and an inadequate skills base.

“Strangely enough, we are currently seeing the highest immigration figures since 2011, with a sharp increase from outside the EU, so if you need people, they’re coming (perhaps getting ahead of possible changes to immigration law). The ONS puts it like this: ‘Our best assessment is that around 270,000 more people came to the UK than left in the year ending March 2018, so long-term net migration has continued to add to the UK population.’

“Net entry from the EU is still high but has fallen since the vote. ‘EU net migration was at its lowest level since 2012 but continues to add to the UK population, with around 90,000 more EU citizens coming to the UK than leaving in the year ending March 2018,’ says ONS. The decline is not just because Europeans don’t feel welcome, as Remain campaigners are quick to claim. UK earnings are no longer so attractive in other currencies as 10 years ago, while some of the poorer countries have seen their economies and job prospects improve too.

“But again, being objective, these immigration shifts whether driven by currencies or cultural attitudes, could prove to be beneficial in the longer run. If there are fewer low-wage arrivals, employers in the UK will be obliged to train and look after their workforces better. They’ll have no choice but to invest in automation and IT. This will take time and money, so their reluctance is understandable, but the result can only be a rise in productivity and real wages. I reckon that’s already happening (too slowly) as we have full employment and the lowest unemployment rate since 1975. That can’t be bad.

“These aren’t paradoxes. An economic shock is often beneficial, as it disrupts complacency and groupthink, and presents opportunities to new forms of commerce. Such shocks usually happen after great crises like war or a stock market bubble collapse. It was no accident that Japan overtook us in shipping in 1954 less than a decade after being defeated and occupied by the Americans, or that by 1955 we were talking about a German economic miracle.

“When business people focus on the future and invest their time and energy in it, they can indeed work miracles. This time, however, we do understand what’s happening, and to some extent we can prepare for it. The UK economy is remarkably resilient, and that’s not an accident. Five, ten years from now, we will look back at these trying times, and wonder why we were so anxious.

“That’s my prediction, and you can bet on it!”

Edwina Currie
High Peak Business Club