WEEKLY COMMENT 13-07-2017
By Barry Edwards
The comments and statements coming from politicians and commentators are particularly confusing if you are trying to work out the approach that the government is taking concerning the Brexit negotiations. The only thing that is clear is the fact that politicians from all parties have very different ideas about the outcome they would like to see. It is now fairly obvious that many people and politicians had not really thought deeply about the consequences of Brexit and what it will mean for the country. The appalling debate prior to the referendum clearly demonstrated the lack of understanding about the detail involved in negotiating the final settlement.
The cost of leaving the EU was the major omission from the pre referendum debate which has now become the only subject that the EU will discuss before they consider any other agreements that are vital for the future of the UK economy. Michel Barnier, the EU chief negotiator, has told the UK that talks will not progress unless Britain accepts the principle that an exit deal involves a substantial payment to the EU. When asked if he would refuse to discuss any other issue if the UK did not accept that it had financial obligations, he replied ‘yes’.
The estimated amounts of these obligations that the EU has calculated could lead to a gross upfront payment of €86.4 billion with contingent liabilities of €11.5 billion and €3.7 billion in development funding pledges. That makes a total of cash payments of €90.1 billion with guarantees which are the contingent liabilities that may not have to be paid unless actual losses occur. This has led to a lot of blustering on the UK side while Barnier just says ‘the clock is ticking’!!
The upfront payment is a gross amount which would have the assets the UK owns in the EU deducted which have not been fully calculated yet or so it appears. If you would like a more detailed guesstimate of the figures, please refer to the weekly comment ‘The Cost of Brexit’ on the 9th of February 2017 which are from the report by the Centre for European Reform think tank.
As yet, as far as I am aware, there has been no response from the UK but that is probably because David Davis and Michel Barnier are meeting next week. We may learn more from the statement made after that meeting, however, from the previous meeting the UK conceded to the EU agenda which may mean we hear the counter offer from the government.
This is where the actual negotiations are concentrating at the moment but if you listen and read the comments from the politicians you would think that just about everything other than the cost of leaving is the subject of the talks. The bickering amongst the political parties is not publicly revealed although the grouping together of the opposition to any exit proposal presented in parliament is gaining strength unless certain conditions are met. The Scottish and Welsh parliaments have to confirm acceptance of any agreement to leave which gives them a strong hand in the content of the deal. This must be of concern to the government who are finding out how their hands may be tied in the actual talks.
The Office for Budget Responsibility has just published their July ‘Fiscal Risks Report’ which highlights the potential risks to the economy from the effects of Brexit although they state there are not enough facts to be certain about forecasting how it will change their analysis of the economy. If you would like to look at this report click on the link below, it is very long over 300 pages but the summary is worth reading;
There are other statements and papers about the damage Brexit will have on the economy and they all predict much slower growth and some forecast recession. They all say that unless it becomes clear what the agreement will look like in the next 12 months, companies will start to make plans to move operations elsewhere. The most important objective for business is clarity about the medium term economic conditions to be able to plan ahead and invest with the knowledge that they can trade without onerous restrictions in the EU. The government may find that difficult to achieve and therefore they must have a counter proposal for the UK to convince business that there are opportunities in this country to encourage companies to invest with confidence.
The industrial strategy and infrastructure investment that have been discussed by government need to be formalised and presented as a comprehensive plan that will be implemented in the near future to make business believe there is an alternative to the effects of Brexit. Companies must be convinced that the UK economy will grow at a respectable level with the full support of government. This has been seriously lacking in the UK for some time and the government must take the lead and demonstrate it can counter any reduction in growth caused by Brexit.
That’s all for this week, more observations next week.