The Brexit Deal

-First impressions

29th December 2020


So the Brexit deal has been done and as I predicted here we didn't hold many cards. To boot the EU played theirs well. The deal is not bad as it could have been, with the tariff free movement of goods still allowed. All be it with time consuming border controls. It is likely that there will be get rounds such as more trailer only movement across the borders but we will wait to see if this impacts on the long term investment plans of the foreign owned car plants that relies on just in time deliveries. For all the talk of taking back control our product, employment and environmental rules remain aligned with those of the EU and whilst there is room for divergence it would be a brave or foolhardy politician to pick the Brexit scab especially as we were promised that this would be the deal that got Brexit done. With no agreement on services this is seen as the biggest loser I but have always held the belief that hair dressers and there like make little contribution to our exports. The one part of the economy that will probably take a big hit is the financial sector and particularly the City which will in turn hit the exchequers coffers..

For all the bluster of the Boris Johnson we remain firmly in the orbit of the EU. It may not be Brexit in name only and is probably not much different to that agreed by Theresa May in July 2018. Which raise the question of whether the outcome could have been any different? I'll leave it to the 'what if' historians to say if Trump had had won another 4 years, whether that would have changed the outcome. Whatever the Brexit purists won't be happy but it will satisfy most of the British public who wanted to see it done.

So what will change, probably not a lot in the near future, European trade will continue, with more bureaucracy. And with a 90 day visa free travel, it is unlikely the average member of the British public will notice much change to begin with. Except those who expect to take their pets overseas or students looking for a exchange program. As already said the City will be the biggest loser, the rules on financial equivalency have yet to be agreed and it all points to London being a rule taker rather than a rule maker. Not only will Frankfurt and Paris wanting to challenge the City's dormancy but without the British governments lobbying we are likely to see more moves by the EU to regulate the financial sector. This may not necessarily be a bad thing for those who thing this outsized sector has a detrimental effect on the rest of the economy.

In the medium term, once the chaos of the Brexit transition and Covid have passed we may even see wages rise in the poorer paying jobs as the pool of available labour is limited to the domestic market. There again we could see the rise in illegal gang-masters.

The longer term is harder to determine. For all the talk of a service economy Britain, like any household, has to sell its wares to the world just to pay for all those imports. Brexit has removed a major plank of established industrial policy, as a jump board for companies from outside the EU wanting to enter that market. The other plank of industrial policy of allowing the selling of established British companies to foreign concerns is also running out of steam as there are so few viable one left. Without inward investment new wealth creating jobs which is essential for a healthy economy will have to come from an indunas base. There will be much talk of the march of the makers as George Osbourne did in 2011 but like then it will come to nothing if there isn't significant investment or structural change. The problem is that the wealth creation sector of manufacturing and associated industries as opposed to the money making is relatively small for a developed economy and as already stated, is now mainly foreign owned. What is left are a small number of companies in mature markets, the Rolls Royce and JCB of the British economy. This leaves our hopes on the start-ups for job creation but this isn't going to happen when there is easier money to be made from renovating properties.

This is unlikely to change just because of Brexit especially as property is so important to the British economy. So important that government policy over the last 20 years is to prop it up whenever it starts to lag, such as low interest rates stamp duty holidays and guaranteeing first time buyers deposits. This policy does bring some financial stability but at the expense of rising housing costs. Without wages rising accordingly there is less to spend on the rest of the economy. Of course that money doesn't disappear it moves buying power from the young to the old who generally need fewer physical things and are looking for a more investments like property. A vicious or virtuous circle, however you look at it has developed of ever rising housing costs at the expense of the rest of the economy. Capitalism is eating itself. One would think that this should be unsustainable but we are reaching the point where substantial parts of the population have to choose between rent and food but still house prices rise. Whether or not a crunch develops these are conditions that are not conducive to start-ups particularly manufacturers which are time consuming and with no guarantee of success.

Without substantial support for new start-ups or structural change to the housing market, unlikely with this government, the future looks bleak.

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