Hard Times Ahead in 2017

A retired BoE Governor thinks Brexit is a good idea

mervyn-kingBoxing Day and a message from a retired Governor of the Bank of England.  See this report in the Telegraph: “Britain should be ‘confident’ about Brexit and quit Single Market, former Bank of England governor says”.   Lord King’s contention that Brexit will be good for the UK is open to serious question – not least because of his record as Governor. See this 2012 review of his performance in the Daily Mail: “CITY FOCUS: Our verdict on Sir Mervyn King’s reign as Bank of England governor

The financial crisis is the albatross that people will continue to hang around King’s neck. He has finally admitted the Bank could have done more in the build-up – ‘we should have shouted from the rooftops – and that ‘conquering inflation was not enough to ensure stability’. 

There was too much emphasis on monetary policy and not enough on financial stability. The Bank has bucked up its ideas after being caught on the hop, but the Verdict remains a miserable failure.

With that sort of record, the opinion of this former Governor is not one on which it would be wise to rely.

Cutting Immigration may be dangerous

The National Institute for Social and Economic Research has sought to estimate the financial impact of Brexit reductions in immigration:  see the NIESR Report “The Economic Impact of Brexit-induced Reductions in Migration”.   The Mirror has this: “Warning of long-lasting economic damage if 150,000 migrants are lost to Brexit – Research suggests that losing such a great number of migrant workers will reduce GDP per capita in 2030 by up to 5.4% below what it would otherwise have been”.

Planning for Brexit

The Financial Times has an interesting article about Brexit planning: “The remarkable Brexit blueprint from 2013 – A British diplomat wrote a paper three years ago — and it is striking how many of his insights are being proved correct”.     The report he refers to is available on the Web site of the Institute for Economic Affairs ( which is a right wing think tank):-  “A Blueprint for Britain: Openness not Isolation by Iain Mansfield”.

The FT’s James Blitz ends with this comment:-

I have not managed to speak to Mr Mansfield for this blog, despite trying to do so through FCO contacts. Perhaps my summary of his pamphlet is a bit kind. His vision of Britain emerging as an open and prosperous trading nation after Brexit is one with which many would disagree. Plenty of commentators believe the UK is heading for a train wreck in the forthcoming negotiations.

But Mr Mansfield’s essay is an impressive example of how a lone British diplomat was able to do some serious thinking about the consequences of Brexit some three years before the referendum happened.  It raises questions about why a few more people in Whitehall were not asked to do the same.

The Pound Buys Less

On 5th October 2016, the Wall Street Journal had this: “Pound Drops to Three-Decade Low Against Dollar on Brexit Concerns – Investors worry about the effects of U.K.’s departure from EU on the British economy“.

may99“The pound fell to a 31-year low against the dollar and has declined 1.9% over the past two sessions after U.K. Prime Minister Theresa May on Sunday set a March deadline to begin exiting the EU and indicated that maintaining its privileged access to the country’s largest trading partner was a lower priority than controlling immigration.  The U.K. currency has dropped 14% against the dollar and 13% versus the euro since the June 23 vote to leave the EU.”

On 22nd December 2016 the Financial Times gave an update on the depreciation of sterling: “Pound slide extends as Brexit overshadows sentiment – Currency falls for fourth consecutive day against the euro over economic fears“.

Our concern is that the market is too complacent and optimistic in its Brexit pricing as UK asset pricing seems to suggest the market is moving away from a hard Brexit pricing, with little concrete reason,” said Jordan Rochester, foreign exchange strategist at Nomura. Setbacks in economic data could push the euro higher against the pound to 88p and drop sterling below $1.20, Nomura strategists added.

UBS strategists said that recent sterling strength was likely to prove temporary. “We have argued that a Brexit-induced adjustment in the UK’s current account will necessitate further currency weakness,” said the bank, predicting that sterling would fall to parity with the euro.

The Telegraph had this on Boxing Day: “Brexit talks to rock pound as Article 50 marks sterling’s ‘final dip’“:-

The start of two years of formal Brexit negotiations with Brussels is expected to push the pound down by more than 5 pc against the dollar and euro from current levels of $1.2290 and €1.1764, according to Bank of America Merrill Lynch (Baml), Morgan Stanley and Deutsche Bank… Oliver Harvey, a currency strategist at the bank [Deutsche Bank], said sterling could plunge to as low as €1.03 against the euro, which would be the lowest since the end of 2008.

Impact on UK Households

Some time ago, the Government published a computation of the likely impact of sterling depreciation on household spending:  “The impact of a sterling depreciation on the costs of a family shop on food, nonalcoholic drink, clothing and footwear“.

It concluded that a 12% fall in the value of sterling leads to a 2.9% increase in the cost of food and drink and a 5% increase in the cost of clothing and footware. However, more recent research suggests the reality many be worse.  See this July 2016 report in the Financial Times: “Harsh realities of a weakened pound – Sterling’s malaise set to hit households harder than they expect“.

A weaker exchange rate will raise certain domestic prices rapidly. Petrol and air fares, where costs are denominated globally in dollars, are obvious examples where prices are already on the rise. The prices of imported fruit and vegetables, tobacco and even books have also been sensitive to sterling in the past.

But the overall relationship between higher import prices and inflation is uncertain. Traditionally, the BoE had a rule of thumb that about 60-90 per cent of the drop in the exchange rate would be felt in higher import prices. An 11 per cent depreciation in sterling’s value, therefore, should add 2-3 per cent to prices over a period of time.

In summary, Brexit has unleashed a different sort of currency depreciation, according to modern economics, one that is less likely to encourage domestic investment for exports, is more likely to raise inflation and will be more painful for hard-pressed families.

As David Miles, a former MPC member, told MPs soon after the referendum: “I am not terribly optimistic that, if sterling now stays at the current level, we should expect a marked increase in exports from the UK and a significant reduction in the current account deficit.

Stephen King, adviser to HSBC, added that if exports were not significantly stimulated, sterling’s fall would have the effect of raising prices faster than wages, thus cutting living standards. “This is when you get into the whole risk of recession, stagnation and income squeezes of one sort or another,” he added.

On 23rd December 2016, the Guardian had this: “Business as usual for UK economy – but where will it go in 2017? – Revised GDP growth figures show Britain putting in a solid performance – but inflation could lead to a slowdown“.

Hard Times Ahead

The likely prospect for the coming year is that the political uncertainty stemming from the referendum will continue to deter investment. Growth is expected to decelerate in 2017 amid a slowdown in real household income growth.

Price increases for foreign travel, fuel,  food and clothing resulting from falls in the value of the pound will have a negative effect on most households.

The hardest hit will be the elderly, the poor and Teresa May’s “Just About Managing” families.

 

 

 

 

Control Freak Teresa May

The Trouble With Teresa

may99It is useful to bear in mind just how far Mrs May was shackled by the incompetence of David Cameron and by the way the Remain Campaign was conducted.  The Financial Times has a good video on the campaign: “Inside Brexit: How Britain lost Europe“.  When the result was announced, David Cameron had no real alternative but to fall on his sword and resign because he had not made any plan for the contingency of the Leave Campaign winning.  So, the Conservatives had to find a new leader.

Many will remember the eavesdropped conversation in July 2016 between two Tory Grandees, Malcolm Rifkind and Kenneth Clarke, who were among the Conservative MPs choosing the candidates to replace David Cameron after he had resigned following the referendum.  Clarke said to Rifkind: “Theresa is a bloody difficult woman but you and I worked with Margaret Thatcher.”  We are now beginning to find out just how “bloody difficult” Teresa May is.

On 13th July 2016 Teresa May returned from Buckingham Palace to Downing Street after the Queen had asked her to form a government.  The full text of what she said is set out in the Spectator: “Theresa May’s first speech as Prime Minister: full text“.    The speech introduced the new concept (for Conservatives)  of making promises to the “just about managing” but it also contained this:

As we leave the European Union, we will forge a bold, new, positive role for ourselves in the world, and we will make Britain a country that works not for a privileged few, but for every one of us.

Teresa May had plainly decided that the UK was to leave the European Union. Cabinet Appointments were announced on 13th and 14th July 2016 including the following:  Boris Johnson as Foreign Secretary, David Davis as Secretary of State for Exiting the European Union and Liam Fox as Secretary of State for International Trade and President for the Board of Trade (“the Brexit Ministers”).

The Independent  was getting worried  -see this 15th July 2016 article:  “Theresa May is a control freak who will have to let go if she wants to succeed as Prime Minister.   Tellingly, the expression “control freak” was part of a comment from Damian Green who had been Home Office Minister under Teresa May:-

 “She will be a hard taskmaster. “She’s a Stakhanovite and works harder than anyone,” said Damian Green, a former Home Office minister under May and one of the allies she promoted to the Cabinet – as Work and Pensions Secretary. He told the Institute for Government that she was “a bit of a control freak”, but insisted that was not a criticism.

On 19th July 2016 the Mirror had this report after the first meeting of the Teresa May cabinet:  ”Control freak Theresa May uses first Cabinet meeting to launch power grab across governmentThe new PM told Tory colleagues she is taking personal control of key priority areas – the economy, Brexit and social mobility”.

In August/Sepetember 2016, Dr Robert Niblett CMG,  the Director of Chatham House – The Royal Institute for International Affairs, wrote comprehensively  about how to prepare for Brexit: “Preparing for the UK’s Brexit Negotiation“.  It is well worth reading.   Noteworthy was this:

At some point, May will have to trigger Article 50, the process laid out in the EU treaties by which the UK will formally negotiate its withdrawal from the EU with the other 27 member governments. It is important that the prime minister delays this process for as long as is feasible.”

Dr Niblett explained why:-

On the one hand, a clear majority of the British electorate voted in the 23 June referendum for Britain to leave the EU. She has no choice but to follow through on the result. On the other, Leave supporters did not vote for a specific version of Brexit.  Alongside the many who were determined to free the country from the costs and constraints of EU membership, the majority included an anti-austerity and anti-globalization protest vote and those with a vision of a buccaneering ‘global Britain’ .Distilling these diverse and sometimes divergent views over the coming months into a model of Brexit that can be negotiated with the EU will be exceedingly difficult, especially when many prominent champions of Brexit in Parliament and the media are demanding a rapid end to the UK’s EU membership and watching for any signs of retreat.

In October 2016, The Guardian published this:  “Exclusive: what Theresa May really thinks about Brexit shown in leaked recording – Secret audio of Goldman Sachs talk in May shows she feared businesses would leave and wanted the UK to take a lead in Europe“.

Speaking at the bank in London on 26 May, the then home secretary appeared to go further than her public remarks to explain more clearly the economic benefits of staying in the EU. She told staff it was time the UK took a lead in Europe, and that she hoped voters would look to the future rather than the past.  In an hour-long session before the City bankers, she also worried about the effect of Brexit on the British economy.  “I think the economic arguments are clear,” she said. “I think being part of a 500-million trading bloc is significant for us. I think, as I was saying to you a little earlier, that one of the issues is that a lot of people will invest here in the UK because it is the UK in Europe.  If we were not in Europe, I think there would be firms and companies who would be looking to say, do they need to develop a mainland Europe presence rather than a UK presence? So I think there are definite benefits for us in economic terms“.

There is good no good reason to think that these were anything other than Teresa May’s honestly held views.  Yet by October 2016 and the Conservative Party Conference Teresa May had opted for Brexit and set a timetable for triggering Article 50.   See this in the  Sunday Times: “May fires Brexit starting gun –  ‘Great Repeal Bill’ to scrap EU membership – PM’s speech will declare UK independence – Article 50 to be triggered by end of March“.   It is worth noting that this was wholly contrary to Dr Nisbett’s scenario.

Also on  2nd October 2016, Alex Massie writing in the Spectator wrote: “Why didn’t Theresa May campaign for Brexit?“.    Massie described Mrs May’s Sunday Times assertion that Brexit would make Britain great again as “twaddle”:-

…can we pause for a moment to note that this is twaddle. Because if it were true – and if it were true that Mrs May believes this – then we are asked to believe that Britain was not, before its blessed liberation in June, a sovereign or independent nation. And if she really believed that, we might pause to ask why she did not campaign for Brexit? Moreover, if this were actually the case we might also ask why 48 percent of the voting public willingly endorsed Britain’s Brussels captivity, accepting the price of bondage as being one well worth paying. Of course we understand, now that Brexit means Brexit, Mrs May must pander to what Ken Clarke aptly labels the headbanging wing of the Tory party but there’s no need, even while doing so, to insult everyone else’s intelligence. Rhetoric matters, too. Not least because, as increasingly seems evident, the Conservative party is leading us to the hardest of hard Brexits. A Kipperish Brexit, in fact, of the sort that, had it been presented to the British people as the plan back in June, would most probably have failed to win the day. I base that view on the very good fact that if this was the kind of Brexit people might have voted for it would have been the kind of Brexit promised by the Leave campaign. It wasn’t. 

So be it. In the meantime, we must endure endless crowing from the Brexiteers who greet every piece of encouraging economic data as fresh evidence there’s no downside at all to leaving the EU. It may be that, in time, the worriers and carpers and sceptics are confounded by events (and it would be a good thing, for all of us, if that proves the case) but it’s evidently much too early to say so and no amount of asinine cheerleading can disguise the fact that the economic impact of leaving the EU will not be felt until such point as, you know, the United Kingdom has actually left the EU.

The complete article is well worth reading.

By 23rd October 2016, the Telegraph was reporting this: “Theresa May to decide over Brexit talks, No 10 says, after Boris Johnson began setting Brexit strategy“.   The article contained an embedded  video of an interview with Mrs May on Sky in which Teresa May asserted that she would not invoke Article 50 until she knew what trade deal the UK would be able to conclude with the EU.  That assertion has been overtaken by events, because Teresa May and her Brexit Ministers and advisers did not understand how other EU  Member States and the Commission would approach Brexit – no negotiations prior to Article 50 notification.  

mayrome
Teresa May in Italy

So we have had the rather sad spectacle of Teresa May traipsing around Europe being cold shouldered by European leaders. If Mrs May had followed Dr Nesbitt’s excellent advice, she would have taken a much longer approach.  There would have been open discussions inside and outside Parliament on the way forward and eventually parliamentary debates on the nature of any future relationship with Europe.

 It is worth noting that the EU institutions are well used to referendum votes which fail on the first attempt and which require the EU and the Member State in difficulty to co-operate on ways forward.  But the fateful inanity of the May slogan “Brexit means Brexit” meant that she lost that opportunity.  

Worse still has been Teresa May’s attempt to bypass not only public debate, but also Parliament. That led to the legal challenge about the use of prerogative  powers to give effect to the Referendum vote.  The May Government lost in the Divisional Court and appealed to the Supreme Court. The case has been heard by the Supreme Court and judgement is expected in January 2017. Hopefully, the  Supreme Court will require Mrs May to proceed by way of an Act of Parliament.

On 14th December 2016, Sky News had this: “Secrecy is damaging PM Theresa May’s Brexit preparations, say Whitehall experts – Experts say the absence of a clear plan and the desire for secrecy are hitting preparations for Article 50 and later negotiations.” and Reuters had this: “British PM May’s Brexit plan: secret strategy or muddle?“.  The source of this concerns may be this briefing paper from the Institute for Government: “Whitehall’s preparation for the UK’s exit from the EU” which is worth a read.

On 23rd December 2016 the Daily  Mail reported: “Brexit means Brexit, Ma’am: Queen left ‘disappointed’ after Theresa May declined to share her plan on how the UK will leave the EU during two day stay at Balmoral“.

To end this sad year we had Teresa May’s “Christmas  Message” reported in the Independent: “Theresa May uses Christmas message to urge Britain to be ‘bold’ post-Brexit – The Prime Minister asks the country to ‘come together’ in 2017“.  It is worth reading the readers’ comments on the article including this:-

Spin…soundbite…spin…soundbite…spin… What a disastrous woman, what a disastrous year, what a disastrous future lies before this divided, shambolic land.”

Well said.

Train Crash Brexit – No Thanks

Christmas –  New Year 2016-2017

The year 2016 is coming to an end.  The House of Commons will recess for the Christmas Break on Tuesday 20th December 2016 and the House of Lords  on the following day.  Both Houses return to their labours on 9th January 2017.  we have had the last Andrew Marr show and Sunday Politics of 2016 and over the Christmas-New Year holiday we can expect the usual punditry about events in 2016 and expectations for 2017.

This was the year of Brexit – See this in the Financial Times: “Year in a Word: Brexit – The shock result of the British vote becomes an international byword for rebellion“.

2016 – The Year of  Brexit – Cameron’s Misjudgment

CameronBrexitThere can be no doubt that the major event of 2016 was David Cameron’s attempt to see off UKIP and the Brexit lunatic faction within the Conservative Party  by the device of holding a referendum on the UK’s continued membership in the European Union.    Margaret Thatcher had in 1975 described  the holding of a referendum as  “a device of dictators and demagogues”, quoting Clement Attlee, the post-war Labour prime minister.

The Financial Times has this: “How David Cameron lost his battle for Britain – The key moments in the battle that cut the UK adrift from its European moorings” and it is worth noting this:-

Whatever he says now, Mr Cameron’s political epitaph is already written. Peter Mandelson, former British trade minister and European commissioner, said: “History will remember David Cameron simply as the prime minister who took us out of the EU. I don’t think there will be anything else. A man who took this tactical risk, which then turned into a strategic blunder.” His former colleagues in Britain and the EU are left to pick up the pieces. One British minister, reflecting on Mr Cameron’s legacy and the country after the vote to leave the EU, says: “Our starting position should be: ‘Oh shit’.

But there have been many European referenda which have not provided the result that the politicians were hoping for.  The Economist table below makes that clear:-

20151017_src765

As the Economist stated in its 2015 article about the above list:  “How referendums can go wrong – Herding cats – Referendum results are notoriously unpredictable”:-

Over the past 25 years, voters in different European countries have repeatedly given the “wrong” answer, even when all political parties have campaigned on the other sideAnd all too often they have voted not on the issue itself but to punish unpopular governments.

In May 2016, the Telegraph’s Europe Editor wrote this: “Why the evil genius of David Cameron’s EU referendum gambit may yet prove his undoing” which included the following pertinent observation:-

“If Mr Cameron had been serious about offering British voters a chance to leave, he would have spelled out and negotiated the options for a new relationship – the Norwegian umbilical cord, the Swiss-style free-trade deal or the completely free-range WTO option – stuck them on a ballot paper, and then let the people decide.

“But as everyone knows, Mr Cameron wasn’t serious. The EU referendum was never a popular demand of the British public – polls put the EU way down the list of voters’ concerns – but a narrow tactical move to prick the UKIP bubble and appease the Eurosceptic ideologues in his own party.

It is worth reading this lengthy article by Daniel Korski, the Deputy Director of the Cameron Policy Unit: “Why we lost the Brexit vote – Behind the scenes of the flawed campaign to keep the UK in the EU

The Cameron government had, at least, provided that the referendum be advisory rather than self executing, but he had prepared no plan for the event of a Vote Leave victory.

Shortly after 08:15 am on the morning after the result had been announced David Cameron told the country that he had informed the Queen of his decision to remain in place for the short term and to then hand over to a new prime minister by the time of the Conservative conference in October.  He said he would attempt to “steady the ship” over the coming weeks and months, but that it would be for the new prime minister to carry out negotiations with the EU and invoke Article 50 of the Lisbon Treaty, which would give the UK two years to negotiate its withdrawal.

Teresa May as Prime Minister

may99Rather than take the approach of many European leaders when a Referendum fails (see the Economist Table above) which is to hold a rerun after getting minor further concessions, Mrs May has adopted the inane slogan “Brexit Means Brexit” and she and her Ministers sought to give the Article 50 Notice of leaving the European Union using prerogative powers.  However, there were proceedings by way of judicial review and and a Divisional Court held that the triggering of Brexit by the giving of an Article 50 Notice required legislation by Parliament.   The Governments appealed to the Supreme Court and  after a hearing in December this year, the Court’s judgement is expected to be delivered in January 2017.

Nobody who covered the hearing in the Supreme Court is prepared to predict the outcome but there was a fairly clear consensus that that the Government’s lead Counsel (James Eadie QC)  was not as convincing as was  Lord Pannick QC for the Respondents.   My personal view is that the Government’s appeal may well fail.

State of the Parties

One can see the results of polling by ICM for the Guardian on this page: State of the Parties in the Opinion Polls.   If one takes samples of movement during 2016 one gets this:-

Month  Con Lab Lib-Dem  UKIP  Other
Jan 40% 35% 6% 10% 9%
Apr 38% 33% 7% 13% 9%
Jun 36% 32% 7% 15% 11%
Sep 41% 18% 9% 13% 10%
Dec 41% 27% 9% 14% 9%
Year +1% -8% +3% +4% 0%

The one party which seems to have done badly over the year is Labour who have gone down by 8 percentage points over the year. UKIP is up 4 points.  So thus far, the Conservative Party has weathered the storm, Labour is in disarray, UKIP is probably going to do well in local government by elections, particularly in the North, and the Lib-Dems are only slowly recovering from the disaster of the Coalition.

Ministers in Mrs May’s Team

hammondThe Financial Times has this: “Brexit Briefing: the growing confidence of Philip Hammond – Chancellor ends year looking more self-assured than any other minister“.    Mr Hammond understands the need for a transitional arrangement and he also understands what the financial consequences of a “hard” Brexit might be.

3-blind-miceThe FT also had this: “Welcome sense from UK on the EU customs union – A step in the right direction but no help for crucial service exports” and this “David Davis wins trust at home as broker in search of Brexit deal – Unflashy approach gains praise from Leave camp while reassuring former Remainers“.

Boris3The one Cabinet Minister whose approach is most under question is, of course, Clown Boris.  See this in the Huffington Post: “Boris Johnson Tells Friends He Believes Number 10 ‘Is After Him’ – But does May have ‘too much invested’ in Johnson?“.

Last July, the Guardian had this: “The Boris Johnson question: how the UK’s foreign secretary is viewed abroad – Some international observers are amused, but others regard Britain’s top diplomat as a new and unnecessary problem“.   As the article puts it:-

Johnson is widely viewed as inherently untrustworthy. In Brussels, and in other EU capitals, he is seen as the man whose lies, opportunism and vaunting ego brought about Britain’s disastrous EU exit.  This anger is genuine. And unlikely to dissipate quickly. On Thursday France’s foreign minister, Jean-Marc Ayrault, summed up what most of unhappy continental Europe felt, declaring: “He [Johnson] lied a lot to the British. Now, he is the one with his back against the wall.”  The problem, in Ayrault’s damning view, was that France needed a UK partner who was “clear, credible and reliable” and “with whom I can negotiate”. This was not Johnson, he made clear. Much of the rest of the world agrees, with Johnson regarded as a new and unnecessary problem.

Boris is popular with many Tory voters.   It may also be true that every Prime Minister has to have a Court Jester, but Mrs May may need to take account of the anti-Boris feeling in Europe and keep him well away from the Brexit negotiations.

 Soft, Hard or Train Crash Brexit ?

The Financial Times has this:  “The chaotic route to train-crash Brexit – An orderly separation from the EU should not be taken for granted“.  See also this BBC Report: “Brexit trade deal could take 10 years, says UK’s ambassador“.

A major part of the problem is that the Brexit negotiations involve dealing with (a) the European Council (which in effect means the other member states), (b) the European Commission – which negotiates on behalf of the Council and (c) the European Parliament.  Each of the parties have various axes to grind.

The Commission would like to see Euroclearing and other EU financial services carried out within the EU rather than outside. For example, the French are looking to see whether they can get banks in London to relocate their EU trading to Paris. Germany would rather like to see Frankfurt become the primary EU stock exchange within the EU. Ireland is hoping to capture Lloyds and the London reinsurance market.

See this Financial Times report: “Fears EU Brexit delays will spur bank exodus to eurozone – Brussels negotiators insisting on divorce deal before any transition“.

Senior EU diplomats admit the timetable also reflects a cold calculation of interests: delaying agreement on a transition would spur companies to move some of their business to the EU to cope with the danger of a hard exit. British officials fear Brussels may hold out for a transitional deal so long that many banks will have already taken crucial decisions to leave the UK“.

Also this: “Japanese banks warn of leaving London without Brexit clarity – Financial groups suggest relocating functions within 6 months to mainland Europe

A senior executive at a large US bank said the Japanese are “not unique in wanting clarity” and that most firms are planning for the “worst case outcome . . . absent a clear view of the end-game”. The worst case outcome for banks would involve the UK losing access to Europe’s single market, so they and other financial services firms could no longer ‘passport’ from London to the European Economic Area’s 31 countries.”

Also this: “Lloyd’s of London to establish EU base in the new year – Insurance market is among first City businesses to firm up Brexit plans“.

Finally this: “Brexit dashes the euro’s reserve-currency hopes – John Dizard on the strange fallout from the loss of London-centric euro clearing

This week we heard the European Commission is preparing to go ahead with post-Brexit rules that will force euro-denominated transactions to be cleared on platforms physically located within the EU.

Finally this: “Swiss and Danish travails show way ahead for Brexit talks – Creative solutions are possible but EU refuses to compromise on legal principles“.

One tactic the May government might consider is deliberate delay:   The UK remains a full member of the EU.  The EU member states are saying that they will not negotiate until Article 50 is triggered.  A possible position might be to make it clear that the UK will not trigger article 50 until it is ready to do so and it will only be ready to do so when it has a deal on the post Brexit arrangements.

Meanwhile,  given the qualified majority voting rules, the UK will have continued very great influence on EU affairs.

 

 

 

 

 

 

 

 

 

 

 

Brexit Lemmings

Towards a “Soft Brexit”

hammondPhilip, Hammond, the Chancellor of the Exchequer in Teresa May’s government, has started to make some suggestions about how to manage Brexit.   The Telegraph has this: “Philip Hammond calls for ‘soft Brexit’ taking four years” and the Guardian has this: “Philip Hammond says post-Brexit transitional deal will be needed – Deal after negotiations end in March 2019 will be needed to avoid serious risks to businesses and financial stability, says chancellor”.  See also this in the Daily Mail: “Brexit could take more than FOUR years to deliver: Philip Hammond widens Cabinet split by warning we WILL need a transitional deal with the EU as he takes a swipe at David Davis”.

The Governor of the Bank of England, Mark Carney,  was advocating the need for such a transition in November. See this BBC Report: “Mark Carney plan for Brexit gets cool response from Gove“.  And this was what the Independent wrote at the time: “What would a ‘transitional’ Brexit deal for the UK be?  Such a deal is widely presumed to involve Britain leaving the EU, as planned, in 2019 but immediately entering a close trading relationship with the rest of the bloc as part of the European Economic Area“.

Since then, the House of Lords EU  External Affairs Sub-Committee has been taking evidence on the issues raised by Brexit. See this BBC Report: “Clear plan’ for interim Brexit deal needed, say peersand, importantly, the full text of the Sub-Committee’s 5th Report: “Brexit: the options for trade” which has a good discussion of the alternatives.

The Telegraph has quite a good explanation of the pros and cons of a transitional deal: “Brexit Q&A: What kind of deal will the UK actually get: ‘transitional’ or ‘off a cliff’ – and what are the risks?” and the Guardian has this:  “UK naive to expect easy ride in Brexit trade talks, says Lords report.  Lords Brexit reports: Cross-party peers accuse ministers of misunderstanding nature of free trade and overestimating negotiating position

The suggestion of a transitional deal may not accord with the views of Teresa May’s Brexit Trio: David Davis, Liam Fox and Clown Boris.  But, as Chancellor, Hammond has to pay attention to the economic impact of Brexit.

If, as seems likely, there will have to be legislation to trigger Article 50, then Parliament may wish to be careful about what kind of Brexit strategy may be acceptable:  This was made clear by Keith Starmer, Labour’s Shadow Brexit Secretary.   See this report in the Guardian: “Labour must fight ‘battle of our times’ over hard Brexit, says Keir Starmer – Shadow Brexit secretary defends decision to back article 50 timetable but says Labour is not writing ‘blank cheque’ for ministers“.

A transitional arrangement will have to be negotiated.  The EU Parliament’s chief negotiator, Guy Verhofstadt, not unreasonably , says that any such arrangement must have limits.  See this BBC Report: “Brexit: Guy Verhofstadt warns against ‘eternal’ interim deal“.

This profile of Guy Verhofstadt in the Independent: “Guy Verhofstadt: Who is the diehard Europhile who has been appointed as EU’s chief Brexit negotiator?” is worth a look.  He is certainly an Europhile and he has had any number of confrontations with Nigel Farage in the European Parliament.  As far as this blog is concerned, that is greatly to his credit.

Guy Verhofstadt has also taken up the concept of “Associate EU citizenship”.  See this BBC report: “Brexit: UK ‘associate EU citizenship’ to be fast-tracked” and this similar report in the Guardian: “Brexit talks to include plan for UK nationals to keep EU citizenship – European parliament’s chief negotiator says associate citizenship would be ‘on the table’ for talks over Britain’s withdrawal from EU“.  As someone who wants to be able to continue to exercise my EU rights within the EU, that is an attractive proposition.

The UK Financial Sector in Peril

See this report in the Guardian: “Urgent Brexit deal needed to avert banking job losses, peers to warn – Exclusive: Lords Brexit committee to highlight need for financial institutions to make strategic decisions before EU negotiations are finished” and also this in the Telegraph: “‘Brexit could cost 200,000 City jobs without transitional deal’, warn peers as David Davis set for grilling from MPs today“.

It is worth looking at a House of Commons Library Briefing Paper from 2015  “Financial Services: contribution to the UK economy”.  The Paper can be found here  on the Parliament Web Site and the full report can be downloaded as a PDF.

The summary reads: “In 2014, financial and insurance services contributed £126.9 billion in gross value added (GVA) to the UK economy, 8.0% of the UK’s total GVA. London accounted for 50.5% of the total financial and insurance sector GVA in the UK in 2012. The sector’s contribution to UK jobs is around 3.4%. Trade in financial services makes up a substantial proportion of the UK’s trade surplus in services. In 2013/14, the banking sector alone contributed £21.4 billion to UK tax receipts in corporation tax, income tax, national insurance and through the bank levy.

See also this Report by Price Waterhouse Cooper for the Corporation of the City of London. No sane Chancellor of the Exchequer or Trade Secretary could possibly wish to see this activity being removed from the UK and relocated in another country – but this may very well be a consequence of Brexit.

Other EU Member States see the UK Brexit vote as an opportunity to bolster their own financial services sectors.  See this report of 8th December 2016 in the Independent:  “Brexit: Banks in ‘advanced talks’ over mass move to Paris, says French regulator – Regulator says companies have already conducted due diligence to move operations to the French capital“.

Other EU capitals, including, Amsterdam, Dublin, Frankfurt & Luxembourg, are also bidding for financial services planning to move from the UK.  See this in the Irish Times about Admiral, among others, planning to relocate: “Admiral may move insurance business to Dublin over Brexit” and this in the Guardian:  “Hundreds of UK lawyers register in Ireland in Brexit insurance move – Solicitors rush to register with Law Society of Ireland as only those based in EU states can appear at the European court of justice“.

Brexit Lemmings

It will be interesting to see what, if anything, Secretary  David Davis (“Mr Brexit”)  has to say about all this when he appears before the House of Commons Brexit Committee this afternoon.

eulemmings

As Matthew Paris put it in the Times in October: “We are heading for the biggest crisis since Suez – It is horribly apparent that, four months after the referendum, the Brexiteers have no idea where they’re leading us“.

Well, the Brexit Lemmings seem to be taking us over the cliff.

 

 

 

 

 

 

 

Who will come to our Aid?

Teresa May’s Approach to the Office of Prime Minister and Brexit

may99Mrs May was interviewed  for the Women of the Year issue of the Financial Times Magazine : “Theresa May on decision-making, Brexit and doing the job her way“.

Amid the usual guff, there was this insight: “May wants to hold information and power tight. “She gives her confidence to people very, very sparingly,” says one former colleague. The criticism runs that while May might seek opinions from ministers and officials at an early stage, ultimately decisions are taken by her and her inner court.

From the moment she returned from the Palace as Prime Minister, Mrs May has spoken and acted with what appears to be an utter determination to take the UK out of the European Union.  Many think that is a very dangerous idea.  It is worth remembering that in the Referendum, the Leave Vote was 51.9% as opposed to the Remain Vote at 48.1%. Hardly a ringing national endorsement for May’s fatuous slogan: “Brexit means Brexit“.

Nobody yet knows with any certainty precisely how she proposes to do this, but at the moment it seems that free movement is off the table which indicates that remaining in the single market for goods and services is also not contemplated.

There was much talk of developing new trade relationships outside the single market, but thus far there is no indication that any such new relationship is likely.  Absence from the free market in is likely have a serious impact on the UK economy, both for industry and for the providers of services, particularly those in the City of London.  The consequences for the economy may be catastrophic – and will hit the poorest hardest.

Some of the  “have nots” who voted for Brexit are beginning to behave rather like those similarly disenfranchised in Spain, Italy and Germany who supported fascism and national socialism in Europe in the the interwar period – with horrendous consequences.  And those like Farage and some Conservative Brexiteers are encouraging them.

David Lammy has written this in the Guardian: “I didn’t endorse May’s Brexit timetable – but I’m no ‘enemy of the people’ – Hurling abuse at anyone who dares mention that 48% of the country voted to remain in the EU will do nothing to bring our divided country back together“.  He makes a lot of good points.

Brexit in the Supreme Court

_92272197_ukscjustices-dec2013The arguments of Counsel for the different parties are now over.  The Court will consider the papers and the submissions and deliver its judgement in the New Year.

At the end of the hearing, Lord Neuberger, the President of the Supreme Court, reminded everyone that whatever that judgement was, it could not “overturn the result of the EU referendum”; the case was simply about “the process by which that result can lawfully be brought into effect”.

The Guardian has this piece: “Court in an existential nightmare over Brexit”  and one short passage did very much reflect my own view of the state of play by the time of the Government’s Reply:-

Last up was James Eadie, the QC with the short straw of restating the government’s case that had already been laughed out of the divisional courts. Eadie looked up at the clock with the eye of a condemned man. An hour. A whole hour to try to make the same points he had never really believed in when he’d opened the case on the previous Monday.

Paul Johnston, who has been a very senior journalist at the  Torygraph Telegraph for over 20 years had this: “Supreme Court day four, lunchtime briefing: enormous questions about power and legal writ loom over this appeal”.  Mr Johnston identifies these constitutional principles:-

  1. The law of the land cannot be changed other than by an Act of Parliament
  2. Legal limits on ministerial powers cannot be imposed by anything less than an Act of Parliament and
  3. The Courts will not interfere in the proceedings of Parliament

He carefully does not mention the principle that rights granted by statute can only be taken away by statute.   He then identifies the problem he sees, as being that his principles numbers (1) and (2) are incompatible with principle  numbered (3) and asserts:-

And how the judges square the circle will be of crucial importance. The reason is that a Bill, as opposed to a motion to approve the triggering of Article 50, is amendable and Labour made clear yesterday that they would use the legislation to push and prod the Government towards a particular type of Brexit. At some point, the Government may dig in its heels and be forced into a vote it could lose.

That is what worries the Government (and therefore the Torygraph):  the observance of the proper legislative process might inhibit Teresa May and her Brexit Ministers from  implementing a Brexit policy which may well not have majority support in Parliament.

Perhaps that is why the Government appealed the decision of the Divisional Court: hoping against hope that the Supreme Court might find a way to leave Mrs May with the freedom to act as she thinks fit, she knowing full well that:   (1) her government has only a small majority in the House of Commons (2) prior to the Referendum,  some 163 Conservative Members wished the EU to remain in the UK – see The Conservative Difficulty page and that some in her party might make trouble in the Commons.

The Financial Times  has this: “Greater clarity from May will smooth Brexit path – The UK prime minister should learn from the Supreme Court hearing” which says a lot of very sensible things and which ends with this:-

Mrs May promised to build “a country that works for everyone”, which means she must show respect to those who wanted a different outcome.   Too often, she has focused on the demands of the 52 per cent that voted to leave the EU. The nation did not give the government a mandate for a specific form of Brexit.  Mrs May should take into account the 48 per cent of Remain voters and guide the Brexit process in an open manner for the interests of the whole nation.”

But that is not the way that Mrs May and her Brexit Ministers seem to want to proceed.

Today’s Telegraph has this: “Supreme Court Brexit appeal: Judges ‘heading for split 7-4 decision’ in narrow win for Remain campaigners“.  This piece was apparently written by the Chief Political Correspondent of the Telegraph and it purports to be based on the opinions of the Government’s legal advisers.  Frankly it is largely nonsense.

Firstly, a majority of just 1 justice either way is all it takes to decide the issue.  That is why any panel of the Supreme Court always has an odd number of Justices.  Secondly, whether the outcome is by an overwhelming or a narrow margin, it will decide whether or not the government must proceed by way of a statute rather than by the prerogative.  That is all that matters.   If the decision is that the government must introduce a bill, then it is highly unlikely that the Members of Parliament who will have to vote on the proposals and on any amendments which may be tabled will be in any way influenced by the size of the majority in the Supreme Court one way or another.

In reality, this article may be nothing more than confirmation that the Government expects to lose its appeal and this an attempt to make the defeat less damaging.

The Guardian has this on another Conservative attempt to turn the clock back: “UK bill of rights delayed further by Brexit and supreme court case – Attorney general Jeremy Wright tells Commons the government has a ‘few other things on our plate’ when asked about bill“.

While there is some discussion in the article of the way the Supreme Court will now reach a decision, what is interesting is the Government’s desire to postpone that so-called “British Bill of Rights” until the Brexit negotiations are concluded.  There is no doubt that some Conservative Ministers, including and particular the Prime Minister when she was Home Secretary, have found the present Human Rights Act more than inconvenient.

This is yet another manifestation of the core Conservative political philosophy on many such issues:  How about bringing back the death penalty?  Imprisonment with hard labour?  Birch young offenders?   Stop refugees coming to the UK?

Never move forwards – Moving backwards is preferable – If you cannot move forwards, move sideways.  But NEVER move fowards!“.

Associate Citizenship in the event of Brexit

The Guardian also has this report: “Brexit talks to include plan for UK nationals to keep EU citizenship – European parliament’s chief negotiator says associate citizenship would be ‘on the table’ for talks over Britain’s withdrawal from EU“.

See also this in the Guardian: “Huge increase in Britons seeking citizenship in EU states as Brexit looms – Across 18 countries, at least 2,800 Britons applied for citizenship in first eight months of 2016, with Denmark seeing biggest rise“.

It is encouraging that some people in the EU institutions have more respect for preserving our EU rights than does our own government.  It is early days and nothing may come of it, but it is good to see that it is being discussed.

bayeuxcemetery12

It rather brings to mind visits I have paid to the Bayeux War Cemetery.  Opposite the Cemetery is the Bayeux Memorial which bears a Latin inscription.  In translation it reads: “We [i.e. the British], once conquered by William, have now set free the Conqueror’s native land“.  It is rather nice to think that at least some of our European friends are looking out for our best interests.

Sadly, we cannot trust the Government and the Conservative Brexiteers to do the same.

 

 

 

 

 

 

 

 

Muddle Through May

Brexit in the Supreme Court:  Parliament or The Executive

Today was a further day in the Supreme Court hearing of the Government’s appeal from the decision of the Divisional Court holding that Parliamentary authority was required to invoke Article 50 to commence withdrawal from the EU.

As the case continues, it is becoming increasingly clear that a very great deal of public money is being spent on an appeal which, perhaps, ought never to have been brought.  One wonders what legal advice was given to the Government.

Things might have been very different if Dominic Grieve  had not been replaced in July 2014 by Jeremy Hunt.  Hunt practised at the criminal bar in the Midlands and only took silk upon his appointment to the Office of Attorney-General.  To put it simply, he is a light-weight and that has been painfully clear, both in the Divisional Court and now, before the Supreme Court.  That is why the heavy lifting in relation to the Government’s appeal has been done by James Eadie QC, who is First Treasury Counsel.  See the observation of Sir Henry Brooke on James Eadie in this post: “The Treasury Devil”:-

Since his appointment as First Treasury Counsel he has borne the formidable burden of defending Government legislation in the finest possible way at a time when it has attracted considerable odium among those who care for the future of the rule of law.”

Today in the Supreme Court hearing we have heard Lord Pannick QC concluding the 1st Respondent’s  response to the Government’s appeal.   Interestingly, both the Guardian and the Telegraph have similar sketch writer headlines.

The Guardian has this sketch: “Supreme court justices tamed in face of a Pannick attack – Gina Miller’s barrister gives Treasury Devil and other QCs a lesson in taking the floor and keeping it at an article 50 hearing”.  Certainly, Lord Pannick is the pre-eminent silk for this kind of case – and it shows.   But The Supreme Court was certainly not tamed.

The Telegraph has this: “Day two at the Supreme Court: the Government suffers a Pannick attack”.    It is certainly true that Lord Pannick made a very compelling case for dismissing the Government appeal.

This morning we also heard from Dominic Chambers QC on behalf of the 2nd Respondent. However, while the Respondents appear to be doing rather better than the Government has done so far,  and while the  Court will spend the rest of the day and most of tomorrow hearing from the advocates for other interested parties including those appearing for the Scottish and Welsh government,  from 14.30 to 16.00 tomorrow James Eadie will make submissions in response on behalf of the Government and that will conclude the oral arguments.

The Supreme Court Justices will then retire to consider the papers and the arguments of the parties both in private and in conferences between the Justices and deliver its decision in the New Year.

Parliament or Government’s Referendum Omission

Writing in the Telegraph, Philip Johnson has this “Supreme Court day three, lunchtime briefing: it was Parliament’s glaring omission which led us to this mess“.

While, in one sense, the mess is an omission by Parliament, but in reality it is a mess created by Ministers and by those whose function is to advise Ministers.

CameronBrexitIn the first place it is the result of the poor drafting of the Referendum Act by the Cameron Government and its advisers.  Of course, poor Dave also thought he could win the Referendum and on that matter he was also wrong and has paid the price.

may99Likewise, Mrs May, as a former Home Secretary with vast experience of the limitations on the use of prerogative powers,  ought to have known the trap she was building for herself.  Perhaps she did not focus on the difficulty , in which case her advisers should have brought this to her attention.

No doubt, the the Attorney General who superintends the work of the Government Legal Service will be able to explain just why a very basic limitation on the use of prerogative powers was apparently not considered in the context of Article 50.

Brexit Motions in the Commons

Meanwhile MP’s voted on motions related to Brexit in the Commons.  See this BBC Report: “MPs back government’s Brexit timetable“.

“MPs backed Labour’s motion, saying the government should publish a plan and it was “Parliament’s responsibility to properly scrutinise the government” over Brexit, by 448 votes to 75 – a margin of 373.

This followed another vote over the government’s amendment to the motion, which added the proviso that its timetable for triggering Article 50 of the Lisbon Treaty, getting formal talks with the EU under way, should be respected. MPs backed this by 461 votes to 89 – a margin of 372.

It might be said that this was something of a score draw.  Neither vote is binding on Parliament.

Meanwhile in Brussels the Brexit Negotiator Spoke

See this in the Financial Times: “Brussels on Brexit: What Michel Barnier said and what he meant – The EU’s lead negotiator gives a glimpse of how the EU views the process“.

After reading this,  I feel more and more depressed. This Brexit craze is far too lethal to be left in the sole control of the Conservative Ship of Fools.

Supreme Court – Day 1

 

Brexit:  Article 50 – A  Decision for Parliament or for The Executive ? – UK Supreme Court

_92272197_ukscjustices-dec2013
Judges of the Supreme Court of the UK

Today (Monday) was the first hearing day for the  Government’s Appeal to the UK Supreme Court from the decision of the Divisional Court which had held that the service of an Article 50 Notice to the EU Commission had to be authorised by Parliament.   However, the day actually began with some interesting developments about what will happen in Parliament later in the week.

 

Prelude to the 1st Day

Keir Starmer QC, the shadow Secretary of State for Exiting the European Union, has explained why he had  put down a motion for an Opposition Day debate on Wednesday.  He explained his reasoning in the Guardian: “Tories must publish Brexit plan or there’s zero chance of getting a good deal – It’s time to halt this destructive uncertainty over quitting the EU. MPs should support Labour’s Brexit motion, to be debated this week”.

And the Guardian published this:  “Tory MPs may back Labour call for disclosure of Brexit plan – Anna Soubry says at least 20 colleagues could support motion urging government to publish plan before triggering article 50”.    The BBC put the numbers of Conservative MP’s  who would support the motion rather higher and, of course, the Conservative Majority is only 12.

The Telegraph also had this in its Premium content: “The Brexit Judgment: Theresa May facing Tory rebellion over Article 50 plan this week as Government takes fight to Supreme Court

The lawyers attended at the Supreme Court and, since the Government is the Appellant,  they addressed the Court first.  The Supreme Court Blog has posted a summary account of the first hearing day  – Click here to read the blog. A draft transcript of the day’s proceedings is also available on line – Click here for the transcript.

The Government’s legal team was (at least theoretically) led by the Attorney General, the Rt Hon Jeremy Wright, QC, PC, MP.   In reality, the lead Counsel for the Government is James Eadie QC.

According to the Independent’s report of today’s proceedings:

“Mr Wright has also courted controversy today, with a warning to judges that they should steer clear of getting involved in political decisions. A paper submitted to the Supreme Court in advance of today’s case sets out the Government’s argument – that the original High Court ruling implies Parliament would be able to ‘micromanage’ negotiations to leave the European Union.  And it urges the Supreme Court judges not to “stray” into areas of political judgment. Mr Wright warns: “The Court is being invited by the Lord Advocate and the Counsel General to stray into areas of political judgment rather than legal adjudication. The Court should resist that invitation, particularly where the underlying issue is one of considerable political sensitivity.”

Mr Wright practice before his appointment was principally at the criminal bar.  That is the sort of submission which might be appropriate for a bench of lay justices, but it was hardly appropriate for the Supreme Court.

We shall see what tomorrow brings.