In the bunker, we sometimes pick up downsides tweeted by Brexiters who seem to think they’re spreading good news. However, delving into the details it often becomes clear that they haven’t quite understood it, as we shall see below.
In fact, many apparent ‘benefits’ of Brexit turn out to be damage limitation compared to how things were pre-referendum or before Britain formally left the EU. We still regard them as downsides.
This week was pretty average, with a total of 20 new entries, including two on the upside.
Financial services
Gully Foyle approvingly tweeted a story in CityAM about the UK ‘powering ahead’ of European rivals in venture capital (VC) investment.
The items stemmed from a report by HSBC Innovation Banking which declared the UK “remains by far the leading destination for VC investment in Europe” and is on track to receive $18bn in 2023. And it’s true. Sounds good doesn’t it? But it looks rather like complacency.
Reading the report and Bloomberg’s take on it, I note this is about half the level of 2022 and barely a third of the total for 2021. It’s only a $1bn improvement on 2019’s figure. And compared to the January-September period in 2019, Britain’s total has actually fallen by 5% while in other EU member states it has increased. France by 41%, Sweden by 57%, Austria by 107% and Estonia by 44%.
As reported by Forbes Magazine: “Overall, the UK retains its place as the top destination for VC funding, although it’s worth noting that since 2019, growth has been stronger in France, Sweden, Spain and Norway.” In short, EU member states are actually catching up, so I added it to the downside.
Similarly, Bloomberg report that London has regained its crown as Europe’s largest stock market from Paris based on market capitalisation. But reading the details it transpires London is only marginally ahead, $2.8884tn against Paris’s $2.887tn. In 2016 however, the difference was $1.4tn. And Bloomberg say London’s problems are “by no means over”. Again, I take that as a downside.
Trade
The UK is ranked second of 30 major trading economies in the 2023 Hinrich-IMD Sustainable Trade Index, the same position it was in 2022 when it made its first appearance in the index, which doesn’t list any other European countries for reasons that are not clear. Only New Zealand is ahead of the UK. However, it cautions the British government against any post-Brexit watering-down of green policies and regulations which risks “debilitating consequences” for future generations.
Since lowering standards appears to be the main aim (we could have had higher standards in the EU had we wished) of the government, I think this is a downside since it either hampers policy making or risks a negative outcome.
One little understood downside of Brexit is in the loss of freedom of movement for UK companies working in the EU. Triton Projects, a Leeds-based construction business, provided structures for the Ryder Cup in Rome but faced an array of hurdles. Apart from all the additional costs involved in shipping over 70 trailers, reflecting the “new complexities” of cross-border trade, the company had to ‘frequently rotate’ work teams throughout the ten-month contract to avoid breaching the 90-day rule, presumably with extra travel costs.
The TUC has warned that the Strikes (Minimum Service Levels) Act 2023 which came into force in July this year, could put the UK in breach of its labour obligations under the UK-EU trade and cooperation agreement, expose the UK to “hefty sanctions” and stoke UK-EU tensions. The EU Commission has recently expressed concerns about the legislation.
Subsidy Control
Britain’s new subsidy control regime has come in for criticism, according to the FT. Policing of potentially illegal subsidies made or offered by government or local authorities is now done by individual businesses with few “streamlined routes” (the UK has 3 compared to the EU’s 60-plus “block exemptions”).
This apparently means that smaller subsidies are now potentially subject to more costly and time consuming scrutiny, sometimes creating a bigger bureaucratic burden than the EU system.
Crime
A criminologist at Birmingham City University (BCU) says Brexit has made it easier for organised crime groups in the UK to operate and expand their enterprises. Dr Mohammed Rahman, a senior lecturer in criminology, claims that: “Dealing with organised crime in the UK has become more challenging due to limited information sharing between UK agencies and their EU counterparts. It’s a direct consequence of Brexit, which has had numerous negative impacts.”
Funding
Something that crops up frequently in the dossier is the loss of funding for various public bodies and charities compared to what they might have expected from the EU. Those who said that by leaving the EU Britain could avoid contributing to EU coffers assumed the UK government would use the money saved to maintain or even increase funding.
Sadly, this has not proven to be the case.
Research by the think tank UK in a Changing Europe suggests that the UK Investment Bank (UKIB) has fallen short in green financing compared to what was being provided by the European Investment Bank and the Green Investment Bank (GIB having been sold to Australian venture capitalists Macquarie in 2017). So far UKIB has provided less than £1bn of lending and investment to support the UK’s transition to a green economy.
In 2022, for climate projects alone, France received €5.9bn and Germany received around €4.4bn from the EIB. Britain had an equal amount of share capital and could have received a similar sum.
A new report by The Education and Training Inspectorate (ETI) claims that organisations in Northern Ireland have also lost out after the European Social Fund (ESF) was replaced by the UK government’s Shared Prosperity Fund (UKSPF) in March. The ESF provided “wide-ranging support” and opportunities to marginalised people in NI. As an example, the Kilcooley Womens Centre in Ards and North Down were disappointed to be told £900,000 funding it received from the EU will not be replaced.
Devolution
Another little understood aspect of Brexit is its impact on the devolution settlement. A report by MSPs at Holyrood, has called for a new memorandum of understanding between the UK government and devolved administrations following Brexit.
Convener (chair) Clare Adamson, MSP for Wishaw, said: “The evolving regulatory environment resembles a shifting landscape with its twists and turns, which has led to disagreements between devolved institutions and the UK Government.”
The report is said to follow numerous instances of the UK government intervening to block legislation passed in the Scottish Parliament, irritating Scottish Nationalists.
Regulatory divergence
In the week that the think tank UK in a Changing Europe produced their latest divergence tracker showing that ‘non-divergence is the new consensus in British politics’ and that “divergence from the EU has all but stopped due to its disruptive economic impact” we learn the Wine & Spirits Trade Association (WSTA) has added its voice, urging the UK government to follow EU practice, this time on de-alcoholised or non-alcoholic wine.
Simon Stannard, director of policy at WSTA says UK proposals have the “potential to mislead consumers” unless key production information is displayed on pack, as in the EU.
Sport
One downside, known about since December 2020, is the ban on UK football clubs signing European players under the age of 18. This is about to prove costly for Arsenal who had hoped to sign (now) 19-year-old Ivorian footballer Ousmane Diomande from Danish side Midtjylland in 2022 but were prevented by the rule when he was younger.
Diomande eventually went to Sporting Cub Lisbon and to sign him now, Arsenal will have to pay a significantly higher fee.
Citizens
A Briton who moved to Spain has described the post-Brexit bureaucracy involved as “frustrating, annoying and stressful” as well as costly, running into thousands of pounds. Mike Sedgwick, 64, and his partner first had to apply for a visa allowing him to live in Spain without working while applying for one-year residency permit. This required a medical certificate, medical insurance, a criminal record check, and proof of financial means. Only after that, could he apply for it to be extended for up to four more years before applying for a permanent residency permit.
The authorities in Belgium claim thousands of people driving EU-registered vehicles have been unlawfully given fines for breaching London’s ULEZ rules. After Brexit, UK authorities were denied access to the personal data of citizens living in the EU for non-criminal enforcement. A Belgian court has accused a collections agent, who works with Transport for London (TfL) of “abusing its legal powers” by passing on details of EU drivers to a parking agent for UK enforcement.
Belgian MPs have called on the government to take action.
Hospitality
Another Brexit casualty in the restaurant sector is Leeds’ only Michelin-starred restaurant, The Man Behind the Curtain. Run by Michael O’Hare, a contestant in The Great British Menu and MasterChef, it will close at the end of December. O’Hare said: “As an industry we’ve been hit by three major, major waves. Brexit is the first, the unspeakable … we had the pandemic and then the cost-of-living crisis.”
The restaurant will reopen next year as Psycho Sandbar, described as a “fish-heavy” venue.
Northern Ireland
A strike over pay by public sector workers in Northern Ireland will include members of the Veterinary Service Animal Health Group (VSAHG). Normally, this would have little, if any, impact on supply chains but with the advent of Brexit and the Windsor framework, it is expected to disrupt operations of both red and green channels in the sea border between NI and GB.
Glyn Roberts, chief of Retail NI said: “We have real concerns that this five-day strike could cause significant disruption to many of our wholesale and retail members that rely on sanitary and phytosanitary (SPS) inspection facilities.”
Upsides
Two upsides have been noted this week, firstly the credit reference agency Moody’s dropped its negative outlook on the UK, saying that “policy predictability has been restored” following last year’s mini-Budget. We are now Aa3, the fourth-highest rating on Moody’s scale although until 2013 the UK had the highest-possible AAA rating.
Moody’s noted the UK’s “more conciliatory” approach to EU trade (AKA non-divergence) but said increased friction due to Brexit had slowed the UK’s bid to reduce inflation, which it sees returning to its 2% target in 2026.
The move could mean marginally lower borrowing costs for the government’s Debt Management Office (DMO) and ultimately the hard-pressed taxpayer, hence it goes on the upside.
And finally, one of Facebook’s co-founders, Dustin Moskovitz, now the CEO of software company Asana, told The Times that Brexit means the UK has the independence to be a global leader in artificial intelligence (AI). Brussels’ heavy-handed approach to regulation meant it was “better that the UK is out of the EU”.
Speaking ahead of Rishi Sunak’s AI summit at Bletchley Park, Moskovitz said he was “far more concerned about regulatory friction” in the EU than in Britain.
However, note that President Macron of France has announced he won’t be attending the summit and neither will the German chancellor Olaf Scholtz, President Biden or Canada’s Justin Trudeau. It’s not clear if Giorgia Meloni of Italy or Fumio Kishida of Japan will attend either.
The UK’s bid to become a global leader in AI has not had an auspicious start.
