Dog Days. Spare a thought, says Michael Wilson, Editor-in-Chief at IFA Magazine, for the one group that doesn’t have a vote on 8th June. The business community…
If your best friend could only talk, as the dog food adverts on the telly used to say, he’d choose Bonzo. Or Top Dog, or Fido, or Woofit. The fact that he couldn’t actually speak, and that you therefore had to make the choice on his silent behalf, was a powerful practical affirmation of the trust between you both. Conversely, of course, the fact that it was you paying the bill and not him meant that there were always certain limits to how far his wishes would come into it. But you did your best, on the whole, to keep him happy. He deserved nothing less.
Obviously, there are limits to how far this particular editorial analogy can stretch. If I’m not careful, my inbox will soon be groaning with protests that I’m suggesting somebody’s making a dog’s breakfast of this upcoming election, and I certainly wouldn’t want that. But while my luck holds, let’s see where those limits are?
To state the obvious, businesses don’t have a vote in a general election, and their voices don’t carry all that far when everyone’s focusing on other matters. But, as we’ll see shortly, the problem is that the Prime Minister is very deliberately forcing the country to choose between party and Brexit preferences – something that she’s making no attempt to deny. And an area where business has much to be worried about. The point I want to make is that businesses aren’t comfortable being penned into one political camp when their interests are in another vector that doesn’t really intersect cleanly with it.
But back to the dogs in the hound pool. Despite appearances at times, we’d have to admit that Bonzo currently gets on really quite well with Bruno and Fifi and all the scruffy mutts down the road. Oh, certainly they argue about who gets the first turn at the bones and who gets to terrorise the cat, but they’re all pack animals at heart and they all share the same basic DNA. So Bonzo’s going to feel the difference when the spiked collar suddenly goes on and the house rules about consorting with the rest of the neighbourhood are tightened.
And yet, the Conservative Party has always been regarded as the ‘natural’ home of the business community – give or take, perhaps, a few years around the millennium when Tony Blair’s incoming Labour government (1997) was hitting its stride. Rightly or wrongly, the profit principle has often sat awkwardly with an aspiration to put social fairness at the top of the political agenda. And if the UK’s business community has managed over the years to soften the hard-nosed, driving-striving character that once typified the Thatcher years, then that was a major achievement that just might have been obtained by looking at the gentler management styles to be found elsewhere in the European Union.
Rubbish, the Brexiteers would have responded, Europe’s business style was always based on rigged national markets, high taxes, state-socialised enterprises (of which there are still really quite a lot), and of course the substantial net contribution that innovative Britain was making to the European budget. As long as cash-cows like Britain or Germany were providing all the budgetary backing, where was the impetus for change? Time to quit, and never mind the complications. It’d be worth it.
And that’s where Theresa May runs into her first major problems with the business community. If, of course, she can negotiate (or indeed force) some sort of retention of the Single European Market, which allows a British manufacturer to send a lorryload of widgets to Greece on one set of customs papers, instead of the twenty-odd that will be required if no Euro-block collective deal can be reached, then that will be wonderful. Yet her position, as of mid-May, was still that she wanted no part of the Single Market because she couldn’t accept the free migration flows that must (of generally agreed necessity) accompany a free labour market.
She has her reasons, of course. Even at 200,000 a year, a net immigration flow presents a problem for the general populace that isn’t in line with what business wants. UKIP’s protests that Polish workers are driving down wages are valid, as far as they go, but they don’t mesh with the needs of businesses such as healthcare or agriculture or road distribution, all of which depend heavily on such workers. That’s only one of the places where the Prime Minister’s insistence on tight migration controls rankles with the CBI. As we’ll see shortly.
The old joke goes that marriage is like a game of cards. It begins with two hearts and a diamond, but by the end of it you’re both wishing you had a club and a spade. And, hyperbole apart, that’s not so very far from the darkly brooding impression that European Commission President Jean-Claude Juncker has managed to convey during the last few months. Quite a change from the bright new world that seemed to beckon when I was writing about the newly formed Single European Market back in 1992.
While Boris Johnson banters on cheerily about how it’ll all be all right on the night, a slightly vengeful Mr Juncker seems not to have forgotten that it was David Cameron who personally tried to bury his own career. Only three years ago, the former PM launched a brief but vitriolic campaign to get the incoming Luxembourger’s appointment blocked – on the grounds, you might recall, that Luxembourg was a seedy sort of place full of tax evaders. Oops.
So It may not have been such a coincidence, then, that Mrs “parallel universe” May’s dinner encounter with Mr Juncker went so badly wrong in late April. And that Europe’s number-crunchers abruptly upped their estimate of the Brexit bill from €60 billion to €100 billion?
We could argue about whether Mrs May could possibly have done anything to head off the revenge attack, but either way, it was a double disaster for Britain’s business community. While the red-tops and the Daily Mail applauded Juncker’s rebuff as clear evidence of what nasty, vindictive people these Europeans were, the Financial Times was filled with more pensive worries about how an acrimonious divorce might play out. The divide between business, which had no vote, and the public, which did, was becoming painful.
Back to the table
At which point, let’s return to return to our card-game motif. If you cut the deck and deal the cards, it’ll help your strategy somewhat if you’re extremely clear as to whether you’re looking primarily for high numbers, or alternatively for clubs and diamonds. Last summer’s Brexit referendum was clearly about the former – as long as you’d decided on the numbers, it didn’t matter what political suit you happened to represent. But this year, it’s the difference between red and black, hearts and diamonds, Tory and Labour and Lib Dem and SNP, that matters. The PM is cutting the exact same deck of cards in search of that different vector that I mentioned earlier.
That’s a problem for many mainstream Tories who hate the idea of Brexit – the young, the London-dwellers, and what the papers love to call the liberal elites. The possibility of a silent but wide-scale abstention on polling day is probably the PM’s worst worry, especially if it allows the resurgent Liberal Democrats to reassert themselves in the marginal constituencies that they lost in 2015. But for business, the election is much more anguished. If only because hardly anybody is even asking them what they want from this election.
What business seems to want, at least publicly, is to accept the Brexit inevitability and to focus on making the best of what opportunities present themselves. It would be a bad mistake to allow Brexit to dominate the present discussion about the forward development of the UK economy, said Allie Renison, head of Europe and trade policy at the Institute of Directors in a recent Financial Times interview. And she went on: “Making the best of leaving the EU depends on strengthening our economic fundamentals, including infrastructure and skills.” But alas, the various parties had been tantalisingly vague about how they intended to do all that.
Adam Marshall, director-general of the British Chambers of Commerce, added that humdrum issues like broadband, mobile phones and reliable road and rail services were actually more important to local businesses than anything to do with Brexit. But the Confederation of British Industry swiftly countered that, although most UK businesses aren’t making exports, they’re more vulnerable than they might think – not just because of [price] pressures on their supply chain needs, but also because of regulatory uncertainty,” or because of difficulty accessing skills they need.”
That’s a theme which the CBI took up in February, when director-general, Carolyn Fairbairn told MPs that it was essential to keep Britain’s borders open to foreign workers – not just the higher-skilled European personnel on whom so much research and managerial work depends, but also the lower-skilled workers who are engaged on construction or healthcare projects where the government has already set targets that need to be met.
That was echoed even by the pro-Brexit former head of the BCC, John Longworth, who said, also in February, that it would be absurd to close the door on EU immigration while British workers were still unable or unwilling to fill the jobs required. He was understood to favour a revised system whereby incoming workers required UK employers to sponsor their visa applications.
Taxes and economic growth
I don’t know about you, but I haven’t come across any business organisation that’s happy with the idea of tax rises. The message from across the board is that, Brexit or no Brexit, businesses are already carrying their fair share of the tax burden, and that if any party follows the Conservative party’s lead in breaking a 2015 promise not to raise taxes, VAT or National Insurance, it’ll be one break too many. Alas, the fact that both Labour and the Lib Dems have already dropped manifesto hints about either VAT or higher-rate tax, or both, suggests that there isn’t any safe haven from that worry.
All hail, then, to the BCCI, which jumped the gun by issuing its own “election manifesto” well ahead of the political parties. “Taxes on employment, premises, and overheads are sapping business investment and growth potential,” it said. “Unchecked, they will act as a drag on their future productivity.”
So far, so predictable. But what’s this? The BCCI called upon the government to commit to introducing no new upfront taxes until 2022; to take steps to ensure that employers would have uninterrupted access to foreign talent; and, not least, to achieve a “radical, root and branch reform” of the business rates system, which it says is not just the most onerous in Europe but also the most patched-up and inconsistent. And a wholesale reform of corporate tax allowances that excludes plant and machinery from rate valuations. Only in this way, it says, will we achieve “a globally competitive business environment”.
Export licence issues and WTO
Far more worrying, especially for larger (if not smaller) enterprises, is the prospect of a hard Brexit if it means that Britain’s Single Market entitlements disappear at the end of the 24 month Article 20 process without anything being agreed to replace them. The fallback position here would be that Britain would revert to World Trade Organisation rules and tariffs, which are onerous and awkward and which would take many years to replace or renegotiate. As business leaders tend to crumble, the issue here is not merely that a hard Brexit would risk leaving manufacturers unable to forward-plan their pricing, buying or supply structures as the evil day approached; it would also make it quite impossible for them to finalise any expansion or job-creation projects during the next two years. Why would you want to build a new car assembly plant, they ask, when a change in the European system of employment rights might see the whole operation moved to Slovakia at the last moment instead?
Scotland and Ireland bring two more complications to the task – not least because the former is still adamant that Brexit would produce an Indyref2 vote which might result in a ‘hard’ border (always assuming that Scottish banking jobs don’t simply migrate to Paris – see below.) And the latter because there will indeed need to be a hard border between Belfast and Dublin, if only to stop the leakage of EU products and services. (And, conceivably, manpower.)
The City and the banking licence
But it’s the European Banking Passport which looks like becoming one of the most probable casualties of the Single Market withdrawal unless Theresa May can really pull something very extraordinary out of the hat. As Michel Barnier, the EU’s chief Brexit negotiator, insists, the Banking Passport is an integral part of the Single Market, and apparently we can’t have one without the other. But unless we can accept the freedom of labour movement that goes with the Single Market, neither is likely to materialise.
Chancellor Philip Hammond is said to have gone right to the edge of confrontation with his appeal to his boss on the banks’ behalf, and several of his colleagues are reported to have proposed that Britain should buy some sort of special access to the Passport, perhaps by covertly funding some other European project that wouldn’t attract too much media attention. But in March the PM was clear. No Single Market, she said, and no kidding. Brexit means Brexit. And even the idea of “equivalence” (whereby British institutions would gain a sort of de facto market access on the grounds that our system is near enough to the EU and MiFID II norms) doesn’t seem to have Downing Street’s ear.
What can be done? London is hoping that if Mrs May can stand her ground, equivalence might still be forced through. But City sources say that it’s quite hard to see why the 27 would want to give away a unique opportunity to usurp London’s leading role in European finance; certainly, France’s new President Emmanuel Macron has been quick to insist that he isn’t in a mood to give any ground.
So what’s the present position? Well, as we were going to press a new report from EY came in which declared that easily a quarter of the 222 financial service firms being studied by its Brexit tracker were actively considering the removal of resources or, in some cases, entire domiciles, across to Europe in the event of a hard Brexit. What was more sobering, however, that this was a 50% increase in the proportion of potential movers in the space of just four months.
Fully 45% of the investment banks said that they were actively making plans, along with 27% of the insurance companies and 23% of the asset management groups. And although EY insisted that the moves would only be partial, and that the groups were still firm in their commitment to the London market, whose “financial ecosystem is unique and very hard to replicate in other European jurisdictions,” the inference for the Prime Minister is hardly to be ignored.
Onward, ever onward
“So far so good” – as Prime Minister Theresa May could probably be heard to remark, as she surveyed the extremely favourable results of the 4th May council elections.
A strong swing toward the Conservative Party army, combined with a lack of oomph from Labour’s infantry battalions and a complete rout of UKIP’s remaining sniper positions, must have left the Prime Minister feeling sanguine about the approaching pitched battle with Brussels – even though the Liberal Democrats had been popping up all over the place like those perennial weeds that take a deep root killer to eradicate them.
All was well, then, as the nation began its final gallop toward the 8th June general election. Of course, it didn’t really help that the PM decided to up the ante by alleging that Brussels was actively interfering in “her” election campaign by spreading misinformation about her, the evil swines. And that rebuff from Brussels must have stung when David Davies declared that (a) the EU wasn’t the body that determined the structure of the Brexit process, and (b) Mrs May had the perfect right to talk to the Commission any time she chose to. Only to be told that (a) yes it was, and (b) no, under Article 50 she wasn’t allowed to be the one who picked up the phone.
But these are mere quibbles in a world where politicians the world over have been taking their cues from Donald Trump. (“Be outrageous, create an oversized image of yourself, then step back and quietly change your mind.”) What remains to be seen now is whether the British public, and especially the loyal but often troubled Conservative voters, can be persuaded to salute the flag.
As for the voteless business fraternity, though, it’ll be obliged to remain in its kennels on polling day and silently hope that the voters will force enough compromises on Mrs May to fend off its worst worries. Dog days indeed.