Perhaps because this was a bank holiday week in the UK, there hasn’t been as much political posturing and arm wrestling as we typically see these days on the Brexit front. That may have allowed for a bit more reality to work its way into the press than usual.
A major European business group told Theresa May that they will refrain from making investments unless they get more “clarity” on Brexit. They must have awfully short planning horizons to be clearing their throat now, with Brexit ten months away and radically different outcomes, namely a crash-out versus a transition agreement, still very much in play.
But on top of that, they think they can have a magic sparkle pony, namely, “frictionless trade.” And they are so poorly informed that they think a customs union will provide it.
A group of major European companies [the European Round Table of Industrialists] has warned the Prime Minister they may cut investment without more clarity over the terms of Britain’s EU exit.
Business leaders, including from BP, BMW, Nestle, and Vodafone, told Theresa May that “time is running out”.
In a statement after the Downing Street meeting, they said that a trade deal with the EU must be “frictionless as with a customs union”…
Senior figures from firms including BMW, Phillips, E.On and Ferrovial also attended the meeting with Mrs May and Brexit secretary David Davis.
The ERT represents Europe’s 50 largest companies, with combined revenues of 2.25 trillion euros (£2tn) and millions of employees.
Now of course, it may well be that most if not all of the key players in the ERT are well briefed and know that the Government is not capable of improving on its shambolic performance to date. Their lobbyists and strategic prognosticators are almost certainly well plugged into Brussels and getting unvarnished reports on the state of the negotiations.
So if that’s the case, this meeting could instead have been an exercise in papering the record: “We told you what we needed to keep and expand our operations in the UK. You didn’t deliver it. So don’t blame us when we downsize in Britain.”
The latest ICM tracker poll for the Guardian, published on Wednesday, suggests that a growing number of British people now believe that Brexit will have a negative economic and social impact on life in Britain.
According to the poll:
- 45% of Brits now say Brexit will have a negative impact on the British economy, with just 30% saying it will have a positive impact.
- 39% of Brits say Brexit will have a negative impact on life in Britain, with just 32% saying it will have a positive impact.
- 32% say Brexit will have a negative impact on their personal finances, compared to just 14% who believe it will have a positive impact.
The findings are the most negative ICM have found since they began tracking public opinion on Brexit since the EU referendum in 2016.
The Government has ignored the VAT issue, which is going to bite it no matter what it does. The Financial Times published an excellent in-depth report, VAT: Brexit’s hidden border dilemma. The short version is the Government hasn’t thought about VAT despite it being a large administrative issue with real costs. Goods bought from other EU members now come in without being charged VAT at the border. That will, or rather should, change once the UK leaves the EU.
But since it has no plans to set up the needed infrastructure to assess VAT on these goods, it faces two choices: not charging VAT, which will lead to considerable loss of revenue and will seriously damage British firms, or accept and comply with the EU VAT regime, which means ceding control over VAT charges and accepting the jurisdiction of the hated ECJ.
More than 2m parcels a day can be expected to travel through Royal Mail’s Heathrow Worldwide Distribution Centre…
The bulk of packages from EU countries continue along conveyors straight to dispatch. The rest are sent to the fiscal charging area to have value added tax applied and often customs duties. Once VAT is applied, Royal Mail add an extra £8 handling fee and will not release the goods until all charges are paid.
This is Britain’s VAT border. It requires huge infrastructure, does not always work well and it inconveniences recipients, yet is barely discussed. Mr Thompson told MPs this month that parcels were something in the Brexit debate “which hasn’t really ever been a conversation with anyone”. VAT is the silent Brexit border problem…
If Britain were to treat EU goods the same as non-EU goods, adding VAT at its borders, including with Ireland, would require huge new infrastructure.
As usual, the UK wants to leave the EU but have everything remain the same. In this case, that would mean continuing to participate in the information exchange system that shows what items have crossed European borders. That is a non-starter. From the pink paper:
An EU diplomat handling Brexit said: “VAT is a huge issue, huge, but it’s not talked about publicly because nobody understands it. How on earth do you deal with it? And the Brits just saying we’ll be part of the system without the ECJ? Give me a break. It is like suggesting they take part in every month with 29 days.”….
No third country outside the EU has full access to this VAT information exchange system. Turkey, which has a customs union with the EU, does not have access; Norway has partial access.
And here is the dilemma flagged in the Financial Times’ headline. On the one hand:
Removing the British economy from EU law on VAT was one of the central promises of the 2016 Leave campaign, which promised to end European rules that force the government to apply VAT on tampons and energy bills. “We will take back control of . . . our tax policy,” Theresa May also insisted this month, a pledge that is possible only if Britain departs the EU VAT area.
But on the other:
If Britain decided that such friction was too costly for business and chose not to police its VAT border, untaxed imports would flood in from the EU, destroying legitimate business for shops in Britain, says Richard Allen, head of Retailers against VAT abuse schemes. Highlighting this is not just an idle “project fear” threat, he says: there is a precedent from the period before 2012 when VAT-free importing of CDs and DVDs from the Channel Islands wiped out most high street music retailing in Britain. “If you say, ‘to hell with VAT checks at the border’ then everything will be imported,” he says.
The prospect of a hard VAT border is already having a chilling effect on UK business, according to Alison Horner, VAT Partner at MHA MacIntyre Hudson. She says her British clients who supply into EU just-in-time industries are being asked to deliver with VAT sorted out in advance. “This creates a liability to register for VAT in multiple jurisdictions, which is a big cost to business,” she says.
As indicted, this is a meaty article, so be sure to read it in full.
The most productive companies are the gloomiest about Brexit. Is that because they are also the savviest? Again from the Financial Times:
Business leaders at more productive companies hold the most negative views on Brexit, according to a survey conducted by the Bank of England….
Surveys found they believe leaving the EU will lead to lower sales, exports and investment, while pushing up unit costs and raising the costs of labour and finance.
Business executives in the top two productivity quartiles said they expected Brexit to cut their sales by about 3 per cent on average. Those in the bottom quartile said they thought the impact on sales would be closer to 2.5 per cent, and those in the second-lowest quartile thought sales would fall by less than 2 per cent after the UK leaves the EU in March 2019….
Roughly three-quarters of survey respondents said they had opposed the Brexit vote, but the proportion of business leaders who said that they viewed leaving the EU as “very negative” has risen sharply in the past year, from 40 per cent to 48 per cent.
Although some businesses may well be reasonably well insulated from Brexit, these forecasts are consistent with a serious recession. Let’s hope they are right, since there are far too many good reasons, like Richard North’s warnings about customs, to expect much worse.