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Welcome to the Brexit Blog

We are keen to have a range of views on our Brexit Blog, but understand it is difficult for people to express a company view that is anything other than bland and anodyne. We’d, therefore, like to introduce our new blogger, Brett Sitt. He or she will be the avatar for anyone who wishes to write a short blog expressing their view anonymously. Simply email brettsitt@thefis.org to submit a post, confidentiality will be assured.

Wednesday 12 December 2018

Preparing for Brexit

With the Brexit process in a state of flux, there remains a possibility that the UK is heading for a Hard Brexit.  Depending the outcome of ongoing talks, should the UK adopt a No Deal Brexit stance there will be no transition period, it is likely freedom of movement would be limited and new Border Controls will be required to manage the flow of goods under the WTO rules.  This would be the “hardest Brexit”.  There remains a possibility that a version of the Theresa May Transition Agreement is voted through Parliament and this would effectively give us an “implementation period” to prepare for any changes.  In this period we would be bound to EU Regulation and EU Free Trade Agreements.

Softer long-term options include Canada +, which would mean a 2 year transition period, a trade deal covering goods (but not all services), new border controls and more limited movement of people.  A softer still option would be the Norway + Deal, this would deliver us frictionless borders and would mean the UK is effectively remaining in the single market (and freedom of movement of labour).  All may be delayed or postponed depending on the potential for leadership challenges, General Elections or even a Second Referendum.

We keep hearing that Businesses should be planning, but with the possible outcomes shrouded in so much uncertainty it is difficult to plan.  This checklist has been designed for FIS Members to help to create a structured approach to fathoming how Brexit may impact on their operation.  It is not exhaustive, but starts to create a framework for thought.  Not withstanding potential upside drivers (such as unlocking work that may be delayed due to current uncertainty) some of the possible challenges may include:

  • Availability of EU workers exacerbating skills shortage
  • Currency volatility and impact on estimates/contract prices
  • Availability of certain products (in their normal timescales) resulting from new import procedures
  • Impact of availability on product approvals or certification
  • Changes in VAT and tariff charges
  • Cash flow impacted by changing stock levels and assessments of credit risk
  • Contractual liabilities for delays

Whilst we strongly hope our Government steer us smoothly into the next era of UK economic growth, it won’t hurt to have a quick scan of this list and consider appointing a Brexit Project Leader to engage with people in the business and external stakeholders and providers to ensure that you are prepared for any required adjustments.

FIS will be reviewing this tool on a regular basis as a way of supporting members in unpicking the impact of Brexit on their business.

Prepared originally by Iain McIlwee, FIS chief executive

Brexit phase one is complete - February 2018

Thursday 1 February 2018

Brett-Sitt

Brexit Phase One is complete and the next major hurdle is in March 2018 - the transition agreement when it goes before the European Council. The Confederation of British Industry (CBI) message is that we need to use evidence not ideology in negotiating this phase. Currently, two years uncertainty has taken its toll and the gap between global growth and UK progress is widening. 

A flexible solution is in their opinion, therefore, best for the UK including a comprehensive customs union. This solves the Irish border problem and the value of the agreement will outweigh any restrictions on non-EU trade deals.  

Meanwhile, the EU has published its negotiating directives for the Transition Phase – what Mr Barnier can and cannot agree: 

  • No ‘cherry picking’ – to participate in the customs union and single market, the UK needs to respect the four freedoms 
  • All existing EU rules will have to apply but with no seat at the table 
  • Time-limited transition not beyond 31 December 2020 – possible flexibility on timeline  
  • Commission taking legalistic approach 

The EU was initially confident about negotiations but is now more hesitant due to the UK government reaction i.e., insistence that the Phase One agreement is non-binding; “nothing is agreed until everything is agreed.” The UK’s position is that a legally binding agreement will include Phase One and the transition period, whereas the EU believes Phase One needs to be legally binding first. There will now be two months of intense discussions. 

Germany and France’s position is that of politics over economics, concern over deregulation, integrity of the single market. The Prime Minister’s Florence speech was viewed as very negative. 

Immigration is as an important topic as the state of trade and more immediate to most members. The issues are: 

  • The rights of EU workers currently in the UK 
  • Transition period arrangements 
  • Post-Brexit – there is no plan at the moment – UK wants to wrap this in with terms of trade deal. It may be October before any advice is available 

An Immigration Bill is due shortly but this will only give the Home Secretary the right to write the rules so will not define them at this stage. 

A simple process for the Right to Reside is being proposed, and is an IT solution which will be no more expensive than the UK Citizen costs. The process will take around five minutes on a smartphone: 

  • Take a “selfie” 
  • Photo of your passport 
  • Swipe the chip on your passport 
  • Provide national insurance number 

You will get a response just two weeks, this will show if there is evidence of five years residence on government records and you will be given the right to reside. Alternatively, you may be asked to provide more evidence or accept ‘pre-settled status’ which will lead to the Right to Reside after five years. 

Government has stated it doesn’t intend to control migration at the border – instead anyone can enter with the correct passport and they will control the ability to work or not. This means the problem lies with the employers to satisfy the Right to Work requirements.  

This all relies on a government IT project delivered by the late autumn. 

Transition Negotiations
There are conflicting messages from government. The Prime Minister’s message is that free movement ends but the ability to move freely will not end.  

The EU is seeking to extend settled status for EU citizens to include the transition period i.e., anyone who arrives in the transition period has the same rights as now. Ministers now acknowledge the need for labour in certain sectors to be incorporated into immigration policy. 

In December and January, the cap on skilled Tier 2 Visas for non-EU migrants was triggered, meaning non-EU migration was effectively stopped – the government is open to making changes, as this impacts the NHS.

Currently, nurses are on the shortage list but doctors are not. Migration of nurses and doctors from the EU has fallen away sharply, so there is a greater demand in the NHS. New allocation starts in April. 

What progress on non-EU trade deals? Liam Fox said today that the China deal is a long way off. 

The view is that trade deals take a long time. 

 

What’s your view on BREXIT? Let us know under the pseudonym of Brett Sit – anonymity will be assured! FIS wishes to hear all views on Brexit; email yours to brettsitt@thefis.org for anonymous publication.

The impact of the Election here, there and everywhere by Brett Sitt, April 2017

Theresa May has called a snap election that will see UK voters go to the polls some three years ahead of the schedule for fixed term parliaments. She has done this because although the country is united, parliament is disunited and disrupting the smooth exit of the UK from the EU. A “strong and stable” government will strengthen her hand in the negotiations with a difficult Brussels bureaucracy. Or perhaps it is because she sees the political chance to crush a very weak Labour party, led by Jeremy Corbyn.

The point of a parliamentary democracy is that oppositions oppose and challenge the governments. Following a general election, the losing side does not simply give up and agree with everything the winners say and do. Besides, Labour is a shambles and has supported all the legislation put forward by the government. The Lib Dems with their massive total of nine MPs are not exactly tearing it up and the House of Lords waived through the legislation, so where exactly is all this intolerable disruption coming from?  The impact of the opposition to Brexit agreement is obviously crass nonsense. This is another example of the party before state, just as David Cameron used the EU referendum to try to silence opposition in his own party, so Theresa May is dealing with the true opposition to her government – her own party’s hard line Brexiteers. So much for the politics.

Assuming that she wins by a landslide and forms a strong and stable government what are the likely implications?

Many are hoping it will mean a softer Brexit, as she has the room to compromise having less concern for her backbenchers and the Daily Mail. This may be the case, but yesterday she played to the hard Brexit line by accusing Brussels of interfering in the UK election. This does play to her audience and feeds the belief propagated by David Davis and others that all that is needed is to be tough with these gnomes across the channel, we can metaphorically handbag them as Margaret Thatcher did.  Besides, the EU is falling apart, Le Pen is popular in France and talking about Frexit and Merkel could be gone in the autumn.

Except….it looks increasingly likely Macron will be the next President and he’s very pro-EU. All the candidates in the French election promised to end the agreement whereby immigration control into the UK happens in France. That will shift border control from Calais to Dover, what that will bring may not quite be what the government had in mind when talking about ‘taking back control of our borders’.  Merkel may lose but Martin Schulz, her opponent, is a former President of the European Parliament and very uncompromising on Brexit, he will make Merkel look like a milk maid in comparison.

The EU side looks united at the moment and the idea that we can cause splits by tempting individual members away by doing sweetheart deals seems fanciful, as all 27 countries have to agree. What’s more, the countries we have in mind are more dependent upon EU funding and support than anything we can offer.

Post the elections across Europe, we start the real process of negotiation. At some point, Theresa May has to come clean to those who voted for Brexit that actually we will not reduce immigration from the EU significantly. Not if we want to maintain low food prices, build houses and have people to clean our hospitals and care for our sick. We seem to want the benefits of immigration without having to see any of the consequences.  We’ve allowed immigration to grow to feed our growing economy, growing our population whilst simultaneously reducing funding, in real terms, to education, health and services through “austerity”.

At some point, Theresa May will need to come clean and tell us what taking back control really means. Expect a fig leaf on immigration through a visa system that reduces the number entering by very little but allows the government to say “we control the process”.

By pandering to the notion that she can deliver Brexit at no cost and yet allow us to enjoy all the benefits may get her re-elected with a massive majority but it will leave her seriously boxed in when the negotiations really start.

Can someone please do a “Macron” and find us an opposition?

BREXIT – aren’t you just sick of hearing about it? by Brett Sitt, 7 April 2017

All those Remoaners who can’t get over the fact that the electorate voted against them – and the dreadful progressive liberal elite who can’t believe that the electorate didn’t vote the way they were (wisely) told.  Sod the lot of them.

OK, so there’s been a few downsides – the exchange rate that went the wrong way, causing the cost of imported goods to increase and the downturn in demand that followed on from the immediate Brexit shock.  Big deal.  Everyone’s missing the key question:

“Where’s the opportunity?”

Yes, the OPPORTUNITY – and yes, there are plenty of them – here’s a few:

  1. Export, export, export – the decline of sterling against other currencies just made Britain’s exports a whole lot cheaper – so, if you have a product ripe for export markets, start selling and make some money;
  2. Selling into internal markets – how many of your competitors rely on buying imported products and then selling them in the UK with a view to profit?  Guess what, your competitors who do just that are hurting from falling profitability, so you might just now find that your products have become cost competitive;
  3. Infrastructure development, refurbishment and demolition – outside of the EU, we’ll be able to dispense with bureaucratic resources and lose legacy enterprises that we no longer need – that will mean buildings coming free for refurbishment, or even demolition.  Meanwhile, new opportunities will arise where people need accommodation.  The point is, its change within buildings which should equate to work required to adapt then to new users; and
  4. A renaissance of entrepreneurialism, as Britain strives to “go it alone”, that will create future opportunities that we haven’t even thought about yet – but which perhaps we can all think about and anticipate now, in order to create “first mover advantage”.

So, Brexit should be about embracing this brave new world, rather than moaning about it.

Brexit - has the fat lady sung? by Brett Sitt, 29 March 2017

Brexit – is it all over? If ardent Leave supporters are to be believed, Brexit is done now that Article 50 has been triggered. “Brexit” means the departure of the United Kingdom from the European Union. This won’t happen for at least two years. Due to the complexities of leaving the EU and striking a trade deal with the EU27, many people now accept that a “transitional period” will be required from March 2019 and that this period could last for many years. Some experts in trade negotiations talk in terms 10 years to reach agreement on a comprehensive trade deal.

The government is now talking about crashing out of the EU without a deal. Knowledgeable people say that this would be very damaging economically for the UK. This appears not to concern some people in the government. This is reckless. David Davis has admitted that he has not done an impact assessment of this scenario. He is hoping that everything will be alright. He is gambling with your future.

So, is it all over? Hell no! It is just beginning. It may not feel like it, but we have only just begun the process of leaving. If we take the minimum period possible, the two years required under Article 50, there is plenty of time to influence things. A lot can happen in two years. Public opinion can shift dramatically in that time, especially if people feel worse off, or start to realise how badly they will be affected by the UK’s withdrawal from the EU. There are other factors to consider. Age was a key factor in the referendum result. Younger people voted overwhelmingly to Remain. Demographic shifts over the next few years will ensure that Remain supporters will be in a majority. But we can’t just sit back and wait for this to happen. We need to talk to our friends, neighbours and workmates to persuaded them that:

  1. they were badly misled
  2. the negative consequences of Leaving (even the most ardent Leavers say that there will be some negative consequences) will hit them the hardest, whilst the people at the top will reap the benefits
  3. everyone has the right to change their mind when circumstances change
  4. it is not too late to do something about it.

Fervent Leavers like the term “Hard Brexit”. They call for a “Hard Brexit”. This is ironic, but is also terribly sad as most of them will suffer the hardships resulting from Brexit. On the 25th of March, 100,000 people from all over the country, and from all walks of life, protested against Brexit and especially a “Hard Brexit”. Were they depressed? Were they down? Judge for yourself here:

Brexit-montage

These are the words that came to my mind during the National March to Parliament on the 25th of March:

Upbeat; Winners don’t give up; Resilient; Open; Peaceful resistance; Defiant; Worried; Confident; Young; We are many; Sensible; Caring; Aware; Angry; Proud; The future; No Snowflake!; Determined; Proud to be a European; Factual; Brits don’t quit.

The people on that march know they can win this fight. They know that the leading Brexiteers have no clothes. They know that the mood will shift and the tide will turn over the coming years.

What many leavers mean by “Brexit” is a complete severing of ties with the EU. If this happens at all, it won’t happen for 10-12 years. A long time! In the words of the great baseball player Yogi Berra, “it ain’t over till it’s over”. Or my own favourite, “it ain’t over till the fat lady sings”.

Thank you to Brett Sitt for this post. Do you have any comments that you’d like to share; do you disagree with this? Do we have any readers in favour of leaving? Let’s hear from you!

FIS wishes to hear all views on Brexit; email yours to brettsitt@thefis.org for anonymous publication.

23 February 2017 by Brett Sitt

Why I think Brexit is going to be bad for us

I think the government knows this and I think Theresa May and Boris Johnson are acutely aware of but don’t dare admit this to the public. We are heading for a hard Brexit, not because the parties don’t want to reach an agreement but because there are too many players that have to agree and far too little time. Too many players – 27 countries need to agree and these range from Germany who want to sell us BMWs to Rumania who have only their people’s labour to sell. How can you get an agreement that satisfies both parties? Too little time because negotiations won’t really start until after the German elections in the Autumn.

There is a belief that the EU is about to implode, with Dutch, French, Italian and German elections on the horizon and we have therefore jumped ship before it sinks. All these elections do though is create a more difficult position for the negotiations, with politicians hamstrung by the need to get re-elected. Besides, the Dutch right winger Geert Wilders may become the majority party but will not form a government (the others have vowed not to work with him) Le Pen is unlikely to win the second round of the election for President in France and if Frau Merkel is defeated it will be by the party led by Martin Schulz, the former President of the European parliament and one the greatest critics of Brexit. Do we think this would be a preferable thing to Merkel?

Far from imploding, the EU is hanging tough and has a united position of no cherry picking. The maintenance of the EU being considered more important than short-term economic gain. As the Prime Minister of Malta put it in his role Chair of the rotating EU Presidency;

“We are saying two things: that we want a fair deal, but that fair deal needs to be inferior to membership. Honestly, I cannot see a situation where someone gets out of a club and then expects that the new relationship is even better than being a member.”

Then there is the question of the bill for leaving the EU, all the financial commitments we made which stretch off into the distance, pensions, investments and the like. This will be counted in the £billions whether it is 30 or 60bn won’t matter, they will be equally resented by UK citizens and crucially stand between us and the negotiation of a new trade deal being started.

The Brexiteers tell us this is all part of the hard negotiations and in the cold light of day reason will come to the fore and a deal will be done. I don’t get that as the Prime Minister has made it clear that the control of immigration comes before short-term economic considerations. But as she found out, it is not just the EU who want freedom of movement for their people. The trade delegation to India immediately came up against the argument that a deal was very possible but tell us about how you intend to allow more Indians to enter the UK?  A deal with President Trump is likely but which bit of “America First” is going to benefit us? A deal with New Zealand also sounds fine on paper but they represent a tiny economy in a far-off place, there are significant costs involved in trading at distance. I firmly believe there will be no winners, Brexit will damage us and the EU.

Hence the illusion the government is selling the nation, of a freedom to negotiate deals around the world, taking back control and a reduction in immigrants is not deliverable. We are going to end up paying the EU for an inferior deal and end up with similar levels of immigration. The government should be preparing us for this possibility, not feeding the continued self-delusion about a Clean Brexit and new found freedoms.  The animosity to any discussion about a change of mind shows that the hardcore Brexiteers fear the public having a change of heart and this must be prevented at all costs. Those who raise concerns are portrayed as “enemies of the people” or ignoring the will of the people but if their case is so strong and we are going to get such a good deal what do they have to fear?  If it turns out there is a high cost to Brexit and that we can’t control immigration in a way that people notice might people change their mind? Does anyone still believe that we will be returning £350m to the NHS every week?  In a post-truth world perhaps this is an “alternative fact” and does not matter but as someone famous said: “When the facts change, I change my mind. What do you do?”

 

Thank you to Brett Sitt for this post. FIS wishes to hear all views on Brexit; email yours to brettsitt@thefis.org for anonymous publication.

20 January 2017

The promised “interesting times” arrive today with the inauguration of President Trump. He’s promising big change to make America Great Again. There is a hope that in office he will be influenced by the people he has appointed to moderate the more outlandish proposals and not govern on the basis of instant reaction through twitter. As they say in the Navy, he appears to have a very quick “flash to bang” and a thin skin.  With his finger on the nuclear button perhaps not the character trait you are looking for.

For the UK we are taking comfort in the promise of a quick trade deal with the US. Sounds very good on paper but this will be achieved through the requirement for “America First”, so we will see. Whatever President Trump does it will have a great impact on our economy, the chances are that it will be positive, as the regulatory framework in the US becomes more business friendly. All bets are off if there is a trade war with China.

Over here the Prime Minister made a significant speech outlining the approach to the EU negotiations.  We will be out of the single market and probably out of the customs union. Clarity at last, except depending upon who you listen to this will either be very easy or very difficult. David Davis said in an interview on Radio 4 that countries were queuing up to do trade deals, he had just met with the Prime Minister of New Zealand who will very quickly do a free trade deal. That sounds great but New Zealand is the 53rd largest economy in the world and is 11,400 miles away, I’ve tried working on a project in New Zealand, it is not exactly an out and back in a day trip. The experts on trade deals say that doing a deal will take a long time even if there is good will between the parties.  How do you get a deal that satisfies the Germans who sell us a lot of goods and Romania who sell us very little but whose people want to work here? You have to feel that a deal can be done as no deal hurts both sides but much will depend on politics; who will be governing France, Germany, Italy and the Netherlands at the end of 2017? The current crop of leaders put the maintenance of the single market and by implication, free movement of people at the top of their Brexit requirements even at the cost of short-term economic cost.

We also know that the control of immigration and our borders is the priority even if this causes short-term economic damage, hence the exit from the single market. Our sector lags the rest of the economy and this will mean that any impact from that is more likely to be felt in 2018. The next big thing in the UK is the Supreme Court judgement on Tuesday requiring a parliamentary vote, this is likely to make little difference as a Bill will be put before parliament the next day which the government will get through.

The opening salvoes have been fired, who knows what this year will bring. As the CBI suggest, the most important attribute of any company at the moment, is the ability to deal with uncertainty.

I’m keen that there should be a range of views on this blog but it is difficult for people to express a Company view that is anything other than bland and anodyne. I’d therefore like to introduce our new blogger, Brett Sitt. He or she will be the avatar for anyone who wishes to write a short blog expressing their view anonymously. Simply email me at brettsitt@thefis.org if you want to do something, only I will read these mails and know who the writer is, so confidentiality will be assured.

The interesting times start here, we want different opinion….. so please get writing.

25 November 2016

One of the significant dates in the timetable to BREXIT passed this week with the Chancellor’s Autumn Statement. All fairly steady, with much of the content heavily trailed in advance, some of the infrastructure spending will filter down to us and is therefore welcome.

Depending on which side of the fence you sit, the Chancellor was either gloomy or optimistic about our future.  He certainly said the national debt was “eyewatering” and therefore probably the consensus was that he was pretty realistic and that was reflected in the modesty of the spending he announced.  Much of it designed to deliver growth on the basis that for every pound invested in infrastructure projects it generates almost £3 in economic activity.

The independent OBR Office of Budget Responsibility has been widely criticised for being too pessimistic and predicting that BREXIT will cost us £60bn. It has been pointed out that the OBR’s forecasts have been wrong in the past.  Essentially however, they have said that reduced or delayed investment will have a short-term negative impact and that a reduction in immigration will have a longer-term effect, as we struggle to meet the skills gap that will generate. It also believes that any hit that derives from uncertainty will disappear quite soon.

This ranks them on the more optimistic side of forecasters but is based on a number of assumptions based on almost no government information about what the BREXIT plan will be.

For FIS members the two recent presentations we’ve had from the CPA Construction Products Association and the Manchester Chamber of Commerce have forecast continued growth but at lower levels than previously forecast.  This growth and construction activity will be increasingly focused in the major urban conurbations; Manchester in particular looks very busy and our members there are most concerned about how they are going to find the skilled labour to meet the demand.

Where we have such a heavy reliance on EU immigrants to fill that labour gap, any changes to immigration policy will heavily impact us. Realistically we cannot simply stop new immigrants coming into construction, without severely impacting the delivery of the new housing and infrastructure projects the government is now backing. It is likely therefore, that some form of immigration to work in the sector will continue but this may come at a price: perhaps an administratively burdensome visa scheme that would add to your costs, but add no value. The DBEIS Department for Business, Energy and Industrial Strategy is currently assessing the impact of immigration restrictions on construction. To ensure we can properly represent your interests we will be carrying out a survey of member staffing levels to establish the scale of the problem. We might feel that in some areas up to 80% of the workforce comes from the EU but if we knew that through a detailed survey it would carry much more weight.

There is an additional need to collect this information. You may have seen the recent Employment Tribunal on Uber drivers; recognising them as employees.  This could impact our LOSC Labour Only Sub Contractor operatives in areas such as holiday pay. The Prime Minister also recently announced the Taylor Review of the ‘gig economy’, again this will be about our operatives. To inform both issues, I am asking you to support our labour survey which will be made available to our members very soon. If we can accurately describe the impact of changes, we have more chance of making those changes positive rather than an additional cost to your business.

21 October 2016

Our Prime Minister is in Brussels at her first EU summit. Both sides are refusing to declare their hand until Article 50 is triggered next year, so the Mexican stand-off continues.  A similar conflict appears to be taking place in the cabinet with Philip Hammond, the Chancellor, pitted against Messrs Fox, Davis and Johnson. The Chancellor advocating a “soft” Brexit whilst the others pushing for a “hard” or as they now term it “clean” Brexit. The consensus appears to be that the free movement of people is a no-no for the UK, and as this is one of the core principles of the single market that will be non-negotiable from an EU perspective, a “hard” Brexit therefore is the only likely option.

In this event, the advocates of a clean break argue that we will say that we will not impose tariffs on you, if you don’t on us (although this is a World Trade Organisation WTO requirement). The likes of BMW will lobby the German government hard to continue to sell luxury cars into the UK because it would hurt them more than it would hurt us. Hence trade will continue largely in the same manner as before we left the EU. That seems to be a persuasive argument, but I read this article by Sam Bowman of the Adam Smith Institute: The Free Market Case for Hard Brexit Doesn’t Add Up that tells me it isn’t quite that simple. I also saw on Newsnight, Oxford professor Ngaire Woods with a simple explanation of how trade negotiations work.

Those advocating hard brexit might be right and the world will continue much as it does now but we won’t really know that for some time, and that breeds uncertainty.  Uncertainty does not attract investment, although you could argue that the UK remains one of the few safe havens for investment, having fair, stable financial and legal systems in place.

At our conference last week, Professor Noble Francis of the Construction Products Association (CPA) gave us his assessment of the economy and market; it is “unrealistic to forecast 5 years ahead” until Article 50 is triggered and we finally know what we will be looking at.  He did however say that contract awards had fallen 9% in July and August and this would impact our sector in the 2nd half of next year, we may go into a technical recession.

In my opening speech to the conference, I mentioned that we lived in interesting times, or rather, uncertain times and even if we weren’t talking about Brexit we would still be concerned about the world economy.  A combination of that and the falling pound has led to a rise in commodity prices.  We can expect to see substantial rises in steel prices and similar increases in timber, Francis claiming around 17% as a result of sterling’s decline alone against the Swedish krona.

The construction industry remains however a £103 billion industry and even if it shrank would remain a big industry, so there will still be work out there regardless of “hard”, “soft”, “clean” or “open” Brexit.  In that sense “Brexit means Brexit” remains meaningless.

7 October 2016

It’s finally beginning to feel autumnal and we’ve had the round of party conferences. The Conservative Party has moved further towards hard Brexit, Labour to the hard left and UKIP to hard hitting…. each other.  Have we learned anything from the conference season?

The Prime Minister told us that Article 50 will be triggered in the 1st quarter of 2017.  That will set the timetable for the UK’s departure from the EU.  We will have two years to negotiate a trade deal or face a ‘hard Brexit’ i.e. no trade deal and depending upon who you ask, this will either be no sweat or a complete disaster.

Amber Rudd, the Home Secretary, gave a slightly shocking speech talking about companies employing too many foreigners and that they would be ‘flushing out’ the worst offending companies.  By the next morning however, she had tempered that message; “This is one of the things we are going to look at in this review. It is not something we are definitely going to do,” she said. “It is one of the tools we are going to use in the review to see if we can use it as a way of nudging people into better behaviour.”

This implies that those of you employing labour from Eastern Europe are in some way behaving badly.  Be assured, we will be responding to that consultation.  Having said all of that, you cannot argue with her point that “We won’t win in the world if we don’t do more to upskill our own workforce.”

We can assume that this was a political message for the Tory faithful but it does point out the danger of the politics trumping economic need.  President Hollande of France said this week that “Britain must pay a price” when he talked about protecting the fundamental principles of the EU, he described Brexit as not just a crisis but “the crisis.”  Chancellor Merkel of Germany also warned German business leaders that they must prepare for a short-term economic hit to protect the EU.  “If we don’t insist that full access to the single market is tied to complete acceptance of the four basic freedoms, then a process will spread across Europe whereby everyone does and is allowed what they want.”

The message is, I think, clear; that attitudes are hardening in France and Germany and that they are prioritising the maintenance of the EU over their own economies.  If this is the case, it subverts David Davis’ argument that the EU will continue to trade with us because it would hurt them more than us.  In the run-up to negotiations starting, it is to be expected that positions harden.  Besides, the two big players, Hollande and Merkel, could both be gone by this time next year as elections take place in France and Germany.

23 September 2016

We are now at the autumnal equinox (the moment when the days and nights are of equal length) so evening-wise it’s all downhill towards winter.  The nights drawing in is imperceptible until we get the sudden jolt of the clocks changing, at that point you suddenly notice a difference.  With Brexit we have not yet received that jolt, economically anyway, except for a sudden and sustained fall in sterling.  As if to emphasise the lack of change, the OECD this week again revised their economic forecast for the UK.  You may recall the OECD forecast that leaving the EU would be “equivalent to missing out on one month’s income within four years.” In other words, a complete disaster.

They now say the impact will be “later but harder”, so they weren’t wrong but just got the timing out!  This does bring them into line with most of the other economic forecasters seeing the UK economy still growing through 2017, albeit less than forecast pre-Brexit vote.  As with previous blogs here though, is that because of Brexit or the world economy downturn?  Who knows.

I attended the Construction Industry Summit this week where some very optimistic predictions of construction activity were made.  On large projects alone, we are looking at £200 billion worth of work up to 2024.  You may not be working on a Hinckley C type project but they will have a knock-on effect on us all.

That’s really good news, not least because it is something we know, not a forecast.

So when will the picture become clearer?  The Conservative Party Conference on 2-5 October is more likely to show us how the political landscape lies rather than give us anything concrete.  Hopefully the Autumn Statement, planned for 23 November will deliver a stimulus to construction.  The overall picture however, remains unclear.  I found this quote in this week’s FT;

“Once the UK politicians decide they have something more than a blank sheet of paper, then markets will respond,” said George Magnus, a senior economic adviser to UBS.

The fear is they are not staring at a blank sheet of paper, but different plans as May, Hammond, Johnson, Fox and Davis put forward their diverse approaches to Brexit.

Brexit means Brexit?  Answers on a postcard please.

2 September 2016

Brexit means Brexit

So the politicians’ summer holidays are over and the first meeting of the cabinet has taken place. But are we any the wiser? The PM reiterated “Brexit means Brexit” and I’ve been wondering what this reminded me of and then it suddenly came to me;

Beanz means Heinz

It has the same ring to it but there is a significant difference – one has a message we can understand.

It remains clear that things are very unclear and will remain so for some time. I would suggest that picking out individual statistics adds very little at this early stage. The really interesting thing I learned this week was about the likelihood of overturning the Brexit vote, according to Wolfgang Munchau in the FT, the following sequence of events would be needed: Owen Smith “would first need to win the (Labour) leadership contest”; “Article 50, the official exit procedure, would ideally not be triggered before the next UK general election, scheduled for 2020 (if triggered before 2020 but not completed, the Article 50 process would need to be judged legally reversible, which is possible but not inevitable); Labour would have to win the election with an absolute majority; in the ensuing referendum, a majority would have to vote in favour to overturn the previous referendum, ideally with a bigger margin than 52-48; and there would be no successful legal challenge to that process. Good luck!”

I guess with the support of the Lib Dems and SNP you could end up with a majority in parliament in favour of a second referendum but the main focus of the remain votes was in London and Scotland and this is not a great platform to win an election. The parliamentary boundary reforms will also impact the Lib Dems and Labour far more than the Conservative party. The conclusion you have to reach is that a 2nd referendum is highly unlikely, which in itself gives us the start of a degree of certainty.

I asked Professor Noble Francis, Economics Director for the CPA on his take on things and his response is below;

In terms of Brexit, my view is there are two issues, what we have now which is the short-term impacts of the uncertainty created by the referendum vote and then long-term, what actually happens when we leave the EU and then we have the impacts of Brexit. The first is purely an uncertainty impact and the lack of data post-referendum doesn’t help.

In terms of the economy, Q3 is likely to record a contraction and it’s a fine line whether Q4 is (but whether it is a slight rise or slight contraction is not that important apart from a big ‘recession’ headline). My view is that general retail spending is likely to hold up until inflation rises (due to the fall in Sterling) and then real wages fall in 2017, which will slow economic growth as our economy is based on consumption.

Most likely, there will have been a short-term hit on new investment and new contract awards in July as the surprise nature of the result will have made investors nervous, so whilst day-to-day work carries on, projects finishing may not be replaced due to lack of projects signed up to in July and also projects put on hold. Similarly, I would expect to see that housing registrations fell in July although completions are largely likely to continue. What we don’t know is whether this will continue into August, which is generally a quiet month anyway, and then most importantly September. House builders will be looking to see if transactions and prices hold up in Q3. If they do, they’ll keep building but if not then starts will fall in the second half of this year and then completions will fall next. As for commercial, projects put on hold or lack of new contract awards in Q3 due to the uncertainty, which would impact on activity on the ground in 2017 and 2018 due to the long lead time.

And all this is before we get to the actual Brexit 2019, which brings its own set of issues.

I could go on, but I only remember now that you just wanted a couple of lines. To summarise, I think it means a contraction in the UK economy in Q3 and subdued growth over the next 12 months. Construction, and particularly housing, offices and warehouses, tend to be more volatile than the economy so new investment/contracts there likely to be most affected by the uncertainty and investment and so are most likely to see falls in activity. Housing and warehouses have short lead times so any adverse impact would be felt from 2016 H2. Offices activity on the ground would be most likely to be impacted from 2017. Not sure if that helps. As I say, I could go on and on about it.

And he will be going on about it at our conference on 13 October. Come along and join the debate.

19 August 2016

A hidden benefit of Brexit?

Things seem to be in a period of settling down as we enter the “phony war” with politicians taking a pause for their summer holidays. It is clear there is no political consensus either side of the channel about how to proceed and no sense of urgency to find a resolution. Within government, the three ministers responsible for Brexit – David Davis, Liam Fox and Boris Johnson – appear to be jostling for position, this could at least make the party conference interesting.

The result of being in a phony war is that nothing much seems to have changed to the man on the street, at least not from a consumer perspective, retail sales for July were way higher than expected rising by 1.4%; the warm weather and a weak pound helped the tourist trade. If walking over Westminster Bridge in the middle of the afternoon is a good gauge, I couldn’t move for tourists taking selfies in front of Big Ben.

As if to emphasise the feeling that nothing much has happened and the economists called it wrong, the jobless figures also exceeded expectations and inflation rose by 0.1%. So nothing to worry about in the summer sun, there has been no major disruption. Except lots of people are worried; but why?

On the Today programme this morning they interviewed Mike Laven, CEO of Currency Cloud, a company that allows money transfers across the world. As you would expect he reported no major disruption at the moment, people still need to pay bills and transfer money to the families but he described “a massive period of uncertainty” ahead of us. Interestingly he is now required to “play defence” by engaging with employees and investors in “what if” scenarios around Brexit. He says this is a “major diversion of the company’s time and resources that I didn’t have to do before”.

No doubt this is replicated across the country as we all prepare budgets against an uncertain market. How do you call the market and is this the time to spend on a new build programme? What is true for commerce is also true for government with much political capital, time and resource going into planning and negotiating the future position of the UK in the world. Leaving them less time for developing new policies.

Maybe that will be a hidden benefit of Brexit; less new initiatives and strategies, regulations and laws from government.

12 August 2016

Guest post by Alex Davies, Research Analyst at Greater Manchester Chamber of Commerce

Last month, there was a phenomenally dull but hugely important Treasury Select Committee meeting on the future of the UK’s relationship with the EU. The hearing was important not only because of what was discussed, but because it felt like one of the first landmarks in the Brexit process. It was a turning point in the discourse of the conversation from the rhetorical and populist debate that came before, to the complex practical realities of what is to come. It was at once a stark realisation of the enormity of the task we have set ourselves and a manifestation of the problems we will face whilst tackling it, because almost nobody turned up.

The panellists were Hosuk Lee-Makiyama – Director of the European Centre for International Political Economy, Shanker Singham – Director of Economic Policy and Prosperity Studies at the Legatum Institute, and Richard North – Member of the Leave Alliance (a beacon in the pre-referendum fog) and author of “Flexcit” – the most comprehensive strategy for exiting the EU that exists. The conversation was often impenetrable, covering many aspects of the road ahead with a level of detail and technical understanding not yet seen. It was in stark contrast to the efforts of Dominic Cummings, Aaron Banks and other high-profile leavers that earned them a roomful of attentive MPs and mass media coverage before the referendum. This time though, with panellists equipped with real expertise, the room sat empty and the committee frankly struggled to keep up. Whilst it is frustrating that it took a vote to leave the EU for these sorts of informative and productive exchanges to start happening, the reality is that the debate has now left the realms of comprehension for all but a select few, and certainly of our politicians. Andrew Tyrie called it our biggest political crisis since Suez, and he might not be far off.

There were enough points touched upon in the two hours to fill numerous textbooks, but some broad conclusions can be drawn. The most obvious is the sheer complexity of the choices we will face and the processes required to achieve them. There was clear agreement that invoking Article 50 early is in nobody’s interest, not until we have an idea of our desired future relationships with the Union and what the landing zone for the negotiations looks like. It was even suggested that the button should not be pressed until we have agreed an up-front extension of the negotiation period to five years. Mr Makiyama was conciliatory on this point, stating that anybody who knows anything about trade negotiations understands that artificial time constraints do not exist.

On trade arrangements, the issue of tariffs was dealt with swiftly: business can handle tariffs, grandfathering EU tariff agreements should be easy, and the tariff sections of new trade deals can be done in an afternoon. The conversation focussed instead on the more serious issue of non-tariff barriers, mainly relating to issues of standards compliance and Mutual Recognition Agreements (MRAs). Non-tariff barriers like these would be the main problem faced by exporters should we be unfortunate enough to fall back on WTO rules for trade with the EU. Without an MRA on conformity assessment it could no longer be assumed that our goods comply with EU standards, which would require additional documentation and potentially conformity checks on goods set to leave the UK. Many people have said repeatedly that you don’t need trade deals to trade, which is true, but without mutual recognition of conformity you may need new testing procedures at borders and a whole bunch of new paperwork, which is extremely problematic if you don’t have those things in place at the moment. Free trade deals typically include nothing about conformity or harmonisation of standards, in fact, TTIP is one of the only trade deals that does, and it now looks to be dead in the water. The panel repeatedly emphasised that it is non-tariff barriers and MRAs that should be the primary focus of trade negotiations, rather than tariff and quota focused bilateral trade deals.

There are further issues with the idea that we don’t need trade deals or that trade deals mean easy free trade. Free trade agreements almost never cover services, and there is no precedent whatsoever for having full services access to the single market without being inside it. The importance of services to our economy cannot be overstated. We can be optimistic about service agreements with places such as Australia or Canada, less so China or the USA where the regulatory frameworks differ greatly from our own. If our service access to the EU is hindered though, new service deals elsewhere will not make up for it.

In all, the hearing was wholly inconclusive, but made a good start in moving these discussions towards something we can move forward with. Two clear conclusions could be drawn however: firstly, the best landing zone for the initial negotiations would keep us within the single market. Of course life outside is possible, but the disentanglement of 40 years of integration and the establishment of new arrangements cannot happen within the initial negotiation period, Mr. North asserted it could take twenty years. Outside the single market, we would face regulatory and tax policy inconsistencies costing businesses far more than tariffs. The political havoc and economic disruption caused by falling out of the single market without these arrangements in place could not be reconciled for decades, no matter how big our ambition. Doing trade deals with other countries is the relatively easy part, it is securing our immediate and future relationships with Europe that will be the most difficult and important task in the first stages of the Brexit process. This is besides the fact that we are unable to actually sign trade deals until that relationship is secured, and the negotiation of these deals will be contingent on what that relationship looks like. Moving towards a Swiss or WTO-like scenario should be done from the relative comfort of some EEA-based position.

The second broad takeaway from the hearing is that all of this stuff is about to get really complicated. Interlopers like me can only do our best to keep up, then again, if we fall out of the single market, the complexity will be tenfold. Let’s get ourselves settled in the comfy waiting room of the EEA, and take our sweet time over everything else.

5 August 2016

This week’s big news is the Bank of England BOE cutting interest rates for the first time in seven years to the historically low rate of 0.25%, along with a new round of quantitative easing including for the first time, the purchase of corporate bonds. Banks will be encouraged to lend more money to businesses and consumers as they can borrow at almost zero interest from the Bank of England. Mark Carney the Governor of the BOE said he would rather use “a sledgehammer to crack a nut” in the face of the economic consequences of leaving the EU. Critics argue that he is talking the economy into a downturn. Indeed, the Daily Telegraph opinion piece headline today is ‘Don’t blame Brexit for this rate cut, Blame Project Fear’.

The BOE assure us they have taken an “optimistic interpretation of the best data yet available”, which means the largest downgrade of growth forecast in 20 years. They are however no longer forecasting a recession, partly due to the actions they are taking, but a big proportion still believe there will be slowdown in growth. Even Economists for Brexit have forecast a temporary shock to the economy.

At the end of the day it is safe to say the economy is going to slow, whether that is because of BREXIT, world economic problems or the BOE talking us into recession is open to question.

The BOE have little else they can do to stimulate the economy through monetary policy. It will now be up to the government to use fiscal measures in the autumn statement to get things back on track. We can expect increased spending on infrastructure projects and perhaps tax cuts. It would appear an end to austerity is in sight but if you can borrow at virtually zero interest rates it makes sense to build those big projects now.

The Markit/REC report on jobs published today shows a “marked drop in permanent appointments amid heightened uncertainty”. The most marked decline was in London but also the Midlands, South and Scotland. Only the North saw a rise in placements but as Kevin Green of REC said; “Whilst these are worrying signs, it’s important we don’t jump to conclusions from one month’s data….we may see confidence return to the jobs market more quickly than anticipated”.

To underline the importance of removing the uncertainty about what Brexit looks like, the CEO of Nissan, Carlos Ghosn said to the BBC, investment in the Sunderland plant would depend on the outcome of EU-UK talks on Brexit. “We are reasonably optimistic at the end of the day common sense will prevail from both sides” Ghosn added. How true this is, everyone will want to continue to trade with the minimum of fuss but the quicker we get from “reasonable” optimism to clarity, the quicker we can get on with developing the opportunities.

29 July 2016

Another week of mixed messages and it is evident a clear picture will not be apparent for some time. Almost every indicator or report comes with an if or a but, so as ever, this blog comes with a health warning; some of it may be relevant, some of it may not.

If we kick off with the RIBA survey of architects that suggested that 24% of practices had projects put on hold post-Brexit and 44% thought their workloads would fall in the next 12 months. Bear in mind that in the same survey 78% of respondents thought that Brexit is the wrong decision and that in RIBA’s view; “Views were often raw and polarised”. The RICS workload survey said that “On average, contributors foresee their workloads increasing by 1% over the coming 12 months, down from the 2.8% growth predicted in Q1” so a slowdown but not Armageddon.

Technically, the ONS confirmed that the UK construction sector went into “recession” (two consecutive quarters of negative growth) falling 0.4% in Q2. Overall however, the UK economy had grown faster than anticipated prior to the vote, which surprised most commentators. The ONS figures have however frequently been revised later in the year and have not been the most reliable. The CPA team led by Noble Francis (who will be speaking at our conference) and whose forecasts have been uncannily accurate, has delayed their forecast due in September and anticipate that their January 2017 forecast will give us a better picture of what to expect. The ONS figures of course reflect pre-Brexit activity, so confirms that the industry was cooling prior to the vote. Here lies the difficulty. What element relates to a world economic slowdown and what to Brexit (if any)?

The Prime Minister met with the Polish PM and confirmed that she “wants and expects” the nearly 800,000 Poles living in Britain to remain in the country after Brexit. Hopefully this will give some certainty on that front.

The Financial Times reported that “European executives in the UK and their continentally-based British counterparts worried about their fate when the country leaves the EU are being offered the chance to take out “Brexit insurance” from AIG – a US based insurer. Clearly there are opportunities out there.

What to make of the political manoeuvres this week? With Michel Barnier’s appointment as the EU Commission’s chief negotiator on Brexit, nicknamed the “scourge of the city”. Probably not a great signal for cooperation pitting him against David Davis our negotiator, known as “Monsieur Non”. And what about the last minute delay to Hinckley C? How will that impact Anglo-French relations?

Consumer confidence however seems to be holding up at John Lewis, the only retailer to report weekly sales figures, and Open Table who do online restaurant booking report a return to normal after a slight dip. Everything else around housing, job applications and purchasing managers’ index (all predicting negative outcomes) are still in the reaction to a surprise vote mode, I think.

As a final comment in the RIBA survey says; ‘I am confident that things will settle down in time.’

RIBA Royal Institute of British Architects
RICS Royal Institute of Chartered Surveyors
CPA Construction Products Association
ONS Office National Statistics

21 July 2016

I got my first taste of the impact of Brexit on holiday in France last week, when my pound didn’t buy me quite as much; it was worth 16% less than it was the year before. This could well be a temporary phenomenon, but it hurt. The second impact of Brexit was to come back to the UK to find all change; a new Prime Minister and several new government departments. Change is happening very quickly and to help members begin to understand the implications for their business of this momentous decision, FIS held its first member briefing yesterday in London.

We had over 25 members in attendance who expressed a range of views about what Brexit would mean for them, identifying the risks, and more importantly, the opportunities. Establishing what we want from government and how FIS can communicate information as it becomes available. The notes of the meeting can be found here.

It is evident from the meeting that members consider that the greatest risk centres around uncertainty.

Uncertainty in three areas; the market, labour and skills and technical standards.

The market does not like uncertainty and members described several projects being put on hold since the vote. So far consumer confidence seems to have held up, if spending on the high street is anything to go by. Whether there is an appetite for ‘big ticket’ items such as cars or houses is however a different matter, new buyer inquiries have declined significantly according to a survey of the RICS (Royal Institution of Chartered Surveyors). Houses prices will drop but that may be no bad thing.

There is always the danger of talking ourselves into a recession. Neil Edwards of Builders’ Conference who gave members a briefing on the market, reported a 16% drop in orders and 16% drop in tenders, and is forecasting a recession next year. The IMF (International Monetary Fund) however, think we will avoid recession but growth will be reduced to 1.3% – still better than France and Germany.

In terms of labour and skills there are obviously concerns about what happens to our EU workers post-Brexit. Currently the position is ‘no change’ and the PM’s office clarified this position with a statement: “We will guarantee the legal status of EU nationals in Britain as long as British nationals living in EU countries have their status guaranteed too.” EU nationals who have lived “continuously and lawfully” in the UK for at least five years automatically have a permanent right to live in the country, despite the UK’s decision to leave the EU.

This would appear to sort out the current EU workforce but what about the next generation?

On technical standards, the BSI are clear that BS EN standards will also remain with the UK continuing to be full members of CEN and CENELEC – the body that overseas the standards. BSI have produced an excellent webinar on the future of standards outside the EU.

The uncertainty makes defining the risks much easier than the opportunities. They are less tangible, but as the mist lifts we should see a shift from the risks to greater certainty about the ways we can benefit from Brexit. What we at FIS will do is focus on helping to reduce the impact of the risks and try to identify opportunity.

Our strategy will remain focused on;

SKILLS
TECHNICAL STANDARDS
COMMUNITY
Skills – help develop the workforce to meet the needs of the industry through better, more appropriate apprenticeships

Technical Standards – development of new and updating of standards that reflect what our members do

Community – a network that allows you to share and discuss the issues with your peers

Our conference on 13-14 October will give a great opportunity to get yourself briefed on Brexit and find out what others think and are doing.

This is the first of a regular series of blogs on Brexit that will cover the issues as they become clearer. We need your views, insights and experience to inform the debate. We will post articles of interest on this page that come with a health warning, they may be right or wrong but we believe they will help inform you. Please comment, criticise and contribute to keep the debate alive. We will be running further briefings in the regions, the details will be published shortly, so please come along.

If we are to successfully lobby government, we must be informed about what is actually happening in the market, so do please join in.