Tag Archive for: Brexit

A stunning diplomatic achievement

The EU and UK agreement could ignite a dramatic economic recovery, as long as we rediscover timeless and useful principles

As somebody who always refused to accept the false “No Deal v 2nd Referendum” narrative which somehow took hold in the last four years, I am personally delighted by the new Trade and Co-Operation Agreement between Britain and the European Union.

It is a stunning diplomatic achievement and of great credit to the negotiators on both sides. This is especially so when you consider their difficult remit, the complexity of the issues and the dispiriting backdrop of the last few years. Boris Johnson and Lord Frost, Britain’s chief negotiator, are right when they say, “it should be a moment for national renewal.”

That said, whether it is or not depends on how things work and evolve in practice – the agreement is governed by some 19 committees – and what we as a country choose to do with our new found, sovereign freedom. I have to confess to being more ambivalent about that point and I am not alone. A recent poll by IPSOS Mori found that only 11% of Brits think the economy will have recovered next year, the lowest of any OECD economy. Thank goodness that we have such a productive and innovative private sector, capable of getting things moving.

In structure, ETCA loosely emulates the Norwegian pillar of the European Economic Agreement: collaborative access to the single market on a zero quota, zero tariff basis as long as we go along, broadly, with the rules, including in relation to the environment, labour relations and state aid. If we don’t and there is a disagreement, there will be an arbitration procedure which may culminate in that area of the agreement being “rebalanced” and tariffs imposed.

The situation is vaguer for financial services. By March 2021, the two sides intend to negotiate a memorandum of understanding for regulatory co-operation in financial services to be accompanied by, “equivalence decisions” with the EU. In the meantime, most City firms have set up branches or subsidiaries in the EU to enable business to flow.

In return for these looser arrangements, including an end to freedom of movement, we have given up certain things. The first is to participate in EU rule-making and the second, the superior protection of the Court of the European Free Trade Association, where judges are nominated exclusively by the EFTA members like Norway and Iceland. The EU-UK tribunal is more ad-hoc, as in a traditional international agreement. The tribunal’s members will be split into three with a third comprising  EU judges or equivalent, some of whom will no doubt be connected to the European Court of Justice; the second third will be from the UK and the final third will be independent.

However, these and other flaws, such as the uncertainty about Gibraltar’s status, are mere details compared to the really big point: we have a comprehensive agreement with the EU which should give us amicable access to each other’s markets and engender a spirit of co-operation and mutuality, while also disembarking us from the runaway train of “ever closer Union” enshrined in the Treaty of Rome. Businesses and individuals are inventive and adaptable. Goodwill, workarounds, technology and good custom and practice should help mitigate or overcome any shortcomings.

The UK Parliament will ratify the deal in the next few days. The EU process will take until mid-February. That might prove to be more difficult as the explicit purpose of the European Parliament is to replace a “Europe of nations” with something new. It is a draft treaty and MEPs and EU member states might demand additional clauses, perhaps in relation to governance, to be re-presented to the British.

Assuming that the ratification process goes according to plan, the resulting certainty over the biggest legal and commercial issue facing the British economy for several decades, should finally enable investors and businesses to put substantial amounts of money to work here. For nearly five years, business investment has been flatlining, even retail investors (many of whom presumably voted for Brexit) have been withdrawing money and investing in global opportunities. The FTSE 100 has been the worst performing global stock index.

The amount of money that may potentially be deployed into the UK is truly gargantuan. According to Bank of America, global fund managers are a record “underweight” of the UK in their portfolios. Vast sums of money have been printed and borrowed by Central Banks and Governments, including by our own. Much of it is sitting in bank accounts, earning pitiful interest or held in cash or near cash of one kind or another by both businesses and households in the UK and elsewhere.

Before we get too carried away, what are the risks to this rosy scenario? Leaving aside the ongoing virus (where we must hope the vaccines work their magic), there are two.

The first is our old friend inflation, dormant since the 1980s. It stands to reason that when large parts of the economy are subject to legal restrictions and are idled, turning on the money geyser will cause a surge in prices. Unless the Government can move fast to get Covid under control, to open up the economy and also to create the appropriate structures for money to be invested by the private sector into new assets and opportunities (such as infrastructure and flotations of companies on the London Stock Exchange) the great flood of money will be wasted in pointless speculation in, say, house prices and consumption.

The consequent inflation could only be arrested by a sudden rise in interest rates, turning the Brexit boom to bust.

The second risk is something more subtle: the need for a process of economic and institutional reform which restores orderly, reasonable law and decision-making and efficiency to the British state. The worry is that, despite all the rhetoric about “global Britain” and trade secretary Liz Truss signing free trade deals at a heroic pace, the Conservative Party has apparently lost the moderate, practical, business-minded, Scottish Enlightenment mindset of Pitt, Peel, Thatcher and Blair and instead embraced a sort of madcap nationalist and socialist thinking, which I (ironically) call “NatSoc economics”.  Let us hope this is temporary.

If our future is really to be found not in the stars, but in ourselves, we must, as a country, start by rediscovering established commercial principles.



Maple syrup: a 10 point guide to Boris Johnson’s Canada-style EU free trade proposal

I popped along yesterday morning to the splendid Painted Hall in Greenwich (above) – itself a painterly encomium to institutional innovation and commerce – to hear the Prime Minister’s bombastic and entertaining enthusiasm for free trade and a Canada-style free trade deal with the EU.

The Cabinet in attendance rose as one to give a stirring standing ovation to their Leader, but the media, not so much. What followed was a load of dreary questions which demonstrated that the press knows almost nothing about the so-called CETA (Comprehensive Economic and Trade Agreement) with the EU. As I expect they are not alone, and also I believe I was the first person to raise the potential of CETA publicly in an article in The Times in 2016, please see my very humble and brief attempt to address this deficit:

1. Purpose

The purpose of CETA is to encourage foreign investment, to remove all tariffs on industrial goods and to progressively liberalise trade in agriculture and services. The agreement summary says: “Overall, the tariffs for 98.6% of all Canadian tariff lines and 98.7% of all EU tariff lines will ultimately be fully eliminated. This will happen at entry for 98.2% of the Canadian tariff lines and for 97.7% of the EU tariff lines. All other products identified for liberalisation will have their tariffs brought to zero within 3, 5 or 7 years.”

2. Financial services

You will hear from some quarters that CETA “doesn’t cover financial services”. This is rubbish. They have a whole section, Chapter 13. This essentially sets up an equivalence and/or mutual recognition regime. It says that “each Party shall permit a crossborder financial service supplier of the other Party, on request or notification to the relevant regulator, where required, to supply a financial service”.

3. Other services

The agreement supports the opening up of services such as maritime, telecoms and postal services, which are subject to a “negative listing process”, ie they have to be actively excluded. Presumably, this means very little change from now.

4. Professional qualifications

The agreement creates a process of mutual recognition for doctors, architects etc. Though I have noticed, for instance a renewed French hostility to British ski-instructors, partly because French ski instructors have a very rigorous qualification programme. One suspects a handful of professions might face a little more discrimination than now.

5. Regulatory co-operation

You will hear from some Brexiteers that “we won’t be rule takers from Brussels”. They are, to a degree, set to be disappointed. The CETA agreement specifically encourages regulatory convergence and compatibility via a Regulatory Co-operation Forum. When the Prime Minister says “no alignment”, what I assume he is talking about is not being automatically forced to adopt EU rules. In reality, most of our rules, especially in goods, will be the same or similar, but we will have more wiggle room than members of the EU. I have to be honest, I myself find this “rule-taking” rhetoric very boring and largely irrelevant.

6. State aid rules and competition policy

State aid is hardly mentioned in the agreement and is effectively covered by the duties of non-discrimination towards investors. Perhaps the Government would have greater freedom to bail out defunct airlines and steelmakers. However, competition policy is covered in Chapter 17. While this is a relatively brief section, the general duties to “recognise undistorted competition” and “to proscribe anti-competitive business conduct”, suggest no meaningful change to legislation in that area.

7. Lots and lots and lots of Committees

The agreement is governed by a Joint Committee, co-chaired by the Minister for Trade and the EU’s trade commissioner. They have the power to interpret the agreement and also to create new rules and processes. In turn, the Joint Committee appoints numerous other committees covering everything from financial services to copyright protection, which in turn make the rules and processes within the agreement.

8. Tribunals

If there is a disagreement, including one brought by a private sector entity, there are tribunals to settle the dispute. The Investor State Dispute Settlement (ISDS) tribunal is made up of five judges from each side and five from third party countries, who convene in specialist committees. Their job is to protect investor interests and this has proved highly controversial in left-wing circles. It is the reason that the implementation of CETA got held up and it is a continued source of grievance mentioned by French ­Gilets Jaunes protestors and NGOs.

Other tribunals may also be set up by the Joint Committee.

If the passage of CETA is anything to go by, expect there to be a row about the tribunals, including from the EU-side.

9. Ratification/agreement

The CETA agreement affects both nation state and European Union issues. It is consequently what is known as a “mixed agreement”, meaning it has to be ratified by both the EU itself and the 26 nation state members. There is provision for it to be implemented provisionally, but one risk is a small nation, such as the Republic of Ireland, blocking things up.

Another point to have in mind is that the CETA agreement is 1600 pages long and took six years to agree. In theory, the parties need do no more than find and replace the word “Canada” with the words “United Kingdom”. But I bet they don’t.

10. No Deal

What happens if no text has been agreed by December 31st? Will Britain tumble into an Australian-style relationship with the EU? Personally, I doubt it. Both sides have already committed to heads of terms via the Political Declaration. Every time No Deal comes up, both sides back down. Far more likely is a series of sector-based deals, with roll-overs for areas which are still to be agreed. In the meantime, there will be much posturing and tub-thumping from both sides.


In the end, trade and commerce are private sector phenomena, arising from fundamental human concepts such as consumer demand, mutual interest and comparative advantage. The role of Governments and regulators is to create the framework to enable this to happen and to enforce standards. But in the modern era, governed as it is by the General Agreement on Tariff and Trade, even if states cannot reach full agreement it will not mean everything grinds to a halt. Firms and individuals will adapt.

There are thousands of small, detailed items to be sorted in our future relationship with the EU. But it will prove to be a dynamic process and unless something specifically affects your industry, then the best advice may be to ignore most of the negativity in the media and elsewhere and to get on with the business of a flourishing life.




It is official – Brexit squabbling is damaging the economy

The British economy is slowing. There. I have said it. After repeatedly writing upbeat pieces for CapX to counter the doom and gloom mongers in the last two years, the facts are changing and so is my mind.

I would go further and say that the weakness of the economy, much of it Brexit-related, is going to put the skids under the tedious stasis which passes for political activity in Westminster these days. Voters are going to be cross.

Extreme Remainers and Brexiteers in Parliament better watch out in case they get the blame. And horror of horrors, Jeremy Corbyn’s claim that there is something fundamentally wrong with the way the economy is managed might yet land on fertile ground.

The full article was published on CapX and is available to read at this link.

It is 1956 and all that again in Westminster

The Establishment may be having a wobble, but things could be much worse

It hasn’t been this bad since the Suez Crisis. That is what some are saying in Westminster. What we still call the Establishment is divided and demoralised, awaiting “clarity” on Brexit. Britain is arguably involved in another international escapade which is being executed incompetently and with insufficient vigour or realism.

There are those who hope, somewhat ungallantly, that the Prime Minister might resign due to ill health, like her predecessor Sir Anthony Eden after the botched Anglo-French-Israeli attempt to reclaim the Suez Canal. The papers are full of treacherous speculation.

As in 1956 those in positions of leadership in politics, in business and even charities are doubly nervous because of changes in the media. They have some sympathy for Theresa May. Who will the media mob turn on next, they ask? Today, it is social media; in 1950s it was television.

Eden was overwhelmed by a censorious global media firestorm. According to the UN, by 1960 there were 56m television sets in the United States and 11m in the United Kingdom, twice the number five years before. The end of Empire was broadcast live on the CBS Evening News and at home on ITN and on BBC News.

60 Tory rebels
In the 1950s, a group of some 60 Tory backbenchers called the Suez Group (sound familiar?), was founded, whose activities were animated when Britain negotiated a withdrawal from the international Canal Zone, which the British Government part-owned and administered.

Eden has since been represented as an Imperial dinosaur, but actually his policy was organised withdrawal from Empire, leaving behind a string of bases (including in Suez), some hopefully friendly governments and that amorphous thing traditionally prized above all else by the British Establishment: “influence”.

But Eden was at the beck and call of the Suez Group, and Sir Winston Churchill, who made way for him as Prime Minister in 1955, was their idol. As ever, Churchill’s policy was to never to surrender. On the other side was the pro-Soviet and anti-Western President Nasser of Egypt who nationalised the Suez Canal in July 1956. There was widespread indignation in Britain and in France and a fear that trade with Asia would be cut off.

The role of the media was to argue for resolute action when the Suez Canal was nationalised, but as the affair unfolded it dramatically turned on the Government until only the Daily Express (circulation, 4 million copies a day) supported Eden.

The Treasury and the Bank of England don’t like it
The Treasury and the Bank of England were both against military action by Britain and France without American support. Although the economy was recovering from the war and unemployment was at a record low, the pound was fixed to the dollar at $2.80. The fear was it would not survive a speculative attack.

The economic situation was exacerbated by the fact that half our oil supplies came through the Suez Canal (as did much of our goods trade). Traffic was blocked and the oil price went through the roof. Petrol rationing was introduced. Many ex-colonial countries and corporates had sterling deposits which they began to withdraw from London and soon the Bank of England’s foreign exchange reserves started to dwindle.

The IMF found a role
The International Monetary Fund likes to claim that Autumn 1956 was its baptism of fire, the first time it provided emergency lending. Initially, the Americans (who had always opposed colonialism and saw the British and French as playing into Russian hands) blocked a loan to support sterling. This was the proximate reason why Britain and France halted military action in November 1956. They had sent their air forces, a naval task force and paratroopers to the Canal, supposedly to prevent Israel and Egypt from fighting each other. This was a ruse.

Gaitskell was no Corbyn
However, the comparison between now and 1956 has its limits and should not be taken too far. Eden had in fact just won an election the previous year handsomely, with a majority of 60 seats and a majority of the popular vote. A change of party leader did not bring with it the risk of a collapse of the Government and letting in a Jeremy Corbyn-style figure. The Labour leader was Hugh Gaitskell, a charismatic moderate who played both the press and international opinion skilfully.

The stakes are much smaller now too. Eden lying to Parliament about the covert agreement with France and Israel to intervene is surely worse in magnitude than the infamous “£350m for the NHS” claim. No military action is in prospect today; nor isolation at the United Nations; nor a bailout from the IMF. And President Trump publicly supports Brexit, whereas Eisenhower opposed the Suez campaign. In other words, this time round a sensible outcome should theoretically be possible to negotiate, at some point, as long as we take a global approach and work to keep international opinion on side (not much sign of that).

Markets don’t like weak governments
That said, the parallels are instructive. Markets do not like weak governments and it is noticeable that the Government’s recent travails have left the FTSE 100 underperforming global markets. It is also remarkable that the British economy has so far withstood the constantly negative outpourings of the financial press, business lobby groups etc. One wonders how long it can do so. The construction industry PMI, for instance, last month showed activity is flatlining and new housebuilding has gone off a cliff.

As 1956 turned to 1957, the front runner to replace Eden was actually RAB Butler. But Harold Macmillan, the cunning chancellor, was the person who was surprisingly supported by most of his colleagues to be Prime Minister. Macmillan had been pro-military action but then changed his mind after the Americans failed to support it.

Who is Macmillan now? My guess, for what it is worth, is Michael Gove. He may be the Harold Macmillan of Brexit, the only man with the attention to detail and ability to appeal to both sides of the Conservative party.

A diplomatic resignation
Macmillan had a reputation for deviousness and subsequently noted that if Eden had not resigned due to ill health, a “diplomatic resignation” might have been required.

A “Theresa May resigns through ill-health” scenario might be cowardly, but it is convenient for some. A resignation on health grounds, accompanied by some liberal dollops of spin and hypocrisy, would avoid a vote of no confidence among Conservative MPs. A prolonged leadership election in which Tory members can vote might also be avoided, to be replaced by a coronation. There is one issue: public support for Mrs May is deeper outside the Westminster bubble than inside it. Sometimes it seems her critics, rather than she, are having a wobble.

Macmillan leads a recovery
Macmillan actually recovered well from the Suez debacle. Perhaps helped by a positive relationship with President John F Kennedy, he adapted to the requirements of television. He actually accelerated the withdrawal from Empire and ostentatiously ordered the Polaris independent nuclear deterrent. He rebuilt the “special relationship” with America. He went on to win the 1959 election with a 100 seat majority accompanied by the soundbite “we have never had it so good”, before coming unstuck himself four years later.

Until the Vietnam War and oil crises threw the West off course, the 1960s were a time of relative social and economic idyll. Macmillan re-oriented Britain towards membership of the European Economic Community – at the time, a trade partnership – as a new anchor for British foreign policy. Which takes us back to where we are today. Who has the strength and vision to re-anchor Britain now? We will have to wait and see and in the meantime console ourselves with the ultimate lesson from the Suez Crisis: things could be a whole lot worse.

Tweaking MiFID II post-Brexit

Today signals the deadline for MiFID II compliance, new regulation that has been causing a sense of disquiet in some areas of the City, especially amongst advisers to and investors in smaller companies below the FTSE 250. A question worth asking is will Brexit allow some of the anticipated consequences of MiFID II to be addressed?

MiFID II covers numerous uncontroversial areas. But one stands out. Company research. From today unbundling means research will be priced separately from execution, putting pressure on fund managers to justify their research spend.

While this is unlikely to affect large companies, for the myriad of smaller companies the risk is that fund managers don’t really want to pay for research in hundreds of securities that they may never buy. Some fear this will make it even harder for smaller companies to get attention from investors.

One of the best-known figures in the small companies’ market is Katie Potts, who founded and runs the Herald Investment Trust. In its latest annual report, its Chairman said: “…the regulatory shock of the impending introduction of MiFID 2 has led to dire illiquidity, and commensurately wide discounts for smaller company trusts in general.”

This is more than an idiosyncratic issue for a minority of investors. If the smaller companies market dries up, it is hard to see how we can enhance UK productivity and invest in the innovation, entrepreneurship and new ideas of the future.

The domino effect of reduced research for small caps is potentially serious. With less research there is less liquidity. With less liquidity the attractiveness of a growth business looking to launch an initial public offering (IPO) disappears. In effect, a go-to source of funding for growing British businesses is removed. The result? Companies could turn to the debt markets or even a listing in the US to raise money. Some just may not bother to grow at all.

In the short term, while the UK is still a member of the EU or “in transition” until 2021, Brexit would not make any difference to the implementation of MiFID II. Large international firms are not going to countenance any move that will hinder their trading with the EU and nor should they.

However, after that, things may change. One of the most creative legal thinkers about Brexit is Barnabas Reynolds, a partner at Shearman & Sterling and was a contributor to Prosperity UK, a politically independent platform bringing together business leaders, academics and policy-makers to look constructively at a future outside the EU. He has written several papers on the subject and says that the UK should opt for an “equivalence regime” with the EU. This is the same status as countries like the US, Switzerland and Japan, and allows access to markets if regulations are broadly aligned.

The key thing about equivalence is it does not mean “identical”. It therefore allows some flexibility to change regulations which relate to domestic activity. Depending on how the trade negotiations go, and whether an equivalence regime is agreed or something more prescriptive, MiFID II could indeed be tweaked.

We will have to see how the deal comes out in the end.

Imagine how other people feel

One of the great achievements of the Enlightenment was a sense of other. Instead of thinking only of ourselves, or our tribe or locality, European societies began to think philosophically about other people and their rights and duties. Although religion was a motivator, this respect for others became a doctrine in its own right.

Here is hoping that, after the disputatiousness of 2017 and a further decline into a bizarre negativity in public and social discourse, we can renew our respect for other people, their feelings and their proper selves.

I was very struck earlier in the year by an impromptu speech US Defence Secretary Jim Mattis gave in Jordon. He told US soldiers, to “just hold the line”, because Americans “need to get back to respecting one another, and showing it.”

Adam Smith, book of the year
It is for this reason my book of the year is Adam Smith’s other great work, The Theory of Moral Sentiments. This was published in 1759, 17 years before his more famous Wealth of Nations. It is deceptively simple, arguing that sympathy for other people is the basis of all morality.

The historian Simon Schama has gone so far as to argue that it provided the intellectual underpinnings which made the Acts of Union between England, Scotland and Ireland work.

The reason The Theory of Moral Sentiment is my book of the year is twofold. First, by coincidence, the thoughtful Conservative MP and transport minister, Jesse Norman, is publishing a biography of Smith in 2018, which he says will put particular emphasis on Smith as a moral philosopher and not just as an economist. It is intended to sit alongside his recent biography of Edmund Burke (a friend of Smith).

Secondly, it is my firm belief that the great task of our time is to bring the country back together: to respect one another, to compromise and to calm the hysterical and obstructive public rhetoric we find on Brexit, but also numerous other issues. All this has been amplified by social media which, in my opinion, needs regulating. Nor do the continuing rumpuses in Parliament help.

Prosperity UK
In April this year, it was my privilege to help organise the Prosperity UK conference in Westminster, which brought 600 business people, bankers, politicians, academics and journalists from all sides of the debate to look beyond the Referendum to how we might make a success of Brexit.

I was easily the least distinguished person on the advisory board, which was co-chaired by Sir Paul Marshall and Lord Hill of Oareford, and included the Marquis of Salisbury, Lord Wolfson (CEO of Next), Sir John Peace (chairman of Burberry and Midlands Engine), Baroness Stroud (CEO of the Legatum Institute), Anthony Clake (a partner at Marshall Wace), Professor Sir Steve Smith, Vice-Chancellor of the University of Exeter and Professor Colin Riordan, Vice-Chancellor of Cardiff University.

I am glad to say it was a great success and, partly because the amazing goodwill and positivity in the room was sadly dissipated by the election, another conference on global trade is being planned in March, together with some more bespoke regional events. Alex Hickman, an entrepreneur, has been appointed Director and has been leading the effort. The website is HERE

A quote from The Theory of Moral Sentiments
I am sure I am not the only person to think we are never going to get anywhere as a country if we go on arguing with one another.

Adam Smith would agree. Here is a quote from The Theory of Moral Sentiments:

As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation. Though our brother is upon the rack, as long as we ourselves are at our ease, our senses will never inform us of what he suffers. They never did, and never can, carry us beyond our own person, and it is by the imagination only that we can form any conception of what are his sensations. Neither can that faculty help us to this any other way, than by representing to us what would be our own, if we were in his case. It is the impressions of our own senses only, not those of his, which our imaginations copy. By the imagination we place ourselves in his situation, we conceive ourselves enduring all the same torments, we enter as it were into his body, and become in some measure the same person with him, and thence form some idea of his sensations, and even feel something which, though weaker in degree, is not altogether unlike them. His agonies, when they are thus brought home to ourselves, when we have thus adopted and made them our own, begin at last to affect us, and we then tremble and shudder at the thought of what he feels.

In other words, lets cheer up, and show some fellow-feeling, to each other and to our friends and neighbours in Europe and across the world.

Happy Christmas.

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