The Small Federation of Businesses signed a letter with the CBI talking of unspecified dangers they saw for business from Brexit uncertainties. That letter indeed seemed to want to extend the uncertainties rather than reducing them, by recommending a further two years of delay before we fully exit the EU. They recommend a Transitional period of 2 years. That would need to  be negotiated and agreed with the rest of the EU. It delays adjusting to the new relationship.

There is a muddle in the minds of some who seek a 2 year Transitional period. You cannot have a Transition unless you have in place an Agreement about a new relationship which you are then going to move to. It is best currently to concentrate on negotiating that future relationship. If any implementation period is then needed as a result of that agreement, that would be decided once you know the overall Agreement. The Prime Minister has always been clear about this. As the EU is not yet willing to start negotiating a new relationship the idea of transition looks premature. No future Relationship Agreement, No Transition. If as the PM hopes they soon change their mind and do get on with negotiating a future relationship agreement then there could be implementation time depending on what needs doing to execute the Agreement. If there is no special Agreement, then clearly there is no need for an implementation period.

The overwhelming majority of small businesses do not export to the EU. Their confidence levels and ambitions are dependent on the prosperity of the local and UK economies. They are more interested in lobbying the Chancellor before the budget than in seeking to influence any particular way to leave the EU. Issues that worry the small business community most include the indexation of business rates to the RPI, which they would like eased. Business rates are felt to be high, and hit businesses like High Street shops more than some of their on line competitors.  The small business groups are worried about the reduction of credit in the economy resulting from the macro prudential actions of the Bank of England and  the slowing apparent in recent figures for output. They regret some of the tax rises put through in the 2016 and 2017 budgets, and are keen to resist any changes to the way NI is levied on the self employed.

There is a temptation in some journalism and commentary to attribute everything to Brexit when little that is currently happening is to do with Brexit which still has not happened. Small business wants a positive budget that helps promote growth. An end to monetary tightening combined with some suitable tax cuts would be the best response from government to the needs of small business.

The Catalan crisis is deepening. The Catalan nationalists tried to engage the Spanish state in talks after their illegal referendum showed a strong vote for independence with other voters absenting themselves. Instead of offering them a legal way forward, the Spanish state proposes to  double up on its unpleasant  behaviour when they sent in the national police to try to prevent the vote, by  now threatening to close down the Catalan regional government. If they go ahead as suggested there could  be a tussle over who controls the officials and police currently answering to the Catalan government, with loyalties divided and authority in question. The Catalan politicians are invoking memories of Franco’s regime which also tried to curb independent tendencies in Catalonia. They may want to carry on with their government in exile.  With an estimated half a million protesting today on the streets of Barcelona against the proposed Spanish action, it is not going to be an  easy matter enforcing what Madrid thinks should be the rules of Spanish state law.

This is but one of several cases of important regions of larger countries seeking to be independent or to have more autonomy. The typical pattern is for the richer parts of a country to come to resent the control of the wider state, particularly because the  state takes much more money from them than they get back as public spending in their area. In Catalonia they generate 20% of the National Income but receive only 11% of the public spending for Spain as a whole.

Yesterday in Italy legal non binding referenda were held in both Lombardy and Veneto over whether the voters want more autonomy. Here again money was an important topic. Lombardy provides over 50 bn Euros a year  to Rome which it does not get back, and Veneto over 15bn. When this is combined with austerity budgets to hit Euro area targets it creates resentments. It is difficult to know how, close to a  national election, the Italian state will respond to this strong  demand to keep more of their own money and to control their own migration and planning policies that has emerged in the referendum debates.  It is fuelling support for 5 Star and the Northern League, two parties that are polling well and hoping to benefit from this mood in the next national election.

Only in the UK has democracy prevailed, with the grant of a successful referendum to Scotland to settle the issue. There the nationalists argued that Scotland was a net contributor to the Union based on high estimates of future UK revenues from North Sea oil which the nationalists attributed entirely to Scotland. The subsequent sharp fall in the oil price and the continued decline in output from North Sea fields makes it clear Scotland is not a net tax contributor to the UK in the way Catalonia is to Spain or Lombardy to Italy, even if you accept the contested argument that all North Sea revenues should be attributed  to Scotland.

In Ukraine the Russian Crimea has split from the country, followed by a referendum organised under Russian auspices to validate it which was  not held with international approval or agreed standards and inspection  but which delivered a large vote in favour of secession.

The EU used to fan regional feelings through its encouragement of a Europe of the regions. It sought to promote and strengthen regional identities, favouring regional governments to  distribute EU grants. It likes regional languages and other signs of difference. It is strange therefore that now it is faced with the consequences of a greater sense of regional identity and the wish for more regional autonomy the EU recites the mantra that these are matters for the state concerned.  By saying this it sides against the regional political movements. I guess it assumes the states will win and they will retain control over the tax revenues which the EU needs to share to sustain itself.

 

I am glad the government is going full ahead with showing how the WTO option can work for the UK, and will do what it takes to make sure we trade and do business after March 2019 if there is no deal. That is a sensible contingency plan, as well as a good negotiating strategy.

It is quite clear from the different tone of remarks coming from Mrs Merkel, the Commission and elsewhere within the EU that they are very worried at just how popular the WTO model is with many UK voters. Brexit voters understand that this model delivers us full control over all our money from March 2019 with no additional payments, full control over all our laws including the laws transferred from the EU with the end of all ECJ jurisdiction, and full national control of our borders from day one out of the EU. That is what we wanted from Brexit. That is what “taking back control” was all about.

The wider partnership agreement that the UK wants mainly revolves around adding a free trade agreement to that list of advantages from simple exit. The debate is going to be over how much damage should we allow to the many advantages of just leaving in order to secure that free trade agreement. Some seem to think it is worth billions in extra payments, and worth keeping some ECJ involvement. I don’t agree.

I suggest the government starts from a different perspective. It should remind the EU that a deal will only be acceptable if it is indeed better than the WTO “no deal” option. That does not leave  scope for giving money away we do not owe, or for accepting continuing EU jurisdiction. So first secure the WTO choice, then I suspect the EU will be more willing to seek tariff free trade which we know it wants. We do not need to pay to trade, especially when it is much more import than export. We certainly do mot need to pay for talks.

Some say we do need a transition period after we have left. There is sufficient time to put in place all that is needed to conduct our EU trade on the same basis as we currently conduct our non EU trade under WTO rules before we leave. That should be the government’s overriding practical aim for the next seventeen months. We will only need some implementation period beyond March 2019 if we have an Agreement reached late in the negotiations that requires something different from WTO border arrangements.

I am receiving numerous messages to get on with Brexit and keep to the March 2019 deadline to leave.

 

 

 

The last Conservative Manifesto suggested that elderly people should have to pay more for their social care at home, to match the way they have to pay for residential care from the proceeds of selling their house. This was an unpopular proposal which has been abandoned as I understand the government’s position. It was an illustration of how people in the UK are not willing to pay more tax or to make a larger contribution to social services they enjoy.

Some now say there needs to be higher taxes on the elderly so the state can offer more to the young. I do not agree with this logic. It is one of the successes of recent years that more pensioners retire with a reasonable income than thirty years ago. It is good news that the basic state pension has gone up thanks to the so called triple lock the Coalition imposed. Why would we want to reverse progress for pensioners?

It is true we need to help young people more. The best help they can receive is a good education followed by plenty of decent job opportunities. In recent years the numbers of jobs have expanded, and considerable effort put into higher education, apprenticeships and training. The government  needs to press on with the task of improving education and training and providing a supportive framework for a growing economy.

It is true that more needs to be done to help young people buy their own home. Survey after survey shows that homeownership is the preferred tenure for most people. Many people currently renting would like to be able to afford to buy. The budget should tackle this matter most strenuously. It will need a new migration policy to back it up, to narrow the gap between housebuilding and demand for homes.

It would be a good idea to lower Stamp Duty. If we believe in home ownership as a good why do we tax it so much? It would be helpful to be supportive of lending and deposit schemes to assist young people with the capacity to service the debt into ownership. This does not require us to tax the elderly more.

The multi generational family may have substantial housing wealth amongst the old members. Maybe we also need new ways to share this if the family so wishes, and to ensure it can pass from one generation to the next without tax. The exemption of a family home from IHT for some people is a step on this road.

The high Stamp duties get in the way of elderly people trading down as well as adding to the costs of first time purchase in many  areas.

There is no cliff edge. We can trade with the rest of the EU as we trade today with the rest of the world under the WTO umbrella we share with the EU. A deal to provide tariff free trade after we left would be better but it is not essential and cannot be guaranteed.

Brexit voters voted to take back control. That included taking back control of our money, our laws and our borders.  Any Agreement that entails continued payments to the EU, continued control from the ECJ, and continued surveillance of our entire law code does not fulfil the instruction of UK voters to leave.

Let’s just look at the pluses from leaving without a deal.

We can start to spend the £12 bn a year we will save, on our priorities.

We can remove VAT from items we do not want to charge it on but have to.

We can sign trade deals with the many countries in the rest of the world that would like freer trade with us.

We can set a regulatory framework with high standards for our banks and financial services which does most to attract global business to the UK

We can pass the laws we want on everything from animal welfare to energy to transport to meet our own needs and high standards

The new Project Fear concentrates on saying the food basket will get dearer with tariffs against continental foods. We will be able to give the tariffs we collect back to our consumers as tax cuts so they will not  be worse off. We will also be able to buy more from UK farmers and non EU farmers at cheaper prices than EU tariffed product. We could remove all tariffs from items we cannot produce in our climate.

They also say we will not have functioning borders for EU trade if we go the WTO route. Of course we will, and there is time enough to put them in place by 2017.

The UK must stop negotiating with itself. It is not a petitioner in a weak position. We can just leave.

If the EU delays and pushes for more and more money we either end with No Deal or with a Deal with a high price which the public will not accept. As the government reminds the EU, No Deal is better than a bad deal.

Social care largely delivered by Councils with the help of a range of contractors and service suppliers needs to work smoothly alongside the NHS.

Councils have a vital role to play in helping reduce the burden on NHS hospitals. It is too easy to place elderly and infirm individuals into hospital where they should be safe, even though they do not need hospital treatment. They may go in for tests, only to have to stay because there is no sufficient care package to allow them to go home alone. Hospitals are also open all hours and at week-ends, whereas social care services may be more restricted outside weekday regular hours.

Social care nurses or executives may think it prudent to send someone for tests after an incident even though there are  no signs of harm and even though the patient is saying they are  not in pain or difficulty. It often takes time to assemble a case conference and assessment to upgrade care so an individual can look after themselves with suitable support.

Social care also needs to work well alongside GPs, and with hospitals after the discharge of patients. Elderly and infirm individuals may need help with daily tasks, and need some supervision or assistance with a course of treatment at home. It can be cheaper as well as better to take the care to the patient, but needs organising successfully.

Councils say they need more resource to do their jobs well, whilst hospitals are worried that they are still having to look after people who could manage at home with suitable help. The border disputes between the NHS and social care go back a long way and have happened under a variety of governments. There is no easy solution,  but it would be good if Councils and the NHS can improve their joint working where there currently issues with bed blocking or inadequate medical back up out of hospital.

I would be interested in comments on this matter. I am not raising it as a result of any local complaints which I would handle in another way.

In February the  Bank of England’s Term Funding Scheme for commercial banks runs out. This may well curb credit further. The latest survey  shows Bank action to reduce consumer borrowing is having an impact with commercial banks beginning to rein in offers of new credit. There is also a fall in new buyer enquiries for homes as the Bank talks of higher interest rates and less credit.

Prime Minister

It is a pleasure to be here with you today for dinner. I come to renew my friendly proposals about our future relationship. The UK wants a comprehensive and deep partnership with the EU. We will offer you tariff free access to our market with no new barriers. We will continue our substantial contribution to European security and intelligence.  We will carry forward joint working on space, science, academic life and much else. We will continue our welcome for all EU citizens legally settled in the UK.

Mr Juncker

Thank you for coming. I do hope you have brought your cheque book. You must understand that we cannot keep on meeting like this unless the UK pays the bills for the dinners and much else. The EU is getting cross with the UK for not being realistic, so I hope this evening we can make some progress on the divorce settlement.

PM.

As I have made clear the UK will pay anything it owes, but you have to understand UK Ministers do not have powers to send money to the EU after we have left. We need to look at all the issues together including our future relationship.

Mr Juncker

I don’t think you understand. The UK has signed up to a soup course for future meals which is going to cost billions of pounds. Doubtless you want coffee, which does not come cheaply either. I have explained before to you that we decided to order drinks right through to the next decade, so that will be another big bill. The UK can’t expect to get away without paying.

PM

I can do without the soup course and coffee late in the evening keeps me awake at night. In the UK we accept we have to pay all the time we remain in the EU, but not after we have left. You should cancel the drinks for us for when we have gone and save some of your cash. As to this dinner I thought you had invited me, and I have had the cost and inconvenience of coming to you here in Brussels.

Mr Juncker

You British are so unreasonable. You can’t just walk out and leave us short of cash. There is a big bill to pay.

PM  So how much is the bill and what is the legal base for the items you want to charge?

Mr Juncker

There’s no need to get legal with us. We want you to make a realistic offer. It’s all about European solidarity, about setting the right tone for our future relationship. We don’t have an itemised bill backed by a legal base.

PM

When we joined the EEC we did not get a discount or a payment to deal with all the spending commitments the others had decided on before we joined, so why would there be any bill for future spending  after we left?

Mr Juncker

You agreed then to join on the terms available. That is different.

PM Are you also saying that if a country left the EU now that gets money out, the EU would go on paying it after it had left?

Mr Juncker

There’s no point in getting clever with the EU. The rest of the EU expects you to pay a large sum. I do hope you understand we cannot possibly talk about trade any time soon given the UK’s stubbornness.

PM

That is a pity, as it hugely in the EU’s interest to have continued tariff free access to the UK market. We have to go ahead and plan for WTO tariffs on EU food and goods without sensible discussions.

Mr Juncker

The EU has other priorities.

PM

So the EU does not care about all its exporters to the UK?

Mr Juncker

The impact on the EU is containable

PM

May I suggest we talk about  something else, like Iran, where we may agree and put out a statement on that?

Mr Juncker

That’s the best we can do.

 

 

 

 

 

 

 

 

The ONS published its latest balance of payments data on 29 September. This included a final table which showed that the ONS have revised their view of how much UK investment abroad is worth relative to how much overseas investors have invested in the UK. Some have now suggested these figures show the UK has “lost” £490bn.  This is an odd way of looking at it. The figures show an increase of £334bn in inward investment, which of course is a figure that is taken off our overseas assets to derive the net figure. It does no however mean we have got poorer!

The maximum downward revision to the net figure was for the 2016 figure (£490 bn), with the bulk of the downward revision relating to a period before the referendum vote. The main reason for the downward change in the net figure arises from strong inward investment in 2016 accounting for an extra £334 bn investment.

I have often referred to the large  balance of payments deficit we have been running, and pointed out that an important part of our net outflows arise from the substantial contributions we make to the EU and from our large overseas aid payments. I have often argued to stop the EU payments, to up the UK content in the overseas aid spending where the money cannot  be spent in the country we are trying to help, and to follow policies which promote more import substitution. All the time the UK continues to send large sums abroad, and to run such a large trade deficit with the EU, there will need to be continuing inward investment into the UK to pay the bills. Alternatively we will have to sell overseas assets to pay for the imports and the remittances overseas. Either of these ways of paying for the trade and payments deficit will tend to reduce our net overseas asset position.

This is nothing to do with Brexit.The biggest part of the deficit is trade with the EU and payments to the EU.

It is also a reminder of how much trouble the ONS have in measuring things like the stock of overseas wealth held by UK people and institutions, which they have recently reduced as they change their way of estimating. They also have  difficulty  in knowing how much overseas investment has been committed here. Those who think Brexit has caused the fall in the pound should of course acknowledge that so far if this is true Brexit has helped swell the net overseas asset figure, by increasing the sterling value of foreign assets. Readers of this site will know I do not think Brexit is the main reason for the fall of the pound since 2015, nor for that  matter for the recent rise of the pound against the dollar.

 

 

The Uk currently runs a massive £20bn trade deficit in food with the rest of the EU. In 1984 the UK was 78% self sufficient in food. It produced 95% of all the temperate food we needed at home. The early years under the EEC had been fine for farming. Then the EU put in milk quotas and other restrictions on us which began a long decline in our ability to sustain home production.  The Common Fishing Policy led a fast decline  in our fishing industry. We have seen home production  fall from 78% to 60% of our needs. We  now import more than a quarter of the food of the kind we can grow or produce for ourselves. This is despite having one of the best climates for growing what we need.

Under the milk quota system which lasted 30 years from 1984 the UK only had half the milk quota of Germany, and ended up importing a lot of processed milk products from the continent. The Danish pig industry, the Dutch market gardening and flower businesses and many others made  big inroads into our home market. Our fishing grounds were taken over by the whole of the EU under the Common Fishing Policy. We changed from landing  1 million tonnes of fish in the year we joined the EEC, to landing just 400,000 tonnes last year. The UK became a net importer of fish, after years of being a  net exporter with one of the richest fishing grounds in the world. The large quantities landed elsewhere meant we needed to impose more restrictions on the total catch.

When we leave the EU we will be able to design a fishing and farming policy that allows us to sustain higher levels of home production. It will need further investment. The UK could do more food processing to add value to the staples supplied by the farms. Much of this can be done through co-operatives or processing businesses working in partnership with the farms. Where farm size is relatively small mechanisation will also require collaboration, joint investment or rental agreements to mobilise the high powered and sophisticated machinery that can  now automate farming and make it more efficient.

The UK is extending the growing season for everything from asparagus to strawberries by polytunnels. We presently only produce one fifth of our own apples, but have the techniques to greatly increase the output and the durability of the apples over a longer season. All this will be accelerated if the EU does opt for WTO tariffs rather than carry on tariff free as we propose. Only in agriculture are the tariff barriers potential high. They would require a rapid response from UK farms to fill the gaps caused by dearer EU product, rather than seeing us buying more from non EU sources overseas. Even without tariffs following the recent strong performance of the Euro against all major world currencies including the pound, UK farmers are in a good position to expand. Doing so cuts food miles, gives us the pleasure of local produce, and eats away at that colossal food deficit the EU has given us.