Category Archives: Britain

Britain, Economic, European Commission, European Union, Government, Politics

UK-EU trade deal: a logical step forward

BRITAIN

Intro: The agreement made with the European Union will have limited tangible gains, but at least the tone set by the prime minister is a positive one

MUCH is being made of Sir Keir Starmer’s deal with the EU, but many things still remain to be worked out. The agreement which was announced in London should be regarded as a staging post rather than a final destination. It was, in effect, a commitment to have more meetings at which negotiators will try to make more deals.

On the issue of visa for young people and the UK’s mooted return to the Erasmus university-exchange scheme, there is little clarity beyond the rebranding of “youth mobility” as “experience”. A decision on the level of fees that European students must pay has also been kicked into the long grass. So have some details of how the UK will work with the bloc on policing and security, including the use of controversial facial-recognition technology in tackling drug and people smuggling across borders.

Increased cooperation on defence is significant and timely, given the ramping up of geopolitical instability under Donald Trump – although British arms manufacturers will have to go on pushing for access to the EU’s £150bn fund. On food and fishing, terms have been decided. Fewer checks on exports, including meat, will benefit UK food producers, particularly the smaller ones that were worst affected by Brexit. For Europeans, mainly the French, the big win is a 12-year agreement on fishing in British waters.

The 41% of UK goods exported to the EU, worth £385bn, are more than is sent to the US and India combined – making this by far the most important trade deal so far. Though the UK remains outside the customs union, and regulations governing other goods including medicines have not been relaxed, the new measures mark a significant easing of trade.

By contrast, the new dispensation for UK travellers to join European passport queues, and looser rules about pets, are more about style than substance. But while conveniences like these will not bring the economic benefits that the PM seeks, they do send a signal. For ministers, any hint of an interest in rejoining the EU remains taboo. Instead, this modest scaling back of Tory-erected barriers is designed to show voters that Sir Keir is operating a rational and responsible government that puts the interests of British businesses and consumers first.

It should not have taken nine years since the referendum to reach this point. A group of around 60 Labour MPs is rightly pushing for the government to be more ambitious, emboldened by polling showing that most voters now think Brexit was a mistake. Free movement, however, remains a red line, and one inked in all the more vividly after the strong showing of Reform UK in recent local elections and national polls. This was also Starmer’s real chance to counter anti-immigration sentiment, not capitulating to it. He may yet come to rue his decision on this.

Among disappointing omissions is the lack of a mechanism to make touring by our creative artists, like musicians, easier. Nonetheless, the agreement is a much-needed step forward, even though the actual gains for the UK have been overstated.

Ursula von der Leyen, the European Commission president, was more accurate when she spoke of the deal as “framing” an improved future relationship. If Sir Keir wants to reverse the damage done to the country since Brexit, he will require to paint a picture of why an outward-looking, interconnected UK is more likely to succeed. Not one that has become an insular nation under Brexit.

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Britain, Government, Immigration, Politics, Society

Labour’s immigration plan: language not fit for purpose

BRITAIN

IMMIGRATION policy is an important plank of any government, and the one led by Sir Keir Starmer is no exception. Laws are required to establish the terms under which migration to the UK is allowed, and to deal with the range of complexities surrounding irregular arrivals. But the decision to publish an immigration white paper (which allows for consultation) a week after Reform UK made significant gains in local elections, where Nigel Farage is riding high in national polls, is hard to defend. Rather than defusing public concerns, the PM risks playing into the hard right’s hands – and directly undermining the community cohesion he says he wants to protect.

Some of the proposed measures are reasonable. Others are not. Visa rules are complicated and ministers have identified real concerns about the way the system works. But the timing and language, particularly Sir Keir’s references to an “island of strangers” and forces “pulling our country apart”, were dreadful choices. The danger is that such rhetoric ends up reinforcing divisions and xenophobia.

Labour’s target is the opposition’s record. Starmer was right to assert that the policies of the Conservatives were a cynical disgrace. Legal migration rose from 224,000 in 2019 to a staggering level of 906,000 in 2023. Voters who were entitled to think they had opted for reduced inward migration, both in the Brexit referendum and by electing a prime minister, Boris Johnson, who vowed to “take back control” of borders, instead got a free-market experiment. While the Tories ramped up their inhumane Rwanda scheme as a distraction, employers intensified overseas recruitment as skill thresholds were lowered.

In manufacturing, transport, and engineering, the subsequent increase in foreign employees is correlated with a decline in the UK workforce and apprenticeships. The failure of this laissez-faire approach to the economy has not been limited to jobs. Living standards have stagnated, with lower rates of growth than in the eurozone and US. The Labour government is right that employers should invest in people here, as well as scouting in other countries for highly skilled workers. If it is well run, the new Labour Market Evidence Group could play a positive role in a more industrially activist government. It is good to signal a looser approach to refugees working, and reasonable to expect migrant workers’ dependants to learn English. Councils should support this.

However, the white paper, in both tone and substance, is distinctly illiberal. It uses the language of “fairness”, “integration”, and “public confidence”. And yet, its core proposals represent a consolidation of executive power, a curtailment of individual rights, and a weakening of judicial independence. These are not reforms – they are regressions.

The pledge to deport more foreign criminals speaks volumes of tabloid politics. Granting counter-terrorism-style powers to the Border Force risks stoking, not easing, fear. Cancelling social care visas on the grounds of “abuse” threatens a sector already on the brink. Raising income thresholds for those with dependants penalises lower-paid workers. And while student visas are in need of review, the real issue is the crisis in underfunding of higher education – not the students themselves.

Starmer’s anger about the Tories’ track record is justified. It harms democracy, and has helped opportunists like Nigel Farage, when parties tell voters one thing while doing another. But past mistakes do not justify present ones. Migrants have been and will remain a vital part of the UK’s labour force and student bodies. Positives that require to be reinforced loud and clear.

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Banking, Britain, Economic, Financial Markets, Government, Politics, Society

Financial deregulation of the City: too risky by far

BRITAIN

THE UK Government has launched a consultation about whether it is time to lighten the rules governing alternative asset managers, including private equity and hedge funds, in the belief that doing so will boost growth.

That is radical because, in its desire to ensure the City of London remains attractive post-Brexit, the government seems to have forgotten one of the major lessons of the 2008 financial crisis: when regulation is lax, risks accumulate. And there is little evidence to support this idea, but every reason to think it could exacerbate systemic risks.

The proposal is consistent with the Treasury’s belief that expanding the financial sector will deliver economic prosperity. It has suggested that post-crisis regulations went “too far”. Those regulations included an EU directive targeting alternative investment funds. Before 2008, these funds operated mostly in the dark. There was no means of systematically tracking the leverage they were using, nor the dangers this might pose.

Under the EU rules, leveraged funds managing Euros100m or more in assets had to comply with strict reporting requirements and hold enough capital to absorb losses. The Chancellor is now considering lifting that threshold to £5bn, which would exempt many funds from the full list of EU rules. It will fall to the Financial Conduct Authority to decide which rules to apply. This is troubling.

The FCA has been instructed to encourage financial “risk-taking”, and the regulator has boasted about slashing “red tape”. Taken together, this sounds like a recipe for recklessness. Though the marketplace for private equity and hedge funds was too small to cause a crisis back in 2008, it has since tripled in size. Many private equity funds have started borrowing from shadow banks, which aren’t subject to the same regulations or capital requirements as normal banks. Others have begun taking on even more debt than usual. The Bank of England raised the alarm about these risky practices in 2023, and has suggested that mainstream banks may be unwittingly exposed to the industry. Hence, these are reasons for more financial oversight and discipline, not less.

If the FCA loosens the rules, fund managers will be less constrained in their dealings. They lobbied to have the EU directive watered down in 2010, and the UK was one of the few countries to oppose the rules. Then, as now, the government wanted to protect the City, believing it to be a goose that lays golden eggs. This antipathy towards financial regulation was a prelude to the “Singapore on Thames” worldview promoted by Brexiters. Hedge fund and private equity managers donated heavily to their cause: a study of Electoral Commission data by the academics Théo Bourgeron and Marlène Benquet revealed some £7.4m was donated to the leave campaign, as opposed to just £1.25m for remain.

The Treasury seems to be of the belief that unless the City gets what it wants, Britain may lose its fund managers to countries such as Luxembourg. There are many reasons to be wary of liberalising finance. One is that it will hinder, rather than help, economic growth. Research suggests that once the sector exceeds a certain size, it starts to become a drag on growth and productivity. A study from the University of Sheffield found that the UK lost out on roughly three years of average GDP growth between 1995 and 2015 thanks to its bloated financial sector. Watering down regulations might be helpful for fund managers who like to take huge risks, but it is hard to see who else would benefit.

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