Britain, Economic, European Union, Government, Politics, Society

Should we really despair over Brexit? Europe is in a mess.

BREXIT–EUROPE

THE Brexit debate has plunged British politics into a rollercoaster of agony and self-doubt.

Following a year of political high drama and turbulence, and, given the parliamentary impasse over the Prime Minister’s deal, there are significant anxieties about the consequences of leaving the EU without a withdrawal agreement in place.

Some will ask whether it will plunge us into an economic depression? Others are predicting that prices will rocket and ask whether essential goods will be in short supply? And some doom-mongers even suggest that there will be riots on the streets as the ugly new social divisions opens up as Brexit plays out.

We shouldn’t doubt for one moment that these concerns are wholly understandable, and it is right that we focus on them.

But we are also in a position where we should be counting our blessings. We are not the only country experiencing turmoil – and for many of our European neighbours it is far worse.

Around Europe, many leaders have spent the last few months contemplating chaos and political confusion, widespread public dissatisfaction, growing unrest and even violence. For some, economic winter is already descending.

Indeed, the continent of Europe confronts a growing crisis which could yet cause the collapse of the EU.

So whatever our Brexit troubles – and there are doubtless more to come – we should remind ourselves that unemployment is at a record low, and that since 2009 the UK has enjoyed continuing economic growth.

Compare this with Spain. Whilst our rate of youth unemployment stands at just 9.3 per cent, the comparable rate in Madrid is just under 35 per cent – and more than a third of young people who are able to work have never had a job. Moreover, this human tragedy is directly linked to Spain’s membership of the EU because the euro has rendered large tracts of the Spanish economy hopelessly uncompetitive.

Economically, Italy’s story is even more harrowing. Its economy is barely any bigger than it was twenty years ago, employment stands at 10.6 per cent and youth unemployment is 32.5 per cent. The national debt stands at almost 2.5 trillion euros – more than 130 per cent of Gross Domestic Product. That money will never be paid back and Italy is heading once more for bankruptcy.

No wonder so much of the country feels total frustration and fury at distant EU bureaucrats whom they believe – and with some justice – have condemned Italy to economic decline and failure, let alone their incompetency on migration, which Italians feel they are now bearing the brunt of.

In Greece, the very birthplace of European democracy, an epic tragedy continues to play out: membership of the eurozone has wiped out businesses, jobs and entire industries that will take generations to recover.

Let’s look, too, at fraud and corruption. We’ve had serious problems on this front here in Britain, not least among scores of MPs who infamously were found to have fiddled their expense claims. And, yes, the occasional business executive is disgraced or imprisoned. But Britain is a remarkably honest country compared with what has been happening throughout the EU.

Take Malta, viewed by most Britons as a holiday paradise. Recently, a dark underside came to light with the murder of a journalist investigating government corruption, including the sale of EU passports to shady figures from the former Soviet bloc. Many believe Malta escapes sanction from Brussels because the country’s deeply compromised ruling elite can be relied on to do what the European Commission tells it to do.

Romania and Bulgaria are two other countries where corruption flourishes. The culture of greed and backhanders in these two former Iron Curtain nations helps explain the poverty and mass emigration to the rest of the EU. The problem is so flagrant that the Romanian government has sacked the EU-backed chief anti-corruption prosecutor.

As for concerns about law and order, well we have no reason to be complacent. London has seen 131 murders during 2018 – an increase of 38 per cent (excluding deaths by terrorism) on 2014.

There is public anxiety about the ability of our police forces to deal with everyday crimes, while the recent events at Gatwick – when the drone scare brought the airport to a standstill – did us few favours by exposing lax security.

Politicians were slow to react, while the police, military and intelligence services were made to look foolish.

But compare that with France, where for more than seven weeks now, the gilets jaunes (yellow vests) fuel protestors took violent unrest to the streets.

The protests are about more than just France; they are of existential importance to the EU because President Macron has become the poster boy for the European project as Chancellor Angela Merkel’s star starts to fade in Germany.

Macron’s response has so far been weak. He has responded with a mixture of police brutality and concessions to rioters which so far have not worked.

As for political stability in Europe, well therein lies the greatest crisis for the EU.

In Britain there have been warnings that the two-party system which has governed us for more than two centuries may collapse – damaged irreparably by the Brexit fallout. And there are menacing signs that the far-Right racist parties are on the rise, all the more so now UKIP employs the thug Tommy Robinson as an adviser.

No one should dismiss the reality of these fears. Only Italy’s government, out of the EU’s Big Four (France, Germany, Spain), has strong support and a clear political majority.

And that is for the so-called “government of change” – made up of two populist parties – which has flouted EU budgetary edicts, and rails heavily against immigration policies.

Consider also the bitter dispute between Madrid and the Catalan separatists, whose leaders either await trial at home or are in exile.

In Germany, social democracy is on the wane and the far-Right poses a menacing threat with the electoral successes of the popular nationalists of the neo-fascist Alliance for Germany party.

Even Belgium, the headquarters and the centrepiece of the EU, is in a political shambles. Prime Minister Charles Michel has resigned leaving a vacuum, while concerns about chronic unemployment and immigration fester.

Further east, the situation is much more threatening with the rise of far-Right parties exploiting popular fears about immigration. Poland and Hungary, both at daggers drawn with Brussels, increasingly present a chilling authoritarian alternative to the EU model of liberal democratic politics.

Brexit confronts Europe with a fresh problem. As one of the biggest financial contributors to the EU, the UK has been essential for balancing the books.

At a time of economic stress, Germany, Holland and the other large contributors will refuse to pay more. However, supplicants such as Bulgaria and Romania will be furious at receiving less.

Elections are due in the spring for the European Parliament and these may prove a shock to the EU elite as Right-wing parties score more significant gains. We will see new populist politicians emerge.

There is no question the EU is about to enter the greatest crisis in its 60-year history – and Brexit is just a small part of it.

This is not a reason for the Brexiteers to gloat. Trouble among our closest neighbours will hurt us badly at home. We are entering truly troubling times, but we should keep a sense of perspective during 2019 and remind ourselves we have every reason to feel some pride in the stability, prosperity and decency of 21st-century Britain.

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Britain, Business, Economic, Government, Politics, Society

Budget 2018: ‘A shot in the arm’ for British businesses

BUDGET

BUSINESS leaders have welcomed a shot in the arm for the British economy following the Chancellor’s pro-enterprise Budget.

In the final Budget before Brexit, Philip Hammond announced a raft of fresh tax reliefs and spending pledges to help solve the UK’s ongoing productivity problem.

The plan included extra funding for research and development “to secure the UK’s position as a world leader in new and emerging technologies such as artificial intelligence, nuclear fusion and quantum computing”.

Seeking to exploit concerns about how the economy would operate under a Labour government, the Chancellor said: “We will always back enterprise. As we finalise our departure from the EU, we must unleash the investment that will drive our future prosperity.

“So I can announce a package of measures to stimulate business investment and send a message loud and clear to the rest of the world: Britain is open for business.”

Among the policies Mr Hammond announced were:

. An increase in the annual investment allowance (AIA) from £200,000 to £1m for two years, giving extra relief to firms that invest in machinery;

. Tax breaks to encourage businesses to invest more in factories, offices and other places of work;

. £1.6bn for R&D to promote science and tech innovation;

. £50m for artificial intelligence fellowships;

. A two-year freeze on the VAT threshold.

The measures were welcomed by business.

The director general of the British Chambers of Commerce, Adam Marshall, said: “Philip Hammond has sent important and positive signals to businesses across the UK, many of whom have been wavering on investment and hiring.”

On the increase in the AIA, he added: “This will be a huge shot in the arm for businesses across the country, giving many thousands of firms renewed confidence to invest and grow.”

Among the science-friendly measures, the Government will plough £50m in new Turing AI Fellowships to lure artificial intelligence researchers to the UK, £235m to support the development of quantum technologies and increased funding to explore distributed ledger technologies such as blockchain.

Under the Industrial Strategy, total R&D investment is due to hit 2.4pc of GDP by 2027.

One of Mr Hammond’s headline business policies was a change to the Annual Investment Allowance. While business groups were mostly supportive of the move – with the allowance rising from £200,000 to £1m for two years starting in January 2019 – analysts added that firms might choose to delay investment plans to coincide with when the higher rate of relief will come into force.

A real estate tax partner at PwC said: “Longer term, this should encourage much more investment, but short-term there may be a lag while businesses wait for January.”

Entrepreneurs were directly targeted through an extension to the British Business Bank’s start-up loans programme, which will run until 2021, and amendments to a policy called Entrepreneurs’ Relief – which had been in the line to be scrapped.

They pay a lower rate of tax at 10pc, compared with the standard rate of 20pc on capital gains when they sell off some or all of their business assets.

Mr Hammond has now doubled the minimum qualifying period from 12 months to two years and shareholders will now have to hold a 5pc economic stake in the company to receive the relief.

The Chancellor also announced smaller-scale measures, such as £20m of skill-training pilot schemes.

In a Budget that was welcomed for supporting smaller and more risky start-up businesses, the Chancellor said he would help UK pension funds invest in such firms.

The Treasury will consult next year on the pension charges cap, which restricts the amount some pension providers can charge in fees.

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Britain, Economic, Financial Markets, Government, Society

Brexit, oil prices and global trade: factors hindering economic recovery

ECONOMIC

DESPITE the uncertainties surrounding Brexit the range of expectations for UK growth for 2019 is relatively narrow – between 1 per cent and 2 per cent. A recent poll found that no economist expected an outright contraction next year; nor did any expect a boom. Rather, the most likely scenario is for growth of 1.5 per cent, which, the Bank of England believes, is around the UK’s new lower trend rate. The International Monetary Fund (IMF), which has also refreshed its global forecasts, expects roughly this same rate of growth in Britain to persist over the next five years.

The Brexit saga is probably the most obvious risk facing the economy. Whatever one’s view of the longer-term Brexit effect, a “no-deal” outcome could lead to the economy plunging into recession, while a “good deal” could boost confidence, investment and consumer spending and thereby economic growth. But Brexit is far from the only risk in town.

Indeed, there are plenty more global concerns that may yet scupper the recovery. After all, the British economy – unlike the United States and other relatively “closed” economies – is highly dependent on the outlook for global growth. And across much of the world forecasters see growth slowing over the coming years, even without some of the more disastrous risk scenarios crystallising.

What are the key global risks that might come back to bite the UK? First, there’s China. Many think of China as being a source of cheap imports but it is also Britain’s sixth largest goods export market. On one measure, published by the IMF, China overtook the US as the world’s largest economy in 2014, so attempts to reduce its debt pile after many years of spending could present a significant threat to global growth.

Fiscal largesse in the US is boosting growth there, but as President Trump’s splurge comes to an end the economic hangover could spread far beyond its shores. On this side of the Atlantic, the European Commission is likely to complain about the high budget deficits planned by Italy’s populist government, providing another source of market stress. Then there’s the issue of protectionism. Global tariffs have fallen significantly since the interwar period and remain low even after recent increases between the US and the EU/China. Even if these moves do not directly affect Britain, an escalation in trade disputes could yet be the precursor to weaker global confidence and exports, both to the UK’s detriment.

Oil prices could become a destabilising global force. Prices have fallen a little over the past few weeks but remain high at above $80 per barrel. Had strong global demand been the cause, that might have provided a counterbalance. But when prices rise because of supply constraints net oil importers such as the UK suffer increased costs with no improvement in demand conditions.

Higher energy prices also tend to leak into general price inflation. For now the inflation genie remains in the bottle, with rates of inflation across the G7 in a tight 1 per cent to 3 per cent range. But past above-trend rates of economic growth alongside unemployment rates at their lowest in a generation suggest upside risks to inflation. If not met with rising wages, that would reduce household spending power and could also prompt central banks to raise interest rates more quickly. Not only does that directly curtail domestic spending but for those countries that have taken out foreign currency loans (such as Turkey or Argentina) rising global interest rates push up their repayments and the risk of more widespread emerging market panic.

Recent moves in equity prices reflect all of these concerns; the FTSE 100 index fell to below 7,000 to a six-month low earlier this month. Investor concerns relate to the fact that neither central banks nor government exchequers can be sure their armoury is sufficient to deal with another crisis, should one arise. Banks may be more resilient now but they may not be the source of the next economic downturn.

Brexit is one of many global concerns that have increased the risks of another downturn in Britain and beyond. These risks will require careful navigation by policymakers if another downturn is to be avoided.

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