Thursday, 19 October 2017

Points of no return

One of the arguments put forward by those justifying their support for Brexit is that all the woes predicted by supporters of Remain have not come to pass; things aren’t nearly as bad as they said they would be.  And to the extent that some Remainers predicted the end of the world starting the day after the vote, that is true.  The point is, however, that many of the predictions weren’t about what would happen after the vote, but about what would happen after Brexit – and Brexit hasn’t actually happened yet.
There are still two views amongst economists about what will actually happen in the immediate aftermath of Brexit itself.  The majority view is clearly that the economy will take a hit, whilst a minority continue to argue that it will be the opening of great opportunities.  Given the persistent long term failure of economic forecasts to get anything much right, I can understand anyone’s reluctance to put much store in any predictions, from either side.  I tend to the view that, in the long term, the UK economy will adapt to the new circumstances, but that there will be a serious hit in the short term.  Whether that’s a price worth paying depends in no small measure on whether you’re one of those paying it or not; my suspicion is that the cost will fall on those least able to bear it, and not on the leading advocates of Brexit, many of whom seem to be on the wealthy side already.
There is a sense, however, in which the cause of that economic hit isn’t Brexit itself; it’s not the sudden change in circumstances the day after we leave, for all the talk of cliff edges.  The cause is, rather, the myriad of independent decisions about location and investment taken by businesses about how they will respond to the changes which they expect to happen on or after that date.  Most of those decisions won’t be taken on or after Brexit day itself, they’ll be taken in advance.  Whilst they would like to have the certainty of knowing what the outcome will be before they take their individual decisions, the planning horizon is such that many are already taking those decisions, and more will do so in the coming weeks and months.  They will have to make assumptions in order to do so – and the safest assumption to make at present is that Brexit will happen, and that the UK will find itself in the worst possible trading position vis-à-vis the EU.  The damage, in most cases, might not kick in until after Brexit, but the decisions causing that damage will have been taken in advance.
Each of those individual decisions represents a small point of no return: siting a factory, moving a head office, or upgrading existing facilities – these are not short term decisions.  Once those decisions are taken, even cancelling Brexit would not lead to their reversal.  The Brexiteers claim that they are frustrated by the slow progress of negotiations, but this looks like playing a game to me, not least because the slowness of the progress is largely down to their own continued insistence on having cake and eating it.  I suspect that they’re really rather pleased at the slow progress.  On the one hand, it might give them the excuse that they need to talk away, which is what many of them really want to do even if that isn't what they said in advance; and on the other hand, even if they don’t just walk away, the scenario outlined above about decisions being taken now simply means that we’re getting to the same place slowly, one decision at a time.
There is not one single clear point of no return in this process, but continued obfuscation and delay suits the agenda of those who want a sort of economic revolution, with the UK becoming a low tax low regulation offshore island.  It’s an article of faith to them that this will be a better Britain; the question for the rest of us is, or should be, ‘better for whom?’.

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