20 December 2018
Lens on the Week
UK
BREXIT: So there we have it. The cabinet is dusting down its no deal plans and all parties are rejecting the idea that an exit without an agreement could be softened by practical measures. Does that mean that everyone is coming to the conclusion that the hardest possible Brexit is inevitable? Maybe, but probably not. As Amber Rudd commented “Just because you put a seatbelt on doesn’t mean that you have to crash the car.” But there is more to it than that. Mrs May is pushing hard for her deal which means that she has to persuade two constituencies. First she must get the EU to be helpful in its assurances. Second she must persuade the Commons that there really is no alternative. What then would you do if you were her? Act as if a no deal exit was really going to happen, that is what. Give the German car industry reason to panic and lobby Mrs Merkel. Get British business talking about how it will move to the continent and the unions putting pressure on MPs. Bring the Irish Government face to face with the reality that by overplaying their hand on the border issue they have exposed their Island to the possibility of a hard border down the middle with no mitigation. Force Labour MPs who feel let down by their party’s contribution to the debate to focus on the national interest. In commercial circles this stage of the negotiations would be described as “hard ball”. Whether we end up with a Commons majority or a referendum we will see, but the whole debate is about to become much more realistic.
And if you doubt that the Government is thinking this way, ask yourself a question. Why are Remainers like Rudd still in the cabinet?
GDP RANKINGS: The news that we are expected to slip for the 5th biggest economy to the 7th in 2019 is hardly surprising. Exchange rate changes and Brexit angst have let France creep past us but the 7.6% growth in Indian GDP is more significant. With its 1.4 billion people it has the potential to move towards the top of the table eventually leaving Germany, the top European economy, in its wake. Technological change was always bound to result in a re-sorting of the world order, gradually undermining the dominance of Western Europe.
FIRST CLASS TRAVEL: The abolition of first class travel by Greater Anglia Rail later this year should, when combined with their new longer trains, increase seating by some 20%. That sounds rather good when you remember that the proportion of passengers who have to stand on services into London is around 23%. Will standing on trains become a thing of the past or will they prove to be the “wrong sort of seats?”
SWEET TREATS: Proposals by the Dept of Health and Social Care to consult on the banning of sweets and crisps near tills should lead to slimmer children. They will lead to slimmer supermarket profits too. It all takes us back to the question of what happens when measures necessary to deal with public health issues threaten people’s jobs which caused such trouble in the gaming terminal industry.
International
BACKING DOWN: Italy’s populist government has backed down in its months-long stand-off with Brussels. The government had proposed a high-spending budget for 2019 which would have raised the country’s deficit to 2.4%. Too high, especially considering the parlous state of Italy’s finances, said Brussels, and threatened sanctions. The prime ministers of Italy’s coalition government, Mr Di Maio of the Five Star party and Mr Salvini of the League, relished the confrontation and swore not to give way. Italy’s borrowing costs soared as markets grew increasingly nervous, however, and this week it looked as if the government might collapse under the strain of it. Early elections are something that neither man wants – they both want time to prepare to topple each other – so they abruptly agreed to cut the planned deficit to just over 2%. Brussels 1, Italian Populists 0.
In France, it now looks like the concessions President Macron made when the gilets jaunes forced him to back down last week will cost more like €14 billion than €9 billion, and will mean that France will break the EU’s 3% deficit limit not just temporarily but for much of 2019. Strangely, there’s no talk in Brussels of imposing on France the kind of sanctions which were threatened against Italy. Brussels 0, French Populists 1. (That’s Brussels 1, Populists 1 on aggregate).
The gilet jaunes have not backed down. The concessions have not mollified them – they are asking for more – and the intense security situation following the attack in Strasbourg (a petty criminal and known Islamist killed four people and wounded another eleven) has not deterred them from giving the police even more work to do. They are continuing with their protests and are still being arrested by the hundred, although the scale of their demonstrations is falling. The interior minister Christophe Castaner has ordered police to clear the protesters and their camps from the roundabouts and motorways around the country where they have been demonstrating for the last month.
Protesters in Hungary are not backing down, either. They’re demonstrating against further measures by the hard-right Prime Minister Viktor Orban to increase political control over the media and the judiciary (last week he created a new high court controlled by the justice minister), to combat immigration and to make his people work harder (this week his government passed laws stripping unions of the right to collective bargaining, enabling employers to demand 400 hours of overtime a year – up from 250 – and to delay payment for up to three years). Emigration and the hard-line against immigration has led to a severe labour shortage.
Financial
AUSTERITY RETURNS: The Bank of England somewhat belatedly has decided to introduce some savings in its operating costs. The axe is being applied to various expenses which staff can claim for travel and when working long hours. The maximum that can be spent on food per day when working away from home is now £40; with a cap of £12.50 for dinner for those who have worked more than eleven hours in a day. There are limits on hotel charges per day – £200 per night in London, US$325 in New York (new opportunities for Airbnb operators there perhaps, who could also harangue BoE staff on the problems of small business). And no first class travel by air except for journeys of more than six hours – or by train unless the BoE travellers may be discussing “sensitive matters” (it apparently being unthinkable that anybody in first class would be so rude as to eavesdrop). It’s going to be painful, chaps, but we must all tighten our belts.
ENERGY FAILURE: The government seems to have swung from positive to negative on household solar energy. The campaign to get householders to install solar panels on their roofs and outhouses has been one of the great successes of the green energy revolution, with modern lightweight panels reaching levels of efficiency undreamt of fifteen years ago. So much so that many household installations feed surplus power into the national grid, for which the householder gets an agreed offset rate – meaning that household electricity bills are greatly reduced, or even turned into household income. But no more, at least for new installations. The Department of Energy has announced that surplus power will not be remunerated on any new installations after March next year. This follows the ending of grants for new solar schemes in 2016, which dramatically cut the number of new domestic schemes installed, though it did reflect the much reduced cost and greater efficiency of modern panels. The end of earnings from selling surplus will probably be a death knell for domestic solar schemes. Household solar tends to produce power when not needed in the house – during the day, and then buys power at night, but the domestic surplus can be used in offices and industry in day time, the perfect symbiosis. Not any more, unless the government has a rethink.
WOULD YOU CREDIT IT? The Financial Conduct Authority continues with its mission to turn the UK’s banks into an arm of social services. The FCA has announced that it wants the banks to change the way they charge for unauthorised overdrafts; these are by banking standards relatively small debit balances, often a few hundred pounds or perhaps a couple of thousands, and they cost the banks a lot of money to administer – and when not voluntarily repaid, to get back. The banks tend to charge a daily or weekly fee to try to act as a deterrent but also to cover their administration and risk costs. From the customers point of view that makes it an expensive way to borrow but sometimes an essential one, especially with the tight regulation of pay-day lenders and similar emergency credit providers which has driven most from the market. Now the FCA say that the banks should not charge fees, but a simple and reasonable interest rate. In an ideal world no doubt they would – but in an ideal world everybody would pay back the debt without chasing and reminding. The effect is likely to be that the banks will not permit unauthorised overdrafts to arise – and force the hard-up back to bucket shops and illegal moneylenders.
