03 October 2019
Lens on the Week
UK
A LETTER TO JEAN-CLAUDE: It is the stuff of drama. A horsemen dashing through wet and windy weather and delivering a message which changes the world. Unfortunately Boris Johnson’s letter to Jean-Claude Juncker is less exciting. It didn’t arrive by horseback (or presumably not) and it only changes things a bit. “Not enough,” say many commentators, to land a Brexit deal. So just what is in it?
Readers will recall that the sticking point in the EU/UK negotiations is the backstop for Northern Ireland. Logically, if nothing else has been agreed before the end of the transition period, the point when the UK is due to leave the Customs Union, there should be customs posts along the Irish border where goods can be checked for compliance with the quality control regulation of the importing country and any tariffs can be collected. The trouble is that the absence of border controls is fundamental to the Good Friday Agreement and nobody, but nobody, wants to unravel that.
This has put the negotiators in a bind. There could be no border posts because of the Good Friday Agreement. There could be no customs border between Northern Ireland and the rest of Britain because that would be unacceptable to the DUP. Mrs May’s proposal that the whole of Britain should remain within the Customs Union was not acceptable to Parliament. So how do you avoid non-compliant goods getting into the EU, or the UK? How do you collect the tarrifs?
Mr Johnson’s proposal splits the issue into two. First it deals with the standards of goods and their compliance with the regulations of the importing country. Here Ireland would be treated as a single regulatory zone governed by EU rules so all goods traded on the island would have to meet EU standards. Presumably that means that checks would need to be made when goods travelled from the UK to Northern Ireland or vice versa, if indeed there was any significant difference in the standards required.
That, of course, leaves the collection of tariffs and here the proposal is that, rather than having border posts, the tariffs are collected through entries on the tax returns of those taking them over the border.
So far, so good, if perhaps a little leaky. Still, if duty rates on portable goods and in particular on alcohol and cigarettes are about the same in the EU and the UK one can see that it could work. Of more concern, however, is Mr Johnston’s suggestion that the Northern Ireland assembly should have to confirm the regulatory agreement every four years. They, of course, are a body which has not met for several years and to put the renewal of a delicate arrangement in their hands is about as sensible as asking a toddler to look after an egg.
That cannot be news to the Government and it may be there is some tradable space on this point. So far the DUP have confirmed that they are happy with the proposal but the Irish Republic is sceptical. Whether it is really the case, however, that they would rather go through no deal with its inevitable manning of the border than adopting arrangement of this sort remains to be seen. The answer may be that they will only oppose the arrangements if they think that by doing so they may force Britain to stay in the EU.
BP: The Royal Shakespeare Company is to end the receipt of sponsorship from BP which funded a scheme under which young people could see plays for £5.
PARTY CONFERENCES: The Conservative Party Conference, the last of the conference season, has now ended. All three conferences have been wholly overshadowed by Brexit but the Tories economic pledge on the national minimum wage is analysed by Frank O’Nomics in today’s issue.
International
PROTESTS: In Russia, it looks like the recent elections haven’t seen the last of the demonstrations protesting against the obstacles which opposition candidates (and would-be candidates) found in their way. This week 25,000 people gathered in Moscow to protest against the arrest of protesters during the summer’s demonstrations and to demand their release.
In Indonesia, protests continue against a new law which opponents believe will weaken Indonesia’s anti-corruption body. This week there were protests in a number of cities. Thousands of students in Jakarta tried to reach parliament and violent clashes followed as they were confronted by riot police. Stones and petrol bombs were thrown at the police, who replied with tear gas and water cannon.
In Hong Kong, a protester was shot by police as demonstrations took place during official Chinese National Day celebrating the Chinese communist party’s 70 years in power. Pro-democracy and pro-autonomy demonstrations are now in their fourth month. The National Day celebrations in Hong Kong were muted by cautious officials; a firework display was cancelled and the flag-rising ceremony took place in doors.
In Egypt, anti-government rallies took place in Cairo, Alexandria and Suez, prompted by allegations of corruption made by an expat businessman. The protests initially took the authorities by surprise, but they responded by arresting more than 2000 people (according to human rights groups) and closing down the centre of Cairo to prevent bigger protests there at the weekend.
ELECTIONS: In Afghanistan, the first round of voting in presidential elections took place last Saturday. Turnout was low: it’s estimated that only two million votes were cast, which means 80% of registered voters didn’t take part (seven million voted in the last election, in 2014). They were deterred by threats of violence from the Taliban (dozens of people were killed by bombings during the campaigns, 2400 polling stations were closed because of security fears, voting was abandoned in Taliban-controlled areas and scores of attacks were made on polling stations with at least five people killed) and by disillusionment with politicians perceived as corrupt. Abdullah Abdullah, the chief executive of the unity government and President Ghani’s long-standing and main rival, has already declared victory, even though votes are still being counted and results will not be declared for another two weeks. If no candidate secures an outright majority, there will be a run-off between the top two next month. Five years ago, Mr Ghani and Abdullah Abdullah disputed the results of the last election and the impasse was only resolved by the intervention of the USA.
Elections in Austria saw big losses for the far-right Freedom Party, which was the partner of the governing conservative People’s Party until the coalition fell apart earlier this year. Its share of the votes fell from 26% to 17%, resulting in a loss of 19 seats in parliament (down to 32 from 51). It has been hit by a number of scandals recently, including the “Ibiza affair” (see Mistah Kurtz, He Dead?) and other accusations of corruption against former leader and vice-chancellor Heinz-Christian Strache. Chancellor Sebastian Kurtz’s People’s Party seems to have benefited from the Freedom Party’s debacle; it won the elections by a record margin, gaining 11 seats (up from 62 to 73). The increased majority means that a partnership with the Freedom Party is no longer necessary; a coalition with the Greens is a possibility.
Financial
SAVED: After last week’s barrage of bad news, an encouraging business announcement – Harland and Wolff, the Belfast shipyard that built the Titanic, but which for the past hundred years or so has built less dramatic (and more successful) ships, mainly for the defence sector, has been rescued from insolvency. The business went into Administration in August this year, mainly because of the failure of its Norwegian parent company, but has now been bought by InfraStrata, an AIM listed business run by John Wood. InfraStrata specialises in complex marine projects, mostly in the offshore energy sector, and sees its operations further expanding as sustainable energy schemes at sea – mainly windfarms – become highly price-competitive in the electricity supply sector. Currently much of InfraStrata’s engineering is outsourced, but this deal will mean it can build its own kit and gives direct control over its supply chain. Harland and Wolff has currently only 79 employees, but the expectation is that the workforce will be expanded over the next year or two as production builds up again.
GROWING: The UK based digital bank Revolut has just announced a new agreement with credit card and payments giant Visa, which enables it to use Visa’s platform for a rapid expansion of its business across 24 countries over the next two years, probably starting with the USA and Japan. The scale of the intended growth is underpinned by the likely growth in the number of employees, from 1,500 to around 5,000, a real step change even in the fast moving world of digital finance. Its great rival, Monzo, has also just opened in the US, but is playing things more slowly – this puts Revolut well ahead, at least for now. But analysts are somewhat surprised by the urge to go for the American market – which is already well banked and comparatively competitive. Retail banking in the eastern segment of the world seems to offer much greater rewards, with the benefit of a customer base which is very digitally sophisticated, less committed to local branches, and more on line friendly.
MAXIMUM MINIMUM: Labour will pay you £10, but the Conservatives £10.50 (so long as you are over 21). Any offer from the LibDems? Mr Farage, how about it? Not for your vote, but for an hour’s work – those are the offers on the table for the minimum wage. (Well, alright, it is for your vote.) It is always easy for politicians to be generous with other people’s money and here is a prime example. The increase will be a burden for many small businesses dependent on low wage costs, especially the high street retail sector, and on the government itself in areas such as the National Health Service, where tax payers will be picking up the tab. At least the Tories don’t let it kick in until age 21, so that school leavers may still be able to find starter jobs, competing with the more experienced. But not great for the low-paid in any recession.
FINANCIAL WISDOM: As Greta Thunberg is not available, our tip for investors this week is from Lily Cole, described as an actor and model. She says she is careful not to invest her wealth in unethical businesses, such as defence and carbon based fuels, so has opened a current account with Tridos, an ethical bank, where her money will support useful trades such as organic food, and fashion. Ms Cole does not favour us with any financial details as to the strength of Tridos, but if she keeps enough money in her current account it should do well.
