How to take advantage of Brexit: Boldness of ambition should not be sacrificed on the altar of caution, says ALEX BRUMMER
- Response of conservative administrations to fragmented and ossified opportunities
- Brexit haters enjoy potential 4% GDP loss as if it were the Holy Grail
- Slow passage of the Financial Services and Markets Bill to the detriment of prosperity
- While the United Kingdom hesitated, Brussels is preparing to challenge the leadership of the City
The uncomfortable reality for those of us who support Brexit is that the response of Tory administrations to opportunities has been piecemeal and ossified.
There are good excuses for delays and zigzags. No one could have foreseen the twin crises of the pandemic and Russia’s war against Ukraine and its impact on energy markets. But much was self-inflicted with Tory schisms over Partygate, leadership battles and the disastrous Liz Truss interlude that exposed the UK’s frailties.
All of this allowed a narrative of discouragement to take hold. Brexit haters are seizing on the Office for Budget Responsibility projection of a potential 4% loss in domestic output as if it were the holy grail. It is rarely accepted that this is a forecast and that the OBR is not infallible.
Forward thinking: The best way to counter Brexit challenges is to finish the job
This does not prevent critics, such as the New York Times, from titling that “Brexit is starting to breed Bregret”. Bregret is not Brexit but a failure to seize the moment. One of the main benefits of Brexit was to escape financial regulation from Brussels and create an opportunity to strengthen the UK’s historic role as a financial centre.
The slow passage of the Financial Services and Markets Bill has done prosperity a disservice. While the UK has balked, Brussels is preparing to challenge the city’s leadership in derivatives trading to grab a share of a £97trillion market. Instead of using London clearing, he wants European traders to use European-based facilities. Meanwhile, Brexit critics are trumpeting the idea that the Paris Stock Exchange is worth more than the London Stock Exchange.
Perhaps, but the methodology has been questioned, takes little account of London-listed global equities and there is little discussion of the LSE’s emergence as a world-class data and trading powerhouse.
The best way to counter the challenges of Brexit is to finish the job. Rishi Sunak’s desire to sort out Northern Ireland protocol could usher in a more cooperative era for UKEU relations. Among other things, it could free up access to the EU’s £81bn of Horizon funds for science projects.
Financially, the Bank’s agreement with the UK Treasury on Solvency II, a last-minute addition to Jeremy Hunt’s budget, if properly passed, could be a game-changer.
There is up to £100bn of capital to be freed up from the insurance industry over the next few years. Aviva alone is expected to have £25 billion to invest in infrastructure, life sciences and other growth sectors.
Projects with reliable cash flows, which can come with long-term liabilities, will clearly be needed.
There is no shortage of such potential investment – from renewables to new nuclear, rail and road projects.
University infrastructure ranging from student accommodation to the construction phase of research centers could also be freed up.
Renewing Britain and galvanizing the financial sector will require political will and the collaboration of Her Majesty’s Bank and Treasury. The city has quickly embraced new businesses such as renminbi trading, green bonds and fintech. JP Morgan has chosen Britain as a launch pad for Chase, a digital retail bank. Freeing the UK from onerous EU regulations offers a great opportunity.
Rushing over fences is never a good idea, as we’ve seen with the Truss Growth Program. But the audacity of ambition must not be sacrificed on the altar of prudence.