Two years on

It is two years ago to the day since the UK voted to leave the EU – albeit by only a very narrow margin and certainly not by enough to justify the hardline position adopted by the British government. For a brief period, the UK was the centre of world attention, but over time international interest has waned in what can only be seen as a parochial problem. The EU is preoccupied with other issues, notably the problem of immigration with Italy and Germany apparently at loggerheads and even the German government split on this particular topic. The fact that immigration was a central theme of the Brexit campaign is a reminder that the EU never really thought through the implications of its immigration policy, and is an indication that it has failed to tap into the differing priorities of its member states. 

Brexit is not the EU's top priority 

As time has gone on, external threats such as the perceived threat of Russian aggression; the economic problems posed by China and the very fact that Donald Trump occupies the White House are much higher up the EU’s agenda than Brexit, which is increasingly a sideshow. Brexit is a British problem and requires the government to come up with a clear plan for what it wants. But it has not done so two full years after the referendum which, lest it be forgotten, was legally only advisory. The government was not required to implement the decision.

Twelve months ago, I wrote “As for where we will be in a year’s time, I suspect not much further forward. If the EU plays hardball on the Brexit bill and the UK refuses to back down, the clock will be running down without any tangible sign of progress on the trade deal which the UK so badly wants.” To a greater or lesser degree, that is exactly what has happened. The UK has been forced to concede ground on some of its key issues, notably the role of the ECJ, and the government is beginning to realise that delivering a Brexit that works is much harder than many of its proponents believed. 

The lack of domestic political coherency is making things much worse 

There are still those who blame Remainers for hindering progress, but the less cerebrally challenged Brexit supporters realise that the government’s headlong rush to deliver has placed it into a box from which it cannot easily escape. Political journalists have had a field day reporting on the parliamentary machinations as pro- and anti-Brexit supporters slug it out. But the fact that the UK still does not have a coherent Brexit plan speaks volumes for the degree of disorganisation at the heart of government.

One of the more depressing aspects of this week was that rebel MPs, who threatened to mount a challenge to the government’s lunatic policy, chickened out of the fight when the chips were down. Their proposal was that parliament should have the power to take over Brexit negotiations in the event of a ‘no-deal’ with Brussels. In the end, they were bought off with a compromise in which the Speaker of the House of Commons would decide whether any motion put forward by the Government on Brexit was amendable. This was enough to buy off chief rebel, former Attorney General Dominic Grieve, who stated “Having finally obtained, and I have to say with a little bit more difficulty than I would have wished, the obvious acknowledgement of the sovereignty of this place [parliament] over the executive in black and white language I am prepared to accept the Government’s difficulty and support it.” He then proceeded to issue his original proposal (that parliament could take over negotiations), only to then vote against his own amendment.

If that does not sum up the bizarre nature of political proceedings, I don’t know what does. Former Permanent Secretary to the Treasury, Nick MacPherson, summed it up perfectly in a tweet when he pointed out that “Europhile Tories always compromise to preserve party unity. Their opponents don't.” 

And business is losing patience 

For all that the electorate appears to have lost interest in the minutiae of Brexit, big business has not. Only yesterday, Airbus announced that it was considering whether it would continue investing in its UK operations. COO Tom Williams said in a radio interview, “over the next weeks we need to get clarity. We are already beginning to press the button on our crisis actions ... We have got to be able to protect our employees, our customers and our shareholders and we can’t do that in the current situation … we need to have clarity. We can’t continue with the current vacuum.” This matters because according to a report produced last year by Oxford Economics, Airbus contributed £7.8bn to the UK economy in 2015 which is “larger than the economy of Newcastle upon Tyne” (the principal city of NE England).

Business is no longer prepared to take the government on trust, and with the March 2019 exit deadline just nine months away, time is increasingly pressing. A number of other businesses have also spoken out to warn of the dangers of a hard Brexit and as one commentator suggested recently, the true costs of Brexit will only become evident too late to stop it. It is not as if it is not already hurting. According to the latest estimate by John Springford at the Centre for European Reform “the UK economy is 2.1 per cent smaller as a result of the vote to leave the EU. The knock-on hit to the public finances is now £23 billion per annum – or £440 million a week.” Recall that the UK was meant to save £350 million per week by leaving the EU!

It is simply astonishing that a traditionally pro-business Conservative government can take a project like Brexit and totally ignore all the evidence placed before it. By leaving the single market and placing barriers in the way of EU migration, the government will reverse the liberalisation of the UK economy overseen by Margaret Thatcher in the 1980s – a process that was copied by many other countries. Part of the problem with the Brexit concept is that it was sold as a vision of making Britain great again (sounds familiar). But many voters are guilty of seeing old Britain through rose-tinted spectacles: Ironically, the age group most in favour of Brexit were those who lived through the strikes and the power cuts of the pre-Thatcher 1970s. 

I have long argued that whilst Thatcher was no fan of the EU, she recognised the potential of the Single Market in a way that the generation of politicians who succeeded her clearly do not. In that sense, the current generation of Conservative politicians who revere the legacy of Thatcher and talk about the benefits of free markets clearly do not understand what the 1980s revolution was about. Quite how they hope to enhance living standards whilst simultaneously putting obstacles in the way of the free movement of goods and labour demonstrates the economic illiteracy of their argument.

My late father never had much time for politicians, believing them to be more interested in looking after their own interests than those of the people they were meant to serve. Whilst my dad and I did not always see eye-to-eye on matters of politics, we were united in our assessment of the current generation of politicians.

The NHS and the Brexit dividend

As we approach the two year anniversary of the EU referendum, it seems that British politicians have learned nothing about the economics of Brexit. Only last weekend, the prime minister herself announced that the government plans to raise the NHS budget by £20bn per annum by 2023, partly funded by a “Brexit dividend.” But like the unicorn and the Loch Ness Monster, there ain’t no such thing as a Brexit dividend.

It is a well-worn story that Leavers promised the UK would have an extra £350 million per week to spend on causes such as the NHS once it leaves the EU. It is an equally well-worn story that the number is a complete fabrication because it reflects the UK’s gross contribution to the EU budget, not the net figure – which is far more relevant. After all, the UK gets roughly half of its gross contribution back in the form of EU funding for domestic projects. Then there is the small matter of the Brexit bill: Assuming that the UK pays a sum of around £40bn to settle outstanding liabilities following EU departure, that is around four years of net contributions up in smoke. Moreover, since Brexit is widely expected to result in slower GDP growth than would otherwise have occurred, there is a strong likelihood that public revenues will be lower than in the absence of a Brexit vote. The OBR’s latest forecast suggests that by fiscal year 2020-21 total revenues will be £27 bn below the projection made in March 2016 (the last official forecast before the referendum, see chart). But even if revenues do somehow match 2016 expectations, the final exit bill means that the UK will be fiscally worse off on a five year view compared to pre-referendum forecasts.

So let’s be clear: There is no Brexit dividend. So why do politicians continue to say such things? Well for one thing, it is a snappy soundbite. Secondly, as this article points out, language shapes the way we think. Thus if a phrase is repeated often enough, it becomes an unconsciously accepted fact no matter how nonsensical it is. Thirdly, there is also a sense that the media increasingly does not hold the government’s misrepresentations to account. The interviewer to whom the prime minister made her claim did not challenge the notion of a “Brexit dividend.”

All that aside, nobody disputes the fact that additional spending on the NHS is welcome. But if there is no “Brexit dividend” where will the money comes from? The PM did suggest that “we as a country will contribute a bit more” which is code for higher taxes. The Institute for Fiscal Studies reckons that raising National Insurance Contributions (NICs) by 1 percentage point could raise around £8.5bn. Freezing personal allowances would raise around £3.5bn. Furthermore, the government is believed to be seriously considering not implementing planned cuts to corporate taxes which, as I pointed out in February 2017, would yield around £7bn. Putting all that together gets us close to the planned £20bn.

Rather than play with existing taxes, there is an increasingly strong argument for a hypothecated tax solely to fund the NHS. The Treasury has long been opposed to hypothecation, partly because revenues have tended not to be linked to individual projects but have instead gone into the general pot. Think of taxes such as the Road Fund Licence, which was initially introduced in the early twentieth century to pay for road construction and maintenance, but it soon became clear that revenue was not growing sufficiently rapidly to meet construction needs. Whilst hypothecation was abandoned in 1936, vehicle owners still have to pay their road tax. An additional objection is that tax revenue tends to be pro-cyclical which might starve the NHS of funds during times of downturn. Thus, if hypothecation is on the table, it would not be possible to use it as the sole source of funding but it could be a useful top-up option.

There is also no reason why the government could not borrow slightly more than planned. Although it unveiled a manifesto commitment to eliminate the deficit by the mid-2020s, there is no reason why it needs to do this. It could run a modest deficit relative to GDP whilst still running down the debt-to-GDP ratio (in simple terms, this is possible depending on the size of the primary balance and the extent to which the rate of nominal GDP growth exceeds the interest rate on outstanding debt). The economic logic of balancing the budget simply escapes me.

One of the standard definitions of economics is the study of the allocation of  scarce resources. Ageing European societies will increasingly have to make choices about how to fund rising demands on the health care system. Countries such as the UK will either have to cut spending on other areas or raise taxes in order to fund healthcare provision. But what is not possible is to use a “Brexit dividend” to pay for it. If it really were that simple, everyone would leave the EU.

Stuck in the middle (with who?)

This week promises to be an important one for Brexit legislation with parliament voting on amendments to the EU Withdrawal Bill following its return from the House of Lords (see below). With time running out ahead of the EU summit on 28-29 June, the government is further behind on its legislative agenda than is needed at this stage of the proceedings. As ever, the issue remains the split within government regarding the nature of the deal which the UK is seeking with the EU.

Davis and the Irish border 

The big story last week was the apparent threat by Brexit Secretary David Davis to resign on the basis that the backstop plan for the Irish border issue contained no end date. As a consequence he perceived a real threat that the UK would be tied to the EU customs union indefinitely. It is not the first time that Davis has threatened to withdraw his services. It is exactly 10 years since Davis resigned as an MP over the issue of the erosion of civil liberties following a parliamentary vote which saw the detention period for terrorist suspects extended from 28 to 42 days. In Davis’ words, this represented "the slow strangulation of fundamental freedoms by this government.” The irony is, of course, that the current government has tried to keep parliament out of the Brexit process and it was only thanks to the intervention of the courts that it was given any form of jurisdiction.

According to the New Statesman, this marked Davis’ fifth resignation threat. Given the lack of progress in Brexit negotiations so far, many people are wondering whether the chief negotiator might be part of the problem, and it speaks volumes for the weakness of Theresa May’s position that she has not called his bluff. In the end, the prime minister acceded to the threat by publishing a document outlining the backstop plan in which the temporary customs arrangement with the EU “should be time limited” and run to the end of 2021.

There are a number of issues with this suggestion. On the one hand, a backstop is designed to be put in place on the assumption that the first best solution does not work out. By definition, it cannot be temporary. Second, it incorporates a date that the EU has not agreed to and runs a year beyond the end of the planned transition agreement (which the EU has still not yet signed off).

In response to the UK’s proposal, the EU yesterday released an infographic (here) outlining how it sees the solution to the border problem. This plan envisages an open border between Ireland and Northern Ireland with the north retaining access to the single market for goods. In the Commission’s view, “the EU backstop proposal to apply unless and until another solution is found.” The key difference with the British plan is that it allows no prospect for the UK to remain within the customs union primarily because, in the Commission’s view, the UK’s plan leaves too much “uncertainty on the scope of EU trade policy applicable to the UK.”

Whilst the UK government is way too ambitious and its plans do smack of cherry-picking, the Commission’s response has been criticised by some trade experts as being overly provocative (see this Twitter thread from David Henig). For example, the slide pack released by the Commission requests “Full application of EU VAT and excise rules on goods in Northern Ireland” which no UK government is likely to grant. Given that the EU sees no alternative to its plan and holds all of the aces ahead of the summit this puts the UK in a very awkward position. Either it will have to cross yet more of its red lines in order to get a trade agreement or we run the risk of moving ever closer to the cliff edge, as the chance of a deal by October would look very remote. 

Seeking domestic compromise 

As it happens, the likelihood that the UK will leave the EU without a deal has been significantly reduced by the concessions offered to MPs who planned to vote against the government on the second reading of the Withdrawal Bill. In order to stave off defeat, the prime minister promised rebels that she would put down a new amendment, expected to give MPs new powers over the final stages of Brexit. The proposals are designed such that in the event of parliament rejecting the final Brexit deal, ministers would have seven days to set out a fresh approach. In the case of talks with the EU breaking down, they would have until 30 November to try to strike a new deal. Rebel MPs also previously demanded that if there was still no deal by 15 February 2019, the government would have had to hand over stewardship of the process to the House of Commons to set its Brexit strategy (though this has not been adopted). In effect, the plan envisaged two years ago that the government (not parliament) would handle the Brexit negotiations has been scuppered. And rightly so.

But the Brexit department issued a statement suggesting “we have not, and will not, agree to the House of Commons binding the government’s hands in the negotiations.” So we are clearly not yet home and dry. Moreover, there is a worrying sense of authoritarianism in that comment because parliament is the people’s representative body: Cutting it out of the loop makes the negotiating process a partisan party-related matter. Theresa May finds herself increasingly under pressure. On the one hand, she has to balance her domestic problems but on the other she has to deal with an EU27 that shows no sign of accepting the UK’s Irish border solutions.

Of course, all sides at present are still playing poker and there will be a considerable amount of give and take along the way. At home, the Brexit camp is beginning to realise that the realities of delivering Brexit on the terms suggested two years ago are not what was envisaged. And as obstinate as Theresa May’s government has proven to be in the Brexit negotiations with the EU27, both sides know that the alternative is a UK government that is much more hard-line – think of Boris Johnson or Michael Gove as PM – which would be even more unpalatable for the EU27. We may be in a desperate situation today but it could be an awful lot worse – believe it or not.

The myopic Mr Trump

European newspapers today lead with the story that Donald Trump has disassociated the US from the communique agreed at the G7 summit in Canada. There did not seem to be anything particularly controversial in the communique which, amongst other things, “acknowledge[s] that free, fair and mutually beneficial trade and investment … are key engines for growth and job creation. We … underline the crucial role of a rules-based international trading system and continue to fight protectionism. We will work together to enforce existing international rules … to foster a truly level playing field.” In short, everything that that the international community has endorsed for the past 70 years.

Then this

 

which is an ad hominem attack on a fellow G7 leader – and a good neighbour to boot.

This, of course, comes after the US imposed tariffs on steel and aluminium imports, which affected Canada and the EU. It follows the unilateral US decision to walk away from the Joint Comprehensive Plan of Action designed to slow the rate at which Iran develops its own nuclear capacity – something by which the EU has set great store. More damage has been done in the last couple of months than at any time since the 1930s to the global order which has underpinned economic prosperity and stability since 1945, as European leaders realise that they can no longer trust a US leadership which puts its own interests first in such a naked way. There is, of course, nothing wrong with putting your own interests first – all nations do. But the way to do it is in the conference hall behind closed doors. In any case, the US has the clout to get its own way most of the time. But capricious decision making, of the kind demonstrated by Trump, destroys trust and it will cause a rethink on the global stage.

It puts the UK in a particularly difficult position. The British government has long believed that it has a special relationship with the US and that it could turn to it for some support in the wake of Brexit (there again, most nations think they have a special relationship). Trump’s actions of late have confirmed what some of us thought all along – the UK cannot rely on the US. I will deal with the ramifications of last week’s Brexit events in my next post but it is now clearer than ever that the UK’s future lies with Europe – for better or worse. The government will thus have to think very carefully about whether and how it wants to loosen ties with the EU at a time when geopolitical threats are rising and the degree of competition from the likes of China are intensifying. This makes Boris Johnson’s recent (leaked) remarks about Trump all the more interesting. “Imagine Trump doing Brexit … He’d go in bloody hard… There’d be all sorts of breakdowns, all sorts of chaos. Everyone would think he’d gone mad. But actually, you might get somewhere. It’s a very, very good thought.”

It’s a very, very bad thought for many reasons. Not the least of which is that the UK does not have the clout of the US. And as Louis Staples put it in The Independent, “What is most worrying here is that Boris seems to admire the chaos that encircles Trump. Suggesting that a man who simply can’t decide whether he wants a summit with North Korea or not, and whose shambolic and widely condemned decision to move the US embassy in Israel to Jerusalem … shows borderline contempt for the wellbeing of UK citizens and those abroad.”

What about the rest of Europe? There has been mounting concern for some time that the US has been throwing its weight around to excess. There is, for example, a lingering grievance that European banks were singled out for transgressions by the US authorities in the wake of the financial crisis and were slapped with heavy fines. There is also concern that the US is increasingly willing to exert its financial muscle by putting pressure on countries using the dollar to process transactions which run via the US financial system, if they fall foul of the US government’s policy objectives. Moreover, the US can impose extraterritorial or “secondary” sanctions by refusing to do business with a company that does business with a blacklisted party. If Europe continues to feel bullied in this way, it can and will do more to encourage the use of the euro as a means of international payment. Also, the inexorable rise of China means that its currency will eventually become part of the global reserve system resulting in a diminution of the dollar’s role (another subject I will deal with at a later date), and with it a reduction in the US’s ability to exert its financial muscle.

 As The Economist put it this week, “In the short term some of Mr Trump’s aims may yet succeed … Yet in the long run his approach will not work. He starts from false premises. He is wrong to think that every winner creates a loser or that a trade deficit signifies a “bad deal”. He is wrong, too, to think that America loses by taking on the costs of global leadership and submitting itself to rules On the contrary, rules help deter aggressors, shape countries’ behaviour [and] safeguard American interests.” In short, all this posturing may help Trump's poll ratings but he will not be the one who has to pick up the pieces when it all goes wrong.

The Swiss Vollgeld proposal

On 10 June, the Swiss electorate will be asked to vote on the question of whether the National Bank will be the only institution allowed to create money within Switzerland (the Vollgeld initiative). This is not a vote sanctioned by the government: It is a so-called people’s initiative which allows any changes to the Swiss constitution to be put to a vote so long as the supporting petition contains 100,000 signatures. Indeed, the government’s official position is to oppose the initiative and in all likelihood it will be rejected by the electorate. But it is nonetheless a subject worthy of debate (if not a vote).

The motivation for the vote is simple enough: Since banking crises throughout history have tended to be propagated by a fractional banking system that creates money as a sizeable multiple of that created by the central monetary authority, stripping banks of their money creation powers will enhance the stability of the financial system. The idea is far from new: Indeed, one of the first intellectually coherent forms of the plan was drawn up in the US in the 1930s (the so-called Chicago Plan). The Chicago Plan envisaged the separation of the monetary and credit functions of the banking system by requiring 100% reserve backing for deposits and by ensuring that the financing of new bank credit can only take place through retained earnings. The Vollgeld initiative applies the same principle.

It is all very radical and the SNB wants nothing to do with the idea. It argues that the Swiss financial system has a proven track record and regulation put in place over recent years has made the system more secure. In its words: “There is no fundamental problem that needs fixing. A radical overhaul of Switzerland’s financial system is inadvisable and would entail major risks.” It also points out that forcing the central bank to be the single issuer of money would erode its independence by subjecting it to undesirable political influences. This arises from the fact that the SNB would have to make a decision about the desired quantity of money in the economy, which will undoubtedly be subject to political influence at times when government wants to curry favour with the electorate. In any case, introducing a Vollgeld experiment in a small open economy such as Switzerland will do little to reduce the risks to a banking sector which operates across a whole range of international jurisdictions.

Whilst the Vollgeld proposal is generally viewed by the mainstream of the economics profession as a left-field idea, it does have some support from sane commentators such as Martin Wolf at the FT. Wolf is not exactly an unbiased observer, having served on the UK’s Independent Commission on Banking back in 2011, which was tasked with making the banking system less vulnerable to shocks that could propagate throughout the rest of the economy. There is a belief in many quarters that the ICB’s recommendations were ignored as governments rushed back to business-as-usual so Wolf’s views may be coloured by this experience. But he has long believed that under the current system, banks have an incentive to cram their balance sheet full of risky assets which ultimately require a public guarantee in the event that the economy turns south. And there is truth in this. As a consequence, banks are now required to have much greater capital buffers than in the past. However, it is one thing to raise capital requirements but another thing entirely to require 100% reserve backing.

For all the advantages associated with curbing the powers of private sector monetary creation – it would after all limit the private sector’s involvement in what is essentially a public good – I  am struggling to get my head around how much money the central bank should be allowed to create. Milton Friedman once advocated a k-percent rule in which “the stock of money [should be] increased at a fixed rate year-in and year-out without any variation in the rate of increase to meet cyclical needs.” In such an instance, it is difficult to avoid the conclusion that a slower rate of credit growth will impose limits on the pace at which living standards will rise. For example, there will be limits on the central bank’s ability to create sufficient credit to match demand for mortgages. And someone will have to make a decision on how to prioritise one category of borrowing over another.

In any case, as the Swiss government points out, banks cannot increase the supply of credit indefinitely. The price of credit in the form of the central bank interest rate acts as a constraint on both demand and supply. Although full deposit coverage of credit creation has not been tried before, the UK experience of limited credit rationing prior to 1971 was not good and was perceived to be one of the factors restraining UK growth compared to other European nations. The real irony in all of this is that Switzerland is one of the world’s most stable economies. As the chart (taken from the FT) indicates, Latin American and Asian nations have taken a big hit in the wake of a credit crunch in recent years – as have the US and UK. But of all the places to justify experimenting with a Vollgeld programme, Switzerland would not be high on the list.

No plan and even less of a clue

"Kein Plan” is an expression used particularly by younger German speakers to indicate that they don’t know the answer to a question. It is a perfect description of the current status of Brexit negotiations. For the second time in a week, industrialists have issued a plea for clarity to the British government with regard to their Brexit preparations, which appear to be going nowhere. The FT reported last week that a delegation of executives from big international companies met prime minister Theresa May and Brexit secretary David Davis and highlighted the difficulties involved in making planning decisions under current levels of uncertainty. According to one delegate, “we are not going to invest in the UK until we see what the outcome is.” The Guardian picked up on a similar theme this morning following a meeting of the prime minister’s business advisory council.

At the heart of the matter is the nature of future customs arrangements with the EU. With a major EU summit looming on 28-29 June, the government assured us that it would release a white paper in advance, which would detail how it plans to treat customs issues and form the basis for an agreement with the EU27. We are not going to get it until after the summit, primarily because the government remains at odds over the future plan. It has been obvious for a long time that the Brexit process is not going well, but there is a sense that with each month that passes the sense of frustration is growing. Business has been remarkably patient so far but with less than 10 months until the UK is due to leave the EU it is time to stop pussy-footing around.

Two weeks ago, the Campaign Director of Vote Leave, Dominic Cummings, wrote a long blog piece highlighting the government’s failures since the referendum (here). Cummings pointed out two key problems: (i) triggering Article 50 without due preparation was “stupid” and (ii) implementing it without prior discussions with the EU27 “and without a plan would be like putting a gun in your mouth and pulling the trigger.” As he put it, “the Government effectively has no credible policy and the whole world knows it.” Cummings is dead right on all counts: The difference between us is that I (and many others) were saying this BEFORE the referendum. And just because Cummings now sees the downsides of leaving does not excuse him from his role in the disinformation campaign that he oversaw prior to the referendum. His testimony before the Treasury Select Committee in April 2016 was a fake news masterclass that has to be seen to be believed (here).

To compound the increasing sense of surrealism around the whole Brexit debate, the head of HMRC, the body charged with collecting taxes on the government’s behalf, recently suggested that the “max fac” customs arrangement favoured by Brexiteers which relies on technical solutions and trusted trader schemes, could cost up to £20bn per year. The additional costs, which arise as a result of the extra bureaucracy associated with the scheme, would amount to roughly double the UK’s net annual contribution to the EU budget. Naturally, it was dismissed by the Brexit side as another element of Project Fear. Even supposing that the costs are exaggerated by 100%, the scheme would still swallow up an amount equivalent to the UK’s annual EU budget contribution. There goes the £350 million per week that Vote Leave promised that we would be able to spend on the NHS. Still, we will now get blue passports!

More seriously, the longer Brexit drags on without any resolution in sight, the more likely it is that a cliff-edge Brexit could imperil the economy. According to reports drawn up for DExEU, a "doomsday" style Brexit could see the country grind to a halt within a fortnight. One of the key concerns is that without a deal on customs, ports will become so clogged that it will be virtually impossible to get goods into or out of the country. The Freight Transport Association was quoted today as saying that “the industry’s frustration with the lack of progress is building daily … Of the eight demands in FTA’s list of essentials to ‘Keep Britain Trading’ . . . not a single one has been progressed.” To compound the problems, ports on both sides of the channel cannot build infrastructure to implement a system that has not yet been agreed upon.

All this may be a bit melodramatic and we would hope that these represent extreme outcomes which have a low probability of occurring. But low probability, high impact events have huge ramifications as we saw during the market collapse of 2008.  It is not part of Project Fear to concern ourselves with what might happen: We simply cannot afford to trust to luck. As it is, on the assumption that the transition deal is implemented we will have a little more breathing space until end-2020. But even that is not yet signed, sealed and delivered. In any case, we are only 30 months away from that date and if we make as much progress in the next two years as we have done in the last two, we may merely be postponing the cliff edge rather than avoiding it.