The warnings by business leaders over the past three years
that Brexit would be bad for the British economy have gone largely unheeded.
One of the most frequently cited examples is that of Sunderland, in the north
of England, which voted 61.3% in favour of Leave despite the threat this posed
to the region's largest employer, Nissan. Even today TV camera crews can found
on the streets of Sunderland filming the views of locals who continue to insist
that Nissan will not leave the town. Yet two years ago Nissan executive, Colin
Lawther, appearing before a parliamentary committee indicated the difficulties for
companies like Nissan in dealing with a hard Brexit. The plant receives 5
million parts a day, 85% of which are imported, but the plant holds only enough
parts for half a day’s production due to the costs of storing them. Just-in-time
inventory management, facilitated by free movement of goods, is crucial to the plant’s
success.
As long ago as September, BMW announced that it would bring
forward its annual maintenance shutdown to late March in order to deal with any
potential problems. Since the turn of
the year we have seen a number of other companies announcing Brexit contingency
measures. A couple of weeks ago Honda announced that it would shut its factory
in Swindon for 6 days in April to ensure it could adjust to "all possible outcomes caused by logistics
and border issues." Jaguar Land Rover has also decided to shut down
its four main factories for an extra week at the start of April on top of a
previously planned maintenance pause because of “potential Brexit disruption.” Not convinced yet?
Earlier this week, Airbus CEO Tom Enders warned that the company
might be forced to quit the UK in the event of a hard Brexit. In Enders’ words,
“please don’t listen to the Brexiteers’
madness, which asserts that because we have huge plants here we will not move
and we will always be here. They are wrong.” Indeed, Enders gets to the nub
of a problem which has been a running sore in the Brexit debate with some
politicians having demonstrated extraordinary arrogance with regard to
business. Last summer, when asked about corporate concerns over a hard Brexit
at an event for EU diplomats in London Boris Johnson is reported to have replied:
"F*** business." A couple of weeks ago he was at it again: When presented with the not-unreasonable claim that Jaguar Land Rover boss Ralf Speth might know more about the car industry than he does, Johnson replied “I’m not certain he does.”
A few months ago, Owen Paterson MP also dismissed claims by car manufacturers that Brexit would have consequences for their business. In
his words: “If we really do leave the
Customs Union, Jaguar Land Rover will have access to cheaper parts and
components all around the world and the European suppliers will be forced to
compete or they will lose Jaguar Land Rover’s business.” This is peak
Bluffocracy
and is reminiscent of armchair fans who claim that they would make better
football managers than the present incumbent. Clearly there is something
seriously wrong with our political culture when MPs can make such claims in
public and not suffer the ridicule they deserve.
But it is one thing to ignore the warnings of business: It is
another thing entirely for politicians not to take any decisions at all which
hugely complicates the difficulties in the business decision-making process,
particularly when there are very long lead times involved. This lack of
certainty acts as a brake on corporate activity, and business investment
declined in volume terms in each of the three quarters of 2018 for which we
have data. In the nine quarters since the EU referendum, UK business investment
volume has increased by just 0.6% compared with 5.7% in the nine quarters
leading up to it. CBI survey data indicates that investment intentions in plant
and equipment have been lower over the past six months than at any time since
2009. This is not indicative of a business community that has any faith in the
government’s Brexit assurances.
Business is no longer taking government on trust. The Guardian reports today that firms are planning a mass exodus in the event of a no-deal Brexit. In the financial
services industry, banks have long been preparing for the worst case outcome. Since
the passporting legislation, which allows banks to be regulated in one EU
country but conduct business throughout the EU, cannot be guaranteed beyond 29
March this has prompted them to put in place contingency plans to transfer staff
to other EU locations to maintain business continuity. Although the numbers involved so far are
relatively small, probably of the order of 7000, firms are also transferring
assets out of London as balance sheets are run down. And this is only to keep
business running in April – the shift will be far larger in future.
The experience of Nordea bank acts as a cautionary tale.
Nordea was involved in a tax dispute with the Swedish government and threatened
to shift its headquarters from Stockholm to either Copenhagen or Helsinki. When
the Swedish government refused to back down, Nordea management persuaded
shareholders to sanction a move to the Finnish capital which was not only one
in the eye for Sweden but allowed the bank to base itself inside the euro
zone’s banking union. The moral of the story is that businesses do not issue
threats they are not prepared to carry out.
Of course, the biggest irony over the last week was the announcement
that that Brexit supporter James Dyson is to move his company’s HQ to Singapore.
There may indeed be good business reasons for the move but it is a PR own goal
of mammoth proportions. It does not sound as though Dyson has great faith in
the UK’s role at the heart of a new global trading hub. Still, it is consistent
with the actions of the likes of Jacob Rees-Mogg whose investment fund decided last summer to set up a fund in Dublin, as asset
managers worry about being cut off from European investors. A case
of “do as I say, not what I do.”
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