Wednesday 15 July 2020

Trade friction and the economy

After the Border Operating Model was published there was a kind of stunned silence while everybody took in the scale of the coming changes.  Yesterday, the RHA's director of policy, Rod McKenzie, said on Twitter that in spite of the details which have now emerged, the model still "lacks clarity" and he has given an interview with The Telegraph who publish it under the headline: British businesses to face mountain of paperwork as post-Brexit border plans unveiled.  It is written as though they were an innocent bystander instead of an active and persistent cheerleader.

The Telegraph seem surprised by it all:

"British businesses will need to submit 215 million more customs forms a year after the Brexit transition period ends, it has emerged.  On Monday the Government published its post-Brexit border guidance for the first time, with a 206-page document on how the import and export system will work.

"The process will involve 400 million more annual customs forms for British and European businesses in total. Each form will cost between £15 and £56, HM Revenue & Customs has said. It would therefore cost British businesses as much as £12bn a year to process the additional 215 million customs forms."

I assume the 400 million forms refers to customs declarations and the safety/security declarations combined.

Rod McKenzie tweeted a link to it later:

Five months before we separate ourselves from the EU, despite 206 pages guidance (not 2026 pages as my typo indicated yesterday!), industry still doesn't know all the details of what is expected of them. And Gove was talking about 10-12 sites in Kent for customs checks.  Note not the colour of the doorknobs but the number of sites!  

A lot of the media give coverage to the massive extra bureaucracy and they all have a stab at calculating the cost - which seems to vary between £7 billion and £13 billion - of filling in the forms. The RHA and others still have questions and reservations about government preparedness and the new computer systems that, according to The Telegraph, the government will "consult on" this summer.  Considering it has to be up and running in a little over five months time this looks heroic to me.

McKenzie told the paper: “This is 200 pages of so-called detail but still we lack clarity and time is running out. I’m worried about the Smart Freight app because, with great respect to drivers, their job is to drive a truck not to be suddenly burdened with admin.”

Everyone at the moment is focusing on the form-filling, the friction if you will, but the result of the friction will be in lost trade, lost jobs and a widening of the trade gap next year. It is not as if the "investment" in infrastructure is going to have any sort of positive return, it isn't. This is public money being spent to make ourselves poorer.

And on that topic, it was interesting to see the OBR released their Fiscal Sustainability Report for July which has slipped under the radar a bit but the borrowing numbers are startling. The OBR had been working on the report for some time and finalised it on 26 June, but a few days before it was due to be published Rishi Sunak announced yet more spending:

".... on 8 July, the Chancellor announced a further package of measures that the Treasury said would cost “up to £30 billion” this year, in addition to which a further £32.9 billion of departmental spending was also disclosed."

So, just another £63 billion thrown in at the last minute.  But the OBR were already forecasting public sector net borrowing (PSNB) to be £322 billion or 16 per cent of GDP in 2020, "the highest peacetime level in at least 300 years." They say that this "excludes the cost of the measures announced by the Chancellor on 8 July" so in effect, they expect public sector borrowing this year to be £385 billion.  £385 billion!

During the last crisis, the financial one of 2008-09 Alastair Darling forecast borrowing at £175 bullion although it came in at less than that eventually - £152 billion I believe.  We are well over double that.

The OBR say the Government’s ability to "push the deficit ever higher rests in part on the credibility of the institutional framework that gives investors confidence that the value of the government bonds they purchase will not be deliberately eroded in the future."

The idea that exiting the EU without a trade deal would give investors - the people lending the near £400 billion - confidence is silly. Coupled with the fact that we are nowhere near ready, it demonstrates that all the tough talking about walking away unless we get a good deal is just that - talk. We will never do it and we will have to take whatever the EU offer.

To see what's going on behind the scenes this Twitter thread from Nick Gutteridge a Brussels based reporter for The Sun, gives an insight. The UK government is pushing Brussels and the other European capitals to conclude and publish the "outline" of a trade deal in July, something akin to the Joint Report published in December 2017.  The EU are not keen and want to see more concessions from Britain:

One diplomat says: 'It'd be better to start working on the legal text, but for that we need more convergence. There's a point when the Brits are going to have to engage if they don’t want this whole process to sink.' Another adds a 'joint report style' paper would be 'a waste of time'.

Does this sound like the side holding all the cards?
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