Wednesday 13 January 2021

Fish and The City - lessons from history

Barely a fortnight after the deal came into effect, with Johnson and the ERG claiming it as a great success in 'recovering' our sovereignty, the problems that Theresa May was trying to avoid are slowly beginning to surface.  We have already seen signs of the fresh food shortages to come.  Fishermen and the fishing industry look to be among the worst affected so far.  The Twitter account fishing for leave is boiling with anger at a deal being labelled a 'betrayal' and a 'sell-out' (and worse).

The one Tory MP in Scotland, defended the deal by saying the SNP would take Scotland back into the CFP for which he was roundly attacked:

Mr Bowie's line of defence may not be that strong in some areas given that one seafood business in Scotland with 200 employees says the deal has "more or less finished" them. Maybe some companies will perhaps now look at the CFP as a benefit lost.

There seems to be a narrative developing that the deal can somehow be reopened and 'improved' to avoid all the paperwork, rather than people starting to address the reality that the problem is here to stay and is a direct consequence of coming out of the SM and the CU.

Away from fishing more problems can be seen in a BBC report this morning from Suffolk, with SMEs complaining of extra EU trading costs associated with being outside the single market coming through. One small business owner is quoted:

"Anne Neill has run Walkers.Style, an online women's wear store, for 30 years.  She says her initial 'delight' at the announcement of a tariff-free deal with the EU on 24 December gave way to 'startling' concerns.

"A 'significant proportion' of her customers live in EU countries, she says, and it has now emerged recent orders had been levied with unexpected charges running to more than €100 per order.  'We had been monitoring the Brexit situation since 2016 and I was fearful that import duty could put me at a price disadvantage to my European rivals,' Ms Neill says.

"'When the trade deal was announced, I was delighted… but on Friday our customers began reporting issues with unexpected charges on their doorstep. Now all the stock has to come back to us, and that has a cost. 'It's a huge deal to me. It couldn't be bigger'"

She was not alone, another company also reported the same sort of thing. I suspect it is being repeated all over the country. Many small businesses look at day-to-day issues and never see beyond next week. They will have seen the headlines about a tariff and quota free deal and like Ms Neil, assumed that meant no extra costs. They have lived inside the SM so long the benefits had faded unnoticed into the background.  Having been snatched away they have become visible once again.

The real tragedy is that a lot of people in the last few weeks of last year were talking about Britain's financial sector being thrown under a bus to save some fishermen, the contrasting size and contribution to tax revenues being repeatedly raised.  Fishing at about 0.2% of the economy was being prioritised over banking at 7%. It made no sense.

Well now we see the truth. Both have been thrown under a bus. At City AM City of London Corporation boss Catherine McGuinness has "hit out at Boris Johnson’s government for taking financial services for granted and overlooking the City of London during the last two years of Brexit talks."

McGuinness challenged Rishi Sunak’s assertion that the City was set for a post-Brexit “Big Bang 2.0” that would mirror the 1980s period of growth for the UK financial sector. She said it was hard to see that happening, adding:

"Nobody is calling for a major bonfire of the regulations or major restructure of what we’ve got."

And on this topic, Briefings for Brexit have a long article by professor David Blake of London University saying the government must avoid "another disaster" when negotiating the Memorandum of Understanding on financial services which they are just about to start.  Blake is highly critical that the UK made concessions on sequencing of the previous talks. He says:

"It was only last-minute pressure on Angela Merkel from German carmakers, fearful of losing their one million per annum car sales in the UK, that forced the EU to compromise and agree a 5.5 year transition deal for fishing.  Surely, the UK-side could have insisted on a 5.5 year transition deal for financial services in exchange?"

Note the "compromise" the EU was "forced" to make after pressure from German car makers (apparently) is the deal being denounced as a disaster for the UK fishing industry.  Some compromise.

He does however miss the point. Our negotiators had no choice - as they didn't on the divorce bill, the sequencing of the WA talks and everything else. The EU got what it wanted "almost in its entirety" as he himself admits.

It is as though he keeps looking at the problem but cannot bring himself to see the obvious answer. The EU gets what it wants because of its size. It will always get what it wants in dealings with the UK since it is seven times our size and carries more clout.  This will hold good in talks on financial serviced, too.

Professor Blake says:

"The EU sees Brexit as an opportunity to force significant chunks of UK financial services to move to the EU."

They have already done so, again as he admits himself, in euro-denominated share trading, all of which has now moved to platforms inside the EU in Paris and Amsterdam. This is worth £6 billion a day.  Blake and Sunak do not seem to grasp that the EU is now a major competitor and they are starting to sound like twentieth century British ship builders, car makers, motor bike makers and hosiery factory owners believing that somehow we will defeat overseas competitors simply because we're British.

This is the same sort of complacency that has seen this country's industrial base wither and it will do the same for financial services too, if we are not careful.

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