One Week On…

Brexit Uncertainty is Having an Effect on Business. What next?

It has been over a week since our fateful decision to leave the European Union. A population of 500 million people, a market of £17 trillion and our biggest free trading partner who can open doors to even bigger populations through their “friends of friends”. The £250 billion losses the economy suffered on Friday alone have seen us lose not just one, but two “grades” in the S&P credit rating and the pound tumble to its lowest value in 31 years before recovering to about the level during the financial crisis.

UK politics, an area I and many couldn’t care less about, is in turmoil on both sides of the political divide as BoJo the clown, who with Nigel Farage, acted as a huge catalyst to stoke the fires of hate with misinformation and downright lies, has quit after being stabbed in the back by Michael Gove (which let’s face it, was bound to happen — would you have that hair running the country?) and in any event, like Farage and Hannan before him on the Friday morning, near-backtracked on their commitment to leave, not only letting down those who voted to Remain with lie after lie but also now, those who voted to leave. Farage’s laughable and frankly deluded performance in the EU parliament a few days later, which saw his fellow parliamentarians laugh him out of the room and delighted at the prospect of cutting his salary from the EU budget in a “waste reduction” exercise.

The Brexit campaign was a farcical performance on both sides of politics because it involved politics. Therefore making it a game of who could lie more believably. Andrea Ledsom with blatant lie after blatant lie, including the words that stick with the vomit in my throat around trade agreements “We can negotiate trade agreements within a couple of years”.

The WTO database of all regional, multilateral and bilateral trade agreements is available as a dataset online. It includes just the times from signature to coming into force. Reconciling this with the negotiation time from the point of notice to the WTO and/or EU (since the rules are the same) to the point of signature gives you the total time to arrange a trade aggreement. There hasn’t been a single trade agreement in history that has taken less than 4 and a half years. Never. Not one. However, you still got idiots propagating the myth in the frenzy of Brexit-mania that you could agree trade deals in 2 years and even some of the twittersphere arguing that there have been some in 6 months. More or less making it up!

In an environment of total confusion, arguments about youth unemployment, were fed as lies to us:

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Relative to other EU countries we’ve done really quite well when it came to Youth Unemployment. If we had been unfairly disadvantaged by being in the EU, then we’d have to have been an outlier. Our youth unemployment would have been significantly worse than the EU’s but guess what,average EU youth unemployment is 19.9% pulled upwards by the youth unemployment figures of Greece, Spain and Croatia.

Is the EU accession process going to mean our youth unemployment gets worse? Well, aside from the fact that our UK rules on R&D already prefer local workers to EU workers (meaning if EU workers are “taking your jobs”, you’re shit!), the longitudinal numbers say no! Our Youth unemployment is no better or worse than France or Germany’s.

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UK in Red, relative to other EU countries & Eurozone — 2008 is the financial crisis

Our adult unemployment also shows an interesting picture. Below is the graph of UK unemployment during the financial crisis, which remember, started in the USA. It took about 13 months to plateau from the rise (that upward slope you see). Note that it added 1 million people to the UK unemployment line. If you’ve forgotten that already, you’re goosed!

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UK Unemployment rates 200–2016

When an event like that and Brexit happens, there is usually a seismic event, then a ‘propagation delay’ as the effects are fully absorbed into society. This delay happens as businesses try to absorb the impact. You can see this if we zoom in to the 2008 period.

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Number of people (in thousands) made redundant or unemployed after the financial crisis

Absorption Effects

Most sensible organisations, including charities, have 3 months of reserves to fall back on and this sometimes results in those requiring 3 months notice being handed it immediately (sadly, mostly those who have been there the longest and accrued that). Two months into that, if there isn’t a series of sales to make up the difference, they ditch suppliers, who themselves then have to go through their own cycle of this, before finally making people with one month notice or so redundant in the cost cutting drive.

Overall, those delays propagate the effect across a much longer time frame than the original event. I’m seeing Leaver’s start to say “Did the sky fall down?” which shows the level of stupidity they work at. Aside from the fact that it has, but we borrowed £250bn to attempt to shield ourselves, on top of the money we used to bail the banks out and also lost 2 credit rating grades, not just one, the longer term wider effects are what we should be looking at. This naturally affects the hospitality industry first, who are already squeezed on tax and by breweries. The introduction of the points system means an increase in cost to employ of £1,400 to £2,700 per employee. In industries which depend heavily on part-time workers, this will be prohibitively expensive!

“In construction, manufacturing, energy and transport, about three-quarters of EU workers would not be allowed in under the immigration rules [for non-EEA immigrants] as they are today… That rises to 94% of EU workers currently employed in hotels and restaurants.” — Gonzalo Viña of the Financial Times

…Oh, and one more thing. The first of these two graphs show UK unemployment recovering. Part of the reason for that is the rise in UK entrepreneurship, which nearly doubled the number of companies in the UK in 3 years from 2011 to 2014, but also the rise in the use of zero hour contracts, exclusive or otherwise. It was the EU that has attempted to save us from ourselves in this regard, pushing the need for the Enterprise and Employment Bill to prevent damage to UK individuals due to the overuse of them.

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Credit goes to Ravi Sharma for pointing this graph out

Migration on UK Tax Revenue

The effect of migration on UK public service (tax revenue), another lie. This one a doozie! You couldn’t get further from the truth on that one.

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If you need help understanding it, this is the amount of money left once public spending has been taken out per group of people. This graph existed way before Brexit was mooted and covers a period of 10 years from 2001 to 2011.

So what does this tell us? It tells us several things:

  1. UK migrants cause a net contribution of £25.4billion to the UK economy. Removing EU migrants removes £20.2billion from that.
  2. The biggest drain on UK public spending is UK natives, not immigrants, who we established above are net contributors. Getting rid of them makes UK Gov’s bank balance smaller, not bigger. If I was being facetious, they should ship us out and bring immigrants in.
  3. When you divide the funds by the number of people in each group, you get the per capita contribution (which you’ll note in the UK native group is negative). The contribution by each immigrant is more than double the amount taken away by each UK Native.

The national use of a referendum to make political votes, the televising of the debates and the lack of charisma from the Remain camp given that BoJo is a journalist, a hack by trade, combined to pull together a catastrophic “show” which appealed to the sub-Coronation Street generation. Whilst a Great British soap opera (Manchester, Olé), I don’t know that I’d trust the future of our nation to Ken Barlow, who is as much a figment of our imagination as the £350 million a week actually is and has of course, turned out to be. But hey, economists and pretty much everyone else told you so, right?

In any event, the reality is we have voted to leave. We’ve alienated a group of people who, in our current times of austerity, we simply couldn’t afford to. This is already having an effect on the Manchester economy, which despite it’s exceptionally high skillset in the creative and digital sectors, receives very little investment. In turn, this follows pretty much all the major London clearing houses moving most of their operations to Ireland to maintain EU Passporting requirements in the financial services industry.

London as a Financial Centre

Make no mistake, as someone who spent a couple of years in the city and in London life, this wasn’t a spur of the moment decision for London’s finance district. When talk of the Brexit campaign started to gather momentum before the vote, they would have had to consider the impact on their operations of maintaining a base in London when they would need to process the clearing tickets of countries around the whole of the EU. It is a requirement of both EU and WTO rules that that a presence is maintained in the regions of operation, which for the EU is a natural benefit of free movement in any event. In total 6,000 jobs were set to move to Ireland in the two working days following the decision to leave. However, all other clearing houses will be making plans to move too, which moves 30,000 jobs in total to Ireland.

Other industries have also seen investments pulled due to Brexit, including a report highlighting a suspension of loans from Singapore property loan investments firm UoB, which hits the London property market. In itself, this isn’t a big concern to most consumers, as this has a limited reach, but it does make access to finance harder for one of the hardest markets to enter the property market in. I’d be interested in the views of analysts in that space. So feel free to add to the comments.

Despite this, I still maintain my view that the City itself will see little hit in terms of trade, especially in the square mile. Clearing is considered a back office function, so it isn’t where the ‘real money’ is made. Tier 1 investment banks will continue their operations, stocks will continue to be traded, albeit at a more volatile price point.

The FTSE 100 recovered after it’s initial fall on Friday and with the FTSE 250 also starting to clamber back some losses, we can be forgiven for thinking that the worst is over. Far from it! The important thing for Jo and Jane Bloggs in the street is the pay in their pocket.

Those Damn Bureaucrats!

One of the biggest hypocrisies of the campaign was focusing on the small number of “Bureaucreats in Brussels tellingus what to do”. Let’s put this in perspective. EU Government is formed from two parts. Elected representatives, the MEP’s (Members of the European Parliament) including Nigel Farage and 10,000 civil servants, the “unelected bureaucrats”, who together manage the membership of 500 million people (over 8 times that of the UK), 28 member states and hold 17 trillion Euros of economic activity (over 6 times UK GDP). About 13% of UK laws are made either as regulations or directives at European level, but Europe has to manage around 23,000 of it’s laws, all member requests, proposals etc. which number a significant more than we handle.

By contrast, the UK civil service are our own unelected bureaucrats. You can’t vote them out of office and they stay in post between governments. There are 400,000 civil servants managing our plethora of UK laws, the vast majority of which are not the same as the 23,000 laws of the EU not just the ones from Europe.

The one thing that has come out of this piece of whimsical idiotry from Leave is that they should understand the scale of efficiency the EU ‘bureaucrats’ are making. They have 40 times less people, managing 10 times the number of proposals from 28 different countries, with 8 times the population of the UK. Think about that for a second. Even though there is some waste in the process, the trade-off of that waste is a vastly superior efficiency. It’s amazing that Farage in particular had the gall to stand up for the little guy by shooting the little guys in Brussels.

Technology & Investment into Ireland

The Irish economy has benefited greatly from the transfer of enterprise activities over the last 10 years. With the setup of Amazon, Google and Microsoft datacentres which run the European regional computing clusters, moving functions to their domain is an excellent result for them, even if the Euro takes a short term hit. That in itself isn’t the issue for the US companies that wish to move, as long as what they are moving from loses more relative to the dollar. Sure enough, the Euro was hit, but recovered to close this week only 2.438%, yet the Pound to Euro is down to its lowest level since November 2013 at 1.19142 with an 8.6% drop since the 23rd June but the dollar 11.58% and that differential means we’ve suffered disproportionately more and for what it’s worth, on the commodity currency. The EU currency suffered a bit, but is coming out of it much faster than we are.

The flow of the Euro through Ireland will generate a massive amount of money for the economy and any funds wishing to set up there in future. Unlike British Telecom, through BT OpenReach, Irish broadband isn’t underpinned by one provider and with BT’s intransigence and complete disregard towards the regulatory control of Ofcom, and BT’s action holding us back on the world stage, Irish companies are now free to take more control over their communication links.

With more choice and more providers, as well as the backing of Google Fibre, Ireland have had access to 200Mbps connections and faster for a number of years. Indeed, Eircom is in the process of rolling out 1,000Mbps links over the next few years.

BT still is not even close to that level of service on the standard consumer or business retail market. People have to choose the limited coverage of Virgin Media for that level of performance. Whilst 300Mbps is available as an on-demand choice for BT customers, the costs are prohibitive! Installation alone is £1,500 if you live on top of an exchange. If you don’t, then they have to dig up the roads and crucially, charge you for the privilege. It would not be uncommon to see costs of £25,200 (inc VAT) for installation of such lines through BT and crucially, you would then have paid for everyone else in your area to gain access to it.

Where does that leave us?

The next few years are going to be very very tough! The figment of the imagination of £350 million, even if it was true, would mean that we would be spending around 14 years paying back that loan which was set to absorb the £250 billion losses sustained on Friday 24th June 2016. That money will not go to the NHS. Nor would it go into schools, education or infrastructure. It goes back into the UK coffers. The NHS will continue to struggle, roads will fall further into disrepair and crucially, we wouldn’t have EU funds to fall back on. Cornwall knew that, which is why they were so quick to seek assurances on Friday 24th June after voters within it voted to leave the EU. How embarrassing, eh?

If you vote for that, you live with the consequences of that. Unfortunately, many people ignored the importance of experts, who are not really there to predict the future, but to prevent things from happening. The vast majority of economists made their views clear about the importance of remaining. People didn’t vote to Remain. Legal experts made it clear about the importance of us Remaining. We didn’t believe them either and still voted to leave.

The campaign BoJo and co ran and indeed, Day-Cam started, and Gove sound-bited, made a point of ditching experts. That was the most ludicrous position to take. When we are ill, do we go to Mike down the pub or do we go to a doctor? An expert? If you don’t believe in experts, off you go to Mikey for your testicular cancer. I’d hazard a guess he won’t even examine you, let alone treat, unless he’s a psycho, in which case you’re in good hands…?

A Personal Note

For me personally, the Brexit debate has shown me a side of the UK I thought died out a long time ago. It caused me not just some, but a lot of concern:

  • The lack of people’s ability to think critically has led to the biggest con being perpetrated on the UK populous
  • Style over substance is the order of the day — when the substance brings the style, getting rid of the substance will lose the style in time
  • The rise in racist incidents means a lot of people do not feel safe here in the UK. EU migrants, some of whom themselves have been the perpetrators of racial abuse before, are now becoming the victims of it.
  • People are willing to put themselves through cr*p for a fabricated ideology, an ideology of hatred and segregation. We spent a lot of time partly recovering from the last financial crisis, where we had to give the banks more per head of population than anywhere else in the world. Our use of Foodbanks increased so many hundredfold; the damage to individuals on disability aid, our weakest and the infirm, incalculable. As an ex-trustee of a CAB office during that period, I can tell you the effect is disproportionate. Time and time again I saw waves, a tsunami of ignorance and hatred during this campaign and it will be those people who suffer. Unfortunately, these organisations themselves did not survive unscathed.
  • It showed me the lack of foresight in the small business world. This one for me is heartbreaking. I made a pledge in the last year to help small businesses more. All my company has got from that experiment was having to start and then work through an ongoing court case against an organisation who still have not paid their debts. I also got ignorance on the part of the majority of SME owners who didn’t understand what they were voting for during Brexit. Some of them took opposing stances, even though they had no idea what was available for them in Europe. They blamed Europe for problems suffered by people like ex-servicemen. It is precisely the European laws that protect those people! The EU gives (and gave them) them an outlet to chase down the government’s of their countries for what is rightfully theirs. Human right included. Us voting ourselves out puts us right in the middle of the biggest risk to their existence. That I just cannot get my head around!

So for me, I am pretty convinced I need to move out of the UK. As a child I loved this place. Sure, I got racially abused and at times, quite regularly, but the experiences were on the whole positive. This isn’t the country I grew up in now. It’s full of both hate and stupidity in far far too big a number for me to want to stay and do anything about. The Startup and SME market has developed an air of entitlement to your time and resources. I won’t be engaging in that market any more. I’m not going to be helping people clean up the mess they foisted on themselves especially. There are many more deserving people around the world than them. Regardless of whether the UK parliament elects to stay, the UK has spoken and I’ll be planning my out!

E

Written by

EA, Stats, Math & Code into a fizz of a biz or two. Founder: Automedi & Axelisys. Proud Manc. Citizen of the World. I’ve been busy

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