In a time where almost any news surrounding Brexit only seems to bring greater confusion and uncertainty, the Bristol Festival of Economics audience had the rare pleasure of a voice of clarity and reason on the debate. Rain Newton-Smith, chief economist at the Confederation of British Industry, sought to draw some light on the chaotic divorce proceedings that have dominated 2018’s headlines. Her previous work as head of emerging markets at Oxford Economics and her past involvement with the Bank of England and Monetary Policy Committee have given Newton-Smith a strong global, as well as domestic, view on the Brexit debate. In conversation with the Financial Times’ Gavin Jackson, Newton-Smith offered listeners a view of the current politico-economic status (or perhaps stasis) of the Brexit process from the perspective of British industry. The central questions being; two years on from the referendum, are we any closer to leaving the EU? Will there be even be a meaningful deal? And can the current government ever hope to successfully steer the nation through a diplomatic storm that hisses with stubborn negotiation, seemingly impossible compromises and rampant political division?
Rain Newton-Smith began the evening with an assessment of the past two years – the months of shell shock and disbelief for the 48, and the endless frustration and feeling of democratic impotence for the 52. In short, the gaping chasm of uncertainty left by such an ambiguous referendum has caused weak business confidence to mass into a pandemic. Although consumer behaviour took some time to change (since over half the nation believed the result was inherently positive), the economic effects were soon felt. Investors became touchy and hesitant, the pound suffered bout after bout of pummelling in the forex ring, and a panic-button general election weakened the government’s nervous hand on the situation even further. What Newton-Smith then mused with her audience was; what now?
“No deal is not a good place, we need a clean break.” The idea of the further confusion and uncertainty that would stem from a deal-less Brexit is too grim to bear, she argued. The terms of the divorce must be clear. Like any separation following years of unhappy marriage, lists must be drawn up, agreements must be made, and compromises must be found – for the benefit of both parties. Neither divorcee can simply walk out of this. “A common pool of goods, services and data must not be thrown away.” To lose this will only bring grief to both sides of the negotiating table.
Newton-Smith then raised the point of the double-edged sword on which the UK is at risk of falling. As well as the dent that a potentially endless period of poor confidence could bring, she also reminded listeners that, “businesses would much rather be focussing on research and development, rather than preparing emergency plans for a no-deal scenario… positive change is losing out to a needless contingency plan.” Not only is a no-deal Brexit at risk of plunging the UK economy into a deeper trench of doubt and fear, the time spent trying to mitigate against these unknown losses is time wasted. From the perspective of an economist, this is a shocking misuse of resources. Capital, labour and time are being poured down the drain in favour of desperately filling up ‘strategic buckets of water’ to try to put out the impending economic house fire. According to Newton-Smith, a no-deal scenario is the key concern for many British businesses and must be avoided at all costs.
This idea of fear and doubt was then brought to the forefront of the conversation by an audience member who suggested that the power of the no-deal media coverage is only serving to fuel the fire and is worsening the impact on business confidence. Both Newton-Smith and Jackson acknowledged the validity of this point, but it was the Financial Times correspondent who, with a grimace, responded by reminding listeners that “it would be a dereliction of duty not to warn of the dangers of a no-deal scenario.” His headline point rang particularly true – “2.5 million trucks will have to be processed at the Calais border every year, and WTO rules won’t change this.” Jackson’s analysis served to remind the audience that, whilst uncertainty is at risk of sensationalism, there is no smoke without a fire. Brexit fear may indeed beget Brexit fear, but the concerns over the trade deal and customs union are totally legitimate from the perspective of UK businesses.
So what hope is there then? Even if the UK avoids the situation where no meaningful agreement is reached, how can the country hope to rebuild a strong political and economic allegiance with both Europe and the rest of the world? Newton-Smith proposed that much of our reasons to be hopeful lie in both looking close to home, and in looking further afield. We should look to our prestigious and powerful universities, look to new ideas and insights, and look to entrepreneurialism and academia to forge new opportunities from this time of intense change. We must also set out on new paths that aim to offer services to the global superpowers of tomorrow. The rise of China and the other BRIC economies marches on, and there are windows of opportunity to be profited from, but time is running out. Solidifying relationships around the world is fundamental to the future performance of UK businesses on the global stage.
Newton-Smith and Jackson left listeners with some final words of warning. Although there is hope and opportunity within Brexit (assuming a calamitous no-deal scenario is successfully avoided), we must also not lose sight of the other economic and social challenges that face our nation. British regional inequality is one of the worst in Europe, the rise of AI will radically transform the labour market, and our education system is crying out for reform. In addition to this, much of the world is still submerged in violence and war, poverty remains rife, and climate change is set to be the challenge that will define our time. In the face of these challenges, and in the potential opportunities and changes posed by Brexit, it is down to the UK’s voters, politicians and business leaders to keep campaigning, legislating and innovating to move society forward. With economic analysis we can find ways to find hope and the chance for progress from this vastly controversial divorce, but in the end we must keep looking forward, not backwards, and try to find unity, compromise and openness in a time where the global community needs it most.
Festival of Economics 2018 was run in association with Triodos Bank.