All ready for a no-deal exit? Good. But it’s not the only outcome you had better brace yourself for, says Matthew Lynn.
Just about every company – at least you would hope – has by now put in place plans for a no-deal exit from the EU. But now there is something else – argh! – they have to plan for as well. Revoke and remain. The Liberal Democrats this week committed to revoking Article 50, cancelling the referendum result and staying in the EU (see page 8). The odds are not high that they will win the power to do this, but a Lib Dem-led or “national unity” government committed to it is not exactly inconceivable either. You might think business doesn’t need to plan for that – that it is just the status quo and everything will carry on as before. But in reality remaining will have a big impact. This is what businesses must prepare for.
1. A raft of new laws
While we have been having an agonising debate about our departure, the EU itself has changed. It has introduced a raft of new environmental policies and is moving towards much closer harmonisation of tax rates. Takeovers are being controlled more tightly and a new fund is being created to invest in strategic industries. The UK will have to be part of that and companies will find themselves subject to all kinds of laws they had assumed wouldn’t apply to them.
2. A surge of immigrants
There has been a significant drop in the number of young Europeans coming to work in the UK, especially from countries such as Poland and Hungary. Understandably, they were nervous about coming here when their status was so uncertain. But a Britain that has committed itself to remaining will suddenly be a lot more attractive. After all, the UK still creates a lot more jobs than any other major European economy and wages have been rising. With more immigrants, the labour market will start to look very different.
3. A wave of takeovers
We know that fund managers around the world have kept well away from British equities and, a few big deals such as the Hong Kong bid for the London Stock Exchange aside, global companies haven’t been interested in buying British business. Again, that was completely understandable. Who wants to invest when no one had any idea when we would leave the EU or on what terms? There are better things to do with your money. The result? The UK is cheap compared with other major markets. If the threat of leaving evaporated, lots of money would suddenly go into the FTSE and there would be a wave of bids and deals.
4. A rise in interest rates
With growth positive, employment at record levels and with real wages growing at the fastest rate since the financial crash of 2008, there is no real reason for the Bank of England to hold rates down at “emergency” levels. Except for Brexit, of course. Logically, if that was taken off the table, then the Bank should start putting rates up again. With the global economy slowing, it might not happen right away. But it would happen quicker than if we were leaving.
5. Ever-closer union
Finally, if Britain did resolve to remain, then as a country it would be far more committed to the EU than it has ever been in the past. If we do stay, then we might as well commit to pooling sovereignty with the rest of the union, and that would mean signing up to the euro. It might take a while for our economy to converge, but it would be inevitable sooner or later.
Of course, the country would still be bitterly split on the European issue. The main opposition would either be the Brexit Party or the Conservatives, or an alliance of the two, committed to taking us out as soon as possible. The result of the referendum would not be quickly forgotten. Business would still have to live with a lot of uncertainty. But it would get used to that. The important point is this: remaining is not as disruptive as leaving. There won’t be chaos at the ports, or any dramatic shortages. But it is not really the status quo either. Whichever way the UK goes, change over the next few years is certain.