Customs union remains Brexit battleground

Parliament remains in battle on the vexed question of a customs union. Following the Lords’ vote to amend the Government’s EU Withdrawal Bill to retain some kind of custom union – and the evident support for one in the recent (26 April) Common’s debate, where the pro-European Conservatives were a vocal and visible faction – the screws are tightening around Government. A binding vote on the Trade bill and the Customs Bill will take place in the Commons over the next couple of weeks or so.

The Windrush scandal with its wider spotlight on immigration policies, culminating in Amber Rudd’s sudden resignation (on 29 April) is potentially disastrous for the Government too. Theresa May has moved swiftly to appoint former communities’ secretary Sajid Javid as Rudd’s successor – a vital Cabinet appointment. Interestingly, Javid is also a ‘remainer’. Theresa May is “sorry” to see Rudd go, but relieved to be clinging on precariously to power. Terrible timing, so close to the local government elections on 3 May, when the conservatives are expected to get a drubbing, at least on the doorsteps.

Theresa May cannot now steamroller a hard Brexit through Parliament and it’s widely rumoured that a compromise deal on a customs union is being hashed out behind closed doors. This will mean the UK will still be subject to EU rules, but free to negotiate trade deals in industrial sectors and with non-EU countries.

The Government set out two alternative proposals for a customs union embodying either customs or partnership arrangements in a paper last August. These haven’t held sway in Europe though. EU chief Brexit negotiator Michel Barnier is frustrated at the lack of UK ideas and is urging Britain to “adapt its red lines”, as well as pushing the UK for a ‘backstop’ solution for Northern Ireland, which would mean keeping a customs union. The EU is also believed to be preparing a “no deal Brexit” Plan B. Theresa May’s anticipated compromise should hopefully mean at least the Northern Ireland question falls away.

Trade prospects?

But what of the freedom to broker trade deals outside the EU? Worrying signs are appearing that France may be supplanting Britain in terms of the ‘special relationship’ with the US via the new Trump/Macron alliance. Former Tory grandee Lord Patten is pessimistic and predicts that trade deals with the 52 Commonwealth countries might only equate to very modest GDP growth – say 0.7%. This is a drop in the ocean compared to the anticipated loss of trade with the EU’s 500m-strong consumer market.

Tech giants and data scrutiny

The spotlight has definitely shifted onto data, particularly around ethics, as serious issues about misuse come to the fore. From the casual observer, the timing with the General Data Protection Regulation (GDPR) coming into force on 25 May is uncanny. On GDPR, this has prompted a spate of activity among businesses to reconfirm data access permissions and review corporate policies. WhatsApp announced it has raised its minimum user age from 13 to 16, potentially locking out large numbers of teenagers, as the messaging app looks to comply with the rules.

The high profile debacle between Cambridge Analytica and Facebook’s 87m customers’ data, and the recent appearance and apology of Facebook Founder, Mark Zuckerberg, before the US Senate’s Commerce and Judiciary Committee, has also been dominant in the news.

Meanwhile in the UK, Martin Lewis of MoneysavingExpert.com recently announced he is suing Facebook over some 50 fake Bitcoin adverts this year which appeared to imply his personal endorsement.

TSB has also had a serious IT glitch leaving online banking customers without service for some time.

Hopefully, some good may come of all of this if people wake up to the need to take personal responsibility for their data and privacy rights. Consumers must take an interest in what personal data is held on them (and by whom), especially in the context of the Open Banking reforms which were introduced on the back of the Competition and Markets Authority (CMA) reviews and the EU Payments Services Directive (PSD2), both of which are designed to open up competition.

FCA Business Plan 2018/19

Technological and data issues also feature squarely in the recently published Business Plan from the FCA. This had a forward focus on developing regtech solutions using automation, analysing traditional and emerging retail banking business models, developing regulatory collaboration around incubating fintech innovation across international markets in its Sandbox, and addressing areas of concern around the use of data by firms and loan-based crowdfunding. Also flagged are cryptocurrencies (given the concern around Initial Coin Offerings), with a Discussion Paper to follow later this year.

There is widespread sentiment that the UK has the best regulatory environment to help foster fintech. An international focus and some light regulation that encourages technological innovation is to be welcomed by businesses.

The UK fintech sector is set to grow to more than 100,000 employees by 2030, while the number of companies might double to 3,300, according to research by Innovate Finance and WPI Economics. However, the sector is highly geared on global talent, with 42% of current 76,500 employees coming from outside UK – two-thirds of whom (28%) are from the EU.

End to economic austerity?

ONS data published on 24 April showed Government borrowing was sent back into the black for the first time since 2002. Britain banked £100m more than it spent on day-to-day operations in the year to March. Wages are also rising faster than inflation for the first time in a year. The overall Government deficit is £42.6 billion, though Britain’s national debt is up to £1.79 trillion, which is 86 per cent of GDP; inflation dropped more rapidly than expected last month to 2.5% from 2.7% in February.

Meanwhile, Sainsbury’s and ASDA announced a proposed £10bn mega-merger which would create the UK’s largest supermarket chain, and points to increasing economic confidence. This appears to be borne out by the return of profitability to parts of the banking sector (with HSBC and Standard Chartered now announcing good results after RBS had set a positive tone).

The latest statistics (published on 30 April) from YouGov and CEBR are also upbeat, showing consumer confidence at its highest level since January 2017, up by 2.2 points to hit 109.8. This is above the all-important 100 mark which indicates overall positive sentiment. However, it sits slightly at odds with growth data released on 27 April (though growth often lags), which revealed the weakest GDP quarterly growth since 2012 of just 0.1 per cent for the first quarter of 2018. Only part of this can be accounted for by the recent bad weather.

Housing spotlight

Confidence in the housing market is still in the doldrums according to the latest housing market research from the Halifax with only half of Britons expecting house prices to rise this year, though fewer people are negative about the market overall. London house prices fell for the first time since the 2009 recession, down 2.1% in February alone, according to recent Land Registry data. Also worrying are figures just out showing that the number of new houses built in the first three months of the year fell by 14% due to harsh winter conditions.

So, watch out for housing statistics this month – 8 May for Halifax, mortgage lending statistics from UK Finance on 16 May, and the Hometrack UK Cities House Price Index on 29 May.

Millennials mind the wealth gap!

Concerns over wealth inequalities continue. Recent ONS analysis found that the net household property wealth of those aged 60 to 62 is 17 times greater than those aged 30 to 32, suggesting many millennials may/will not be able to own their own home. The average 60 to 62-year-old has net household wealth of £165k, compared to just £10k for those half their age. The gap has increased rapidly over the last 10 years when the wealth disparity was just six times higher, though this was already a stark difference.

In fact, almost £1 trillion worth of housing wealth, £928bn and some 3.1m houses, now sits with over 55-year olds, the so called ‘last-time’ buyers, according to research from Legal & General and economics consultancy CEBR. Unfortunately, they can’t find a way to downsize. Meanwhile, half of over 50s currently in private renting are being forced to make drastic financial decisions to cover their rent, including borrowing money from their own children, according to research from the National Housing Federation.

30 April 2018