No-deal Brexit gets closer; businesses alarmed

June 20, 2019 16:18
Boris Johnson has moved closer to taking Britain's top job, making the prospect of a No-deal Brexit more likely. Photo: Reuters

As Boris Johnson gets closer to moving into 10 Downing Street, the likelihood of a No-deal Brexit on October 31 is increasing every day, prompting growing alarm among the business community in Britain and abroad.

In a third round of voting on Wednesday for the leadership of the Conservative Party, Johnson increased his support to 143 votes, almost three times the number of his closest rivals, Jeremy Hunt with 54 and Michael Gove, 51. Party MPs will choose a final two candidates.

A total of 160,000 members of the Conservative Party will choose one; 38 percent of the members are 66 years or older. Johnson is the overwhelming favorite among them.

Johnson has said the withdrawal agreement negotiated by the outgoing PM Theresa May is unacceptable. He said he will demand that the European Union revise it; if they do not, he will take Britain out on October 31, with no deal.

On Thursday, a seminar was held in Hong Kong to discuss the potential impact of a No Deal. The consensus was that it was the worst-case scenario, with businesses unable to plan for the post-exit period since they did not know external conditions they would be operating under.

One speaker said the sterling was likely to fall, to compensate for the higher tariffs British firms would have to pay to enter foreign markets.

Traditionally, the Conservatives have been the party of business in Britain; but the voice and interests of business have been drowned out by the demand for a swift and ‘clean’ Brexit, to satisfy those who voted for it three years ago.

One speaker said Britain had not negotiated a Free Trade Agreement (FTA) for 40 years; the EU has such agreements with 60 countries.

“With a No-deal Brexit, these agreements become void for Britain and it faces tariffs, ranging from four-six per cent in Southeast Asia and 13 percent in India. The 235,000 UK firms that export would all have to re-engineer their supply chains. It took Australia 10 years to negotiate FTAs with China and Japan,” the person said.

Business has a strong ally in Philip Hammond, British Chancellor of the Exchequer, who may be replaced when Johnson becomes Prime Minister.

Hammond will make a speech on Thursday at the Mansion Hill in London, of which copies were given to the media in advance.

“Any Conservative prime minister pursuing a no-deal Brexit would put at risk every party value, the union, economic prosperity and a general election. I will not concede the very ground we stand on. I will fight, and fight again, to remake the case for pragmatism and, yes, for compromise in our politics – to ensure an outcome that protects the union and the prosperity of the United Kingdom. There will be no funds for any of their spending commitments if a no-deal Brexit occurs,” he will say.

One of the places that would be worst hit by a No-Deal Brexit is the island of Ireland. The Republic of Ireland will remain in the EU, while Northern Ireland will leave. The border between them runs for 499 kilometers, with 270 roads that cross it. Currently, it is open for goods and people, with no customs controls.

Under a No Deal, a border would be imposed and tariffs levied. Estimates by the British and Irish governments say that a No-deal Brexit would cause a five percent drop in GDP in the Republic, with the loss of 100,000 jobs, and a 9-12 percent drop in the GDP of Northern Ireland.

For example, farmers in County Fermanagh raise cattle, ship them for slaughter a short distance over the border: the carcass returns to the North where it is packaged and then sent back to the Republic for sale. Under a No Deal, the animals will face four tariffs.

Smuggling across the border, widespread before the two countries entered the EU, will return.

Anticipating Brexit, many financial institutions and law firms have moved a part of their operations from the UK to Dublin. As a result, it is now the fifth most expensive city to rent in Europe, according to research from ECA International published in March this year. Over the last 12 months, Dublin has overtaken Amsterdam, Paris and Stockholm.

On global rankings, Dublin is the 26th most expensive – up 35 spots on last year. Hong Kong remains top, followed by New York.

Belfast is the capital of Northern Ireland. Its economy has grown rapidly in the last five years, as a low-cost center for banks and accounting firms. Citigroup employs more than 1,500 people there. Office space there costs 20 pounds per square foot, compared to 30-40 pounds in Manchester and Birmingham and 150-200 pounds in London.

It has also enjoyed a tourism boom as the place where the Games of Thrones television series was filmed. Thousands of tourists go each year to see the site of the filming.

The two universities in Northern Ireland have 50,000 students, of whom 1,100-1,200 come from Hong Kong and China. One speaker said that he had sent his daughter to study at the Royal School, Dungannon, a private boarding school.

“Of the 70 boarders, 52 come from Kowloon. My daughter did not learn Cantonese in Hong Kong. Now she is learning it in Dungannon,” the person said.

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A Hong Kong-based writer, teacher and speaker.