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Softly does it

Even before Wednesday, the EU27 had started to take a slightly softer line on Brexit, with new emphasis on a ‘friendly’ and ‘constructive’ negotiation. That’s not to say talks will be easy, but we are coming towards the end of the pure bluster stage. Interestingly, there’s also a realistic chance that our interlocutors’ objectives could be a moveable feast, as growing economic, social and political problems on the continent take hold.

The real plan for #IndyRef2

Business leaders who run major operations in Scotland tell me they received a call from a Holyrood Minister shortly after Nicola Sturgeon announced plans for IndyRef2. The Scottish Minister wanted to sound out local business opinion on the prospect of another vote. That’s fair enough – what’s more interesting, is the Scottish Minister told the businessmen the SNP does not expect or want any vote to be held before Brexit is completed. This is a markedly different line to the one used in public.

Carbon dating: the energy industry post-Brexit

While carbon pricing is currently set by the EU Emissions Trading System, the Government will move to a new ‘total carbon price and specific tax rate’ from 2021-22. Details will be made public in the Autumn Budget, but this is already one area where there is a clear willingness to move away from the status quo post-Brexit.

Brexit (research &) development

The Government will change the R&D Expenditure Credit in a bid to encourage companies’ investment in qualifying areas. For a number of reasons, R&D relief falls outside EU state aid rules (and outside WTO state aid rules), so we expect to see more effort being put into this kind of measure, as it can be launched before Brexit and then, if necessary, ramped up afterwards.

Risky business?

A consultation announced in the Budget concerns HMRC’s review of risk profiling for large companies. The Government wants to introduce stronger compliance rules, partly for their own merit, and partly in anticipation of more public services being managed by the private sector. Major suppliers to Government will want to keep on top of both the review and its effect on post-contract scrutiny.

Open-minded Government

Much focus is on NICs and whether or not job-creating entrepreneurs “erode the tax base”. Another feature of the Spring Budget has been less widely noted… The Chancellor’s statement referenced an unusually high number of ongoing or upcoming policy consultations and proposals. In fact, it’s worth listing the main ones, just to get a sense of where the Government is yet to state its full intentions. These include: the Industrial Strategy; social care; competition and markets; air quality; workplace tax, benefits and expenses; business rates; rent relief; landfill; and indirect taxes. The Government has a clearer idea of what it wants to achieve in some areas than others – but across the board there is still room to influence its decisions. 

Business can rescue Government on Brexit

Since last June, the political debate has been almost exclusively about No.10’s Brexit strategy and the views of various UK bodies and politicians – almost a kind of “parochial Brexit” – instead of what’s happening across the Channel in 27 of the 28 countries taking part in the talks.

Just a glance towards the continent reveals the EU27 is divided over future integration (whether to do it at different speeds or do it at all), how to respond to US trade policy, Russian aggression in the Balkans, Greek finances, immigration and managing the Eurozone. As these issues unravel, they will influence the Brexit deal – as well as UK voters’ eagerness to reach an agreement.

In early 2019, when they see trouble brewing in the EU, British voters might begin to ask why they are still members of a club three years after voting to leave. Contrary to some expectations, demands for a quick Brexit could get louder, not more muted. If this happens, Whitehall will need its private sector partners’ expertise (and especially technical know-how) to expedite Brexit arrangements. 

Budgeting for Brexit

Social policy by procurement continues apace, as the Government tackles its lack of funds by getting private sector suppliers to pay for its domestic agenda. Businesses that employ more than 50 people and that work with the public sector will now be ‘urged’ to publish a demographic breakdown of their workforce, as well as five-year diversity targets and proof racial diversity is being promoted at board level. Big contracts will be increasingly decided by social impact issues well beyond suppliers’ core functions. We expect to see more of this in next week’s Budget, along with pitch-rolling for tax breaks in areas outside EU state aid rules (like R&D, digital investment and tech).

Another Scottish referendum could boost British business

Rumours abound of Nicola Sturgeon seeking another Scottish independence referendum when Article 50 is triggered. Contrary to popular wisdom, if Scotland does break away, Brexit will be a tactic where devolution proves to be the strategic cause. The political impact on the Tories could be more benign that unexpected, too, as many English voters have mixed feelings about Scotland’s place in the Union, while the SNP would have to take full ownership of policy outcomes in Scotland. Either way, aside from short-term currency fluctuations, the change would affect companies serving the UK’s remaining public sector.

Subject to any final deal, Scottish independence would increase Westminster’s appetite for spending – partly as more funds become available to use in England, Wales and Northern Ireland, and partly to replace infrastructure assets (especially maritime assets) lost in Scotland. At the same time, state spending in a newly independent Scotland would probably fall in line with a smaller tax take and a lower international credit rating.

Paradoxically, “independence” could also mean less autonomy for the Scottish Government, as it would probably have to align itself with the business and trade regulations of a larger trading bloc (whether the UK or the EU) over which it has precious little influence.

Business rates point to political role

In assessing the Government’s proposals for business rates, the front pages have taken a rare break from the twists and turns of Brexit. The rates issue is politically important and points to three important themes: first, austerity persists as the public finances remain skewed; second, all of the ‘easy’ cuts have been made and the tax take is already around its limit; and third, as a result of that austerity and those limited options, the Government needs private companies to play a bigger role in delivering domestic policies. All the time these themes remain, businesses’ influence and responsibility in Whitehall grows.


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