Saturday, 31 December 2016

Business investment since the referendum

The Department for International Trade, led by Liam Fox, has announced that it has secured almost £16 billion of extra investment in the UK since the Brexit vote. Unsurprisingly, Fox and other Brexiters have seized on this as a vindication of Brexit with Iain Duncan Smith saying that “this latest announcement is the turning point. You are now either in the camp that fundamentally believes that Britain can do anything, anytime and anywhere, or you are in the doom and gloom camp that doesn't believe in Britain”.

It would be difficult to think of a more asinine claim, and one which reflects what I called in my previous post the “bogus patriotism” with which Brexiters are trying to close down debate and to stigmatize those disagree with them.

I call it asinine because, even if you are the most ardent Brexiter, this announcement cannot possibly be interpreted in this way. There is no suggestion that this investment was the result of the vote for Brexit, and there is no reason why it could not and would not have happened had that vote not occurred. Nor are the deals that have been struck ones that require leaving the EU or the single market; indeed, we have not done so as yet. And the deals Fox is announcing do not arise from his supposed role in making new free trade agreements; no such agreements can be made until the UK leaves not just the EU but also the customs union.

On the other hand, what has happened as a result of the vote is that many investment decisions have been deferred or abandoned. These are so far estimated to amount to £65.5 billion (as at November 2016), a far larger figure, and they involve one-third of UK companies, rising to 42% of medium and large companies (which, of course, make the biggest investments). And note that this is just UK companies, it does not even include any deferred or abandoned foreign direct investment decisions.

Not only does the figure for reduced investment dwarf that of new investment but, to underline the point already made, the reduced investment is ascribed by those who have made the decisions to the referendum vote, whereas the new investment has not been ascribed by those who decided on it to the vote. I am not aware of a single domestic or foreign investor who has publicly stated that they have made a new investment that they would not otherwise have made because of the Brexit vote. That includes such well-publicized cases as the £1 billion investment by Google, which was not a result of the vote, about which its CEO expressed “reservations”, it was just that the plans, that had been developed some years before the vote, weren’t affected by it. And with the decision came with a warning that free movement was crucial to the tech sector.

The most that Brexiters can claim is that the vote has not caused all investment in the UK to cease. But no one ever said that it would. One of the hallmarks of the leave campaign was to respond to the warnings of, in this case, the likely reduction to investment by falsely claiming that these were hyperbolic predictions that it would end, which could then be dismissed as ‘project fear’. Now, they return to those false claims and retort, as Michael Gove did with respect to the £16 billion announcement, that the “prophets of doom have once again been found wanting”. In fact, the evidence so far is clear: the vote for Brexit has led to significantly reduced business investment, exactly as predicted. And that is before Brexit has happened and before Article 50 has even been triggered.

What is true is that since the vote there have been high (though lower than the previous year) levels of merger and acquisition (M&A) activity, with foreign firms buying up UK businesses, the earliest high profile example being the purchase of Cambridge high-tech pioneer ARM by a Japanese firm. This is attributable to the vote because it caused a huge devaluation of sterling (though the ARM sale would have been likely to happen anyway) which has made it cheap for foreign companies to buy UK companies. But this is not (other than for the investment banks and other firms who do the M&A work) good news for ‘UK PLC’. It’s just a cut-price selling off of national assets, with the ARM sale being described by its founder as a “sad day for technology in Britain”. And if one of the motivations for the Brexit vote was anti-globalization sentiment and a desire for protection of jobs then it’s certainly bad news as it puts even larger numbers of British jobs at the mercy of far-away boardrooms. So much for ‘taking back control’.

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