doughnut spins

Days after EU leaders said the Brexit plans won't work, it is worth looking out for the bribes - and I don't just mean doughnuts.

May's are clear. Whilst saying the UK has a “knowledge-rich, highly innovative, highly skilled and high quality" economy, she is adding that it will have low tax and 'smart regulation'.

It is a lightly coded message for investors. It is saying that investing in a post-Brexit Britain will give the lowest rate of corporation tax in the G20.

The Labour bribes are more spluttery. The target electorate get that ad-hoc Kier Starmer speech addition about bringing in a Remain clause to any new Peoples' Vote.

Labour's recent suggestion would be to force employer share give-aways to benefit workers in UK-listed companies.

Now we get front-man affable uncle Corbyn going all enigmatic. Maybe slippery, because it's being called triangulated strategic ambiguity. He's far more interested in an election than a referendum. His team can hint at futures, but he still holds the key and his latest 'something for everyone' bag of promises.

It's all very well but the weeks of futzing around don't inspire real confidence related to opposition politics. Sadly, it's been about 'put us in charge or we'll continue to behave like limp lettuce.' (Except in occasional wave/waive making bursts at Labour's conference)

So we're having to dunk the doughnuts in fudge. Not really that appealing?

I decided it was about time to take a look at what an investor organisation might be saying. I randomly picked Barclays. A bank, international, but with a high UK footprint.

As Theresa May might say later today ;-) “You will access service industries and a financial centre in London that are the envy of the world, the best universities, strong institutions, a sound approach to public finance and a consistent and dependable approach to high standards but intelligent regulation.”

But what do Barclays (as a proxy for investors) think? Firstly, they see British trade outside the EU trade falling ever since the 1950s.

Their own analysis of the ONS figures shows UK trade with EU representing 49% of all UK trade.

Another aspect of the current situation is that most of May's trade discussions seem to focus on goods rather than services. By the way, did anyone else spot the Barclays error on the above published chart?

Whilst clearly very important, the UK services economy is also huge but missing from much of May's recent commentary. Barclays make some observations on the trade agreement situation:

Notice that it reckons 78% of total value added comes from services, which also produce a trade surplus. This doesn't bode well if the Brexit work has focused on goods well above and beyond services.

May and Co know all of this and we are now being fed selective information about what could be agreed. Even the high points of it are quite low.

But what does Barclays think? They have a whole video for this, which I'm almost tempted to embed.

It mainly lists some scenarios around different forms of Brexit:

1. Leave EU but stay in EEA. Similar trading to now except UK can't influence anything from EU.
2. Leave EU and EEA but stay in Customs Union. Worse than (1) with less agreements and even less influence
3. Leave Eu and revert to World Trade Organisation agreements. Worse than (1)&(2). Lose all EU agreements and all EU agreements with rest of world. Need to build a new set.
4. No Deal crash out of EU. Worse than (1)&(2)&(3). No structures and no legal frameworks. Currency impacting.

The next two are really roll-forwards of (4) and illustrate a couple of recovery scenarios:

5. Like (4) but additional need to rapidly sign comprehensive free trade agreements with everyone. Would take years.
6. Like (5) but even later, a resumption of a new equilibrium. Worryingly, the diagrams for this don't show it any better than staying with the EU.

Barclays isn't showing much optimism, although it can see the business opportunities to support 'hope' through advising businesses across whatever choppy waters might occur.

I reworked one of the Barclays charts. First, there's a corrected version.

That chart is fundamentally the same as Barclay's one. Then I took away some EU trade based on the lack of agreements and the UK needing to pay more to operate its agreements. I used a mid-point figure of 13% impact on just the EU trading. It does move the numbers around, but I've left the non-EU trade at its current level.

Surprisingly, the end effect isn't quite as much as I expected, although the resultant doughnut is smaller than the original one. When I look at the effect in money it becomes more interesting. £56 billion per annum. Put another way, that's around a quarter of the welfare budget, or a third of the health budget, or almost half of the pensions or education budget. Slam dnkd?