#Article50 and the end of the beginning

Theresa better off

Theresa May is finally ready to cross her Rubicon by notifying the EU of Britain’s intention to leave the Union, using the famous Article 50 process. Brexit minister David Davis told us last week that the possibility of a no-deal Brexit is not as frightening as some people think. Think about it this way, currently one can go online and order a fancy desk lamp from a French company and pay the price plus postage. If the lamp was coming from the USA however, customs duties will need to be paid by the customer (5.7%) once the goods have arrived in the UK but before they are delivered. She will also be charged import VAT at 20% and there will be a £8 handling fee to pay. The consequence is that buyers may well seek a domestically manufactured lamp instead. Wouldn’t this be a great thing for local manufacturers? It might, but it is likely that the domestic lamp manufacturer would incur similar charges when importing components to make their lamps. Further, they will find it more expensive to sell their lamps in Europe. Selling on WTO rules necessitates having appropriate licences and making export declarations to customs and following transport procedures. Increased demand from local customers will be probably offset by increasing costs of manufacture and a loss of market share in Europe. Mr Davis may not scare as easy as the consumers and businesses who will suffer the consequences. Brexit is happening regardless.

To summarise, we can say the following: Theresa May has selected two avenues for achieving Brexit. One is a so-called hard-Brexit (exit from the Single Market and the Customs Union) while the other is a presumed ‘no-deal’ Brexit (trade with Europe thereafter will be governed by WTO rules). Both options raise a series of significant dangers for the British economy, and crucially present a formidable challenge to the Treasury. The City has indicated that continuing business in London will require significant tax cuts as compensation for the loss of ‘passporting rights’ in the case of a hard-Brexit. Alternatively, a ‘no-deal’ fall back on WTO rules will cause significant upheaval to manufacturers, necessitating state aid to a number of industries. How will the Treasury fund either (or both) remains a burning question.

Good luck to all of us.

Art50

@iGlinavos

 

 

 

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