Confidence ebbs away

23 Jun 2017

Brexit Bear has been watching the deck chairs getting re-arranged on the deck of the Titanic

The Federation of Small Businesses has said small companies are reporting weakening confidence as rising prices and fears about the health of the domestic economy begin to bite. Some 52% of smaller employers see a slowdown in the UK economy as a barrier to growth. The FSB added that operating costs for SMEs are now at their highest level in four years. Of course, it depends on the question, because in the same week we were told that research by the AAT reveals more small business owners are positive (22%) than negative (18%) about the current impact of the Brexit vote on their business. Two in five (40%) SME owners said they were optimistic that Brexit would ultimately be a success, whereas 36% were pessimistic about its chances. Around a quarter (26%) believed Brexit would ultimately have a positive impact on their business, about the same number as those that felt it would have a negative impact (24%).

Chancellor Philip Hammond has quashed speculation that he would pressure Theresa May to abandon plans for a hard Brexit. Mr Hammond told the BBC’s Andrew Marr Show that the UK would be leaving both the single market and the customs union. The key question he said, is what is put in place to ensure British goods can continue to flow without tariffs and without delays and bureaucracy. Mr Hammond’s position will likely irritate business leaders who had hoped the Chancellor would press the need to maintain single market access, while his warning over a “cliff-edge” scenario will anger hardcore Eurosceptics who see a default to WTO rules as the only credible option. However, his comments do present a united government stance on Brexit, and Theresa May has been warned that a return to protectionist trade policies could cost the UK economy 3.7% of GDP by 2035. Analysts at Zurich said that embracing radical new free trade and globalisation arrangements would in contrast add another 3.6% to the UK economy in the coming 20 years. Meanwhile the Bank of International Settlements has also pushed the globalisation concept, declaring it has contributed to higher living standards worldwide and boosted income growth.

The UK's budget deficit in May stood at £6.7bn, down £300m compared with the same month last year, the Office of National Statistics said, helped by a recovery in value added tax receipts. For the financial year-to-date, borrowing stands at £16.1bn, the lowest since the comparable period in 2008. Total tax receipts were up 5.1% on the same months in the previous year, but the OBR says revenues need to rise 3.1% for the full year to give the Chancellor room for extra spending. It might be noted that if there is a slowing economy, a potential hefty exit payment to the EU, and an eventual gradual rise in borrowing costs this is a recipe that leaves little room for the government to satisfy public demands for an end to austerity. Against this, Theresa May has vowed to continue cutting corporation tax, despite Labour’s election vote-winning pledge to raise business taxes to better fund public services. Meanwhile, Paul Johnson of the IFS suggests that the effects of Labour’s proposed tax rises would not only be confined to business and the wealthy. He says that in the end, taxes on companies have to be paid by people through higher prices, lower wages or less valuable investments, including those held in the pensions of private sector workers. Somebody called Margaret Thatcher once observed that socialism breaks down when you run out of other people’s money.