Brexit is done, and yet loose ends litter the negotiating room floor, now abandoned by both sides to satisfy Boris Johnson’s need for a 1 January deadline.
In the coming months, No 10 and the Treasury will convene a team whose first job will be to examine how the financial services industry can mend one of these holes – the major obstacle to trade with the EU that results from having no arrangements in place to cover the broader services sector.
Services account for around 80% of the UK’s economic activity and about 50% of its exports by value to the EU. While Britain runs a large deficit on the export of goods to the EU, there is always a modest surplus in services – much of it accounted for by the success of London’s City financiers – to close the gap.
There may be little sympathy for bankers and insurers complaining about being left to fend for themselves. But the sheer scale of the foreign earnings that the sector brings back to the UK, which also closes the yawning balance of payments deficit Britain runs with the rest of the world, is crucial, at least in the short term.
The chancellor said he hoped a planned memorandum of understanding (MoU) on the issue would reassure the EU and persuade Brussels to give the City of London the access it craves. A promise made by the British chancellor of the exchequer that the UK will “remain in close dialogue with our European partners when it comes to things like equivalence decisions” is supposed to do the trick.
We will all find out over the coming months whether Rishi Sunak’s name commands respect in Brussels to the extent that the commission accepts an MoU in exchange for full-ish access. After all, Brussels has already agreed to roll over current arrangements for clearing euro-denominated derivatives – a business dominated by London clearing houses – for fear that this business would disappear to New York.
But as the City lobby group TheCityUK has argued, that agreement replicates just one out of almost 50 treaties that would need to be negotiated within the framework set by an MoU.
And as if this mountain were not already high enough, EU negotiators are still angry at the betrayals and tactical shifting by the prime minister over the last 18 months, and wary about any such handshake agreement with his right-hand man.
This wariness is also likely to extend to London’s plan for other services to gain access to the single market. It’s true that solicitors have secured an agreement to have their qualifications recognised across the EU, but there is little likelihood that other services will be granted entry to the single market without huge sacrifices from the UK government.
Maybe Johnson considers further compromise acceptable now that he has herded his backbenchers through the aye lobby in favour of his deal. More likely he will urge services firms to look beyond Europe to grab profitable contracts in Asia, the Middle East and the US.
The same principle could be applied to banks and insurers. It won’t be, though. For Sunak, that would be too much of a risk.
And yet, if a deal proves possible for financial services, then the opportunity should be taken to seek better access for other sectors. The UK is over-dependent on the profits from finance and a shift is long overdue.
Brexit might have provided an opportunity to rebalance. Not to deny the City profit, at least not in the short term, but to expand access for other world-beating services industries. Sadly, this chance looks like being squandered.
As Boeing moves past its Max woes, a graver aviation crisis looms
Airline passengers do not appear to have long memories: they eagerly return to the skies even after the highest-profile disasters, such as the 9/11 hijackings in 2001. That bodes well for Boeing, which has finally brought its 737 Max plane back into service after two fatal crashes killed 346 people and caused its global grounding.
Last Tuesday, paying customers in the US took off in a 737 Max for the first time since March 2019, marking the end of a crisis period for Boeing. However, the crashes and subsequent investigations, notably by the US Congress, lifted the lid on a corporate culture where safety did not appear to be the top priority. It must be hoped Boeing has repaired that too, as it and the entire aviation industry prepare for arguably their biggest challenge in the coming decades: finding a way to be part of a net-zero economy.
Flying causes enormous environmental harm. Eradicating carbon dioxide emissions from planes is one key climate challenge that has yet to be truly confronted, as authorities such as the UK’s Committee on Climate Change have noted. The technology to do so simply does not exist yet.
Aerospace manufacturers will face a delicate task in managing the expectations of governments and the public, who will wonder why they cannot follow the example of carmakers and embrace electrification.
The comparison with carmakers is instructive: Volkswagen, the world’s largest by volume, was rapidly brought to its knees by a failure to tackle pollution – and systematic attempts to cover it up. All companies – even Boeing, a pillar of the military-industrial establishment – need to constantly renew their social licence to operate by seeking to minimise harm to customers or the environment. The 737 Max crisis showed what happens if a business loses sight of that duty.
In a sad year for shops, the quirky and local may come up smiling
It has been a grim year for retail, with 177,000 people estimated to have lost their jobs and thousands of shops permanently closing their doors.
The new year is set to begin in the same vein, with the future of distressed chains Debenhams, Topshop and Peacocks likely to be decided. Thousands more jobs are expected to go, as rescue deals are unlikely to include the full high street estates of these ageing behemoths.
After months of enforced closures, further retail casualties are also expected to emerge, with clothing specialists and those reliant on city centres among the most vulnerable.
However, some major businesses will increase their dominance in this difficult environment. Next has already taken advantage of its position as a well-resourced multichannel player to adapt and update itself. Its distribution deal with US lingerie brand Victoria’s Secret, and its shift into beauty halls on former Debenhams sites, is set to be followed by other acquisitions – possibly including Topshop.
Mike Ashley’s Frasers Group, meanwhile, may take on at least some Debenhams stores. While the Sports Direct owner should never be underestimated, the group may suffer some indigestion as it tries to knock ailing House of Fraser together with battered Debenhams.
The downsizing of those department stores may ultimately help the likes of John Lewis and Marks & Spencer, but they will face difficult months battling against heavy discounting from these troubled rivals.
But it’s not all doom for physical retail. A surprise winner from the pandemic is the local high street. And that benefit may well continue as people carry on spending at least part of their working week at home, where they have grown to appreciate independent operators with a local flavour.
Cheaper rents and empty sites could also provide the opportunity for new ideas to bubble up. Once the virus subsides, there will be many desperate to visit after months stuck in their homes.