EU (Withdrawal Bill) passed
Parliament debated Brexit on 11th June and the government won the vote by 319 to 303 after assurances were accepted by would-be rebels that MPs would have a meaningful say on the Brexit deal later in the autumn. Peers accepted the amendment to the EU (Withdrawal) Bill sent to them from the House of Commons and the bill is now receiving Royal Assent. Phillip Lee, the former justice minister and a personal friend to the PM, was a casualty of the vote, but Theresa May declared it a “crucial step” in delivering a “smooth” Brexit. She also indicated that the government will be publishing a white paper over the next few weeks covering Britain’s proposed future relationship with the EU, and that the trade and customs bills will be brought back to the House of Commons.
The vote was a crucial step, but not the only one on the tricky trajectory of Brexit negotiation, with European Commission President Jean-Claude Juncker declaring there is much still to achieve. In fact, the draft customs union white paper has already been heavily leaked and reached European shores, with an EU official exclaiming: “We have read the white paper and we read ‘cake’!” – cake now having entered the Brexit lexicon to indicate anything fanciful and unrealistic. Let’s see what ministers make of the new proposals being discussed at another crucial cabinet summit this Friday.
The European Banking Authority has also rattled the cage of both TheCityUK and the Corporation of London by suggesting banks aren’t ready for Brexit. In fact, there have been lengthy discussions between firms and regulators, including the Bank of England, over contingency arrangements.
Meanwhile, as if anyone needed reminding, big business is watching closely. Airbus warned that it might pull out of the UK, endangering some 14,000 jobs and over £1bn in tax revenues, by moving new operations to China, North America or elsewhere in Europe, if Britain doesn’t get a Brexit deal by 29 March 2019.
The focus now is on the summer negotiations and securing crucial Parliamentary ratification via a vote in the Autumn. Jeremy Corbyn, Labour’s leader, has said that if no credible Brexit deal is on the table, he will push for an immediate general election. Liam Fox, secretary of state for international trade, has indicated that nothing has really changed and the “option of a no-deal Brexit has been left firmly on the table”. In fact, he feels it is important that the government is “able to hold out in our negotiations the prospect of a no deal otherwise the EU will get the upper hand.”
Heathrow third runway gets go-ahead
After years of debate and polemic, Parliament endorsed the third runway on 24 June by a majority of 295 votes. Of course, the green lobby are horrified, with Greenpeace immediately declaring it is ready to join London Councils and the London Mayor, Sadiq Kahn, in mounting a legal challenge to the decision. But it wasn’t without its casualties. Greg Hands, the trade minister (1 of the 8 government ministers who voted against the proposal), has resigned in protest, while Foreign Secretary Boris Johnson, a long-time opponent and whose constituents – directly in the flightpath – stand to suffer from the decision, was conveniently abroad in Afghanistan and of course ignored calls for his resignation.
What is the deal worth? And how much will it cost? A third runway will allow the number of takeoffs and landings to increase from 480,000 to 740,000 each year. The airport says it can be ready by 2026. The Department for Transport says the expansion will bring more jobs and greater economic growth along with more flights, providing benefits of up to £74bn to passengers and the wider economy. It is also claimed the plan will create tens of thousands of local jobs and deliver better connections to the rest of world, with an extra 16 million long-haul seats available by 2040.
Heathrow says the project can be delivered for £14bn – an optimistic assessment in the eyes of many, particularly given only £1 billion earmarked for road links. It will be financed in the immediate term through debt and investment by Heathrow’s shareholders. Heathrow is already £13.7bn in debt and critics say that paying, as proposed, huge dividends to shareholders (£525 million last year alone) will stretch Heathrow’s balance sheet to breaking point.
Well, maybe new infrastructure is what the economy needs. Growth was only 0.2% for the first quarter of 2018 and inflationary pressures are building, with the Consumer Price Index (CPI) increasing by 0.1 points to 2.3% in May.
The Hometrack UK Cities House Price Index published at the end of June shows City HPI of +4.6% and London HPI +0.4% yoy, the lowest rate for nine years. Sir Oliver Letwin, who is carrying out a major review for Theresa May on housing, says infrastructure must be organised like wartime aircraft production to solve the housing crisis. Theresa May has recently been criticised for ducking radical measures to increase building which is necessary if she is to honour her pledge to build 300,000 new homes a year. Look out for housing statistics this month (Halifax 7th, 11th, UK Finance 12th, Rightmove 16th, Hometrack 24th, Nationwide 31st).
Plus, there’s more funding for the NHS, although in a recent report the Head of the National Audit Office, Amyas Morse, says that the government’s £135bn funding package (over £20bn on this year’s budget) announced to coincide with the NHS’ 70th birthday, is not enough to meet changing health needs.
Public scrutiny finds banks and accountants come up short
A Big Four accountancy firm has been singled out by its regulator in a critical report into the quality of auditing in Britain. KPMG, the auditor of Carillion, the construction services company that collapsed in January, was censured for “unacceptable deterioration” in its audit work. The Financial Reporting Council (FRC) has now introduced special measures to put the company under increased scrutiny.
Separately, Lloyds Bank and KPMG have come under renewed pressure following a damning internal report into an historic fraud case at HBOS’ Reading branch. A former employee has alleged criminal misconduct against several senior bank staff and auditors around the handling of the incident. It is alleged that top executives at HBOS understated the extent of liabilities caused by the fraud to regulators and to shareholders ahead of the takeover of the stricken bank by Lloyds in early 2009. It also alleges serious misconduct by auditors KPMG.
This is serious. Had the size of the fraud provisions been properly disclosed, a 2008 rights issue by HBOS and the subsequent emergency takeover by Lloyds TSB at the height of the financial crisis might not have been possible. The Treasury Select Committee says it is likely to consider the report in its investigation, once several separate probes into the scandal are finished.
The Bank of England is also planning new rules for the minimum service levels that financial service providers must offer, even during IT outages. It follows two high-profile IT failures at TSB and VISA.