ALEX BRUMMER: How can you benefit from Brexit

How to profit from Brexit: Bold ambition doesn’t have to be sacrificed on the altar of caution, says ALEX BRUMMER

  • Response of conservative administrations to fragmented and sclerotic opportunities
  • Brexit haters seize the potential loss of 4% of GDP as if it were the holy grail
  • The slow approval of the Markets and Financial Services Law harms prosperity
  • While the UK has wavered, Brussels is preparing to challenge the city’s leadership.

The uncomfortable reality for those of us who support Brexit is that the response of Conservative administrations to opportunities has been piecemeal and sclerotic.

There are good excuses for delays and zig-zags. No one could have anticipated the twin crises of the pandemic and Russia’s war on Ukraine and their impact on energy markets. But much has been self-inflicted with Tory schisms over Partygate, leadership battles and the disastrous Liz Truss interlude that exposed Britain’s weaknesses.

All of this has allowed a narrative of discouragement to take root. Brexit haters seize the Office for Budget Responsibility projection of a potential loss of four per cent of national output as if it were the holy grail. It is rarely recognized that it is a forecast and that the OBR is not infallible.

Forward thinking: The best way to counter the challenges of Brexit is to complete the job

That doesn’t stop critics, like the New York Times, from headlining that ‘Brexit begins to breed Bregret’. The Bregret is not Brexit but a failure to seize the moment. One of the key benefits of Brexit was to escape financial regulation from Brussels and create an opportunity to support the UK’s historic role as a financial centre.

The slow approval of the Financial Services and Markets Law has been a detriment to prosperity. As the UK has wavered, Brussels is preparing to challenge the city’s leadership in derivatives trading for a piece of a £97tn market. Instead of using London clearing, he wants European traders to use European-based facilities. Meanwhile, Brexit critics tout the idea that the Paris Stock Exchange is worth more than the London Stock Exchange.

Perhaps, but the methodology has been questioned, takes little account of London-listed global stocks and there is little discussion of the emergence of the LSE as a world-class data and trading powerhouse.

The best way to counter the challenges of Brexit is to get the job done. Rishi Sunak’s desire to order the Northern Ireland protocol could usher in a more cooperative era for relations between the United Kingdom and the European Union. Among other things, it could free up access to £81bn of the EU’s Horizon funds for scientific projects.

On the financial front, the deal between Her Majesty’s Bank and Treasury on Solvency II, a last minute addition to Jeremy Hunt’s budget, if properly accepted, could be a game changer.

There is up to £100bn of capital to be released from the insurance industry in the coming years. Aviva alone should have £25bn to invest in infrastructure, life sciences and other growth sectors.

Clearly, projects with reliable cash flows will be required, which can be matched by long-term liabilities.

There is no shortage of such forward-looking investments, from renewable energy to new nuclear, rail and highway schemes.

University infrastructure ranging from student housing to the construction phase of research centers could also be freed up.

The renewal of Britain and the galvanization of the financial sector will require political will and the joint work of Her Majesty’s Bank and Treasury. The city has been quick to embrace new trades such as renminbi trading, green bonds and financial technology. JP Morgan has chosen Britain as the launch pad for a digitally enabled Chase retail bank. Freeing the UK from onerous EU regulation provides a great opportunity.

Running the fences is never a good idea, as we saw with the Truss growth schedule. But the boldness of ambition does not have to be sacrificed on the altar of caution.

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