By Philip Beattie
Hearing the nimble Brexit misgivings of the current Scottish Prime Minister, one couldn’t help but think of a famous Scotsman of the past.
The year 1776 is a long time ago might seem a long time ago, but the Scottish enlightenment threw up many a persuasive arguments for both National Identity and the seeds of growth and prosperity.
Once combined, these seeds were eventually sown into one of the most famous economic articles of the 18th Century, Adam Smith’s “ An Inquiry into the Nature and Causes of the Wealth of Nations.”
The question arises, what would Adam Smith have made of Britain’s brave new Brexit adventure, an escapade which has adopted the concept of the invisible hand and used its grasp to propel itself onto a gangway of open-eyed opportunism.
However, the invisible hand has gotten very expensive to wave since the financial meltdown of 2007. So expensive it has increased the UK Debt/ GDP ratio from 38 per cent to 84 per cent in the space of just eight years.
That’s correct, British national debt has doubled since the credit crunch.
Hold on to something sturdy when you look at the figure in plain sight.
What worries most of all is that the pattern of borrowing to fund growth has been accepted by the masses in the UK as normal. The proverbial goal post has been moved, the UK chancellor has looked around the playing field and realised that nobody noticed, or indeed if they have noticed, that they don’t care anymore and would prefer to play on.
Most importantly the chancellor has not put aside any budget cash for Brexit. In the latest budget, no provision was made for the process. Instead of focusing on the Brexit Challenge facing it, the exchequer has belly-dived into a £860m scheme to combat tax defaulters, hardly a glowing indictment of the exchequer’s confidence in maturing SME’s in the domestic market.
So what demographic of the UK tax payer is going to be hit hardest by the implementation of Brexit? One of the fundamental markers laid down in Smith’s dissertation was that the only way to get rich was to make sure that you manage matters to exceed income over expenditure. Financing the entire state using the next decade as collateral takes some neck, particularly without a plan.
Brexit’s answer is only four letters long. Debt.
Replacing old school economics of trade and enterprise, the monetarist economics of the 1920’s has long since taken over the favour of bankers and politicians globally.
Sure, why not, it is a much fairer scheme, where the taxpayer will pay witlessly for the mistakes of their elected representatives as opposed to passing the bill to the banks’ shareholders. Put simply if the exchequer does not plan for the cost of Brexit, politically it will not matter.
It is the creation of any such financial plan which will disturb the already precarious balancing act in which the current cabinet is involved. By having a budget or plan in place a, very public benchmark is created, by which they must abide when discussing international trade deals within the G8 and G20. The transparency of the EU may be forced to play second fiddle to the exuberance of the British Brexit task force, particularly when it comes to landing trade deals.
In contrast to the 18th century, when the invisible hand nurtured the natural balance of trade and enterprise, debt in the 21st century operates like a noose around the neck of global enterprise.
Instead of the population being able to access the benefits of government intervention into a free market, it finds is it collared into repaying old debts and financial compensation back to a system which is proving less efficient by the day.
In the recent budget the British Chancellor has promised to halve national borrowing annually until 2021. The cabinet has anticipated that national borrowing will be at £17.2bn by 2022. Given that the current annual level is circa £50bn this looks like a decidedly uphill task.
Ironically the chancellor has purchased a get out of jail free card on these assumptions. By having no public plan for the Brexit initiative, the Government has positioned itself to allow it justify future debt increases via the excuse of unknown Brexit implications. Any shortfall in the UK balance of payments can always be painted over with Brexit uncertainties.
Given the positive overtones from the City concerning the level of Quantitative Easing the Bank of England will carry out over the next five years, one cannot be overly enthusiastic about these compromises.
Even if the global economy improves dramatically there are justifiable fears that the consequences of Brexit for the UK may force the outstretched hand of the exchequer once again.