How much short-term damage was inflicted by the Brexit vote will be revealed this week when we get an official GDP figure covering July, August and September.
Back in the spring and early summer, Britain’s national income was expanding at a healthy annual rate of 2.5%. The latest figures could show that this figure has halved and most forecasters expect next year to be no better.
One of the supposed benefits of pulling out of the European Union – a low pound – has duly happened and sterling is around 18% lower against the dollar than it was before the referendum. This benefit is mostly reaped by exporters, who overnight find their goods cost less abroad and can therefore sell more of them.
In the short term, though, there is a cost that kicks in before the export benefits can be realised, and that is higher import prices. Already petrol costs more than it did in June. And the Marmite war between Tesco and Unilever revealed there are plenty of tweaks to prices in the pipeline. There is a range of forecasts for next year’s inflation rate of between 2% and 3%, up from 1% last month.
Higher inflation, stagnant wages and slowing growth usually goes under the name stagflation. It’s not a very friendly term and it’s not supposed to be. It was coined in the 1970s and was supposed to remain tied to that decade, never to be repeated.
It’s like going to work with a heavy cold with the added anxiety that it might turn out to be flu. Productivity stays low and output declines.
Unemployment, for so long the measure of Britain’s jobs miracle alongside record employment figures, has started to rise. Stagflation could turn the August increase in the jobless total of 24,000 into a six figure total, with all the pain that unemployment brings.
A 24,000 rise is the equivalent to a third of the workers in a town like Guildford, or half the number in Selby, North Yorkshire, being made redundant. More than 100,000 extra people on the dole is the same as putting Wolverhampton’s entire workforce out of a job.
This is an alarming thought, and not one a government has had to consider since 2011, when unemployment climbed to 2.86 million, or 8.4% of the workforce. It is now 1.66 million and the jobless rate is 4.9%.
The Brexit vote has certainly played its part in dampening the enthusiasm of businesses to invest. Other factors have played a part, though, and they could turn a year of grey skies, economically speaking, into one where it rains all the time.
The US economy is faltering after a year of sluggish manufacturing and construction output. Like Britain, the consumer has provided the main prop for GDP growth, but increasingly people are hanging on to their cash rather than spending it.
Investment decisions are being delayed while firms cope with the high value of the dollar, which is hampering export growth. Around 17% of British exports go to the US, which is why the UK receives a cold blast from across the Atlantic when American businesses catch a chill.
The US Federal Reserve appears ready to disregard the fall in American growth – from 4% in 2015 to 2% this year and possibly to zero in 2017 – and make a further increase in interest rates. It is waiting until the election is over before making its move, but the warning signs are there.
It has all the hallmarks of a disastrous decision that, for the sake of central bank dogma, will push the economy into recession.
Britain, despite the best efforts of its own central bank, has already suffered from a downturn in global trade. A crippled US economy can only make that situation worse, adding to the pall cast by the looming exit from the European Union.
Plague of bogus self-employment
Self-employment is the new outsourcing. At its most benign, the outsourcing of work to freelancers and contractors, facilitated by the internet, offers a chance to fit work around lifestyles and abandon the drudge of commuting. But for many of the 4.8 million self-employed people in the UK, the “gig economy” is little more than exploitation – and anyone who makes a fuss can wave goodbye to an already very uncertain income.
Latest UK labour market figures show that 48% of jobs created from June to August this year were in self-employed roles. How many of these were disguised employees, hired through agencies, or, as allegedly in the case of delivery company Hermes – although it denies this – full-time staff, but without the benefits and legal protection that brings?
HMRC has launched a specialist unit to investigate companies that opt out of giving workers employment protection by using agencies or calling staff self-employed. Labour MP Frank Field says Theresa May’s government is showing a real willingness to grapple with this problem.
But how rigorous will a clampdown be? In January, millions will submit personal tax returns. Those who miss the deadline will be fined. Much more seriously, individuals who lie on their return, concealing income or deliberately understating their position, can be fined up to 200% of the extra tax due, and get a potential criminal record. They could end up behind bars.
Companies found to be using bogus self-employment to save on national insurance, pensions and holiday pay should face the same aggressive intervention. On paper, HMRC has the power to pursue businesses for historic and current PAYE deductions and to impose hefty fines. But there appears to have been a reluctance to take on big companies. Until the fines are more meaningful – say 10 times the amount of tax avoided – the law more rigorously enforced, and directors potentially hit with a criminal record – the plague of bogus self-employment will continue.
Green is not the only man to blame
Not for the first time in 2016, Sir Philip Green has had a bad week. He started it by making a plea to save his knighthood by saying he was “very, very, very sorry” about the collapse of BHS, that he had made an “honest mistake” in selling the department store chain to Dominic Chappell and that he was still working on a deal to rescue the company’s beleaguered pension scheme.
However, MPs still voted to strip Green of his knighthood and he was labelled a “billionaire spiv”, among many other things, in a heated debate in the House of Commons.
Green deserves to be scrutinised for his stewardship of BHS, but the furore around the billionaire tycoon must not overshadow the other serious issues that have emerged from this scandal, such as the regulation of pension schemes, the role of advisers in mergers and acquisitions, and the behaviour of Chappell and his consortium Retail Acquisitions, which, at best, could be described as incompetent.
