Roger Whittaker: a well-known singer and songwriter of the 1960’s and 70’s penned a song called “I don’t believe in if anymore”. I have taken the title and misinterpreted it somewhat to capture my feelings and thoughts about the recent decision of the UK population to vote to leave the European Union.
Since the referendum results came out in late-June, the media has been more than pre-occupied with the views of all sorts of experts, gurus, commentators and so on, about its impact on the future of the UK. The usual suspects: politicians, economists, business consultants and prophets have been to the fore in this regard.
What about the impact of Brexit on the retail sector? I will try to capture some views in the following paragraphs, albeit with a sardonic and cynical perspective; grounded in decades of experience of listening to such “experts” on various subject matter.
Much of the commentary since the referendum has been based around the word “if”. If certain things happen e.g. a severe decline in the value of sterling, continuing uncertainty and the challenges of “doing a deal” with the EU, then certain things may (or may not) happen. The usual jargon and clichés are used by such writers and commentators. The simple answer is that we don’t know what might happen. Much of the contributions reflect biases and prejudices that are not necessarily objective and indeed in many cases are doing damage to the well-being of the economy.
The facts are as follows. Politicians, business-people and consumers, for the most part, dislike any change to the way in which they do business and operate in their every-day lives and transactions. For most of us, the natural reaction is to reject or turn our backs against transformative processes or decisions. This is evidenced in the commentary that appears almost daily in the general and social media.
Irrespective of the “rights or wrongs” arising from the decision to leave the EU (and it is not my intention to declare any personal views here), it is TOO EARLY to make any definitive statement about where the retail sector will be in the sort, medium or long-term. This should be the default position at the beginning of any discussion on the impact of Brexit.
In February 2016, the Centre for Retail Research presented a reasonably objective view of the likely impact of Brexit. (www.http://retailresearch.org/brexit.php). It is worth reading to gain a reasonably clear insight into the ley issues that may or may not play a significant impact on the retail sector.
I highlight a few observations in the next couple of paragraphs.
The issue of tariffs comes to the fore in much of the discussion. Clearly when the UK leaves the EU it is likely to have to deal with various tariffs imposed by countries in the context of international trade. However in the forty to fifty years since the advent of the EU, international tariffs in general have fallen to as low as 5 to 6 per cent in nearly all cases. In this period, we have seen a move to market liberalisation and a greater emphasis on creating a positive climate for foreign trade globally. Previously closed economies such as India and China have opened up considerably in the last ten to fifteen years. In this context, tariffs, while still around, possibly are less likely to present such insurmountable barriers as was the case in the past.
Free movement of labour is a key issue in any negotiation with the EU. It is one of the essential pillars behind the rationale for a European Union. All we can say at this stage is that much will depend on the tenor of the negotiations that will take place over the next couple of years. It is likely to be used as a key bargaining chip by the UK government negotiators. For key markets such as the automotive industry, German car manufacturers are likely to press for a favourable negotiation to allow them to have continued access to the lucrative UK market. Again, we don’t know what may happen here.
Early indications suggest that it will be impossible to prevent free movement of labour. This was acknowledged by many of the “leave” advocates shortly after the results of the referendum. People can still come in and out of the UK, albeit without the necessary benefits such as permanent residency rights that currently exist for EU people. It is also likely that deals will be struck with various countries. Again it is too difficult to make any predictions.
The decline of sterling has already happened in light of the referendum result. This is totally unsurprising. The stock markets hate uncertainty and react accordingly. Over the first two weeks since the vote took place, the value of sterling has declined by about 10 per cent in relation to the dollar. It may go further and will certainly fluctuate at key points in the negotiation process in the next couple of years.
The Centre for Retail Research notes that sterling has probably been over-valued in the past couple of years anyway and that any readjustment downwards leading to a lower exchange rate may not necessarily be a bad thing.
If the pound continues to devalue it can be argued that it will make the UK an attractive place for visitors to shop and boost the retail sector over the longer-term. Again we don’t really know the extent of the lowering in value of the pound and too much speculation is dangerous.
In terms of legal protection for retail workers, it is unlikely that we shall witness major changes. Retailers are probably going to stick with the established legislation that is already in place. In terms of EU directives and standards, again it is unlikely that retailers will deviate substantially from existing legislation – particularly if they wish to continue to do business with established customers in EU-base locations.
With regard to the VAT tax, it is likely to remain in any post-EU situation. It is a critical source of revenue of the UK government. While it will no longer be tied to any attempts by the EU to harmonise such as tax, it is likely that it will not deviate significantly from other European countries. If pressed, I might argue that it may go up slightly on certain product categories because the general UK VAT rates are among the lowest within the EU community.
Enough of this speculation!!! I am beginning to create “what if” situations and doing precisely what I claimed at the beginning that I would not do!!
In summary it is dangerous and stupid to engage in too much speculation. Much will depend on the nature and tenor of the negotiations that will take place in the coming months and possibly years. There will certainly be “give and take” and “horse-trading”. Both sides (UK government and the EU) have strengths and weaknesses. Retailers will adjust and adapt to situations that emerge. We will still survive. Let’s kick that word “if” to touch!