This is going to be a nasty divorce. It’s going to leave the UK dangling on a cliff edge. It’s like jumping out of a plane with a parachute designed by the other people in the plane (who hate you). It’s momentous (in a bad way). It’s going to take ten years — at least. It’s going to break up the UK. It’s going to cost £60bn. It represents the UK’s full rejection of “our shared destiny”. It’s “historic”.
Everyone else is pretty clear on what Brexit means. I’m only clear on bits of it. So let me tell you one thing I am 100% certain of, one thing that I am pretty sure of and a bit of advice to go with both of them.
First, the grandstanding and posturing will continue relentlessly from here on. Divorce, destiny, calamitous, catastrophic, tragic, ruinous, wretched. All of these trying words will feature. The advice to go with that is simple: watch less telly or invent your own version of Brexit bingo. That’s the best I can do there.
Second, the actual Brexit process will be none of the things these words suggest. It will actually be nitty gritty, pernickety and, all in, insanely boring.
The starting gun represented by Theresa May’s very polite letter has not unleashed a group of warring furies prepared to fight to the death over the geographical limits to child benefit payments. It has given the nod to thousands of civil servants across the EU to make an awful lot of spreadsheets, write many hundreds of briefing papers and to reach a compromise plan that leaves as much as possible as it is now, just inside a different legal framework. Think bureaucracy at its best and worst — getting things done, and making a meal of getting things done.
The odds are that most of us will barely notice this happening. In two years or so — maybe less, maybe more — we will find we have freedom from, but no rights to, welfare of any kind within EU countries until five years of residency have passed. EU citizens will have the same in the UK. We will have more or less free trade in a Canadian-style way. London will remain the financial centre of the universe, everywhere else having been found wanting in terms of depth and breadth. Most of the regulation we have now will remain.
The great repeal bill is the most misnamed bill ever: it repeals nothing, it just enshrines all EU law and regulation into UK law — and everyone knows how bad we are at repealing laws. It just never happens. As an aside, I see that one of the clauses in the bill says that “there is no figure for how much EU law already forms part of UK law”. How’s that for the argument to leave in a nutshell?
Finally, we will be paying. Not as much as we pay now — but something. This is the most likely scenario for the simple reason that negotiation usually ends in a compromise (in this case between Mrs May and Parliament, the EU’s leaders and its electorates and finally those leaders and ours) and this one will work for most people. The money helps too. The EU needs an exit payment to get through the first few years without us. Cutting their budget by our net contribution is going to involve serious austerity. When you can’t turn a corner without bumping into a vested interest, that isn’t easy or quick, as we know in the UK.
If we don’t stump up a couple of years’ worth of contributions to finance the EU’s transition period (the suggested £60bn is more like five years) Germany, the Netherlands and France will have to. I imagine their politicians will give quite a lot not to have to explain that to their electorates.
It is amazing how money can smooth all sorts of troubled waters. The key point is that two years hence we will still have a “deep and special” relationship with the EU — just one that isn’t quite as deep and special as it is now. It might not be quite the Brexit many of us wanted, but it will be the one I expected. Which is fine.
Right. On to what you should do about all this. The answer was neatly delivered by Bob Hair of Cazenove Capital Management at a conference this week. We asked: what should your financial planning look like post-Article 50? “Exactly like it did before Article 50,” he said. He’s right.
It will, for example, remain the case that using your Isa allowance, getting the mechanics of your pension right and fully understanding the impact of tax changes on your buy-to-lets will have much more of an impact on your personal finances than spending hours agonising over the sterling exchange rate before your French villa holiday in 2018.
But there’s a bigger point here as well. The fact that the UK is changing its trade arrangements with the EU doesn’t mean that any of the real threats to our finances have wandered off. They haven’t. At the same event, Russell Napier of Eric, an online research platform, reminded us that public sector debt remains at near-historic highs (in peace time!) and that for the first time this public sector debt comes with a private sector bubble to boot.
Credit card debt is rising at its fastest rate in a decade – 9.3% in the year to February. Unsecured debt as a whole is rising at more than 10% and some 6,300 new cars are bought on credit in the UK every day. Numbers just out show that the UK household saving ratio has hit a record low of 3.3%. Add it all up and the total level of debt in the West relative to GDP is higher than it has ever been.
This is the root of all our problems: of overvalued stockmarkets, of ultra-low interest rates, of pension fund deficits, of the death of political opposition (what’s the point of the left when there is no money to give away?) and of the coming wave of inflation (this kind of debt can only be dealt with inflation).
You want to worry about something? Worry about this. It is way bigger than Brexit. And if you want to do more than worry, diversify into a good multi-asset fund. Swap expensive markets for value markets. Keep some cash. And hold gold. That should do it.
- This article was first published in the Financial Times