Brexit ride ahead

“For business and financial markets, the prospect of a Labour election is already causing apprehension”

go back to the people, whether through a general election or a public vote”

looks capable of breaking the gridlock. But with this, the political weather is set to become much more turbulent. It portends a raucous and vituperative battle, one that could result in the triumph of a CorbynMcdonnell government – helped into office by a contentious deal with the SNP and other parties such as the Greens and the Lib Dems to block a “no deal” outcome.

For the Conservative Party’s new leader and prime minister, it is an escape route fraught with grave danger. And the markets don’t like the prospect one bit. Already the pound has lost almost 4 per cent over the past three weeks and suffered 14-day losing streak against the euro – the longest on record.

All this would also test the forbearance of voters to breaking point. But the real damage will be inflicted – once again – on hundreds of thousands of UK businesses where Brexit uncertainty has already brought a slump in investment and expansion. We are coming up to the third anniversary of the EU referendum and exactly how – or if – the UK will leave the EU is as uncertain as ever.

For this Brexit Explained supplement, we look back over recent events, the fallout from the EU elections, the imminent departure of Theresa May, and ahead to what could happen next in the run-up to 31 October.

As ever please get in touch at newsdeskts@scotsman.com with your comments or to let us know what issues you would like to see covered in future supplements.

You can keep up to date with all the latest news as it happens at www.scotsman.com/news/politics/brexit Countless deals have been put on ice and the patience of many is now at breaking point.

Whatever the claims of “catastrophic no-deal” outcome – a description seldom accorded clear definition – it can barely be worse than the investment paralysis that would intensify in an election contest where a radical Left coalition emerged as victor. Both sterling and stock and bond markets would take a hit as investors moved to dump UK assets.

For the moment, the economy has remained markedly more resilient than many feared. GDP rose by 0.5 per cent in the first quarter, though probably distorted upwards by preparatory stock-building ahead of what was to have been Brexit Day (29 March). Underlying growth continues, though at a subdued pace. For the year as a whole, the Office for Budget Responsibility is forecasting growth of 1.2 per cent.

It can hardly be argued that continental Europe is faring better. The European Commission revised down its growth expectations marginally for the eurozone in its May forecasts: to 1.2 per cent for 2019 (from 1.9 per cent in November 2018), and has downgraded Germany more significantly. GDP here is now expected to rise by just 0.5 per cent this year, compared with a February forecast of 1.1 per cent. Italy is expected to grow by just

0.1 per cent.

Here in Scotland, the unemployment rate has hit a record low for the fifth consecutive month. Scotland’s employment rate is 75.4 per cent and the unemployment rate sits at 3.2 per cent, a new record low and lower than the UK rate of 3.8 per cent. There are tens of thousands of job vacancies and the housing market has remained resilient.

Pressure will now grow for a change in the UK chancellorship as a “no deal” minded PM is unlikely to stick with Remain-supporting Philip Hammond. There is thus no clarity on what new economic and fiscal policy will emerge.

For business and financial markets, the prospect of a Labour election is already causing apprehension. It is the party’s stated policy to reinstate the additional 50 per cent additional rate for top earners and to introduce a 45 per cent rate at £80,000. Pension tax relief for higher rate taxpayers looks unlikely to survive, and recent cuts in Capital Gains Tax likely to be reversed. Potential additions include a financial transactions tax to raise up to £5 billion a year and a wealth tax on assets to fund social care.

Tax policy on savings and wealth are not devolved, though tax rates on higher earners here are already above those for the UK.

As for nationalisation, the current Labour plan is to not to pay shareholders the market price as agreed by previous administrations but assign values that take into account pension fund deficits, asset stripping since privatisation, and state subsidies.

With such a prospect and a Brexit battle still to be resolved, strap yourself in for a very bumpy ride.