ALEX BRUMMER: How to benefit from Brexit

The uncomfortable reality for those of us who support Brexit is that Tory governments’ response to the odds has been patchy and sclerotic.

There are good excuses for the delays and zigzags. No one could have foreseen the dual crisis of the pandemic and the Russian war against Ukraine and its impact on energy markets. But much has been self-inflicted with Tory schisms over Partygate, leadership battles and the disastrous Liz Truss interlude that exposed the UK’s foibles.

All this has caused a story of despondency to emerge. Enemies of Brexit are seizing the Office for Budget Responsibility projection of a potential four percent loss in national output as if it were the holy grail. It is rarely acknowledged that it is a prediction and that the OBR is not infallible.

That hasn’t stopped critics, like the New York Times, from headlined that ‘Brexit Begins to Generate Bregret’. The Bregret is not Brexit, but a failure to seize the moment. One of the main benefits of Brexit was to break away from the financial regulations of Brussels and create opportunities to support the UK’s historic role as a financial centre.

The slow passage of the Financial Services and Markets Bill has been a disservice to prosperity. While the UK has hesitated, Brussels is preparing to challenge the city’s leadership in derivatives trading to capture a slice of a £97 trillion market. Instead of using London clearing, it wants European traders to use facilities based in Europe. Meanwhile, critics of Brexit are trumpeting the idea that the value of the Paris Stock Exchange is higher than that of the London Stock Exchange.

Perhaps, but the methodology is challenged, takes little account of global stocks listed in London, and there is little discussion of the LSE’s emergence as a world-class data and trading power.

The best way to face the challenges of Brexit is to get the job done. Rishi Sunak’s desire to settle the Northern Ireland protocol could usher in an era of more cooperation for UK-EU relations. Among other things, it could free up access to the EU’s £81bn Horizon funds for science projects.

Financially, the agreement between the Bank and HM Treasury on Solvency II, a last minute addition to Jeremy Hunt’s budget, could be a game changer if embraced properly.

Up to £100bn of capital needs to be released from the insurance sector over the next few years. Aviva alone should have £25bn to invest in infrastructure, life sciences and other growth sectors.

There will clearly be a need for projects with reliable cash flows, to which long-term commitments can be linked.

There is no shortage of such future investments – from renewable energy sources to new nuclear, rail and road construction projects.

University infrastructure ranging from student housing to the construction phase of research centers could also be detached.

Renewing Britain and revitalizing the financial sector will require political willpower and the Bank and HM Treasury to work together. The city has quickly embraced new transactions such as renminbi, green bonds and fintech transactions. JP Morgan has chosen Britain as the starting point for a digitally-enabled retail bank Chase. Freeing the UK from heavy EU regulation presents a great opportunity.

Running over the fences is never a good idea, as we saw with Truss’ growth agenda. But boldness need not be sacrificed on the altar of prudence.