No Fairytale - Just the untold tale

Brexit – why it may mean UK’s final fall into the abyss

The worst case scenario now looks a real possibility:-

• Falling pound continues – leading to massive increase in ‘inflation' (What's to stop it falling?)
• In 2015 The Financial sector paid an estimated amount of total taxes in the region of £66.5bn, or 11.0% of total UK Government tax receipts
• Hard Brexit likely – City loses out to France and Germany, significant losses to the treasury, well paid jobs, and export revenues
• Imports vs Exports, HM Government Stats: “deterioration in the current account balance in recent years, leading to a record deficit of 5.4% as a percentage of nominal GDP in 2015”
• This massive trade imbalance worsens, due to lost oil revenue, (worth currently £5 Billion, to Breakaway Scotland), significant revenue falls and tax losses due to the City losing its position.
• This means over £100 Billion extra loss every year
• Lack of manufacturing base precludes exports from helping the trade imbalance a great deal
• Total debt already more than £1.8 Trillion, will reach £1.9+ Trillion by 2020 plus £500Bn trade deficit plus potential £200Bn lost tax revenue from the City alone
• Therefore, the UK would need to fund a total of over £2.5 Trillion debt every year (significantly more than total GDP of £1.8 Trillion)
• Triple AAA status of UK before Brexit already downgraded to AA – Further cuts would cause a rise in the cost of UK borrowing to finance its debt  
• This causes a spiral towards unsustainability– once the debt finance interest reaches 5% then the UK spends more on debt than on the health service.
• Once interest rates hit 7% the debt finance is more than Health and Education together - effectively the UK is bust.
• This would lead to the pound plummeting, (like Russian Ruble in 1998 that reached a low of just 30% of its previous dollar value).
• And the UK defaults on the debt for the first time in our history.
• The government then has either to print money causing massive inflation like Germany’s hyper inflation before WW2 or everything closes – hospitals, schools, welfare, infrastructure projects, along with the police, defence, most government departments (as there is no money to pay anyone). Oh, and by the way Pensions go too.

 

Some Relevant Facts:

 GDP

Leaked Government papers suggest leaving the single market and switching to World Trade Organisation (WTO) rules would cause GDP to fall by up to 9.5% compared with if the country remained in the European Union

National Debt  £18.3 Trillion (March 2017)

http://www.nationaldebtclock.co.uk/

http://www.telegraph.co.uk/business/2016/02/19/how-large-is-the-uks-national-debt-and-why-does-it-matter/

Financial sector

By 2009, the sector accounted for 10% of UK GDP, the highest of all G7 economies.
Financial services are a key part of UK exports. Britain has the highest ratio of services exports to GDP in the G7, at 13%. It also has the biggest share of total G7 financial services exports by some way, at 29% in 2012.

The sector paid an estimated amount of total taxes in the region of £66.5bn, or 11.0% of total UK Government tax receipts (2014: 11.5%).

This includes both taxes borne of £26.2bn and taxes collected of £40.3bn. Employers’ NIC is the largest tax borne at 33.5%. Corporation tax and bank levy represent a smaller portion of the total taxes borne at 19.8% and 6.8%, respectively.  1.1m people (3.4% of the UK workforce) were employed by the FS sector.

Estimated employment taxes broadly remained stable at £30bn (2014: £30bn), with a slight decrease within these figures. These taxes represent 11% of government receipts of PAYE (pay as you earn) and NIC (national insurance contributions). As with 2014, employment taxes are the largest taxes borne and collected.
https://www.cityoflondon.gov.uk/business/economic-research-and-information/research-publications/Documents/Research-2015/Total-Tax-2015-OnlineFinal.pdf

Exports - 2016 1st quarter Services

The surplus on trade in services was £20.9 billion; financial services being the largest contributor with a surplus of £10.5 billion.

Exports - Manufacturing

http://www.tradingeconomics.com/united-kingdom/exports

£520 Billion total exports per year, Manufacturing is 45% of all exports

Even with a 30% increase in manufacturing exports this would provide only approx £70Bn annually and would not even balance the current trade deficit. The UK would need a 50% increase in manufacturing exports to make any difference to the overall picture.

Britain’s manufacturers insisted they have a crucial role to play in a post-Brexit world, contributing £190bn a year to the economy and creating well-paid, high-value jobs. 2.7m employees, 9th largest manufacturer in world

 

A Fairytale - Mrs May plays roulette

Mr Cameron and Mr Ukip and all his mates are all having a good time playing games down the local. "So Mr Cameron" Mr Ukip says, "lets vote on playing the roulette game!"  “Ok”, says Cameron, swaying a little, “vote away”.  They all put their hands in the air and someone takes a count.  Mr Cameron loses and has to visit the roulette table.  However he promises with all his heart to honour the vote.

Unfortunately, Mr Cameron falls down dead drunk on the way and his successor Mrs May is voted in to take his place, all very democratic.  Arriving at the Roulette table Mr Ukip says to Mrs May,

“That’s right my dear just put all your wealth down on the table in the allotted positions – and you cannot fail to win (almost)”. 

“Hold on” says Mrs May (who is a lot more sober than Mr Cameron ever was), “what does ‘almost’ mean exactly?” 

“No, no don’t worry yourself about the odds dear, you are bound to win with these chips, well I can’t exactly guarantee a win but, well, you've agreed.”

So Mrs May sums up the position and says;

“You are asking me to put all my wealth and all my future earnings on a one time bet that is very likely to provide a brilliant result, but there is a small chance I may lose the lot”

“Exactly dear” says Mr Ukip, “are you man enough?"

“No” says Mrs May, ”I cannot risk everything on one play, what would the children think if I lost them their inheritance.”

“But, you MUST play” says Mr Ukip “You have promised to uphold the vote, you cannot walk away now, you will be nothing, no friends at all, you’ll be known as Mrs May the rotter!”

“So be it” says Mrs May, and walks away.

 

This fairytale has a happy ending - unlike real life!