1. 'Hard Brexit' could cost £66 billion
A leaked document from the Treasury shows Britain could lose up to £66 billion each year in tax receipts 15 years after a ‘hard Brexit’. The papers were circulated to MPs in April after a controversial study into the impact of leaving the EU by then Chancellor George Osborne. It also suggested that leaving the single market would cause Britain’s Gross Domestic Product (GDP) to drop 9.5% over the next 15 years, compared to staying in the EU. There was widespread criticism at the time of publication, but it’s believed the Treasury stand by their predictions today.
The debate between MPs seeking a 'soft Brexit' and those after a 'hard Brexit' has intensified in the past week, as more pressure is being put on Theresa May to give the House of Commons a vote on the Brexit negotiation strategy. Even within the Conservative Party, pro-Remainers are calling for a vote to legitimise the Government policy on Brexit. Labour MPs are putting forward an Opposition Day motion which calls for MPs to be able to scrutinise a plan before Article 50 is triggered, which many ‘rebel’ Tory MPs are contemplating backing.
Commentators suggest the Theresa May government will topple if they try to force through a negotiation strategy without the scrutiny of elected representatives in the House of Commons.
Questions to ask yourself… Should the Government have to consult Parliament if there has been a referendum on the issue? Why would Brexit potentially lead to lower tax receipts?
2. Marmite-gate
Last week Tesco stopped stocking Marmite and other Unilever products in a row over price hikes. Tesco refused to accept Unilever’s price increase of around 10%, set due to the falling value of the pound and the impact it was having on importing goods and ingredients to make their products. Tesco boycotted 100s of Unilever’s products, including Marmite, Pot Noodle and Domestos, and withdrew them from their website. The likelihood was these increases would be passed onto the customer and Tesco believes Unilever's reaction to exchange rate changes was excessive. Many commentators actually suggest the falling price of the pound actually benefits Unilever overall because they can export their goods abroad much cheaper. After a two day stand-off with the leading supermarket, a compromise was reached and Unilever’s products are now fully available.
Bank of England Governor, Mark Carney has claimed inflation will rise due to the lower value of the pound. In recent times, there has been very low inflation but analysts believe it will rise to 3% by the end of next year. The Government target is 2%, but Carney is happy to miss that target if it means continued economic prosperity and high employment. Food and fuel prices are going to be the key components of inflation as it will become more expensive import them from abroad. Fuel prices have already risen since Brexit and are expected to rise again by 5p per litre after another poor week for the pound.
The pound lost 2% last Tuesday alone and finished the week at around $1.21. The weak pound is making a number of people nervous but a former International Monetary Fund (IMF) chief has described it as ‘desirable’, suggesting the UK is rebalancing “remarkably well” and the pound losing value is a necessary part of this rebalance.
Questions to ask yourself… Who benefits if inflation increases? What will make the pound gain value again?
3. A second Scottish independence vote?
Nicola Sturgeon has started the process for a potential second referendum on Scottish independence by submitting a first proposal for consultation. At the Scottish National Party (SNP) conference, she expressed her desire to give the Scottish people an independence vote before the UK formally leaves the EU in 2019. The SNP believes if the UK goes for a hard Brexit, Scotland should have the opportunity to remain in the single market by voting for independence. The British government suggest they would reject a proposal for Scotland to get a second referendum as the issue was laid to rest by the first in 2014.
This isn't the only problem for Sturgeon - the polls currently suggest the Leave vote has not swayed enough people towards Scottish independence. In the first referendum 55% voted for Scotland to remain in the UK and it would require a large swing to change the result.
Questions to ask yourself… Is it undemocratic to have a second vote on the same issue so close to the first? Would the EU welcome an independent Scotland?
4. CMS, Nabarro and Olswang set to merge
Partners at law firms CMS Cameron McKenna, Nabarro and Olswang have agreed to a merger, which is expected to take place in May next year. Trading under the name CMS Cameron McKenna Nabarro Olswang (or CMS for short), they will become the sixth biggest law firm in the UK, with a total revenue of just under £1 billion globally. Law firms are trying to broaden their service and break into new markets and this merger aims to accelerate this process, allowing them to compete with Magic Circle firms. The new firm will have offices in 36 countries and employ 4,500 lawyers. As the law market becomes increasingly global, City law firms have struggled to stay as competitive - this merger aims to counter this.
The role of technology is having a greater impact on the law sector, with firms aiming to become more efficient with modern tech. After the merger, CMS plans to invest more in artificial intelligence which is increasing the amount of automation for routine work in the sector.
Questions to ask yourself… What are the potential disadvantages of this merger for the firms involved? Will this start a trend of small law firms seeking mergers?
5. Update on last week
Last week we discussed the potential of a spring 2017 Initial Public Offering (IPO) for Snap Inc. - the company that owns Snapchat - worth $25 billion (read more just here). This week, Snapchat’s founder Evan Spiegel is said to have appointed both Goldman Sachs and Morgan Stanley to lead this operation.
Questions to ask question… What are the advantages of floating a company on the stock exchange?
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