Future challenges for the next leader

For investors at the highest level of sophistication, those with strong advisory support, the natural outcome is two distinct portfolios. onene public, one private. Each plays a different role in the overall strategy. Uncover new investment opportunities for you at creativeplanning dot com slash new. From globalization to innovation, sustainability, to market volatility, there's always more than one side to a story. Explore different perspectives on today's most important business and economic issues, with the flipside podcast from Barclay's Investment Bank. Hear two research analysts in a lively debate and get insights from every angle to further inform your view Listen to the flip side on your favorite platform. Hello and welcome to the Intelligence fromrom the Economist. I'm Rosie Bloor Today we're devoting our show to the moment ten years ago that changed Britain The total number of votes cast in favour of rememain was sixteen million one hundred forty one thousand two hundred forty one The total number of votes cast in favour of leave was seventeen million four hundred ten thousand seven hundred and forty two. This means that the UK has voted to leave the European Union In the referendum of june twenty third, twenty sixteen, Britons voted for Brexit by fifty two percent to forty eight. Those who campaigned to leave the European Union promised a future free of external interference, ripe with opportunity. Those who wanted Britain to stay part of the EU, including us here at the economist warned of disastrous economic damage tenen years on, how have those predictions fared? and with the impact still very much being felt and Britain about to get a new prime Minister, Where does the country go from here Heling me answer those questions is Daniel Franklin, one of our senior editors Hello, Daniel Hei Rz? Daniel, it's already been a tumultuous week in British politics. Does the fact that we're about to get our seventh prime Minister in a decade have anything to do with how destabilizing Brexit has been Well, it's ironic, isn't it? that Britain is in a way becoming more European. Here we are with our seventh prime Minister about to come into office and we're sort of becoming Italy. And meanwhile, Italy looks an oasis of stability. But seriously, I think it has a lot to do with the specifics of Sakkia Starmer But it doesn't help that the legacy that Britain has had from ten years of Brexit has made governing Britain so much harder. And so to some extent, Brexit hasn't helped does, if you look at it collectively, certainly account for the fact that we've had quite so many changes of leadership over the past ten years We'll come on to the impact in a minute, but just tell me what you remember about that day ten years ago and when the votes were then coming in? Well, I was actually out of the country. It wasn't in Britain. I was in France And it was surreal. I remember very clearly when the results started to come in and it became, I think, quickly cleared which way the vote was going And then I remember that there was a sense of shock, certainly, it was not an outcome I had wanted And the next day, you had to carry on, I was chairing an event, and you had to carry on as if nothing had happened except something extraordinary had happened. And at least one of my panelists on the panel, I was moderating pulled out because there was no corporate line yet on Brexit I too, was out of the country. I was reporting in China at the time, and I remember just busily refreshing and refreshing that BBC page, hoping those votes would shift, but of course, they didn't. Now the economist, of course, voted to remain at the time. We wanted to stay as part of the European Union. Just explain that I think we saw it and still see it as a great act of self harm and monumental folly. It was a very strange moment in British politics, a sort of perfect storm of things that combine to make both in the political leaderships of the various parties, in the state of the economy, And in the state of Europe, frankly, that meant that this was a very bad moment to have that referendum. the results which we'll talk about were not as immediately dramatic as perhaps many people predicted. Cumulatively, it's been a painful process and one that's led to a lot of inward focus in Britain over a time when we really needed to be coping with what was happening in the real world beyond it. So we'll get to that cumulative effect in a minute. But in the meantime, Jason has been looking at what led up to that seismic vote The real starting gun for Brexit was a speech in January of twenty thirteen by then Prime Minister David Cameron. We will give the British people a referendum with a very simple In or out choice to stay in the European Union on these new terms or to come out altogether It will be an in out referendum. The economist was generally in support of Mr. Cameron's decision We wrote a leadter saying that Cameron was right to say, I will hold a referendum on the EU Yes Once we realized we needed one, John Pete became our Brexit correspondent. By the end of it all, I was referring to him as our long suffering Brexit correspondent. We accepted that there was an argument put indeed by David Cameron which was this issue has been rumbling along in the Conservative Party for years and the best way to settle it will be to have a referendum and that will settle the issue for a generation and we'll stop arguing about it. Stop arguing about it. To be clear, even Mr. Cameron in that same speech said it was a bad idea because I believe something very deeply that Britain's national interest is best served in a flexible, adaptable and open European Union, and that such a European Union is best with Britain in it. At the time, Mr. Cameron's Conservative partarty was part of a coalition government with the Liberal Democrat Party. Their shared grasp on power felt precarious because of pressure from their right in particular, from one man who groused about Britain's EU membership even as he sat as a member of the European Parliament. the EU budget isn't really the question. It's Britain's place in this Union that is the real question. And increasingly, Britain looks like a square peg in a round hole ese days, Nigel Farage leads the Reform Party, once called the Brexit Party Back then, he headed the UK Independence Party, or UKP He's been banging this drum for some time We love Europe We just hate the European Union. It's as simple as that Fast forward to twenty fifteen, the Conservatives won a majority, and in early twenty sixteen, Mr. Cameron made good on his promise and announced the date of a referendum I will go to Parliament and propose that the British people decide our future in Europe. in out referendum On Thursday the twenty third of june in and out campaigns rev up And immediately, the outcamp had an advantage I think it was still true in twenty fifteen, twenty sixteen that most observers who knew about this subject, thought that probably a remain would just edge it. I was always quite doubtful. I thought it looked as if it was going the other way The main camp under the strronger In campaign argued that things should remain the same. And let's together choose for a stronger Britain in Europe. Lave could campaign on change, and they did so with some exceedingly misleading figures. Every week, the United Kingdom sends three hundred fifty million pounds of taxpayers' money to the EU That's the cost of a fully staffed brand new hospital So yes, Euroskepticism in a general sense was part of it, arguments about who was bossing whom around, about the flow of money And reallyally, a lot of the sentiment was clearly about the flow of people Take, for example, a vote leave poster that Mr. Farraage was pictured in front of A sea of people on the move, almost every one of them brown. four heard the dog whistle and took him to task The only white face has been obscured by text Many people took that as deeply offensive. and I ask you again, do you want to take this opportunity to say sorry The Schengen zone is at breaking point, that's undeniable. The picture was true, it wasn' not doctored. The irony in all this is that what then happened actually was that after the leave vote, immigration actually increased, it didn't fall The remain camp, Mr. Cameron, most B leaders, us Started out confence, complacent even, their brand of good sense would win out ever sensitive to the benefits of a fair political wind Borris Johnson hopped on the leave bus. That Sunday afternoon, he came out and said, I'm going to make my announcement. I am going to campaign for leave That was quite a big moment in the whole campaign mister Johnson had been London's mayor during the twenty twelve Olympics and brought his charismatic, erratic vibe back into parliament in twenty fifteen with an eye on higher office. I think we should take the chance now as a country to take back control. take back control of huge sums of money. of huge sums of money. Given that the margin was only fifty to forty eight, I think it does suggest that Boris was quite an important factor in the outcome. Leave had momentum A fiery message, a hard charging, floppy haired new champion. The opppposition Labor Party had Jeremy Corbyn. On a scale of one to ten, One is couldn't really care less about the EU and ten is on jumping on the couch like Tom Cruz on Oprah. How passionate are you about saying in the EU? Oh, I'd put myself in the upper half of the five to ten. so we're looking at seven, seven and a half. O notot quite Maybe seven seven and a half. You you're more welcome jump on the couch The electorate was fractured, fractious, Cervative against conservative, labor against, well, itself, mostly at the time Family split, friendships strained. Can you believe what that guy next door thinks Honestly, it was all anyone seemed to be talking about, certainly the politicians. The voters, though, did have an answer for the remainers. The British people have spoken and the answer is we're out. Leavers rejoiced. Remainers couldn't pick their faces up off the floor Title Farraage Cow let june twenty third go down in our history as our independence Day. All this ferried in a new prime Minister I believe Theresa will provide strong and stable leadership, and I wish her well in negotiating the best possible terms for Britain's exit from the European Union Leave had won, so clearly we were going to have to leave, but nobody knew what that meant. There was no clarity about what would happen next Theresa May took the reigns for years of figuring out what that really meant. Brexit means Brexit. Not much clearer really. This was the time when I started calling John Long Suffering Brexit correspondent It's also when Britain's prrime Minister go round started to speed up Boris Johnson caught his fair wind and was in charge when Brexit formally finally came into effect in twenty twenty There was no chance of a soft Brexit. It was going to be a hard Brexit and Boris Johnson got the deal he wanted Brexit is a good word for what came out. It was hard, has been hard for Britain and for Britain Cour for Long Suffering, John Pete To discuss what's happened since then after those moments of apparently taking back control, Daniel and I are joined by Tom Carter, who's our Britain economics correspondent. Hi Tom, I know you weren't at the economist at the time. Where were you? It was actually my last day at university when I found out about the result. and although we're about to talk about Brexit's damage, I do owe it a debt of gratitude because it did get me my first job out of university working in the Civil serervice on Brexit preparations. So personally, it was a bit of a winful. We'll try not to hold that against you. Tom, tell us what the impact on Britain has been from Brexit When it comes to the economy at least, the impact has been pretty negative. Exactly how negative is something that academics furiously debate over. Some studies suggest that it has shaven about eight percent of GDP off Other studies only suggest it's two and a half percent. A lot of that depends on the counterfactor that you use, but what we can say is that Britain has grown less quickly than most G seven countries. And if you look beneath these high level numbers, you see all sorts of new frictions and problems emerge as a result of Brexit. When I speak to people and businesses across the country about it People find it harder to import parts for their businesses. Exporters have stopped exporting. For a long time, it stopped people from investing in their businesses. So it's been a whole series of little hurts and cuts So Tom, it's sounding from what you're saying that the big impact then has been on manufacturing Yes, and we should be clear that Brexit has not caused Britain's manufacturing decline. That's been happening for a long time because China basically does it quicker and more cheaply than we do, and also because we have very high energy prices. But Brexit has made it worse. So Britain's share of global goods exports has fallen by seventeen percent from the referendum to twenty twenty five In the EU it only declined by six percent. so we have been particularly affected. Now why is that? Well, the Brexit deal actually didn't put up bigig tariff barriers with the EU, but what it did do is create a lot of paperwork and new customs forms and these things called rules of origin. And that basically was very hard for manufacturers, particularly small manufacturers to deal with. So if you're a big manufacturer, you just employ some policy person and they sort it out. But if you're just a one man in his shop, you don't have the time to look for all the regulations And that meant that we have now sixteen thousand fewer exporters to the EU than we did before the referendum. What about services which Britain always likes to think it's very good at? How have they fared But the good news there is that Britain's services continue to go from strength to strength So exports of services have in that same time period risen by forty seven percent. And if you think about Britain, we are butlers to the world, we have lawyers, engineers, architects, all of whom are providing their services to tech tycoons, to Sheikh in the Middle East. And that hasn't changed as a result of Brexit. And in fact, Britain has benefited from the fact that the whole global economy has become more services orientated than it was before That doesn't mean that Brexit has helped. Brexit has actually hindered because in some areas like financial services, like things we have professional qualifications and you need to be able to show that professional qualification to be able to work in the EU, we have seen less growth than in those sectors like advertising where there are no such barriers. So without Brexit, we could have done even better. And what about financial services, Daniel, you've been looking at this. Financial service is a bit of a mixed picture. I mean, the city is still a force to be reckoned with. and we had a cover story actually not long ago saying the city was getting its mojo back But as Tom says, I think the problem is that we haven't taken as much advantage of the potential flexibility that it gives us, not being part of the EU regulatory regime, to have more flexible regulations, to have bolder policies. So the strength of the city of fininancial serervices of carried us through to some extent, but it has been hindered by the barriers, for example, passporting rules, setting up offices, being able to operate across frontiers, that have made us less effective than we would otherwise have been. And we haven't compensated as much as we might have done by being bolder on the nimble deregulation that would have made business easier Just to add in on that, that goes beyond financial services, this failure to do all the deregulation that was promised. We were promised that British would become a deregulated Singapore on ThMes. But all the things that those people who wanted a small state complained about in twenty sixteen to the EU working Tim directive, which sort of preents or makes it harder for people to work above a certain number of hours a week, or the habitats regulation that makes it harder to build, all those things are still in place in the UK becausecause it turns out that it's not The EU that stopp us from having them, is the fact that there are powerful vested interests in the UK that politicians didn't want to cross. Yeah, we're pretty good at red tape ourselves. But we' talked about the narrow economic impact, but the opportunity cost of all this, the time it took, the civil service time, the political time, the debate across the country, businesses tied up with this It's enormously sapping. And it meant that we were talking about what type of Brexit it should be first of all. And then after that, how do you mitigate the damage of it? And we're still talking about it. We're now facing endless negotiation with the EU. We'll have a summit next month., For example, for the latest round of this And there's a cost to all that. It's meant that we haven't been able to lift our eyes as much as we perhaps should have been doing to cope with the world as it is now, the changed world that it is ten years on from Brexit We're talking in quite energetic terms here about Brexit, but we're really bored of it, aren't we? We talk about it endlessly, we talk about it in our politics, we talk about it in society. What about that broader malaise that's brought over Britain, Daniel Well, there was a time talking about Brexit when it was almost banned Political parties didn't want to talk about Brexit anymore, and it's just coming back. The anniversary has brought it back even more. And now with the drama over the labour leadership, it's come to the fore again But I think there is a continuing question about Britain's place in the world How do we without a historical role of being a bit of a bridge between America and Europe being within Europe, where do we stand on all that? And that's a bit of a national question still that Brexit has not resolved. And we were hearing just now about those dog whistle posters that Nigel Farage and others put up How has Britain stood on immigration since Brexit? Well, as we've heard from the long suffering John Pete in the Brexit package The irony of this is that there was a huge surge in net immigration after Brexit under the leadership of Boris Johnson. So that's now ebbed, but certainly with people who were hoping to take back control in that sense just didn't happen and that I think has contributed to the sense of political disillusionment in Britain that even after Brexit, this which is a high priority for voters, it hasn't been dealt with satisfactorily And just to give a sense of scale to that, in twenty twenty three, over a million non EU people came to this country. that is an order of magnitude more than we had before Brexit. So if you're sitting in one of these cities or towns in the UK and you were voting to take back control of immigration, you really weren't given a bloody nose by Boris Johnson and his immigration policy. Now, as Daniel says, it has ebbed, but that will have really leftft a sore te in the mouth for many Brexit voters Tom, thank you so much for joing us. Oh, thank you very much for having me You didn't just say, how can I provide these investments? How do I holistically provide everything? How do I bring in the legal, the accounting, all this and do it at a price point no one else is doing it. Learn more about how we approach wealth management at creativeplanning d. com slash integrated You want to get your backyard summer ready, but you don't want to break the bank? Wayfair gets it. Planning on dining alfresco, or relaxing poolside? Wayfair has everything you need to prep your space. Shop now and save up to seventy percent off during Wayfair's fourth of July clearance. sccore huge deals on outdoor furniture, area rugs, and more. We're talking thousands of products for every style and budget Plus, sururprise Flash Deals july sixth. Don't wait. Shop Wayfare's fourth of July clearance now through july sixth at wayfare. com Pay fair, every style, every home. Daniel, if we accept that Britain probably isn't going to rejoin the EU, then what next And I'm wondering here, have there been any benefits from Brexit Well, they have. they may surprise you. We've identified, for example, that puffins have done rather well out of Brexit. That's to do with fishing rules that Britain has been able to introduce independently of the EU regulations, which mean that puffins have been more protected because Danish fishermen haven't been able to catch as many sand deelals in British waters as before and puffins like sand eelals And octopuses have done rather well too. They've been deemed under British rules, not under EU rules as sentient Act the farming reforms under Britain have been something of a success outside the common agricultural policy And one manifestation of that is lots and lots of new hedgeerow planted under the new incentives for British farming. So I think yes, there are Brexit benefits, but the bigger Perhaps silver lining is that in certain areas, the freedom to manoeuver that Britain has might become even more important than it has been before. We're joined now by Georgia Banjo, our Britain correspondent, Georgia, I'm looking to you for something beyond puffins and octopuses here. What other opportunities might there be for Britain Yeah, I mean, he doesn't love a puffin, hey. But as Daniel alluded to, beyond that, there is one particular sector that may have done rather well, and that is artificial intelligence So if you have a look at British tech startups, for example This year, so far to date, they've already raised over fourteen point a half billion pounds from venture capital Now just to put that in perspective, that is more than all the other major European markets combined. So we're doing really well in that area. It's also true if you look at AI unicorns, startups that are worth more than a billion. and Britain has thirty three of those, which is more than France, Germany and the Netherlands combined say There are some areas where Britain is doing surprisingly well Is that success because there's no red tape as we used to talk about the EU Yeah, so if you talk to tech entrepreneurs as inardi quite a bit, they will tell you that the EU AI Act is stringent, it's overly restrictive, and it's certainly true that it places quite a lot of restrictions on firms and also customers when it comes to AI bit I think it's a bit more than that I think Part of the benefits of Brexit so far in AI are just the vibes. It feels freer than it does in Brussels. The government has been more pro innovation than the EU and they've really leent on that as a way to sell Britain to many of the talented people around the world That said, there are still some disadvantages when it comes to being outside the EU. If you're an ambitious firm firms often scale very quickly. you're going to want to sell into the EU as soon as you can Therefore, you're going to have to comply with the EU's AI Act anyway And then beyond that, there are the obvious challenges which we've heard a little about before. So when it comes to hiring the best talent, for example, there's now quite a lot of Heddles there to overcome. there are the challenges of high visa fees if you're now trying to bring someone in from the rest of Europe So one firm I spoke to you recently explained, that's one of the main reasons they're now opening an office in continontinental Europe Georia, can I jump in here? Perhaps nothing is going to matter more than AI in the world in the next few years in the coming decade or two But to put it into perspective, you were comparing Britain quite favorably with Contental Europe. But when you look at Britain compared with America or China, we look very differently. We're a very small player in that context. So what is our role Pint Daniel. I mean, I've used a few flattering statistics there comparing us to mainland Europe But yes, it's true that we're definitely in Mino compared to America So one area where we're not quite sure yet is exactly where the biggest benefits of AI will be. Lots of people have lots of different perspectives on that What does seem possible is that the application layer, so that on top of the need to build data centers, you have firms like Nvidia that supply the chips, but that application layer is somewhere that Britain could be really well positioned to thrive in. And so that does go back to being better on regulation, creating an environment where firms can thrive. And I think most importantly, making sure that AI is useful to people and that people can see tangibly the benefits that AI can have in their lives. And there's a lot of fear at the moment about AI and I think showing people that AI can improve their lives, improve their healthcare system, make their lives easier is really important Daniel, it can't just be about AI. We don't quite know what will happen and we don't know quite what opportunities Britain will seize. What else is there for Britain to do to take advantage of the post Brexit world? So if you look at the way that the world has changed over the past ten years since the Brexit referendum I think the two areas that really stand out. The other is defense. We're in a world where Britain's and Europe's indeed security looks very different before, we have a much more assertive Russia, We've had a war in Ukraine that's lasted longer so far and counting than the Second World War And we have an administration in America which is semid detached from Europe and is wanting to focus much more on its great power rival with China, and that makes for a lot of uncertainty over the defense of Europe. So this is an area where Britain, in theory, have a role to play. It is also an area byy the way, I think the British government has inserted itself at the H table again in Europe. in a way that was very difficult in the immediate aftermath of Brexit. It's not without its problems, not being an EU member, but it is an area where I think Britain can use its flexibility, its historical stth But as we've just seen in recent days, it's not simple either because we find it difficult to raise the money to match our strategic thinking on the issue. And we've had under K Stama's government, the defefense seecretary resigning because he didn't get the financial settlement that he was pushing for investment in defense. So defense and AI, I think, along with areas of traditional British strength like finance critical areas that will matter with Britain outside the EU. and potential opportunities in all those areas in the years to come. And of course we're about to have a new British Pime Minister. What should that person do? I think what we've seen in the whole Brexit saga tendency towards magical thinking, the idea that there's a simple solution just do this and then we start to solve our problems. You just leave and we take back control, you just rejoin, and you undo the economic harm of Brexit. And there's a bit of a danger that on the labor end of things now, you just change the Prime Minister and your problems magically go away. The problems was Kir Starmer and you have a more charismatic, better politician in that role and you start to get on the path to growth and to national self confidence again I think that the main thing that any new Prime Minister coming in needs to do is have a bit of an honest reckoning with where Britain is and the challenges that it faces. Brexit has ended up posing a generational problem for Britain and for the whole of the European Union What's the next generational question Well maybe I'm biased because I cover it. but I do think that how the world reckons and indeed makes the mostte of AI is going to define the coming decades. And I think a big question for a relatively small country like Britain