In November I wrote a blog with the headline:
Brexit will deliver a liquidity crisis that will make 2008 look like a half-hearted warm-up act
My suggestion was that:
Looking at the agricultural sector that dominates my home region I suggested that many local businesses are intensely fragile, and operate (like a great many households) on the basis of tiny capital bases. What this means is that even a few weeks of disruption created by labour shortages and so a lack of goods to pack, ship and process, will be enough to tip many of those local enterprises into failure. And I cannot see how that disruption will not happen if a rapid ban on migration (or a marked reluctance on the part of EU citizens to travel here) as a consequence of hard Brexit results in labour shortages.
As a result I forecast business failures due to a Brexit driven credit crisis. These, I suggested, could rapidly snowball into a full blown economic and banking crisis: businesses do not exist in isolation but as part of systems.
Now we know that there is another dimension to this. As the Observer reports today:
More than 130,000 UK firms will be forced to pay VAT upfront for the first time on all goods imported from the European Union after Brexit, under controversial legislation to be considered by MPs on Monday.
The VAT changes spelled out in the taxation (cross-border trade) bill — one of a string of Brexit laws passing through parliament — are causing uproar among UK business groups, which say that they will create acute cashflow problems and huge additional bureaucracy.
It is being reported that the change is unavoidable, and outside the Customs Union I agree. If, quite literally, a boundary is crossed then the taxes due at it are payable. Inside the Customs Union there is no border: outside it there is.
The result is inevitable: thinly capitalised business will face another crisis, more cash outflow, and another threat to their survival.
I think my suggestion that Brexit would cause a credit crisis that would precipitate economic failure was right last November. I am doubly sure of it now. And of course, the problem of payment just compounds the issue I foresaw. This is very ugly indeed for large numbers of British businesses and those who depend on them.
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Entirely agree with the cash flow implications for food suppliers. These VAT provisions would only make things worse and would certainly increase bureaucracy and be likely to require an increase in civil servants. However cannot see why, as long as the importer is registered for VAT, the VAT could not be declared in the VAT return and be payable in the VAT quarter in which the import occured. There would be a greater possibility of evasion but that has never seemed to bother the current government before.
And of course if the UK is outside the customs union then there is an Irish hard border, which the government has agreed they will not institute. So it’s more facing both ways at once – a complete abdication of responsible government.
Good point Peter
It seems to be yet more the keeping of some unspecified ball up in the air till some as yet unspecified event occurs -unless the govt. really is without form or direction, treading water on a day to day basis, hoping some deus ex machina event will come along to save them. Strange days.
We’ve been through something similar before . At the end of June 2016 import costs from the Euro-Zone jumped by about 1/6th. What we’d like to know is the level of business failure caused by that over and above the normal business failure rate.
1/6?
Do you need a new calculator?
You can have a 1/5th then, it’s not vitally important what the exact depreciation was, except that it is similar to the rate of adding VAT to your imports.
In the case of the referendum result you get the devaluation back when you sell to a customer, and in the case of when we leave you get the up front VAT cost back when you sell to a customer.
So given that we’ve been through this before, what was the damage then in terms of business failure?
Replies taking the mick welcome.
It was 10%
You are materially wrong
And it was not cash flow: it was a cost that could be passed on, and was
Do you not know the difference?
I suspect our foolish politicians think that, if you can claim it back, it has zero impact.
More Brexit fudge needed. Urgently perhaps.
It’s not at all clear how Michael Gove’s pronouncements the other day about alternative arrangements for CAP might affect the agriculture industry. Much of what little I heard him saying implies that he thinks farmers main function is to keep the countryside nice for visitors.
Researching ‘Maunder Minimum’ and ‘solar minimum’ (clue; we’re in one) suggests agriculture and the end-users, us, have rather more to worry about than Gove’s theatrics. There’s every chance of lean times ahead as food becomes extremely hard to grow in the chaotic weather typical of such events.
Paying tax upfront is bad. Excellent to see you come round to most business thinking at last.
This is not paying tax up front
It is paying tax when right now we have a better system of managing the process by offset
If you’re going to offer your usual nonsense here Noel you know what happens
I do remember you saying consistently that offset should be permitted for non-EU imports, as paying up front was not the best way.
What is optimal and what can be done are different things
Brexit will change what can be done
I forecast shortages due to just in time food deliveries from the Continent being held up in customs either side of the Border. Customs is a two way process. Most of our salad stuff in winter comes from Spain and Italy. We will be forced back to UK produced seasonal produce and we cannot, grow enough, so shortages of complete lines will occur and shortages of UK produce will occur, raising prices, and creating more shortages. There is no good Brexit. And if the pound drops further, imported food will get more expensive. Any flavour of Brexit damages us.