Onshore Energy Conference — London Onshore Energy Conference — London | Page 50
A “hard Brexit” is likely
if immigration becomes
the key criteria for Brexit
Chart 9: Control of
immigration below
100k per year will
hit migrants from
outside the EU
• New UK political leadership emerges.
The UK has traditionally operated a type
NET UK MIGRATION BY EU AND NON-EU CITIZENS
1975 – 2015
60
Non-EU
EU
40
EU %
20
NON-EU
10
0
EU
-10
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
-20
9
7
30
19
7
19
7
19
7
5
THOUSANDS
50
50
SOURCE: IeC ANALYSIS; UK OFFICE FOR NATIONAL STATISTICS
EU %
should include only UK- passport holders
highlights the slippery slope that is developing.
Scenario planning is thus becoming
essential, particularly as the government still
seems to believe it can negotiate “passporting
rights” for certain privileged sectors such
as finance and autos, whilst still refusing
to accept freedom of movement. As chart 9
demonstrates, a reduction in immigration to
below the target 100k level will also likely
involve major reductions in immigrants
from countries outside the EU such as the
USA, India and China. There are, of course,
no treaty obligations to restrict such a
reduction, although previous governments
have sensibly realised the short and longerterm costs of such a move would be enormous.
Even a well-organised
government would face
considerable problems during
the Brexit negotiations. Markets
400
hate uncertainty – and they
clearly now have years of this
350
ahead, as the Brexit debates
intensify and start to impact
300
real world issues. This will
be particularly true if the UK
250
chooses the “hard Brexit” option,
as WTO negotiations would then
probably occupy another decade.
200
The UK government bond
market is already showing
150
signs of strain, with interest
rates doubling to over 1%
100
from their post-Brexit
lows. Our main concern is
50
around the future attitude of
foreign investors to UK gilt
0
purchases. Foreign investors
currently own 27% of the
market according to DMO data,
and over a third if one excludes Bank of
England holdings. We therefore worry about
the impact of the Brexit process on their
enthusiasm to maintain this level of support.
What would happen if foreign investors
really took fright, and began to withdraw their
money en masse from the UK government
bond market? Would the government be able
to stand by, and allow this to happen? If it did,
what would be the consequences for spending
programmes, given that many observers
believe that government borrowing is set to
rise over the next few years? It seems far more
likely that capital controls would instead
then be re-introduced, returning the UK to
the pre- 1979 when all major parties believed
they were essential to protect the economy.
Brexit is therefore another