Brexit - picking up the pieces

26-07-2016

By Gillian Fawcett, Head of the Governments Faculty, CIPFA

In the UK we are possibly living through the most politically tumultuous period of our lives following the vote to leave the European Union (EU) on 23 June. 

The outcome was not the one expected by the government nor wanted by people living in Scotland, London and Liverpool to name but a few of the places in the UK that voted to stay in the EU. Nevertheless, we have to move forward and find ways of making it work. We know that disruptive chaos in business can bring about new innovation and effectiveness and we are hoping that these positive outcomes will emerge in a post-Brexit world. 

Amidst the political fallout and changes to the machinery of government, civil servants are left to pick up the pieces and make sense of what this means for trade, the economy and regulatory and legislative systems. But the big question is - do we have the machinery of government to do this? Some commentators are skeptical as to whether the civil service has the skills and/or capacity to deal with Brexit.

Nonetheless, finance professionals working across central government are quickly getting to grips with the new rhetoric of ‘resetting’ the economy.  The new Chancellor of the Exchequer has declared that he is ready to ‘reset’ the government’s economic policy to respond to a slowdown. After six years of austerity the government may loosen its purse strings to shore up the economy. We know that plans to achieve a budget surplus are now on the back burner and who knows what will be unveiled - potential tweaks to the tax system together with large investments and a longer period of austerity for public services.

Reflecting on the issue of Brexit at the CIPFA annual conference held in Manchester in July, the overriding message was that we have to make Brexit work. There was general consensus that we can expect further devolution to cities and city regions down the line. It was also hoped that the structural issues that led to the leave vote would be prioritized and addressed. Analysis has shown that the geographical distribution of living standards in the UK influenced the referendum vote, with areas of significant unemployment having an effect. Leaving the EU will not fix some of the issues of the north east of England or Cornwall, but if not addressed problems will be stored up for the future. The decision to vote out of the EU is already having consequences for the housing market and there is evidence of a decline in sales. Conference participants felt that housing is likely to be a major area of focus going forward as current housing policy is not working.

The tumbleweed has blown across the desert since CIPFA published Treuble and strife, a report that examined which areas of the public sector would be affected by a vote to leave the EU. From a poll undertaken for the Institute by ComRes it found a high proportion of people thought that membership of the EU made no difference at all to health and social care, the quality of higher education, consumer protection and regional economic development.
 

Conversely, a number of public sector leaders identified far-reaching consequences for funding of public services, such as EU structural funds and access to a wide pool of skills and talent for health and social care. But they also highlighted that immigration as a result of free movement throughout the EU had placed a fiscal strain on local government, particularly in the southeast. Due to state aid rules, local authorities were also restricted in the range of local relief that can be used to incentivise local growth. Potentially changing procurement rules may also provide local government and health with more scope to be dynamic in appointing suppliers. But overall the experts concluded that the benefits EU membership brings to the public sector outweigh the drawbacks.

Well, what did we learn from the run up to the referendum? Experts weren’t listened to, there was no ‘Plan B’ for an out-of-Europe vote and inaccurate financial information about how much the EU cost the UK was flaunted on the back of buses to influence the public vote. It is also now abundantly clear that decoupling the British state from the EU will cause tremendous upheaval for public services for many years.

But now is a time like no other. In a world of ‘resetting’ the finances, it is a time for the voice of the finance profession to be heard and speak ‘truth to power’. Finance professionals must advocate strong technical financial and analytical skills across government so that the best possible policy decisions are made in respect to shaping the future of the UK. We need to rise to the challenge and work across teams to increase the financial literacy of the civil service.  In doing so, it is crucial that we work with government to assess our financial resilience in the light of the vote, and ensure that, whatever else, we have in place strong, robust financial management.