MoneyAge Mortgage Awards

Guest column: Brexit: we must avoid the law of unintended consequences

Written by Personal Finance Society chief executive Keith Richards
08/02/2018

“The new year is barely upon us and we have already had our first piece of regulatory implementation, with January’s MiFID II.

"Later in the year this will be followed by new General Data Protection Regulation (GDPR), the Asset Management Review, the Senior Managers Regime, the Platform Market Study and the postponed Insurance Distribution Directive (IDD).

“However, the effects of all of the above can be anticipated, assimilated and integrated within what many now accept as ‘BAU’ (business as usual). Whether we agree with them or not, they are prescriptive, pre-determined and predictable.

“The same cannot be said with regard to the one which dwarfs them all though - Brexit.

“It is truly a voyage into the unknown. As yet, no certainty, no clarity and no confirmed conclusions. Instead, only conjecture, speculation and a fair amount of associated guesswork.

“What we do know is that it will affect every single aspect of our working and domestic lives. We just don’t know to what degree and precisely how.

“Former US secretary of defence, Donald Rumsfeld, is famously quoted for using the phrase “There are known knowns; these are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know.”

“He made that statement at a news briefing on Iraq’s weapons of mass destruction in 2002 - but 16 years on I am I struck by the perfect way it describes Britain’s impending departure from the European Union.

“Take the housing sector for example:

“A known known - there is a huge skills shortage in the United Kingdom and the prospect of not having easy access to skilled EU migrants post-Brexit could mean that this gap is set to widen.

“The known unknown - how negotiations for Brexit will take shape and what Britain will look like outside the EU.

“The unknown unknown - as we continue to assess the real impact that Brexit will have on the mortgage market.

“One of the biggest areas of uncertainty centres on Brexit’s effect on the construction industry, where as many as 12 per cent of the workforce comes from other EU states.

“Will the future ability to recruit from abroad be restricted by new, pre and post-Brexit immigration policies?

“The Federation of Master Builders (FMB), claim that the construction industry acts as a weather vane for the property market. But is there a danger that leaving the EU will lead to a shortage of skilled labour at a time when the house building industry most needs it. They say the skills shortage - the failure to find the number of people qualified and needed to work in the industry - is at a record high.

“Anecdotally, it is believed that two thirds of smaller builders are struggling to find bricklayers and more than half are finding it hard to source enough carpenters and joiners. If this were to be exacerbated by Brexit, the government’s house building strategy could be in tatters…

“At the time of writing, Theresa May has Just stated that EU citizens who arrive during the post-Brexit transition period will not have the same rights as those who came before.

“The prime minister’s remarks set her on course for a major skirmish with officials in Brussels, who want a ‘status quo’ transition period until December 2020, including free movement and citizens’ rights for those coming to the country before the end of the transition period.

“Instead, rules for new EU migrants could now include mandatory work permits, requirements to register on arrival and restrictions on access to benefits, which would not apply to EU citizens who moved to the UK before Brexit.

“Labour leader Jeremy Corbyn said he opposed the PM's move, claiming it such a measure would make it "harder for all of us” if it became a reality.

“It could certainly have a drastic effect on house building figures, which have consistently been falling short of the government’s 250,000 a year target. That deficit cannot be allowed to worsen. If it does, the growing lack of stock would result in even higher prices - pushing them even further out of reach for many first-time buyers.

“I am not in any way suggesting I can predict what the outcome of our eventual Brexit will be. That remains an unknown unknown and the long-term effects will probably remain so for years after we eventually leave.

“But I do know that right now, we need every signal on green for house building and clear run towards that quarter of a million new homes a year target.

“Whatever my personal opinion, a democratic decision has been made and it is now up to our government and the EU to negotiate a workable solution that we can all benefit from. One which will help to create new opportunities for the future.

“One certainty that I do know is that thanks to our post-Brexit agreement with the European Financial Planning Association, our members’ qualifications will be recognised by a number of EU regulators, meaning that UK advisers will be able to continue to provide overseas advice in a post-Brexit environment.

“For most advisers, it will be business as usual and little if any discernible difference, as few will get involved in any cross-border business. Larger financial services firms are more likely to be affected, but our consultations have revealed a fairly balanced outlook for SMEs. It is those who operate in the wider GI market and the City of London who are likely to feel the affects more acutely.

“Overall, I’d like to see us adopt a common sense approach and work towards getting arrangements in place to put consumers first in any new regulation. We absolutely need to avoid the law of unintended consequences which will, in turn, help to address or mitigate any negative impact on firms and advisers.

“Let’s be confident, optimistic and make sure the interests of the public remain at the forefront at all times.”