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Thursday, October 13, 2016

The day that Brexit hit the pound in our pocket

I am too young to properly remember the famous quote from Harold Wilson that ultimately lost him the 1970 General Election.

It was 19th November 1967 and the then Labour Government had just devalued the pound against the dollar by 14%. The decision had been taken after weeks of increasingly feverish speculation and a day in which the Bank of England spent £200m trying to shore up the pound from its gold and dollar reserves.

In defending his government's decision, Harold Wilson very much foreshadowed sentiments being expressed by Brexiteers today. He said: "From now the pound abroad is worth 14% or so less in terms of other currencies. It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.

"What it does mean is that we shall now be able to sell more goods abroad on a competitive basis." 

It didn't quite work out like that for him and nor will it today. For we are now witnesssing the consequences of an involuntary devaluation in the pound far greater than the 14% in 1967, with price rises in our supermarkets. As the Independent reports, Tesco is in a stand-off with Unilever over the Anglo-Dutch firm's plan to hike the price of their groceries by 10%.

Tesco may be making a stand on our behalf but would that stance have been so public if the absence of certain goods on their website had not been publicised? Inevitably, there will be a compromise in which these products will go up in price. The only question is whether it is a 10% or 5% increase. And other supermarkets will follow suit.

But whereas in 1967 Harold Wilson could rely on a boost for exports as a consequence of his devaluation, things are not so clear cut in 2016. That is because our impending exit from the European Union is already affecting investment decisions.

Multi-national companies are deferring or cancelling plans to invest in new production lines in their UK factories, whilst many are actively considering moving their operation abroad so as to remain in the single market. Any jobs boost from an increase in exports will be more than cancelled out by such decisions.

It has been reported that the total cost to the Exchequer from lost revenues and other factors could be as much £66 billion a year. That is £1.2 billion a week. So much for the £350m boost we were promised to the NHS.

Even if that £66bn figure proves to be an exaggeration we are still in for substantial public sector cuts and considerable hardship once Theresa May presses the Section 50 button.

All of these figures underline why the eventual final settlement is so important and why the general public should be able to approve or reject it in a vote.We cannot afford to leave our economic future in the hands of politicians who have done so much to wreck it in the first place.
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