Tuesday, 1 November 2016

Naked Swimmers

The End of European Corporate Welfare Provides a Once-In-A-Lifetime Opportunity 

Warren Buffett once famously quipped that in business and investing when the tide goes out, you find who has been swimming naked.  This is a derivative from a far older proverb to the effect that  "a rising tide lifts all boats".

One of the impacts from Brexit will be that the (previously rising) tide of European subsidies will disappear from Britain.  Lots of naked swimmers will be exposed.  Doubtless, some British businesses will need to make some severe adjustments, but if they avoid the temptation of looking to have their European subsidies replaced with British ones, it will all be to the good longer term.  British agriculture can be included in the list of industries which will have to adjust.  New Zealand, of course, knows all about this, having gone through it in the seventies and eighties.  Now, subsidy free, yet able to compete virtually anywhere in the world, NZ agriculture is a thing to behold, the whinging and moaning of the Greenists notwithstanding.

We smiled to read in the NZ Herald that the royal estates in the UK will be hit--and they will not be isolated.
 A lot of aristocratically owned land, being farmed as gentlemen's hobby farms, and presently subsidized by afflicted European taxpayers, will face some difficult choices.  No-doubt the aristocrats will get out the begging bowl and stalk the halls of power in Westminster in the attempt to get the British taxpayer to pony up.  We hope they will be shamed into silence.
The Queen is facing a million-pound black hole in her estates' finances after Brexit which has caused consternation among royal aides, The Sunday Telegraph has learned.  Sandringham Estate, the Queen's country retreat in Norfolk, will lose close to £700,000 a year when EU farming subsidies end while the farms near Windsor Castle will be around £300,000 down.
Prince Charles's estates are also facing a funding cut from Brexit of £100,000 a year while the Crown Estate - which manages Royal land - will also be hit.   A source familiar with Buckingham Palace's finances said there had been concerns since before the EU referendum about the impact of losing the grants.   While people were not "throwing their hands in the air in despair" there was anxiety about how the current level of EU farming grants will be sustained, the source said.
All the revenue from the Crown Estate goes to the Treasury; the royal estates are able to draw on 15 percent of the revenue.  The first response has been that subsidies (on all farms) will be continued by the British government.  Clearly there is a distinct lack of desire to be exposed as swimming naked. Apparently, a number of folk fooled themselves that Brexit would mean such a quantum of fiscal savings that there would be spare cash around to continue subsidizing UK farms.
Sir Gerald, a Tory former defence minister who backed Brexit, said: "What we all said during the Leave campaign was that all those currently in receipt of so-called EU money will continue to receive the same money because we will be saving £20bn every year.  We must reassure the recipients - whether it's Her Majesty or farmers - that they will continue to benefit from the current arrangements.  What Brexit does is to give the United Kingdom the chance to fashion a farm price support mechanism designed exclusively for the benefit of British farmers."  [Emphasis, ours]
If this sort of antediluvian thinking holds sway, the chances of a meaningful free trade agreement between the UK and NZ look pretty thin.  UK business and monied interests will need to learn the brutal lesson that if you can't cut it in a deregulated, free-trading market place, survival is not an option.  It's going to be a hard lesson for some.

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