Financial Times UK 30Jan2020

2 ★ FINANCIAL TIMES Thursday 30 January 2020

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N AT I O N A L

L AU R A H U G H E S A N D G E O R G E PA R K E R

US secretary of state Mike Pompeo yes-
terday urged Boris Johnson to rethink
his decision to let Huawei help develop
Britain’s 5G mobile phone networks, as
he arrived in the UK amid growing ten-
sionbetweenLondonandWashington.
Mr Pompeo, who will meet the prime
minister today, said Britain had a
chance to “relook” at the decision to let
the Chinese telecoms equipment maker
develop peripheral elements of the UK’s

5G network. His comments came as

some senior Tories, concerned by an

increasingly combative tone from the

Trump administration, notably over

Huawei, questioned whether it was still

in Britain’s interest to push for an early

post-BrexittradedealwiththeUS.

Washington believes Huawei poses a

spying risk as an arm of the Chinese

state,althoughthecompanyhasrepeat-

edly denied this, saying it is a private

groupownedbyitsemployees.

“Our view of Huawei has been that

putting it in your system creates real

risk,”saidMrPompeo.“Thisisanexten-

sion, an extension of the Chinese Com-

munistparty.”

Mr Pompeo added there were “lots of

topics”onhisagendainLondon,includ-

ing “trade issues”. As part of any trade

deal, the UK is braced for demands by

Washington for US farmers to have

greater access to the British market,

including by selling hormone-treated

beefandchlorine-washedchicken.

DonaldTrump,USpresident,saidlast

year the National Health Service would

be “on the table” in trade talks — raising

theprospectofUSpharmaceuticalcom-

panies selling more drugs to the NHS —

althoughhesubsequentlyrowedback.

These sensitive issues around food

and the NHS highlight how any UK-US

trade negotiation is likely to be more

complicated than ministers are pre-

paredtoconcedepublicly.

The tough language from Washington

is prompting an emerging mood of defi-

ance among Tory MPs, some of whom

were among the biggest champions of

securinganearlytradedealwiththeUS.

“What’s the worst that can happen?”

said one minister, when asked if the UK

might not be able to clinch a deal with

the US. “It wouldn’t be catastrophic.”

Another Eurosceptic Tory MP, who

favours the UK securing a trade deal

with the US, said: “I don’t think we

should offer up stuff we don’t want to

giveinordertogetone.”

Downing Street reiterated yesterday

that Mr Johnson was committed to

agreeingadealwiththeUS.

Foreign secretary Dominic Raab said

the UK relationship with the US was

“incredibly important”, adding there

were big opportunities, including on

“freetrade”.

“I think the relationship has a matu-

rity — the UK-US relationship — that we

can be confident enough to have candid

conversations on the odd element on

whichwedisagree,”hesaid.

EU’s plan to protect 5G networkpage 4

5Gdispute

Pompeo calls for rethink on Huawei

US secretary of state flies

in amid rising Tory anger

towards Washington

C H R I S G I L E S— ECONOMICS EDITOR

Britain’s departure from the EU will set
theeconomyonapaththatsomeecono-
miststhinkwillimproveprospects,add-
ing 1 percentage point to the nation’s
growthratebytheendoftheyear.
Others fear that the certainty of a
worse trading relationship with the bloc
in 2021 will mute any bounce gained by
removing the threat of a no-deal depar-
ture, leaving the economy stuck in sec-
ondgear,hamstrungbyBrexit.
Under premier Boris Johnson’s with-
drawal agreement, which takes effect at
11pm GMT tomorrow, the UK has nego-
tiated an 11-month standstill transition
that keeps existing trading arrange-
mentsbetweenBritainandtheEU.
ButwhiletheUK’sdeparturefromthe
bloc, confirmed by Mr Johnson’s deci-
sive election victory last month, has
brought a greater degree of certainty for
businesses and consumers, the longer-
term picture will hinge on the sort of
trade deal negotiated between Brussels
andLondonbytheendoftheyear.
Echoing Sajid Javid, chancellor, who
welcomed “a boost to economic confi-
dence” that he expects to result in
“moreinvestmentdecisionsandjobcre-
ation”,JulianJessop,afellowattheInsti-
tute of Economic Affairs, said, “there
will be a Brexit bounce”. He predicted
that improvement in sentiment, higher
business investment and a rise in ster-
ling, easing household finances, would
all contribute towards “1 per cent more
growth than otherwise”, raising the
annualised rate of growth by the year-
endbackabove2percent.
The optimism of Brexit-supporting
economists is countered by opponents
who are rather larger in number. John
Springford, chief economist at the Cen-
tre for European Reform, said the
expectation of a big improvement in the
economyfromBrexitwas“silly”.
“The story that now you’ve got cer-
tainty, investment comes flooding back
[doesn’t work],” he said, “because what
you’ve got certainty about is a pretty
hard outcome.” This would depress
activityatcompaniesdependentonfree
movement of people or frictionless
goodstrade,headded.

They all agree that one of the main

causesoftheselosseswasthefallinster-

ling after the Brexit vote, which raised

import prices and inflation but not

wages. The Centre for Economic Policy

Research estimates the vote “increased

consumer prices by 2.9 per cent, costing

theaveragehousehold£870peryear”.

This cost would fall if sterling recov-

ered, lowering prices, but so far ster-

ling’seffectiveexchangerateagainstthe

UK’s main trading partners — at 80.7 —

is only 3.5 per cent higher than its aver-

age after the 2016 vote, and still 8 per

cent lower than its average in the three

years before that. Unless it rises much

further, the gains are likely to be rela-

tivelysmall.

Thedenttobusinessinvestmentisthe

second big effect economists agree was

hit by the vote. The Bank of England put

the effect at 11 per cent lower last sum-

merthanitotherwisewouldhavebeen.

But as this form of investment repre-

sentsonlyatenthoftotalGDP,thecoun-

try’s investment slump would need to

be reversed to provide an estimated 1

per cent lift to the growth rate for a year.

That, Mark Carney, BoE governor, has

repeatedly said, is unlikely as even in an

orderly Brexit, “some of that [invest-

ment] will not come back, the opportu-

nityhasbeenlost”.

AllanMonks,UKeconomistatJPMor-

gan, said there was likely to be some

boost from improved sentiment, but it

was still wise to be cautious. Even

though the optimism component of

business surveys such as the CBI indus-

trial trends survey jumped last week

aftertheelection,MrMonkssaid,“look-

ingatthelonger-termindicatorsinbusi-

ness surveys such as investment inten-

tionsshowstheyarestillsubdued”.

Much will depend not on business,

but the consumer, and the news since

the December election on the high

street has been poor. Retail sales were

weak in November and January, and a

flat CBI’s distributive trade survey in

January showed no Brexit bounce.

Despite record employment rates and a

better year for wages in 2019, house-

holdsarenotyetobviouslyfeelingflush.

With consumers not spending

quickly,theeconomicdataaretherefore

unlikelytopickupuntilthespringatthe

earliest, leaving the politicians continu-

ing to promise a Brexit dividend, but

probably unable to point to hard evi-

dence until the second half of the year, if

atall.

A L E X BA R K E R A N D M A R K D I ST E FA N O

The BBC is facing its biggest threat in

four decades, the head of its news divi-

sion told staff, as the national broad-

caster announced plans to shed 450

jobs as part of an £80m savings drive in

itsnewsservice.

With Boris Johnson’s Conservative gov-

ernment questioning its impartiality

and pressures growing over its public

funding model, Fran Unsworth said:

“Never in my career have I felt that the

BBC is so under threat in the way I do

now.”

MsUnsworth,whojoinedtheBBCasa

trainee in local radio in 1980 and

became director of news and current

affairs in January 2018, made the frank

admission in a speech to staff to confirm

thejobcutsyesterday.

Under the restructuring plans,

described as “an existential threat” by

unions, BBC News will cancel the day-

time Victoria Derbyshireshow and

reduce spending on BBC2’sNewsnight

andsomeBBCWorldServiceshows.

But even after the two-year pro-

gramme to reshape the service, which

aims to save around £40m, the 6,

strong BBC News service will remain by

far the biggest network of any European

newsorganisation.

The plans have caused particular dis-

may among staff because it will usher in

a more centralised, “story-led” model

for organising the BBC’s journalism

which could weaken the independence

ofsomenewsprogrammes.

The changes are underpinned by the

analysis that affluent, well-educated

parts of the BBC’s audience are “over-

served” by the broadcaster’s news serv-

ice, particularly through BBC Radio 4

andprogrammessuchasNewsnight.

In a statement, Ms Unsworth said the

BBChadto“faceup”tohowitsaudience

waschanging.

“We need to be honest with ourselves.

We are spending too much of our

resources on traditional linear broad-

casting and not enough on digital,” she

said.

During a rowdy meeting, Ms

Unsworth was publicly challenged by

multiple members of staff, including Ms

Derbyshire, who has complained of

finding out about her programme being

axedfromnewspaperreports.

Ms Unsworth apologised for the way

the way the plans emerged in the press

while at the same time stressing the

acute political pressures faced by the

BBCatthistime.

The cuts come as Mr Johnson has crit-

icised both the BBC’s funding through

the licence fee and the impartiality of its

editorial output, branding the corpora-

tionthe“BrexitBashingCorporation”.

At the same time Rupert Murdoch’s

News UK has announced it will launch a

new radio service, The Times radio,

which takes aim at BBC Radio 4’s core

audience.

Michelle Stanistreet, the general sec-

retary of the National Union of Journal-

ists, said the cuts driven by government

policy on overall BBC funding were

putting “the very existence” of the cor-

porationindoubt.

“The government should be support-

ing and properly resourcing the corpo-

ration — an organisation that wields sig-

nificant soft power across the globe —

instead of indulging in ideological retri-

bution,”shesaid.

Job cuts

BBC news

chief warns

of threat to

broadcaster

EU divorce.Outlook

Experts struggle to agree on ‘Brexit bounce’

Longer-term picture depends

on kind of trade deal struck

between Brussels and London

Probe deeper, and these divergent

views come closer together. Economists

knowtherearemanyuncertaintiesover

Britain’s exit, many other moving parts

in the global and domestic economy,

and distinguishing the precise Brexit

effectin2020willbedifficult.

The prospect of a large public spend-

ing stimulus from mid-year and a global

economy that is struggling to improve

amid continued trade tensions and

potential new threats such as the coro-

navirus make firm predictions harder

still. The scale of any Brexit bounce also

depends on how the hit the economy

took from the 2016 Brexit vote is meas-

ured: the greater the estimated damage,

even if temporary, the more the poten-

tialgainsfromrenewedcertainty.

Economistsdonotagreeontheextent

of the damage, with estimates varying

from 1 per cent of gross domestic prod-

uct (£340 per person every year) to

about3percent(£1,000pp).

Canary Wharf:

UK business

investment last

summer was

11% lower than

expected before

the vote to leave

the EU, says the

Bank of England

Simon Bourne/Alamy

‘This isan extension, an

extension of the Chinese

Communist party’

Mike Pompeo

J O N AT H A N F O R D A N D A N D R E W JAC K

At least 30 academy trusts across Eng-

landreporteddeficitslastyear,inasign

of growing financial pressures on the

sector and raising the prospects of sig-

nificantrestructuring.

An analysis of more than 360 trusts

managing 1,500 schools audited by the

Kreston Academies Group, a network of

accountants and advisers specialising in

education, showed a continuing inc-

rease in those with cumulative deficits,

upfrom21in2017and28in2018.

There are 8,461 academies in Eng-

land, according to a Department for

Education report, which warns that the

financial position of the sector is “very

volatile”, with funding “still extremely

tight” and uncertainties ahead over

incomeandcosts,suchassalaries.

That reflects government data, which

showedasurgeinthenumberofschools

“rebrokered” or transferred between

trusts, rising from 21 in 2014 to 307 last

year,or3.5percentofthetotal.

The figures show a gradual trend

towards consolidation, with the average

number of schools joining together to

form multi-academy trusts (Mats) —

risingfrom3.28in2016to5.51lastyear.

TheaveragefinancialpositionofMats

improvedoverthepastthreeyears,with

an average surplus of £196,000 in

2018-19, compared with a deficit of

£145,000thepreviousyear.

But the data show the improvement is

primarily due to additional income that

is non-recurring or not guaranteed, inc-

luding one-off grants for capital invest-

ment, and nearly half of Mats include at

leastoneschoolfailingfinancially.

Among the pressures facing acade-

mies are a substantial rise in pension

funding costs, which the government

has only committed to cover for this

financial year, and the need to finance

an increase in teachers’ starting salaries

to £30,000, which may have knock-on

consequencesfortheirtotalwagebills.

“This year was a one off, and... the

financial health of the sector is likely to

deteriorate again unless additional

grantsareannounced,”thereportsaid.

Education

Number of academy trusts

reporting deficits still rising

The UK’s Brexit deal cleared its last

political hurdle yesterday after the

European Parliament ratified it with

an overwhelming majority.

The vote in Brussels paved the way

for the UK to leave tomorrow.

Ursula von der Leyen, European

Commission president, told MEPs that

“no new partnership will bring back

the benefits of being part of the same

union” but both sides had a “duty” to

seek the best possible outcome.

She reiterated EU warnings that the

“precondition” for the tariff-free,

quota-free trade deal that Prime

Minister Boris Johnson was seeking

would be a “level playing field” of

common rules.

MEPs ratified the deal with 621 in

favour, 49 against and 13 abstentions.

EU governments will approve it today.

Jim Brunsden, Brussels

Brussels

MEPs

wave

through

exit deal

P E T E R C A M P B E L L

Car production fell to its lowest level in

almost a decade last year as warnings

intensified that the UK needed to

“re-establish” its reputation as a place

toinvest.

Outputfell14percentto1.3m,theworst

since2010,accordingtofiguresfromthe

Society of Motor Manufacturers and

Traderstoday.

The decline of diesel, falling sales to

China and production shutdowns in

anticipation of Brexit all hit output,

pushing exports down 14.7 per cent and

production for the home market down

12.3percent.

Mike Hawes, SMMT chief executive,

said the “jury is out” on the long-term

survival of the UK car industry, adding

that Britain’s reputation had been

“damaged” by the three-year tumult

thatfollowedtheBrexitvotein2016.

Investment into the industry was

£1.1bn last year, significantly higher

than in the previous two years, but

skewed by the £1bn investment ofJag-

uar Land Roverat its Castle Bromwich

plant to enable it to make electric vehi-

cles. The total is also significantly lower

than the £2.75bn average investment

overthepastsevenyears,headded.

“The reputation of the UK has to be

re-established,” Mr Hawes said. “Repu-

tations are hard gained over many years

and easily lost. The UK has been dam-

aged — we don’t know if that is perma-

nentornot”.

Companies such as Vauxhall owner

PSA,BMW andNissanhavewarnedthat

future investment in the UK is depend-

ent on clarity about the long-term trad-

ingrelationshipwithEurope.

Four out of five UK-made cars are

exported, with half going to the EU and

two-thirds to nations with an EU trade

deal. Additionally, carmakers rely on

theEUforasignificantnumberofparts.

Mr Hawes said the industry wanted a

tradedealwiththeEUthatallowed“tar-

iff-free and quota-free” access to the

market. Agreements with the US or

othermarketsweresecondintheindus-

try’slistsofconcerns,headded.

Manufacturing

Car output at 10-year low as

EU exit fears hit production

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