The implications of Brexit
- Meeting of Finance Panel (Panel of the Scrutiny Committee), Monday 4 September 2017 6.00 pm (Item 59.)
- View the background to item 59.
The Finance Panel has asked to monitor the impacts of Brexit on the Council’s finances and the wider economy. Previous reports were considered by the Panel in September 2016 and March 2017.
Why is it on the agenda?
For the Panel to consider the impacts of the UK’s decision to leave the European Union by monitoring a set of financial indicators on the Council’s finances and the wider city economy.
Who has been invited to comment?
· Nigel Kennedy, Head of Financial Services
The Head of Financial Services introduced the report. He said that national shifts in inflation, which was rising, and general economic growth, which had slowed in the first half of 2017, were yet to feed through to the Oxford economy in a tangible way. Business Rates income was holding up, units in the new Westgate Shopping Centre were being let and there had been no significant increase in bankruptcies. BMW had recently announced that the next generation Mini would be produced in Cowley, which was good news for the local economy.
The London School of Economics (LSE) has assessed the expected impacts of a ‘hard’ and ‘soft’ Brexit on the Gross Value Added (GVA) of UK cities over the next ten years. The LSE predicted that there will be a negative impact across the board but Oxford was expected to be among the least adversely affected UK cities in the South of England, with GVA impacted by -1% (soft Brexit) to -2% (hard Brexit) over the period. This analysis was based on assumptions about increases in trade costs and did not factor in the effects of Brexit on innovation, foreign investment and migration flows, or how cities would respond to changes linked to Brexit. The LSE therefore expected that their analysis would underestimate the economic impacts of Brexit.
In terms of interest rates, the Bank of England’s base rate remained at a historic low of 0.25% and was not expected to be increased until 2019. This had the effect of supressing investment returns. It also meant that borrowing rates available through the Public Works Loan Board were very low. The Council was likely to benefit from the low borrowing rates at some stage when borrowing to finance the Housing Company’s development programme.
The Panel heard that Brexit was having an effect on the employment market, with a number of EU nationals reported to be leaving or planning to leave the
UK. Direct Services were having difficulties recruiting to some posts and these issues may start to bite over time.
The Panel noted that seven council employees who were EU nationals had applied to be reimbursed the £65 cost of applying for a UK Registration Certificate or Permanent Residence Card. The Panel suggested that the Council should continue to offer this to staff, either through further communications to all staff or more targeted communications.
The Panel questioned the extent to which the Westgate Shopping Centre was attracting new retail business to the city or causing existing businesses to relocate. The Major Projects and Development Manager said that the Westgate would provide a different offer to other parts of the city centre, including a number of new London-based operators who were opening flagship stores outside the capital. Some existing city centre businesses had been turned down for plots in the new Westgate. It was expected that there would be a period of flux for 1-3 years during which time there may be a number of empty units in the city centre before things settle down.
The Panel commented on the need for more office space in the city centre and asked whether there was scope within the Council’s own commercial property portfolio for more office space. The Major Projects and Development Manager said that some opportunities were set out in the report on item 6. Further such opportunities may arise in the medium term or perhaps sooner if potentially suitable units were to become vacant.
In response to questions the Panel also noted that:
• A judgement would be taken about when to borrow externally to fund the Housing Company and the Council would be taking advice on this.
• The Head of Financial Services was comfortable with the level of risk the Council was taking in its investment portfolio, with up to 20% of the portfolio comprising non-specified investments such as property funds.
• Although the Treasury Strategy did allow for the Council to invest in foreign banks, it was not currently doing so. It was considered that returns would be similar to UK banks but the level of risk would be higher.
• It was thought that State Aid rules, which prevent competition being distorted, were unlikely to change in the near term. Their removal would negatively impact the General Fund.
• Possible fluctuations in Business Rates income linked to the new Westgate were not factored in to the Council’s medium term financial plan but the Council only received 20% of the total Business Rates take.
The Panel agreed to recommend to the City Executive Board that:
1. The Council supports the Local Government Association in calling on the Government to grant local councils the £8.4bn they were due to receive from the Structural Investment Fund between 2014 and 2020.
2. The Council informs all staff who have been identified as possible non-UK EU citizens and who have not taken up the Council’s offer to reimburse the cost of applying for a UK Registration Certificate or Permanent Residence Card that the Council remains happy to reimburse these costs.
3. 3. Further consideration is given, in light of Brexit, to the case for having a powerful advocacy role for the Oxford economy at national and international levels and how this could be achieved in the absence of a directly elected mayor for Oxfordshire.