First, the bad news.
The UK’s Brexit decision has had precisely the impact MCA members predicted. Sterling has fallen dramatically. Inflation is now expected, based on rising import prices, including food as the Farmers Union has warned, and at the petrol pumps. Homebuyers are already pulling out of purchases. Lenders predict a 10% downward correction in house prices by Christmas. The FTSE is bearish, with especial pressure on banks. Gilt yields are at record lows. The Institute of Directors anticipates that a quarter of its members will freeze recruitment. And the crisis has been internationalised. On the day after Brexit, $2tr was wiped of the value of shares globally. Many UK-based businesses, especially in financial services and technology, are contemplating relocating overseas. Moody's, Fitch and Standard & Poor's have all downgraded their assessments of UK creditworthiness.
Meanwhile, the UK has a lame duck Prime Minister and a main opposition locked in internecine warfare. There is no clear consensus among Brexiters about what a future settlement for our trading, constitutional and border arrangements should look like. The Union faces the renewed prospect of Scoxit and even calls from the pro-EU Nationalist community in Northern Ireland for a poll on Irish unification. Voting patterns in the referendum evidence a nation not at ease with itself. The North is at odds with the South. Young people accuse baby boomers of depriving them of their future. The poor and the rich are at loggerheads. And, alarmingly, a sudden spike in reported hate crimes is evidence of the unleashing of very dark forces.
But there’s also good news – in our prediction. The MCA members almost universally anticipated this outcome if the vote went for Leave. Project Fear proved to be Project Crystal Ball (with a dash of Project Understatement). Those who predicted the problems and understand the difficulties are the ones best placed to help deal with them. (We used to call such people ‘experts’…) Just as a vibrant management consulting industry was needed after the Credit Crunch, so our industry will be critical to turning Brexit from a crisis into an opportunity.
The lack of consensus among Brexiters (especially those who give the impression of having sought a narrow defeat, who look a little caught out by their Pyrrhic Victory) about what happens next provides the main area of consulting opportunity. Consider migration. MCA members have consistently argued for access to skills from across the globe. They make this case both for the health and success of their own firms, and for their clients, especially those operating in sectors where skills shortages are acute, such as engineering and infrastructure, technology and health. Some Brexiters, especially those whose key objection to the EU was sovereignty, such as Daniel Hannan and Douglas Carswell, are sympathetic to the arguments of the MCA and others about migration. They have indicated that Brexit was never intended to guarantee reductions in migration. This is news to those who spent the campaign advocating capping numbers, deploying an ‘Australian-style’ points system, to say nothing of those who have tickled every Islamophobic, anti-Polonist and xenophobic fancy throughout the campaign. The last group have also helped foster expectations that soon ‘they’ would all go home among the economically and socially alienated, as well as in more unsavoury elements, some of whom now feel emboldened to shout at migrant workers in Tesco shopping queues, or daub graffiti on Hammersmith community centres.
It is absolutely imperative that the migration perspective closest to MCA members prevails. A look at the results of our survey of young consultants, where only 75% of respondents self-identify as British, vividly illustrates the international nature of our industry. And the notion that the UK can retain its economic position without significant migration is a fantasy. We have an ageing population. The numbers of indigenous, economically inactive British citizens are comparatively low. The challenges of getting those who have any prospect of becoming active are significant. But even if they became so, and even if in mobilising them, we were able to train more doctors, nurses, engineers, programmers, 3D printing specialists, nuclear scientists, while simultaneously recruiting armies of farm labourers, builders, plumbers, bartenders, receptionists and baristas, we would still not have enough workforce capacity to sustain our current levels of economic output, our public services, and the relative prosperity we have become accustomed to. The elderly who voted for Brexit will still need overseas workers to build their roads, serve them coffee, conduct their MRI scans and change their incontinence pads. The rest of us will need foreign co-workers – or we will watch impotently as their jobs, and ours, are moved abroad. MCA members, through their routine work and their lobbying activities will continue to uphold this multinational vision. The UK is a global economic hub. London is an international city. Increasingly, so are Manchester, Birmingham, and Edinburgh. They must remain so.
Another area of contention and opportunity is regulation. The myth is that the UK is over-regulated, because of ‘Brussels’. All objective studies, by contrast, show the UK to be one the least heavily regulated economies in the world. Indeed, UK business has a pragmatic approach to the issue. As MCA Think Tank Director, I have attended meetings sponsored by the UK government where British industrialists have argued for exporting the UK’s more exacting regulatory standards for technical professions, domestic electrical services and safety to our laxer continental partners. That intent now has zero chance of progressing. Instead, to have any prospect of trading with Europe on a nil-tariff basis, the UK will have to accept most product standards. And with good reason. All the tabloid nonsense about straight bananas boils down to simple issues of market operation. When a common market is in place, it operates common standards.
To illustrate this, ask yourself this question: what is a loaf of bread? Seems simple enough. We all have a clear image of it. Now ask yourself this: in manufacturing it, can I put strychnine nitrate in? Or can I cut the flour with sand, or household dust or white paint powder? Can I make loaves containing 50% salt content? In an unregulated market, such as the illegal market in heroin, you can do any of these things because you are negligent, or want to undercut competitors and seek unfair advantage. But a legal market enshrines societal norms. It deploys regulations to protect scrupulous businesses from the nefarious or incompetent. We used to be able to negotiate those standards, and our post-Hampton regulatory agenda meant that we were winning the argument on the balance of regulatory necessity against business growth. Now we will have to accept what others impose on us.
Fortunately, most of the standards are there in UK statute, passported from EU directives, and can be adopted wholesale. Nevertheless, there may be opportunities for the UK, even amid what promises to be a vexatious argument about the balance between the rights of workers and the rights of employers, and whether they should be passported too or reengineered. One way, for example, in which the UK can strive to maintain its tech sector is by developing a suitable regulatory framework. The EU (and hitherto the UK) has lacked the agility to convert mimima for employment, tax, health and safety, and trading standards that were designed for the industrial and post-industrial service eras into something fit for purpose for the Digital Age. MCA members will have much to add to this debate.
Even as the vote puts our growth and economic stability in jeopardy, they become, of course, more important than ever – not least for reasons of social policy. Whatever happens now to George Osborne, his Northern Powerhouse and devolution agendas must survive and be ramped up. One reason why the Germans are less likely to vote to leave the EU than us is to do with their dispersed economic power: Berlin is their capital, Frankfurt their main financial sector, the Ruhr the seat of their main manufacturing, with major maritime and cultural centres in the North and South respectively. By contrast, for many in the regions, UK prosperity means London prosperity. People in Sunderland, Barrow, the West Midlands, Chesterfield, Cornwall, Ipswich, and the Rhondda feel alienated from what they see as a London agenda. MCA members can continue to lead on the rejuvenation of regional governance and associated economic opportunity.
In these difficult times, the executive of the MCA also make this pledge to our members. We already believe that management consulting is at the heart of Britain’s success. That is the essence of our Consulting Excellence initiative. As we face the challenges in the referendum’s aftermath, we see that importance being redoubled. Over the coming weeks, we will accordingly launch a special project on Brexit. This will ensure that our members interests are protected, but also, more importantly, that their insights have appropriate prominence and influence. The silver lining to Brexit’s economic cloud, is that great consulting, focused on outcomes and helping businesses survive and thrive – Consulting Excellence in other words – is now more necessary than ever.