Sunday, August 11, 2019
The top 1% pay a lot of tax - will they stay or go?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

Today I want to lift my sights high. So high, in fact, that it takes me to the very top of the income distribution. These are the people who earn many times the average salary, are mainly not Premier League footballers (though they clearly do), and who are endlessly fascinating.

I do so for three reasons. The very well-off, the top 1%, and even more so the top 0.1% will become even more important as a source of income tax revenues if Boris Johnson carries out his leadership pledge to reduce the tax burden on those slightly lower down the income scale.

That pledge, you may recall, was to increase the threshold at which people pay the higher, 40%, rate of income tax from £50.000 to £80,000. I don’t get the sense that the government is yet moving heaven and earth to deliver on that pledge but, when it does, the proportion of income tax revenues paid by those on incomes above £80,000 will rise.

It is already, as you will know, high. This year, according to Her Majesty’s Revenue and Customs (HMRC), 29.6% of all income tax revenues will be paid by the top 1% of taxpayers, and just over 50%, 50.1% to be precise, by the top 5%. Very soon, it seems, the top 1%, who account for roughly a seventh of incomes, will be paying a third or more of income tax revenues. Their share 20 years ago was 21%.

It is important to note that we are talking about only one tax here, admittedly the important one of income tax, which will bring in £190bn this year, which is skewed in this way. Others by and large are not.

This takes me on to a second reason for writing about the highly-paid. The income tax system is already progressive – the top 50% pay 90.8% of revenues and the bottom 50% just 9.2% - and Labour would want to make it more so. Many at the bottom pay no income tax at all.

Labour’s current plans envisage introducing the 45% tax rate on incomes of £80,000 or more, and 50% on incomes above £123,000. If your earnings are £80,000 or thereabouts and the Johnson government carries out his pledge to raise the threshold, voting Labour would imply a significant personal sacrifice.

Mainly I am writing about the top 1% this week, however, because the Institute for Fiscal Studies has been digging into the data and come up with some fascinating facts about those at the top if the income ladder. The IFS is undertaking a larger review, the Deaton review, into inequalities. That will look at why some people have such high incomes. Are they benefiting from scarce talent, an ability to innovate or being successful wealth creators, or are they exploiting their market power at the expense of others?

That is for later. In the meantime, we know more about the top 1% than we did.
So, as the IFS points out in its report, The characteristics and incomes of the top 1%, by Robert Joyce, Thomas Pope and Barra Roantree, the top 1% are disproportionately male, middle-aged and based in London. Men constitute 83% of the top 1% and 89% of the top 0.1%, which I shall leave here without comment.

The top 1% has become, like the economy as a whole, more geographically concentrated. Though people in the top 1% - some 310,000 in any given year – can be found in most parts of the country, half are in just 65 (out of 650) parliamentary constituencies, predominantly in London and the southeast. In 2000, half of the very rich were spread over 78 constituencies.

Nationally, to get into the top 1%, a taxable income of £160,000 is required, while nearly £650,000 is needed to make it into the stratosphere of the top 0.1%. The higher the income, the more that it is likely to consist of more than just salary. So a quarter of the incomes of the top 1% are in the form of partnership and dividend income. Roughly a third of them are business owners.

Whether it is possible to keep up with the Joneses depends very much on where you live. A middle-aged man (45-54) in London with an income of £160,000 is in the top 1% nationally but not even in the top 5% among his peer group in the capital. To be in the top 1% in London for a middle-aged man would require an income of £700,000. There is always somebody considerably richer than you.

That may be why people in London and the southeast, particularly higher-income people, are in danger of losing touch with how most of the country lives. As Joyce, a deputy director of the IFS, puts it: “The highest-income people are very over-represented in the country’s south east corner, most of them are men, and many are in their 40s and 50s. This geographic and demographic concentration may be one reason why many of those on high incomes don’t realise quite how much higher their incomes are than the average. “

There is another point that emerges from the research which could be important in the future. It is easy to think of those on the highest incomes as both a privileged group but also an unchanging one. That is not the case.

A quarter of those in the top 1% this year will not be in the group next year and only half will still be at the top in five years’ time. Very few will be in the top 1% all their lives. People have good years and bad years, and they move in and out of the top 1%.

Sunday, August 04, 2019
This sterling slide has logic on its side
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

The new government is less than a fortnight old but already we have seen a flurry of announcements and, it seems, cash pouring out of the Treasury as if there is no tomorrow. So, on your behalf, I have been trying to make some sense of this, by reading Boris Johnson’s speeches and pronouncements since he became prime minister. Somebody had to.

He has, as you would expect, a nice rhetorical flourish. Whether that is all he has, we will find out in coming months. So, he suggests, “we will look back on this period as the beginning of a new golden age for our United Kingdom”.

He is willing, he says, to “go the extra thousand miles” to engage with the EU and insists “there is scope to do a new deal” before October 31, defying “the doomsters, the gloomsters”. The chances of a no-deal Brexit, he has repeated, are “a million to one”.

When it comes to splashing the cash, there is so far a little less than meets the eye. Talk of new hospitals and extra money for the National Health Service is not new money but an allocation, perhaps sped up a little, of the 70th birthday present for the NHS announced by Theresa May last year and due to come through over the next few years.

The government’s flagship domestic announcement is 20,000 extra police officers over three years, which will roughly reverse the cuts since 2010, will have extra money attached. Whether there is a political future for this kind of cut-and-spend strategy remains to be seen.

There will be £2bn more for northern infrastructure projects, spread out over a period, and £2.1bn more for no-deal preparations, though at least half of this will be spent after October 31, and some of it may have been announced before. More than £100m will be spent on no-deal advertising; a public and business information campaign.

I have not spotted anything much on tax-cutting plans, which featured a lot in the leadership contest, though perhaps that has to wait for the autumn budget. That itself has become a source of intense Westminster and Whitehall speculation, with suggestions that the budget could come before October 31, potentially opening the way for a defeat of the government and a general election. We shall see.
What you really want to know is whether there is anything that amounts to a coherent Brexit strategy in what we have heard so far.

Currency traders are a practical lot. Many of them, perhaps a majority, probably supported Brexit. But they can recognise bluster when they see it, though they might have a ruder term for it, and they know that that is what they been hearing from the new government. Johnson has erected a giant sell signal over the pound and they have been happy to oblige.

This is the third phase of sterling’s Brexit adjustment. The first came with the referendum itself which, as noted here recently, was the sharpest fall for any major currency in the post Bretton Woods era, which now stretches back for nearly half a century.

The second was in October 2016, and May’s “Brexit means Brexit” phase, when she ruled out future membership of the single market and customs union.

The third phase, which took the pound down to $1.21 and €1.09 last week, was sparked by an article by Michael Gove, the new chancellor of the Duchy of Lancaster, who is in charge of no-deal preparations and who said no deal was now the government’s working assumption. Only when Johnson tried to dial down on the no-deal rhetoric was its fall halted.

Whether this third phase persists, or whether there will be pause until a fourth phase in the autumn, when a no-deal Brexit itself drives the pound below parity with the euro and close to it with the dollar remains to be seen.

We should be clear about why this has been happening. The markets, in pushing the pound lower, are judging that Britain’s economic prospects will be worse as a result of Brexit. And, as a more considerable prime minister Margaret Thatcher once said: “You can’t buck the market.”

Under Johnson we have moved further away from a Brexit deal with the EU, a withdrawal agreement followed by a transition period. For the past three years, detailed negotiations between the two sides came up with a solution which, while far from perfect, was workable.

Now that solution, the withdrawal agreement, is declared dead by the government, and Johnson has demanded that the Irish backstop be removed as a condition for talks on a new deal in the very limited time available.

Saturday, July 27, 2019
Tricky times call for a lucky chancellor
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

There are three ways of viewing Boris Johnson’s first few days as prime minister, and in particular his “fire and hire” approach to his new cabinet. Apart from demonstrating that no job is as insecure as that of a cabinet minister and their special advisers, it was curious man and woman management from a new leader apparently committed to Tory unity, and needing the loyalty of his MPs in coming weeks.

The smart money in the markets and the view of many in Westminster is that stepping up no-deal preparations and insisting that the Irish backstop be removed from the withdrawal agreement is all about preparing the country for a “blame somebody else” election in the autumn, in which no-deal opponents in the House of Commons and Brussels are the enemies and the patriotic thing is to support Johnson’s Tories. Risky, particularly with the Brexit Party still around.

The second possibility is that, having filled the cabinet with Brexiteers, they will be obliged to support even modest reassurances offered by the EU in the political declaration, and an orderly Brexit can proceed. Risky too, given that any of them could resign, and the fact that hardline ERG (European Research Group) Tory MPs do not appear to have been bought off by some of their number making it to the cabinet.

The third possibility, a no-deal Brexit, would see the Dunkirk and Blitz spirit being invoked, and the Johnson government taking the rap for the short and long-term consequences, which a few weeks of preparation will not prevent. No doubt Europe would also be blamed.

We shall see. There is no easy way of attaching probabilities to these possibilities, but in broad terms they would run in the order I have set them out, with an election most likely and no-deal Brexit least.

Let me, however, lift my gaze above the short-term uncertainties. We have a new chancellor, Sajid Javid who, unlike some of the other cabinet appointments last week, appears eminently suited to the job. Will he be a good chancellor and, perhaps as importantly, will he be a lucky one?

In some respects he is already lucky. As a result of the combined efforts of George Osborne and Philip Hammond, he inherits a budget deficit which, at £23.5bn or 1.1% of gross domestic product in 2018-19, was the lowest for 17 years. The new administration has to decide what its fiscal rules will be, including whether to stick with the vague target of eliminating the budget deficit by the mid-2020s, but the starting position is a good one.

The labour market, meanwhile, is another bright spot. Unemployment is at its lowest since the mid-1970s and the employment rate – the proportion of working-age people in work – is close to record highs. Average earnings growth, at around 3.5%, is above the 2% inflation rate and providing consumer spending support to the economy. The economy has slowed significantly but things could be a lot worse.

If Javid were to be a really lucky chancellor, however, he would enjoy something denied to both his predecessors, the return to normal rates of productivity growth. Osborne had reason to expect productivity to bounce back after the financial crisis. Instead it stagnated, forcing the Office for Budget Responsibility (OBR) to downgrade the outlook for the public finances. Hammond also presided over productivity that was a mere 1% higher when he left office as when he became chancellor.

This matters. Had productivity over the past decade grown in line with its long-run trend, it would be about 20% higher than it is, with most of that translating into a larger economy. And, for those who think productivity only matters for economists, the Office for National Statistics’ recently calculated that private sector wages would be £5,000 a year higher than they are had productivity achieved trend growth and pay increased accordingly. £5,000 a year is equivalent to an 18% boost in full-time private sector average earnings.

Productivity is due a revival. At 3.8%, the unemployment rate cannot fall much further and the growth of employment, constrained by the availability of workers, has begun to slow.

There is also the promise, so far largely unrealised in this country, of a significant boost to productivity for the new technologies of artificial intelligence and robotics. Though there has often been scepticism about the contribution of new technology to productivity growth – three decades ago the US economist Robert Solow said that you see computers everywhere except in the productivity statistics – there is also a sense that we could be on the brink of something big.

Sunday, July 21, 2019
Counting the cost of a Johnson government
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

When a new prime minister is about to take over, there is normally a sense of excitement, even optimism. In the case of Boris Johnson, however, assuming the polls are right and he is duly elected by Tory party members this week, there is also a powerful sense of trepidation.

New prime ministers normally take office as a result of a general election. On the road to victory, their policies, as set out and costed in manifestos, will have been subject to the closest scrutiny, from the opposition and from the media. Before even making it into the manifesto, they will have been subject to a long, behind-the-scenes process of scrutiny, to make sure that they are credible.

Where this does not occur, it often goes wrong. Nobody was more pivotal to the New Labour government of Tony Blair than Gordon Brown. But when he took over as prime minister without an election in 2007, the policy cupboard was bare even before the financial crisis hit, and his premiership did not work out well.

Theresa May, who also succeeded to No.10 without an election, had ideas, but most of them turned out to be unworkable and were quietly dropped after the 2017 election. Her legacy speech, delivered last week, suffered from a distinct lack of material.

Johnson is in a much weaker position than either of them. Both had been at the heart of government over several years, 10 in the case of Brown as chancellor, six for May as home secretary. Johnson, in two undistinguished years as foreign secretary, was a peripheral figure. The wheels of government did not depend on his presence.

Though he has been dreaming of the top job all his life, he is probably the least prepared for it of any recent prime minister, as he has sometimes shown over the past two or three weeks. Instead of carefully-tested and costed policy proposals, ideas have been tossed out, almost daily, to get through the next hustings or interview.

There is a positive element to this. It could suggest that once he is safely ensconced in 10 Downing Street, again assuming not late and successful burst from Jeremy Hunt, many of the most expensive ideas will be either quietly forgotten or put in the filing cabinet marked “long-term ambitions”.

Philip Hammond, who has been enjoying his last few days as chancellor by settling out markers against a no-deal Brexit, is fully expecting to return to the backbenches for the first time in two decades. His successor, and the assumption in Westminster is that it will be Sajid Javid, the current home secretary, will not want to preside over a borrowing binge which, alongside the sterling crash that would result from the wrong kind of Brexit, would mean that the new chancellor’s immediate task would be one of crisis management. Poisoned chalices do not become much more toxic than that.

Fortunately, there is an easy way out of this. It used to be said of currency forecasters never to combine a forecast with a date, because that way you would be right in the end. The same goes for tax and spending promises.

No timeline has been attached to the tax and spending promises that Hammond, with a nervous eye on the public finances, has been getting very jumpy about. The two most eye-catching Johnson promises – increasing the higher rate threshold (the point at which people start paying the 40% tax rate) from £50,000 to £80,000, and raising the National Insurance threshold to £12,500 - do not come with a timeline attached.

Sunday, July 14, 2019
Friendless pound needs the kindness of strangers
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

Even before Sir Richard Branson offered his opinion on the pound, I was intending to write about sterling this week. This is a time of year when many people think about the exchange rate more than at other times and encounter the reality that businesses and the markets have been dealing with for the past three years. The pound, unsurprisingly in the light of the current uncertainty, has taken on a weaker tone recently.

Branson thinks sterling will go to one-for-one parity with the dollar in the event of a no-deal Brexit this autumn, from $1.25 now, and, while that is a touch below market expectations, it is in the right ballpark. With the euro worth almost 90p, equivalent to a euro-sterling rate of €1.11, the pound would be headed below parity with the single currency, embarrassingly.

Already, for tourists, even current very low market exchange rates are an unattainable dream. Those leaving it late and changing currencies at the airport have already experienced the reality of a sub-parity euro. Staycationing has its merits.

Sterling has been the Brexit barometer over the past three years. Even knowing that, I found it hard to believe, as has been claimed, that the pound’s fall on the referendum result in June 2016 was the sharpest for any major currency in the floating rate era, which extends back to the early 1970s. Surely there have been bigger sterling falls, not least when the pound tumbled out of the European exchange rate mechanism (ERM) in September 1992.

It is, however, true. The sterling index, which measures the pound’s average value against other currencies, fell by 9.2% in the 48 hours after the referendum, and by 11.4% over two weeks. That compares with 5.7% and 8.6% respectively when sterling crashed out of the ERM. The pound had a bigger cumulative fall over 2007-8, during the financial crisis, falling by more than 25% in total. But what was a drawn-out affair and was followed, as is typical, by a recovery. Currencies tend to overshoot.

This time, however, there has been no recovery. Sterling is lower now than it was in the early days after the referendum, against both the dollar and the euro. A measure of how weak the pound has been over the past three years is its average value against the dollar, $1.30, compares with $1.65 over the 10 years leading up to the summer of 2016, and $1,66 in the 30 years leading up to it.

Sterling’s recent fall was halted briefly last week by testimony from the Federal Reserve Board chairman Jerome “Jay” Powell, pointing to an early cut in US interest rates, and by the release of monthly gross domestic product (GDP) figures in the middle of last week. It is worth briefly reflecting on them. The 0.3% rise in monthly GDP in May, reported by the Office for National Statistics (ONS) was in line with the consensus, and represented a partial bounce from the 0.4% drop recorded in April. Car factories had shut down in April as a result of the original March 29 Brexit deadline and restarted again.

The figures also showed a 0.3% rise in GDP for the March-May period compared with the previous three months, which was better than expected, but was entirely the product of data revisions. The nerdy explanation is that the ONS revised down February’s monthly GDP slightly, shifting it into March. That made March-May better but the question for the second quarter as a whole remains. If June was as gloomy as the purchasing managers’ surveys suggested, there will be a small fall in GDP in the quarter. If not, it will be flat, or there will be a tiny rise. Whichever way, growth has slowed significantly, though it is too early to say whether that has continued into the third quarter.

Sunday, July 07, 2019
Brexit bluster comes home to roost as growth hits the buffers
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

Sometimes a figure comes out which really pulls you up short. Just such a figure was published a few days ago. The purchasing managers’ index (PMI) for Britain’s construction sector slumped last month. Already weak at 48.6 in May (levels below 50 signal a decline in output), it plunged to 43.1 last month. Not only was this exceptionally weak, but it represented the biggest fall in output since April 2009, when the economy was still mired in the 2008-9 recession, the worst since the Second World War.

The details of what IHS Markit,, which compiles the survey, described as “an abrupt loss of momentum” for construction were as bad as the headline figure. As Tim Moore, an associate director of IHS Markit put it: “The latest survey reveals weakness across the board for the UK construction sector, with house building, commercial work and civil engineering activity all falling sharply in June. Delays to new projects in response to deepening political and economic uncertainty were the main reasons cited by construction companies for the fastest drop in total construction output since April 2009.”

Construction is, of course, only one part of the economy and, while as noted last week it has recovered well since the crisis, it only accounts for about 6% of gross domestic product. Isolated weakness in construction does not mean trouble for the whole economy.

Except that the construction PMI was accompanied by weakness in the surveys for other parts of the economy. The manufacturing PMI fell to 48 last month, from 49.4 in May. It had been expected to bounce back after the stockpiling boost in the first three months of the year.

The service sector PMI, meanwhile, dropped from 51 to 50.2, with “subdued activity often attributed to sluggish domestic economic conditions and greater risk aversion among clients in response to ongoing Brexit uncertainty”. The “composite” PMI, a weighted average of all three sectors, dropped to 49.2, signalling the first drop in private sector activity since immediately after the referendum.

These PMIs, suggesting the lights are going out all over the economy, are not isolated reading. The CBI’s growth indicator, published last weekend, show3ed the fastest fall in private sector activity since 2012.

The British Chambers of Commerce quarterly survey for the second quarter, also last week, showed a very weak manufacturing sector and a slight uptick for services, but pointed out that “the uptick in activity was not enough to outweigh the significant drop in these indicators in the first quarter”.

We will see this week if the weakness in the surveys is matched by the official data, with a string of releases, including construction, production, services and monthly GDP for May. Even if GDP showed a monthly bounce in May, the arithmetic for the second quarter, and avoiding a quarterly drop in GDP, is very challenging.

The significance of the surveys, meanwhile, was that they showed that we have seen a weakening through the quarter, and a downward trend that accelerated last month.

It is easy to see why this is. Three years ago Britain voted for Brexit, even though its advocates had not serious idea or plan on how to deliver it. Boris Johnson, who was instrumental in securing a vote to leave, had no clue then about how to achieve Brexit and, three years on is not providing much of a clue now. Many “Back Boris” supporters, I think, must be similarly clueless.

Sunday, June 30, 2019
Ten years of recovery, yet not a happy anniversary
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

This is an important moment. Ten years ago, 10 years tomorrow to be precise, Britain’s economy began to crawl, bleary-eyed, out of the deepest recession since the Second World War. The anniversary brings with it questions. How strong, or weak, has the recovery been? What kind of recovery, in terms of sectors of the economy, was it? And, the question I get asked most often, how long can it last?

The recovery itself was slow to get going. I well remember the concern, in those dark days of 2009, when it appeared that other economies had begun their post-crisis recoveries but Britain had not. Initial figures from the Office for National Statistics (ONS), indeed, suggested that the upturn started later. Its first estimate for the third quarter of 2009 was a drop of 0.4% in gross domestic product, a sixth successive quarterly decline, and economists were criticised for predicting a small GDP increase.

The economists were right. ONS figures now show that GDP edged up by 0.1% in that third quarter of 2009, giving way to somewhat stronger growth later. It has not been unbroken growth. In 2012 there were small GDP declines in the second and fourth quarters. Because they were not consecutive they did not count as a recession, though initial figures from the ONS did show that the recovery “double-dipped” back into recession in 2012 and was on the brink of a “triple-dip” recession.

On the basis of the latest ONS figures, which include last week’s revisions to growth rates up to 2016, the economy has achieved an average growth rate of 1.9% over the past 10 years. Its strongest years were 2014 and 2015, its weakest was last year. You can draw your own conclusions about that.

The growth average over this recovery, 1.9%, compares with 2.8% over the long recovery from 1992 to 2008, which was brought to an end by the financial crisis, and 2.9% for the 1981-90 recovery under Margaret Thatcher. Growth has been around a percentage point lower on average, than during those two previous upturns. One caveat, though it is a small one, is that recent figures are more prone to revision.

A below-par recovery has happened despite an exceptional monetary stimulus. Every member of the monetary policy committee (MPC) who voted to cut interest rates to 0.5% in March 2009 would at the time have been astonished to think they would be only fractionally higher, at 0.75%, now. None of them, by the way, is still on the MPC. There has been £435bn of quantitative easing.

That has saved the economy from even weaker growth. The fact that growth has not been stronger would be put down by some to deficit-reduction, or austerity. Nobody would seriously argue against the proposition that a fiscal tightening will give you weaker growth than otherwise, but it would also be wrong to attach all the blame for the growth disappointment to fiscal policy. The hangovers from the crisis, particularly the banking hangover, played a big part and the causes of productivity stagnation run deep, and are for another day.

Sunday, June 23, 2019
Our export prospects can burn bright - as long as we dodge a no-deal Brexit
Posted by David Smith at 09:00 AM

My regular column is available to subscribers on This is an excerpt.

What will lift us out of the doldrums, this period of very weak growth and flatlining productivity Britain’s economy is stuck in? It will not, I judge, anything to do with Brexit. A survey of economists by Consensus Economics shows an average expectation of 1.35% growth this year and next, even in the context of a “smooth” Brexit; leaving under a withdrawal agreement,

A no deal Brexit would see growth drop below 0.5% next year, according to the survey, which was carried out among the 37 economists on Consensus’s UK panel, a prediction that is likely to encompass a technical definition of recession – two consecutive quarters of falling gross domestic product. Some are rather gloomier than that. Even the most optimistic outcome, no Brexit at all, only lifts growth to an average of 1.63% next year.

Confidence in the political system has been badly damaged – and a dispiriting Tory leadership contest has made things worse – so while there is certainly plenty of pent-up investment as a result of the clouds over the economy of the past three years, businesses will be cautious about unleashing it until they are sure they are on solid ground.

The backdrop to this malaise is that we are in a period of rapid technological change which ought to be having a positive effect on growth and productivity. Machines can do things better than ever and we have barely scratched the surface of what they may be able to do in the future.

A couple of decades ago, fewer than 10% of UK households had internet access, and clunky dial-up access at that, smartphones and tablets were yet to appear, and the vast majority of communications were by surface, or “snail” mail.
In two decades time, we will regard the way we live now as quaintly old-fashioned.

Artificial intelligence and robotics will be the norm, as will driverless, low-pollution cars. Driving a diesel or petrol car will seem as anachronistic as smoking in the office does now. And there will be technological changes which at the moment are only twinkles in the eyes of futurologists.

Technology can and should be an important driver of productivity, and thus prosperity, and as new research to be published this week demonstrates, an important driver of trade. Trade and economic openness is, of course, one of the ingredients of rising productivity and prosperity.

KPMG, in its Economic Outlook, due to be published this Thursday, devotes a special section to technology and trade. As it describes it: “Investment in innovation and technological change can drive a step-change in trade and an acceleration of trade growth in post-Brexit Britain.”
It looks at three scenarios, which it describes as “technology convergence” – its central scenario – the more optimistic “high connectivity” and a less promising “robotics and reshoring”.

To summarise these in brief, technology convergence will mean lower transport costs, widespread use of 3D printing, fully-automated and vertically integrated manufacturing and an increasing share of services in global trade, which will benefit Britain, which has a competitive advantage in services.
High connectivity, according to KPMG, implies “advances in communication technologies, such as the internet of thing …. advances in mobility and autonomous transportation lead to lower costs and greater efficiency in logistics … service sectors would benefit too, particularly from improved digital communications, service would increasingly become more tradable”.

As for robotics and reshoring, the least optimistic outlook, this would allow the use of technology, including £D printing, “to move the production of customisable components closer to their customers as digital information flows replace the transport of manufactured goods”.

All three offer considerable promise for exporters, even in the context of Brexit, according to the research. Export volumes to the Asia-Pacific region over the period 2019-50 would average 3.9% a year under the low scenario, 5.5% under the central outlook and 6.6% under the high scenario. For exports to North America, the figures are 1.8%, 3.1% and 3.8% respectively. For Europe, under the assumption of a smooth Brexit which does not hinder trade they are slightly better, 2.2%, 3.4% and 4.1% respectively.