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‘Insurgent’ Boris Johnson faces moment of truth on Brexit

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Boris Johnson’s cabinet on Sunday formed a protective circle around the UK prime minister, insisting they would back him if he opted for a no-deal Brexit and plunged the country into renewed economic uncertainty.

The apparent insouciance of Mr Johnson’s ministers, including former Remainers, about the prospect of a no-deal end to Britain’s relationship with the EU on January 1 has alarmed business leaders, with some sectors warning of an impending catastrophe.

But over the weekend, as Brexit trade talks ran aground, ministers lined up to tell the Sunday Times newspaper that the cabinet was “100 per cent” behind the prime minister. Aides were barred from speaking to the press: the message to Brussels was “don’t mess with us”.

Privately, pro-Remain ministers say they would not be so sanguine if they were not convinced that Mr Johnson was going to agree a deal. Some Treasury officials remain equally certain that the paroxysms in the negotiations are a prelude to a deal.

Chancellor Rishi Sunak has privately made it clear to the prime minister what is at stake economically if no trade deal is in place, even if publicly he insists the country could cope.

Michael Gove, Cabinet Office minister, has warned that a disorderly Brexit would fuel demands for Scottish independence, as well as worsening what is already expected to be chaos at the EU border on January 1.

Members of Boris Johnson’s cabinet have formed a protective circle around the prime minister as Brexit talks near their conclusion © Pippa Fowles/10 Downing Street

But even those close to Mr Johnson are not certain he will heed the political and economic warnings. For a prime minister with a lack of interest in detail and a passionate interest in notions of “sovereignty” he is keeping Brussels and his own supporters guessing to the last minute.

Private polling shown to the prime minister suggests that the public would be willing to support a no-deal exit, according to Number 10 insiders, “provided we can show we were standing up for our sovereignty”. Mr Johnson’s fascination for Winston Churchill standing alone in 1940 is well known.

Peter Mandelson, former Labour minister and EU trade commissioner, thinks there will be a deal, but said: “I think he’s divided in his own mind where the national interest lies. A bit of him does think that national interest lies in sovereignty and making our own way in the world.”

The economic implications of no deal were set out by the independent Office for Budget Responsibility last month, which said it would knock 2 per cent off gross domestic product next year — about £40bn — and that 300,000 people would pay with their jobs by next summer.

“I think the long-term effects would be larger than the long-term effects of Covid,” Andrew Bailey, Bank of England governor, told the Treasury select committee last month. Josh Hardie, deputy head of the CBI employers’ organisation, said “things look very stark” without a deal.

The impact on individual sectors would also be grave, as tariffs and quotas were laid on top of the red tape that has already been spawned by Mr Johnson’s decision to take Britain out of the customs union and single market.

Lamb producers face 40% tariffs on exports to the EU in the event of a no-deal Brexit © Dan Kitwood/Getty

Minette Batters, head of the National Farmers Union, has warned the impact on the farming sector would be “catastrophic” — lamb producers could face tariffs of 40 per cent on their exports — while carmakers speak of a “no-deal Brexit disaster” with 10 per cent tariffs facing that sector.

The European Commission has also warned that “failing to reach an agreement would lead to disruptions that would be more far-reaching” than the inevitable changes that come with Britain leaving the single market. 

Failure would also jeopardise co-operation between EU and UK researchers in vital areas such as healthcare, while scuppering arrangements intended to ensure cross-border workers can claim benefits and plan for their retirement. 

The draft deal would also help smooth customs checks, uphold a cross-border energy market and ensure trade in civil nuclear materials can continue. Outside of economic matters, a collapse in the talks would threaten a planned security partnership. 

Ultimately, if no deal is secured this week, Mr Johnson will find himself back in Brussels in the coming years trying to strike patchwork deals with the EU and probably a trade deal too. Rather than turning a page on Brexit, the saga would continue.

The drama at the negotiating table might well be interpreted as the inevitable showdown before Mr Johnson strikes a deal, as he seeks to delete “eleventh hour” demands from the EU to demonstrate he is fighting to the end. He needs to be able to sell a deal to his own party.

David Gauke, a former cabinet minister, wrote on the ConservativeHome website: “The Conservative party has become less disciplined and more comfortable with the politics of protest. In some respects, Boris Johnson is a natural leader for such a party — a columnist and controversialist; an insurgent rather than an administrator.”



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Analysis

Britons brace for price of UK going to net zero

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When the UK became the world’s first major economy to commit to a binding target of “net zero” carbon emissions by 2050, it had already made good progress with its electricity grid.

The rapid growth of renewable energy in the UK and the closure of many coal-fired power stations has cut the sector’s emissions by more than 70 per cent since 1990, and sent cleaner electricity to homes with minimum impact on consumers’ lives.

But as chancellor Rishi Sunak prepares to deliver a green-tinged Budget on Wednesday, and the UK gets ready to host the UN COP26 climate conference in Glasgow in November, experts are warning that decarbonising the electricity grid was in many ways the easy part of the journey to net zero.

“This year half the electrons supplied to British homes were green, but that doesn’t matter much to the consumer — the next stage of reforms and changes will be very different,” said Chris Stark, chief executive of the Committee on Climate Change, an independent body that advises the government on how to reach net zero.

The next leg of the journey will require consumers to adapt the way they live and, for those able to pay, also get their wallets out.

Hitting the net zero target will require sweeping changes in two key areas: transport, as the shift to electric cars accelerates, and buildings, where an overhaul is required to the way 30m homes are heated and insulated.

As the UK car fleet goes electric, the Treasury will need to find a way to recoup the £37bn a year it currently secures from carbon taxes, mostly fuel duty and vehicle excise duty © Dinendra Haria/SOPA/Getty

And the shift to low-carbon vehicles and swapping out of gas boilers for electric heat pumps presents the government with a series of delicate political and fiscal choices.

The projected cost is immense: the CCC estimates that annual capital spending largely by the private sector in greening the economy will peak at £50bn a year by 2030. That represents about one-eighth of current investment by the public and private sectors.

However, the CCC calculates that from the mid-2040s savings in operating spending — stemming in significant part from how it will be cheaper to run an electric car than a petrol-engine vehicle — will start to exceed the annual investment.

Stream graph showing that UK capital spending of about £50 billion a year is needed to hit the net-zero target, but it will be gradually offset by lower operating costs from deploying green solutions

The greening of transport and homes will create winners and losers, and the government has yet to clarify where the cost burden will fall. The Treasury has said it will later this year publish a net zero review, setting out in more detail “how the costs of achieving net zero emissions are distributed”.

For transport, which the CCC estimates will require £11.4bn of average annual investment over the next 30 years, the political pathway is easier than for buildings, according to Josh Buckland, who was an adviser to former business secretary Greg Clark and is now at consultancy firm Flint Global.

“Transport is to some degree a solvable problem,” he said. “Consumers can buy cars through financing deals, and so don’t have to pay up front costs.”

Still, there are political potholes ahead. As the UK car fleet goes electric, the Treasury will need to find a way to recoup the £37bn a year it currently secures from carbon taxes, mostly fuel duty and vehicle excise duty.

Stacked bar chart showing UK tax revenues from activities involving carbon emissions in 2019-2020 in billions of pounds sterling

The main contenders for replacing that revenue, said Buckland, are some combination of per-mile road-pricing and congestion charging — both ideas the Treasury has been toying with for years but shied away from for fear of a political backlash.

But far more problematic than transport, according to experts, will be the greening of the UK’s housing stock, which the CCC estimates will require £11.7bn of average annual investment over the next 30 years — and a massive shift in consumer attitudes. 

A 2020 poll by Energy Systems Catapult, a non-profit organisation, found that 49 per cent of people did not even consider their gas boilers as contributing to global warming — even though they account for almost one-fifth of carbon emissions.

The gap in public understanding is a huge challenge, according to Joss Garman of the European Climate Foundation, another non profit organisation. “Right now there is a big gulf about where the policy conversation is on decarbonising heat and where the public conversation is,” he said.

The scale of the necessary transition is also immense. The UK currently installs an estimated 30,000 electric heat pumps a year, while the government’s own goal is 600,000 a year by 2028, but to hit the net zero target installations will need to run at well over 1m a year into the 2030s and 2040s.

The CCC estimates that it will cost an average of £10,000 per household to achieve the target, with heat pumps priced at about £6,500 compared to £2,000 for a conventional gas boiler.

In its interim net zero review published in December, the Treasury was vague about how these costs will be borne, noting that they will be absorbed by households, property owners or the taxpayer, “depending on policy choices”.

Compared to transport, where an electric car is obviously attractive to the consumer, the political challenge of greening the nation’s homes are legion, said Buckland. 

“Firstly there is the upfront cost issue for homeowners, but also the consumer experience is different,” he added. “Gas boilers heat your home at the flick of a switch, whereas a heat pump takes 24 hours and heats the home to 17 to 19 degrees. It will require an attitudinal shift.”

Persuading consumers to spend money on heat pumps and loft insulation rather than kitchens and bathrooms will require a cocktail of grants and incentives, said Stark, which the government has so far failed to devise.

“There isn’t a technical barrier here, so much as the lack of a plan,” he added.

To drive change, the government could consider flipping the balance of energy taxes on to gas from electricity, which currently attracts far higher greenhouse gas levies.

Whatever the policy decisions, said Stark, the government will soon have to put some cards on the table when the Treasury publishes its net zero review before the UN COP26 summit. “To be credible it will have to spell out a clear plan . . . and that includes the fiscal choices ahead.”



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China’s exporters hit by global shortage of shipping containers

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Steve Chuang’s Hong Kong-based electronics manufacturing company has enjoyed steady demand from the US and Europe over the past year. But, like many Asian exporters, he is struggling to get his products to customers.

Chuang’s business, which makes solar energy electronics, is just one of many enjoying a trade boom that has helped the regional economy bounce back from last year’s pandemic-driven downturn.

But their success is being held back by disruption to global shipping supply chains. The surge in exports from China to the west, combined with disruption at ports due to coronavirus, has left many containers out of position, resulting in queues of ships outside ports and soaring freight rates. The Chinese media have dubbed it “a single box is hard to find”.

The amount it costs to send a 40-foot container from China to the US has more than quadrupled in the past year, Chuang said: “We have never seen anything like this in the last two decades . . . Empty containers cannot get back to Hong Kong.”

China has recovered faster from the pandemic than any other big economy and its exports of lockdown-related goods, electronics and medical equipment have soared.

Export volumes have been rising at a double-digit rate for several consecutive months, and at the end of last year China’s trade surplus hit a record high.

But the rise in demand for its products comes as pandemic-related restrictions and staffing shortages in ports across the US and Europe delay the return of containers to east Asian ports.

Roberto Giannetta, chairman of the Hong Kong Liner Shipping Association, said a lack of truckers and warehouse workers elsewhere in the world inhibited the ability of ports to return containers to China.

“There’s a huge number of containers that are just sitting around the middle of nowhere . . . Australia, eastern Europe, middle America,” he said. “It’s like a kind of perfect storm preventing containers from returning back to Asia.”

Hu Haoli, assistant to the president of Wanlong Chemical in Wenzhou, said freight rates remained elevated, although it had only a limited impact on his business because the products it sells are high-end.

But for other companies, especially China’s vast textile industry, the delays are having a more severe effect. An exporter in Shaoxing, a city on the east coast of China, said the sharp rise in freight rates in December had caused many textile businesses to shut.

Shipping executives had hoped the traditional factory closures that usually accompany the lunar new year would slow production volumes, giving shipping lines a chance to catch up. But those hopes have failed to materialise — some Chinese factories pressed employees to keep working over the holiday in a bid to keep pace with global demand.

The delays and shortages risk pushing up goods prices. In Hong Kong, Chuang said he faced shipping delays of two to four weeks and his company is negotiating with customers to share the costs, which have increased the price of his products by between 2 per cent and 5 per cent.

Having so far mainly affected routes out of Asia, there are signs that the shortage of containers is starting to feed through into the return leg, hitting companies that import into China. In January McDonald’s in Hong Kong announced the delays had disrupted its supply of hash browns. It also experienced a brief shortage of peanuts for ice-cream sundaes.

Ports are scrambling to find more containers to help alleviate the shortages. For example at Ningbo, a big facility in China’s Zhejiang province, authorities recently helped to source an additional 730,000 empty containers.

John Fossey, head of container equipment and leasing research at Drewry, a maritime research consultancy, said production of shipping containers slumped year on year in the first half of 2020, although it ramped up in the second half, taking total output up by 10 per cent over the full year.

But these new containers will cost more: as a result of the soaring demand, combined with rising costs of raw materials such as steel, the price of a new container for delivery this summer is now about $6,200, its highest level on record, according to Fossey. This is “likely to put several owners off contracting new equipment”, he warned.

While some reports from China indicate improving activity at its ports over recent weeks, others within the shipping industry remain pessimistic about the prospects for the coming months. Willy Lin, chairman of the Hong Kong Shippers’ Council, thought there would be “no relief” until summer at the earliest.

He flagged the growing likelihood that manufacturers could turn to overland trade routes, particularly by trucking from Guangxi province in southern China to Vietnam and on to South East Asia. Chuang said that some businesses were seeking to export to Europe by land across Russia.

Meanwhile, Asian exporters are scrambling to secure shipping space.

“Just about every single available ship in the world is being used at the moment, because there’s so many ships that are just sitting there [at ports] waiting to be offloaded,” said Giannetta.

Additional reporting by Wang Xueqiao in Shanghai



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Austria puts its faith in Covid testing above immunisations

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As lockdowns across Europe drag on into spring, the Austrian government says it has a strategy to get life back to normal in weeks rather than months — not with vaccines, but tests.

The country of 8.8m people will from Monday make 3.5m Covid tests available free to its citizens each week. The plan could allow restaurants and bars to start welcoming customers back by mid-March. Non-essential shops and schools are already open and many Austrians have returned to their workplaces.

“We are on the way to becoming the testing world champion,” said chancellor Sebastian Kurz. “Our goal is to be able to control the incidence of infection, or at least mitigate any growth in infection numbers, as best we can, by testing as much as possible.”

As Covid cases climb, Austria has grown frustrated with the EU’s slow vaccine rollout. The bloc’s performance particularly rankles because last May — in deference to EU solidarity — Kurz turned down a tentative offer from Benjamin Netanyahu to partner with Israel in its vaccination drive with Pfizer, two Austrian officials told the Financial Times.

Kurz has a close working relationship with the Israeli leader and the two regularly discuss the pandemic.

The missed opportunity for the kind of swift vaccination programme pioneered by Israel underscored the importance for smaller countries such as Austria to be flexible in their approach to the virus, a political adviser close to the chancellor said. 

Austria’s faith in testing has put it at odds with other European countries where the Covid policy is almost solely focused on immunisation as a means of escaping another wave of the pandemic.

That has left much of the continent languishing under stricter lockdown conditions than those enforced when the pandemic first hit a year ago.

Britain is Europe’s vaccine leader, with more than 28 doses of vaccine delivered per 100 residents. Austria has managed just 6 — slightly less than the 6.3 EU average. But last week the UK government said it still expected to impose four more months of restrictions to control the virus.

For critics, Vienna is walking a tightrope: cases in Austria have ticked up from the low of 14.9 per 100,000 residents a fortnight ago to a rolling seven-day average of 19.2. The next two weeks will be crucial: if numbers continue to rise Austria’s strategy will unravel.

But the focus on testing will also be closely watched. Chancellor Angela Merkel told lawmakers in her party last week she believed mass testing would be a critical in helping Germany ease its way back to normality.

A hairdresser and her customer in Vienna wear FFP2 protective face masks. © Alex Halada/AFP/Getty

Thomas Czypionka, head of health policy at the Institute of Higher Studies in Vienna, said “a tight net of testing” would provide the opportunity to reopen businesses and schools by controlling transmission of the virus. “This is a different kind of strategy. It’s not perfect, but its worth a try.”

The Austrian initiative should in part be understood in the context of the government’s poor handling of the second wave, according to Czypionka.

Feted for his nimble handling of the crisis last spring, Kurz has since faced criticism as the number of cases soars. In November, Austria recorded the highest number of new infections per million inhabitants in western Europe.

Testing is crucial, according to Czypionka, because people’s willingness to tolerate restrictions and their disastrous economic consequences had reached its limit. “People have lost faith. This is the real reason the government is having to open up.”

© Ronald Zak/AP

He was nevertheless confident that the testing strategy was a good one: “It’s cheaper than keeping a country in lockdown.”

While Austria’s first experiment with mass-testing began in December, with limited success, the latest drive is markedly different. Testing will be linked to the phased emergence from lockdown itself — using reliable PCR tests for entry into venues, and quick result lateral flow tests for home use. Officials at the chancellery said they believed this “nudge” approach — where even small incentives can prove powerful motivators for social change — has been highly successful.

Hair salons have been open in Austria since February 8. But their use is conditional on testing: customers must present proof of a negative test no later than 48 hours before an appointment.

The idea is now being thrashed out for the hospitality sector. An announcement is expected to be made this week, but the government is hopeful that entry tests at restaurants, bars and cafés could allow for a reopening of some — with strict hygiene measures also in place — as early as March 14.

“My heart bleeds because tens of thousands of businesses have not been allowed to open for months. We will do everything we can to ensure that the catering and hotel industry can welcome guests again soon. I’m on the side of the industry,” tourism minister Elisabeth Köstinger said last week.

Capacity for tests has been increased dramatically. There are now 800 pharmacies across Austria offering tests, and a further 650 specialist testing stations. From Monday, the government hopes to make up to five postal tests — which can be ordered by telephone hotline or online — available to every Austrian each week.

Schools are testing pupils twice a week and workplaces have been brought onboard. The government is subsidising more than 1,000 Austrian companies — representing a workforce of just under 500,000 — to provide them with free regular tests for those who want to return to the workplace.

Testing was the best way to avoid an “indefinite lockdown”, Kurz declared last week, as he promised Austrians the government would do whatever it could to safely reopen public life.



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