One year to Brexit: How businesses in the most economically exposed region of the UK are coping

A sword of Damocles hangs over the economy of the North-east of England. That at least is the implication of the government's own economic analysis when it comes to Brexit.

Internal research leaked from Whitehall earlier this year suggested the North-east's economy could take a hit of up to 16 per cent from an ultra-hard Brexit, in which the UK crashed out of the European Union with no trade deal. That's compared to the 8 per cent injury estimated for the UK as a whole.

And that's a projection of the economic damage over the course of 15 years, relative to staying in the EU.

This highly export-reliant region could be damaged even more grievously in the short term if the UK-EU negotiations fail, and tariff barriers and customs inspections come crashing down, rupturing the arteries of our trade, in March 2019.

Yet the North-east was also one of the UK regions with the largest proportion of Leave votes in the June 2016 referendum, with 58 per cent opting to get out, versus 42 per cent for Remain. Just about every division of the wider region - from Sunderland to Stockton, from Darlington to Durham - voted out. And most did so by a wide margin. Only cosmopolitan Newcastle came down in favour of staying, and that was by a slim 1 per cent of the vote.

So the North-east has a decent claim to be the economic "ground zero" of a hard Brexit. Yet it's also one of the heartlands of Leave.

With just 12 months to go until Brexit, The Independent travelled to the region to see how firms there are coping with both the sharp weapon hanging over their heads and also the deep social and economic contradictions exposed by that fateful popular vote back in 2016.

Driven to distraction

In ancient Greek theatre a "deus ex machina" - or "god from the machine" - would emerge to bring resolution to a tragic human drama.

In the North-east of the 1980s, hollowed out by the secular decline of shipbuilding, coal mining and steel making, Nissan played something akin to that role. A deus ex machina to make machines. The Japanese carmaker was courted heavily by Margaret Thatcher; promised all sorts of tax breaks. But much of the allure for Nissan was the promise of unimpeded access to the vast European market. It's that access which is now, of course, in jeopardy, much to the alarm of the Japanese.

But for 30 years the deus did seem to work miracles. Nissan's Sunderland plant has been one of the most admired inward investment projects in British post-war history. The factory is considered the most efficient in Europe, churning out half a million vehicles every year, most of which are exported to the EU.

Nissan directly employs around 7,000 people but that's a grossly inadequate measure of the firm's economic importance to the region. An ecosystem of local suppliers has sprung up around it, supporting as many as 50,000 more jobs in the region by some accounts.

Nissan declined to talk to The Independent for this article. Yet Steve Bush, a gregarious officer currently in charge of automotive for the Unite union, who liaises with union representatives from Sunderland daily, is happy to emphasise the importance of the broader car industry for the region.

"It's on a monumental scale - and I don't use that word lightly," he says at the union's Newcastle office. "If there was any hit to the North-east automotive industry it would have a huge detrimental effect on the economy. I think everybody appreciates that. When I speak with tier-one and tier-two supplier firms, the first thing they talk about is Brexit. All companies are aware of what the stakes are."

Nissan's worst nightmare is official government policy; namely Theresa May's promise to quit the EU customs union. This threatens to play havoc with its cross-border supply chains. Components used in the manufacture of cars at Sunderland often travel across EU member-state borders multiple times. Tariffs imposed on each trip into the UK would obviously push up costs. But the bigger threat is delays due to new customs checks. The Sunderland plant operates a "just-in-time" manufacturing process, with minimal stocks of components held at the plant. That means even the most modest of hold-ups in deliveries could wreck its hyper-efficient operating model.

Nissan last year attempted to induce its overseas suppliers to shift to the UK to help mitigate the problem.

The government is helping to fund an International Advanced Manufacturing Park, situated right next to the Sunderland plant, to host them. And Nissan did agree to produce a couple of new models there in the immediate wake of the Brexit vote after receiving various mysterious assurances of support from ministers.

That should keep the plant running until 2022. But no one in the region believes the factory's long-term future is anything like secure.

Neil Warwick is a lawyer for Newcastle-based Square One Law. The EU specialist is highly sought after and has worked with many manufacturers in the region. Warwick, whose superficially dour demeanour periodically breaks into a conspiratorial grin, says the administrative burden of a hard border could ultimately prompt the Japanese firm to take a brutal decision.

He points out that one of their car engines crosses borders 18 times before it's manufactured. "Is it just easier to do everything in France and ship it back once?" he asks. "The only hard border you need to worry about is the UK."

Such a move, Warwick stresses, would be abysmal news for the region. "It would regress the plant back to effectively a screwdriver assembly plant. It's hugely bad for the supply chain."

There would probably be major negative downstream effects for local services firms too. Tony Roxburgh is the commercial director of North Shields-based Calibre Secured Networks, which installs IT wiring for schools, offices and call centres. His company would expect to be commissioned to do work at the new Sunderland manufacturing park if it takes off. But the future of that project, of course, all comes back to Nissan. "If Brexit had an impact on Nissan, the fallout from that is sure to have an affect on every business in the North-east," he says.

Heads in the sand

Earlier this month the Chambers of Commerce hosted a private roundtable meeting at the Hardwick Hall Hotel in the County Durham countryside. In attendance were 20 large local supply chain companies to talk about their Brexit preparations. Warwick of Square One Law, who chaired the session, recalls his opening question. "I said 'how many people have got a Brexit plan and how far along are you with implementing it?'" The result was disturbing. Not a single company even had a plan, never mind putting it into action.

One participant at the meeting described it as "head in the sand syndrome".

Small firms, and not only those in the North-east, are especially exposed to the economic disruption of a customs border. Some 134,000 small-and medium-size companies in the UK are estimated to have only ever exported to the EU. "The worrying thing is that we're not even sure if they know what's going to hit them," says Warwick.

Julie Underwood, head of international trade at the North East England Chamber of Commerce, tends to agree. "How are firms preparing? Not particularly well, in truth," she says. "The whole area of customs compliance doesn't tend to get a focus, even now."

Exports are the economic lifeblood of the North-east. And Europe is a big market. Official data shows that the value of its exports to the continent added up to £ 5.6bn in 2017. Divided by the region's 2.6 million population gives exports per head of £ 2,100, the highest of any region in the UK.

And it's not only cars, chemicals and machinery. Half of the North-east's services exports went to the EU in 2015, again the largest share of any UK region. These raw facts on trade are the primary reason why the government's modelling exercise paints such a uniquely bleak economic picture for the North-east due to Brexit.

But all this gloom about plummeting GDP and rising tariffs barriers: isn't this "project fear" all over again? Graham Robb, the founder of a Darlington-based public relations firm Recognition and head of the local entrepreneurs forum, thinks so. Back in the 1990s Robb stood as the Conservative candidate for Hartlepool, losing out to one Peter Mandelson. And he took his lead in the Brexit campaign from the former Tory chancellor, George Osborne.

"I advocated Remain with a great deal of passion," he says. "But I publicly recanted last year because a lot of the stuff we were told didn't come about. I felt foolish."

On the latest government analysis, showing that 16 per cent hit, Robb says: "Once bitten twice shy. The same people who produced that analysis were the people who gave us the analysis that it was going to go wrong before."

Robb, who has clients across the region, says he has spoken to lots of property developers who are interested in investing in the region, regardless of Brexit. He also discerns a divide between entrepreneurs and big companies when it comes to the opportunities of leaving the EU. "Amongst my peer group of owners I'd say there is a much less passionate Remain stance than there would be among more corporate entities," he says.

Warwick of Square One Law accepts the point, but adds that entrepreneurs can also be somewhat naive too.

"The entrepreneurs, yes, by their nature, they spot gaps, they see opportunities. But there's also a certain amount of ignorance," he says, citing the case of one "very famous entrepreneur" who was intensely pro-Brexit until he learned that one of the components in his manufacturing business came from Poland. "The knock-on effect on his business just hadn't occurred to him."

People power

Everything is enormous in Northumberland's Port of Blyth. Fifteen-metre high rolls of undersea cable, which will be laid to connect offshore wind farms to the mainline, line the perimeter of the South Harbour.

Even more massive pieces of trench-digging equipment litter the sprawling dockyard, like the carcasses of brontosaurus.

Biggest of all are the two jack-up barges for digging oil wells squatting at the sea-edge of the harbour; four crane-like legs towering-up above each of them.

What must it be like working among such intimidatingly colossal chunks of metal? "You get used to it, but when I saw the even bigger ship that the jack-up barge came in on (the 34,000-tonne Albatross), even I thought 'wow'," laughs Brendon Hayward, managing director of the subsea engineering company Osbit, which has a warehouse on the port.

With his blue Jaguar car, sharp-cut three-piece suit and brown winklepicker brogues, Hayward seems more like a football agent than an engineer. Hayward founded Osbit seven years ago to provide bespoke engineering solutions for offshore players such as Gulf Marine Services, DeepOcean and Van Oord. The GSM jack-up rig boasts a vast, bright-yellow exit ladder, specially designed and manufactured by Osbit.

But Hayward's Brexit concern relates to the people who bash the pieces of metal that he exports.

Official data shows that the North-east has the lowest proportion of EU workers in England. They account for just 1.8 per cent of population, less than half the 5.5 per cent average for the UK. Such figures suggest that the North-east would be relatively unscathed if the government clamped down on EU migration in the coming years, something UKIP-types insist was the clear "will of the people" revealed by the Brexit vote.

Yet many businesses in the North-east agree that workers from mainland Europe have an outsize importance to region's economy.

"The thing that I could entirely see hampering the North Sea supply chain is if the labour changes," says Hayward, whose business model is based on its promise to turn around projects very quickly. One of the local steel suppliers that Osbit used last year has a workforce which, he reckons, is 30 to 40 per cent made up of Eastern Europeans.

"If our suppliers lose 30 per cent of the workforce, and we ask for a 21-week turnaround, maybe they turn around and say, 'We can't do it.' The time element is really key to us. The client needed the system in 21 weeks. If we'd quoted 30 weeks I think they would probably have ordered it in Europe."

"Currently we can deliver really cost-effective new technology all made in the North-east and we can ship it all around the world. That is absolutely determined by available labour. If our suppliers lose that labour capability we have a problem."

If that happens, Hayward warns that Osbit could be forced to manufacture outside the UK.

Steve Bush, from the Unite union, issues a similar warning about the high proportion of Lithuanians who work for Lear Corporation, one of Nissan's local car-seat suppliers.

But the North-east is not all engineering and manufacturing. Ryder Architecture was founded in Newcastle in the 1950s. Its elegant headquarters is a converted 19th-century horse and carriage repository - what partner Paul Bell describes as a "horse car park" - close to the city's central train station. Bell, dressed in a grey jumper over a pink shirt, explains how his own business relies on overseas talent, including from Europe.

"Being able to bring in the best talent from around the world is an advantage to our industry. There's not an issue within our profession of UK jobs being under threat from immigration," he says. "Some of our colleagues from Europe have been here a number of years and they are genuinely concerned about their ability to stay."

Ignazio Cabras, professor of entrepreneurship at Northumbria University, doesn't have that problem personally. Though he was born in Italy, he has been a British citizen for the past 10 to 15 years. "I don't even remember how long," he laughs. But for many of Cabras' colleagues Brexit is no joke.

"A significant number of academics in all the five universities and colleges in the region are from the EU," he says. "We're worried. There are already concerns that a significant number might reconsider their residence in the UK." For a region that aspires to grow its knowledge economy and cement itself as a hightech skills production centre, such a brain drain is an ominous prospect.

Global Britain?

Nigel Mills and his dad built a mini newsagent empire in the North-east. Mills junior sold his 77 corner shops to Tesco in 2010, making the lanky former accountant a wealthy man. But now he's mainly interested in alcohol.

Mills' new venture is a Cumbrian whisky distiller called The Lakes Distillery. Exports are a big hope for the young premium drinks brand. But Brexit is already an obstacle.

"The biggest problem with trade is making sure that your brand meets the local regulations," he explains.

"That's one of the things with Europe at the moment - we all adopt the legislation and there's no issue. For me it's that compatibility that's as important, if not more important, than tariffs. So it was frustrating when the Brexiteers were saying, 'Let's get rid of all the red tape.' OK, now you can't export because your product doesn't comply!" But shouldn't Mills be rubbing his hands together at the promise of a new free trade deal with the United States, often promised by Brexiteers? Think of all those thirsty American Scotch drinkers, waiting to be introduced to the Lakes' new single malt. The problem here, Mills points out, is that there are already zero US tariffs on whisky imports. The barrier is local regulation, not levies.

And Mills isn't expecting the US to lower its "non-tariff barriers" for whisky.

"Because of Prohibition in America (in the 1920s) it is highly regulated. There's a complex three-stage process to get alcohol into America. You've got to have an importer, a distributor and then a retailer. I don't think they're going to dismantle their monitoring system," he says, with a shrug of resignation.

Disconnected

Back up in a factory in Blyth, they're building something that looks and moves a bit like a R2D2. Tharsus is a robotics firm responsible for the wireless-controlled automatons which whiz up and down rails in Ocado's new packing warehouse.

Only around two robots a day trundle off the Tharsus production line. But if Ocado, which owns the intellectual property for the system, succeeds in selling it to other grocery groups abroad, the demand could explode, keeping Tharsus very busy indeed.

Some of those Tharsus shop-floor workers almost certainly voted for Brexit. Why? It seems like an act of self-harm, given the region's reliance on EU trade. Many say it's because people in the North-east felt "left behind" and were venting their frustration.

Gross value added per head in the North-east - a very rough estimate of income - is the lowest of any region of the UK, except Wales, at £ 19,542 a year. The figure in London is £ 45,000. Poverty in some wards of the region is very high relative to the UK average. So is the share of the population with health problems.

But Brian Palmer, Tharsus' compact and wiry chief executive, feels "left behind" isn't the right phrase. "I would say disconnection," he says. "There's a sense that London's a long away and it's a different world."

Paul Bell, the architect, agrees. "One of my concerns about Brexit is that the focus on Brexit means other initiatives such as the Northern Powerhouse move down the agenda," he says, referencing the government's northern regeneration project, which many in the North-east already sense has become unfairly focused on Manchester and Liverpool.

Some fear Brexit will make any kind of catch-up for the North-east more difficult. Because of its relatively low income per capita, the region has qualified for development funds from the EU. In the 2014-20 round of funding the region was awarded £ 425m from two pots of EU cash, the European Social Fund and the European Regional Development Fund.

In recent years, money from Brussels has helped finance Newcastle University's 24-acre "Science Central" innovation hub and also the Baltic arts centre in Gateshead, converted from an old flour mill.

Before the referendum, the Newcastle Chronicle calculated that people in the North-east had received twice the amount of EU funding per head as in any other part of England since 2007.

"You have to find another way of kick-starting the development," says Bell.

But can Westminster be counted on to fill the gap after 2020? Trust feels in short supply, even close to home. Nissan had warned that it could reduce investment in the event of a Leave vote. But many of their own workers voted out, regardless. Many were baffled by that, since industrial relations in the plant, and indeed across the region, were regarded as exemplary. Some suspect that they weren't as good as they were made out to be, and that workers were itching to give two fingers to management.

But Steve Bush of Unite doesn't think this is the explanation. For him, many workers were misled by the mass media, particularly tabloid newspapers.

"I've spoken with workers and said, 'Why have you voted out?' and they say 'immigration'. But then you say, 'What about the guy who works in the plant with you, or lives in the next street, or next village?' and they say, 'I'm not talking about them, I'm talking about the guy on the front page of The Sun who's brought his family over etc'. And I say 'hang on a minute…'" Yet to John Elliot, the 75-year-old founder of dehumidifier and washing machine maker Ebac, it's perfectly obvious why people voted for Brexit. It's because the UK economy is up the spout and not working for ordinary people.

From his Newton Aycliffe factory, Elliot dismisses the "people were misled" argument as patronising.

Elliot, who left school without any qualifications, has developed some extensive, yet esoteric, views about what ails the British economy. And one of his convictions is that tariff protection for UK manufacturers is not necessary. "You've got to have a trade war. And you've got to have some casualties," he says, excitedly, sounding like a Pitmatic Steve Bannon.

That might seem to be a position that serves Elliot's own business. If foreign washing machines are kept out, Britons might have to buy his models instead. Yet Elliot freely admits that components for his own washing machines are imported from the EU. "The electric motor in there is from France, the pump is from Italy, the motor there is actually from Spain," he says, gesturing to a demonstration unit in an unpretentious upstairs meeting room.

Ebac also exports water coolers to the US and the EU. So isn't Elliot's firm directly in the line of fire if the kind of global trade war he advocates breaks out? "If we're going to change things for the better there's going to be some casualties and if that's us, tough! I would rather be that casualty if the economy was going to become better. Why? Because I live here and I'd like the UK to do well. We could make these things in Poland and make an extra dollar but I don't want to.

I'd rather make a reasonable profit here than a bigger profit in Poland."

And though Elliot is a local champion of Leave, he doesn't actually think Brexit itself is the main prize. "If someone said we'll sort it [the economy] out if we stay in the EU, I'd say 'stay in the EU'. I'd live with that."

Doomed to partnership

Like the enormous jack-up rigs in Blyth harbour, the economic threat of Brexit looms large in the Northeast.

The threats to trade, the potential jeopardy of the supply of skilled labour, the disappearing EU funds, the sheer difficulty for firms in planning ahead when the future is as clouded as the bottom of the Tyne on a murky day.

But also looming large is a question of inequality, raised by John Elliot. Why, if the North-east region is such a successful exporter, as everyone accepts, are incomes so low relative to the rest of the UK? Where are those rewards going? And there's the balancing act: the difficulty of weighing the needs of multinational firms with the palpable yearning among many local people for a greater degree of control over their lives; a control to be wrestled back from Westminster just as much as from Brussels.

Business leaders are in the middle of the tug of war. Those to whom The Independent spoke are proud Geordies, Mackems or Northumbrians, with a genuine feeling of loyalty to the North-east region. They sense the dangers to their businesses, but also the frustration of many of their employees.

The emotions run high, from Leavers who resent what they see as economic defeatism, to EU nationals anxious about their future. Somehow, businesses and the communities in which they are embedded must find their way through. They are doomed to partnership.

But with one year to go, the task of navigating the agonising trade-offs, confusions and contradictions of Brexit has not become any easier.

The grammar school fallacy

No fallacy dominates popular attitudes to education like post hoc ergo propter hoc ("after this, therefore because of this"). Y follows X, so X must have caused Y.

Consider three common lines of reasoning. Much of the British elite went to Oxford and Cambridge, therefore Oxford and Cambridge must be the best universities and ambitious youngsters should therefore strive to get into those institutions. University leavers tend to get higher paying jobs, therefore a university education must give young people the skills necessary to secure such employment, and therefore almost all young people should go to university.

And because grammar schools produce children with excellent exam results, that must be because grammar schools are excellent schools, and we should wish to see more of them. Post hoc ergo propter hoc.

But it ain't necessarily so. What if the 18-year-olds who go to Oxford and Cambridge and other Russell Group universities are already bright? Perhaps those particular institutions aren't really adding very much in academic terms at all.

What if university leavers already had many of the skills required to thrive in the modern workplace before they arrived? Perhaps a university education doesn't actually confer those abilities after all, and that from an economic perspective, it's a waste of resources to cram ever more young people through this particular form of higher education.

To identify whether a particular factor causes an outcome, we need to consider the counterfactual. In other words, to ask what would have happened in the absence of that factor? Establishing counterfactuals is tough but, to be credible, an analysis has to at least attempt it.

Now let's consider the case of the 164 grammar schools in England, which select girls and boys at age 11 on the basis of their academic ability. There's no question that the 167,000 students who attend them get better GCSE and A level results on average, relative to the roughly three million pupils who attend nonselective state schools. But is that because of the quality of the teaching at the schools themselves and their selective mechanisms? Or is it because of the pre-existing abilities of the children who attend them, perhaps because they come disproportionately from well-off families? What's the counterfactual? Might those children perhaps have gone on to do well anyway in another school environment, such as a comprehensive? Research from Durham University suggests a definitive answer to that.

When the academics make statistical adjustments for the prior abilities of students and the wealth of their family background (grammar schools do tend to be dominated by the middle classes), they find little evidence that these schools add much.

However, there is some pretty compelling statistical evidence that poorer children in regions such as Kent, where grammar schools are still relatively common, have worse academic results than one would otherwise expect. This suggests brighter children with wealthier parents tend to drive up overall standards in comprehensive schools. But the corollary of this is that the presence of grammar schools is indirectly harmful to the wider local schools system. "Grammar schools in England endanger social cohesion for no clear improvement in overall results," concludes Durham's Professor Stephen Gorard.

When she became Prime Minister in 2016, Theresa May promised she would allow the establishment of new grammar schools. For the first time since the mass comprehensive conversions of the 1960s, the government planned to encourage them. The evaporation of her authority after last year's election fiasco has forced May to retreat from that. Yet it remains Government policy to allow existing grammar schools to expand, in itself a significant departure from the cross-party policy consensus of the past 40 years.

Many of those who want to expand academic selection at age 11 (though not all) are inspired by decent motives. They not only look upon the good academic results produced by grammar schools and wish to proliferate that success, but also observe that the post-war era of expanding grammar schools was also an era of rising social mobility, when it felt like talented young people from modest backgrounds could "get on".

Yet they may have been tripped up by another statistical fallacy: confusing correlation with causation. Was the acceleration of social mobility of this era due to the introduction of grammar schools in the 1944 Education Act? Or more "room at the top" in British economic life, as white-collar work and the professions expanded rapidly thanks to rapid technological change? The evidence leans to the latter.

The question of how to resurrect the social mobility of the post-war era is a complex one. But when it comes to education, the most statistically rigorous research we have (drawing on the research of economists, psychologists, neuroscientists and statisticians) strongly suggests the key to boosting lifetime attainment lies in improving (very) early years care and in targeting resources on the least advantaged.  If ministers really care about the life chances of the poorest, they should invest heavily here, reverse the post-2010 cuts to Sure Start funding, and, finally, shed those beguiling grammar school fallacies.

The hidden fees "drip-off"

Donald Trump versus Simon Calder. There was only ever likely to be one winner.

Thanks to The Independent's indefatigable travel correspondent the £ 20 "resort fee" that Trump's Scottish golf course, Turnberry, had attempted to impose on its guests has been pretty swiftly removed by its managers.

Simon's hand was doubtless strengthened by the fact that such concealed-but-compulsory charges for things like wi-fi, swimming pool access, in-room coffee machines etc are actually illegal here in the UK.

And long may it remain so. This is one kind of American import against which we should resist as vigorously as Trump himself seeks to repel Chinese steel and Mexican-made cars.

A report commissioned by the outgoing Obama administration in 2016 notes that such sneaky fees in the American hospitality industry extorted more than $2bn (£1.4bn) out of Americans in 2015. Despite only being introduced in the late 1990s such fees have metastasised and now make up almost a fifth of the revenues of US hotels.

But before we get self-congratulatory about our enlightened proscription of resort fees, we might remember that considerable tranches of our own markets are also, and apparently quite legally, distorted by what's sometimes known as "drip pricing". 

On my way to Darlington from London on Virgin's East Coast mainline last week I logged on to the train's "free" wi-fi to discover that it was only complimentary for those who had booked their ticket directly through Virgin's website, something I suspect very few of their customers actually do. So to get online for a couple of hours I had to fork out £ 5.

There are plenty of other examples of sharp selling. Those who hire a car at a UK airport will still often find all manner of unexpected compulsory additions wrung out of them upon arrival, such as insurance and refuelling. And of course there are those notorious excess baggage charges from airlines.

The tricks can be subtle too. An entire industry exists to create "strategic choice architecture" to exploit our psychological frailties over pricing. Sales assistants are trained to "upsell", flogging everything from pointless insurance for small household electronics to extra fries with your hamburger. 

And have you noticed how clothing retailers' seasonal "sales" now actually tend to cover most of the year? And why are printers so cheap, yet the replacement cartridges so expensive? 

Is it something to worry about though? Doesn't it all even out in the end, as we get wise to the scams and tricks over time? Doesn't the free market work its magic? 

Possibly not. The White House report into drip pricing concluded that such charges aren't just an irritation, but do wider economic damage by interfering with the price signals that free markets need to function efficiently.

If you think a room is on sale at $80 you might consider it decent value and book it. But if you'd known the real price was actually $110 you might not have. Or perhaps you might have booked a different hotel with an all-in fee of $90. Yet if that $90 hotel had needed to compete with the headline prices offered by a dishonest one, it too might have had to conceal it's own true room price, adopting a spurious resort fee of its own. And so on and so on. It's easy to see how a market can quite soon become corrupted.

The rise of price comparison websites seems to have accelerated this race to the bottom on tariff opacity in some markets. As we do an increasing amount of our shopping and purchases online, this problem will likely grow. When people are making a decision on a one-off purchase remotely, based on headline quoted price, they are inherently vulnerable to exploitation.

Vendors should put their houses in order and ensure genuine price transparency. If they will not - or cannot - more will be expected of regulators. And the longer the "drip-off" continues, the heavier the hand of that intervention is liable to be.

Trump's pride in his lies makes him even much more dangerous than we thought

Donald Trump tells lies. That's hardly news, of course. And certainly not fake news. According to The Washington Post, which is assiduously keeping count, the 45 US President has uttered or tweeted more than 2,000 false or misleading statements since swaggering into the White House. That's an average of around five a day.

But does Trump spew this waterfall of lies knowingly? Or could it be that he is just chronically ignorant and obscenely intellectually lazy? Or is it perhaps a case of cognitive impairment, as suggested in a recent book? Is Trump mentally unable to distinguish between fantasy and reality? A leaked audio recording of Trump recalling his talks with the Canadian Prime Minister Justin Trudeau at a private fundraising event in Missouri gave us a pretty strong steer on this. Trump bragged to his audience that he asserted something to the Canadian leader that he simply didn't know was true or not.

"I said, 'Wrong, Justin, you do [have a trade surplus with the US].' I didn't even know ... I had no idea. I just said, 'You're wrong.'" In other words, Trump has admitted that he lies knowingly and shamelessly. Indeed, the Missouri audio demonstrates that he's not merely shameless, but proud of his untruths. There are problems with psychological diagnoses from a distance, but it's worth noting that pathological lying and immunity to feelings of guilt are traits associated with psychopaths.

Is there anything more to be said about Trump's estrangement from truthfulness? Yes. And it's the fact that Trump is a political liar. The lies are not simply intended to deceive; they are, as the Russian dissident Masha Gessen has argued, a brute assertion of the primacy of power over truth. They indicate a conception of power that simply does not recognise the authority of truth.

Trump says something that is untrue, that people around him know is untrue, that he himself knows to be untrue, and which he knows they know is untrue. Why? As a statement of his authority and the absolute nature of it. As the Missouri audio also reveals, the job of his aides, when a lie is told by their master, is to locate some evidence that his assertions are, in fact, correct.

By forcing his spokespeople and subordinates to repeat, defend or rationalise his blatant falsehoods in public, he destroys their own reputations and their own sense of self-respect. This may, or may not, be intended as a means of binding them more closely to him. Given the rate at which personnel have been departing the Trump administration, it has arguably not been particularly effective in that regard.

Yet there’s ample evidence that Trump is also a calculated and manipulative liar. The timing of his tweets makes it plain that he frequently uses lies to create media frenzies, to distract from other uncomfortable stories, to whip up his voter base. His lies are thus a form of propaganda, of disinformation.

It's impossible not to summon to mind, writing all this, the repeated insistence of an apparently guilt-free Boris Johnson that the UK sends £350m a week to the European Union's coffers, even when the UK statistics watchdog has explicitly told him that this totemic Brexiteer claim is simply wrong.

How to cover shameless, political and calculating liars and propagandists such as Trump (and, on dark days, Johnson) represents an immense and complex challenge for the media. The instinct is to seize on the lie, to "fact check" an individual assertion and demonstrate why it's wrong. I've written plenty of such debunking articles myself of Trump's various statistical abuses.

Yet if the objective of the lie is to distract, to dictate the news agenda, one can't get away from the fact that this risks dancing to Trump's tune.

And what of the impact on the public? Some psychological research hints at a "backfire effect", where people become more entrenched in their wrong convictions, perhaps fed to them by Trump, when they are exposed to contrary evidence.

The validity of this finding has been contested by other researchers. But nevertheless, it's pretty clear that truth in America is under the cosh, led by the assaults of its liar-in-chief. Trump's US support base has not grown since the 2016 election, but it has not collapsed either.

Heartbreaking as it is for liberals to acknowledge, John Stuart Mill's classic philosophical justification for freedom of expression - "the clearer perception and livelier impression of truth [is] produced by its collision with error" - looks shaky in the face of the empirical evidence of recent years.

So what should the media's response be? The idea that journalists should simply report blatant lies neutrally along with contrary information, and let audiences make up their own minds, feels to most journalists like a dereliction of a fundamental responsibility to inform and be fair to the public.

One temptation is to take the lies for granted, to focus on policies. I confess I've felt that urge at times, when Trump comes out with yet more mendacious rubbish. Is one more debunking really going to achieve anything? But that’s surely an abdication of responsibility, too. For lies on this scale and with this malevolent intent corrupt the public realm and erode our democracy, which ultimately relies on some acceptance of shared truth.

They are an authoritarian attack on pluralist institutions - one that's disturbingly familiar from the last century of world history. "Contempt for truth goes hand in hand with political oppression," observes Lee McIntyre of Boston University.

However the media deals with them, we must never deceive ourselves into thinking that the brazen lies of Trump - and the lies of any politician in an open and democratic society - are harmless.

Hammond’s spring statement was no new dawn for the UK economy. It was an optical illusion

The bonanza, in the end, failed to materialise. There had been a fair amount of talk before the Spring Statement that Philip Hammond would be in a position to unveil a new dawn for our beleaguered public finances. City analysts had been chattering like South London parakeets about a potential £10bn permanent improvement in the public finances.

And the excitement had jumped the species barrier from the Square Mile to Westminster. The ardent Brexiteer Jacob Rees-Mogg had squawked about the imperative of ratcheting up spending on the struggling health service. Other Tory MPs had similarly chirruped in favour of a loosening of the Government’s austerity corset. The Chancellor himself had allowed himself to refer to “light at the end of the tunnel” in conversation with Robert Peston at the weekend.

Well the light of the tunnel may not quite have been the headlights of an oncoming train, but, according to the Office for Budget Responsibility, it was certainly an optical illusion.

The OBR did revise down its estimate of public borrowing in 2017-18 by around £5bn on the back of fuller than expected tax revenues so far this fiscal year. Yet Robert Chote and his team concluded that this was not likely to be a permanent improvement, mainly because they now estimate that the economy is overheated relative to their estimates in November. In other words, when things naturally cool down, the tax revenues will start undershooting. 

Similarly, the overall GDP growth forecast for the UK is a smidgen better this year. But next year – when Big Ben (may) ring out for Brexit– it is unchanged at a paltry 1.3 per cent. This, we should bear in mind, at a time when the rest of the world is growing at its strongest rate in years. And the expected UK growth rate is actually shaved down in the final years of the OBR’s forecast in 2021 and 2022. What the Spring Statement giveth, it also taketh away.

The Chancellor might have rebranded himself as Tigger, rather than Eeyore, but the OBR was channelling the lugubrious blue donkey when it concluded: “There seems little reason to change our view of [the UK’s] medium-term growth potential.

City scribblers earn their bread speculating about the short-term ups and downs of the economy and the public finances. But what really matters for our long-term living standards is the UK’s productivity growth potential, the amount of output we can collectively squeeze out of each hour worked and each worker. And the big picture is that productivity has been as flat as a pancake ever since the Great Recession a decade ago. Or at least that was true until the second half of last year, when we, surprisingly, witnessed the best two consecutive quarters of productivity growth since the financial crisis.

Yet the OBR doesn’t think the UK’s productivity growth engine has started roaring again, since the improvement in 2017 was driven by fewer hours being worked, rather than higher output. A similar surge happened in 2011 before petering out. Another broken promisein other words. Let’s hope they are wrong, but there’s not much reason to believe it, particularly given ongoing public spending cuts and Brexit continue to dampen the animal spirits of households and companies.

And what of that pachyderm in the living room? What about Brexit? The consensus of serious economists is, of course, that Brexit will harm our growth potential by throwing up trade obstacles between us and ourbiggest commercial partners and, probably, reducing useful immigration to boot. And the OBR is not demurring from that. Its view, articulated way back in 2016, that Brexit would damage the UK’s public finances, wiping out any “dividend” from not making annual contributions to the EU Budget, still stands. And that’s based on the assumption the Brexit process is nice and smooth.

In the short-term, the OBR, conceded the economy had held up better than it expected immediately after the plebiscite. But this was partly due to the unexpected global growth spurt, partly because households seem to have dipped into their savings to support their spending. Moreover, as the OBR stressed today, it simply doesn’t regard the Office for National Statistics’ estimates of how the economy performed since the vote as reliable.

In short: as you were. The new Brexit dawn for the British economy looks remarkably like the old one.

Why do so many businesses parade their humane values yet treat their staff so badly?

Form and substance in the modern workplace are, as we have been learning in recent weeks, not to be confused. Before Christmas the noodle chain Wagamama apologised after a charming printed note in one of its London restaurants was discovered warning staff: "No calling in sick!... Calling in sick during the next two weeks will result in disciplinary action being taken."

In theory, the employees of that branch could claim all the usual protections of the law, including the right not to be expected to haul themselves into work if they weren't well. In practice, they could not.

In theory, Gary Smith of Pimlico Plumbers was self-employed. That's what his contract said. In practice, Smith was fired by the company after he tried to reduce his hours after suffering a heart attack, implying he wasn't truly self-employed after all.

The form and the substance were very different things.

Not all examples of the gulf between the two are so eye-popping. Many of us will have had bosses who proclaim "my door is always open" when it really isn't.

This form and substance dichotomy applies more broadly. Oxfam and Save the Children were, outwardly, communities of mutually supportive individuals striving to make the world a better place. But recent revelations have painted a picture of harassment, bullying and even predatory sexual behaviour towards disaster victims at these charities.

The BBC has long preached the gospel of equality for its workforce. But after discovering disparities of pay between men and women doing very similar jobs, many of the corporation's staff now dismiss this as humbug.

On and on the scandal sheet of managerial abuse goes, from the English women's football team to Parliament. 

But, you might object, isn't this traditional hypocrisy from bosses, rather than an illustration of some deeper philosophical or economic point? Haven't organisations always behaved in this way: presenting an appealing face to the outside world while behaving in an uglier fashion in private? Isn't this the way of our fallen world? 

To some extent, yes. Since Adam delved and Eve span, there never has been a golden age of workplace harmony. Yet the gap between the carefully crafted public image and the reality has perhaps never been so yawning. 

Modern economies like Britain's are increasingly services-based and customer-focused. Most companies now grasp that they need to pay attention to their image or risk a swift and possibly lethal backlash, especially faced with the speed and reach of social media.

The words "corporate social responsibility" - largely unknown in boardrooms three decades ago - have become ubiquitous. Every organisation now claims to be an equal opportunities recruiter when it advertises vacancies. All companies profess to care about their employees. Many even tell the world that their staff are their "most important asset".

Yet the power relations within companies and organisations - between managers and the managed - have not kept up with this rhetorical revolution. Unionisation rates peaked in the 1970s and have continued to fall steadily ever since. Theresa May promised to put workers on boards in 2016 when she became prime minister. But the pledge was watered down to almost nothing after pressure from the corporate lobby.

One of the great economists of the 20th century, Ronald Coase, asked the question: why do we have firms? Why isn't everyone self-employed, hiring out their services to an organisation, whether public or private, and maintaining maximum flexibility for themselves? The answer Coase came to was the incentive to minimise transaction costs. Drafting endless short-term contracts for each bit of work is onerous and expensive. It's often more cost effective and profitable for us to organise ourselves into collectives, as employers and employees.

But how should relations between employers and employees within a firm or organisation be determined? By a long-term employment contract is the obvious answer. But not every future contingency can be covered by a contract. They are incomplete, something studied in detail by another eminent economist, Oliver Hart.

When an employment contract is incomplete, who decides what happens? Who decides on the division of the organisation's surpluses, pay rises for staff, promotions, changes in working conditions, training opportunities, on dispute resolution? This is where the issue of manager-staff power relations comes in. The managers tend to have the "residual control rights", or final say, when contracts are incomplete.

Germany should not be presented as a utopia for workers. Yet it is a place where, through its practice of employees being represented on companies' supervisory boards and its norms of "codetermination", the forms of managers' proclamations of respect for workers and the substance of that relationship are markedly closer than they are here. Germany has a developed at least a partial institutional solution to the inequality of power that stems from incomplete contracts.

If we truly desire the substance, not just the forms, of a harmonious and mutually respectful workplace, we should learn from that.

Water privatisation is a burst-pipe dream

Last year Thames Water was hit with a £20m fine for polluting the waterways of Oxfordshire and Buckinghamshire with a billion and a half litres of raw sewage between 2012 and 2014.

The judge cited a "failure to report incidents" and a "history of non-compliance" by the company. Equipment was unmaintained. Warnings from employees went unheeded by management.

Thames's conduct was branded "disgraceful", justifying the largest financial penalty for pollution in UK corporate history. While all that was going on Thames's boss, the aptly named Martin Baggs, received a 60 per cent pay rise, taking his total annual remuneration to above £2m.

Now Thames (along with three other private water companies) has let down its customers again, leaving them high and uncomfortably dry after pipes burst in last week's big freeze. And, once again, it's apparently corporate incompetence at work rather than just bad luck.

"Water companies have been warned time and again that they need to be better at planning ahead to deal with these sorts of situations," fumed Rachel Fletcher, the head of the regulator, Ofwat, today.

So presumably, if history is a guide, Thames's current chief executive can look forward to a bumper payday.

Owning a water company isn't a licence to print money. But the cash does flow extraordinarily freely in this sector. In the financial year ending in 2017, according to data collected by Ofwat, the private water companies raked in total revenues from households and businesses of £11.7bn. Their profits before tax were just under £2bn.

That equates to a profit margin of 17 per cent, which is extraordinarily elevated for a natural-monopoly public utility. Such plump margins enabled the water companies to pay out £1.4bn of dividends, in total, to their shareholders. Between 2007 and 2016 total dividends summed £18bn.

The industry points to higher levels of investment by water companies since the 1980s as evidence that privatisation has worked in the public interest. But much of that capital spending was mandated under European Union environmental regulation. It would have happened anyway, even if the regional water companies had never been sold off by the Thatcher government back in 1989.

And that £18bn in dividends in the decade to 2016, incidentally, was roughly equal to their total profits over that period. Investment for the future pretty clearly ranks behind shareholder returns for these companies. A broad survey of the state of the privatised water industry reveals a scene almost as unpleasant as those befouled Oxford waterways.

We see tax avoidance through the creation of complex webs of offshore holding companies. We see firms loading up on debt to benefit from lower interest rates. We see the gains from lower borrowing costs not being adequately shared with customers, who have seen bills rising well above the rate of inflation over the past 30 years. We see remuneration for executives beyond the dreams of any equivalently senior public sector employee.

Even the quondam Thaterchite Environment Secretary, Michael Gove, now accepts most of this charge sheet. And we can reasonably supplement it with proven managerial incompetence and regulatory ineffectiveness.

There are reasons to be sceptical of Labour's argument that water nationalisation would lead us to a promised land of good customer service and efficiency. Pipes would still burst under national ownership.

Public servants are perfectly capable of bungling.

Yet it would also be a land without financial engineering, grotesque cash extraction, endemic tax avoidance, and stratospheric managerial pay. That's worth something. Improve and tighten regulation instead, say some. But what should the new framework be? Where in the world is privatised water working satisfactorily for consumers? There is, in fact, a global trend of re-municipalisation of privatised water provision, driven by many of the same problems of unwarranted private value extraction and managerial incompetence as we have seen here.

Given the failures of the past 30 years, the onus is surely on the defenders of the status quo to justify it; to explain why in Britain water, and the financial rewards from its supply, should continue to flow uphill.

On trade, Trump and the Brexiteers are not as far apart as you might expect

When it comes to trade, liberal Brexiteers are cut from a very different cloth from Donald Trump. Or so we're led to believe.

Trump wants protection. But Brexiteers want more trade, even unilateral tariff cancellations on imports to the UK.

Trump has a pinched and paranoid vision of "America First". Yet Brexiteers nourish an expansive and open-minded dream of "Global Britain" signing major new deals with emerging market superpowers.

Trump is in the mould of his late 19th century predecessor, William McKinley, who proclaimed: "Protection is but the law of nature, the law of self-preservation, of self-development." Brexiteers such as Liam Fox, Boris Johnson and Michael Gove, by contrast, walk in the enlightened footsteps of John Bright, Richard Cobden and the Anti-Corn Law League.

But are Trump and the liberal Brexiteers as different as that rhetorical divergence suggest? As he unveiled his new tariffs on steel and aluminium last week, Trump articulated his philosophy on trade to Twitter.

"When a country is losing many billions of dollars on trade with virtually every country it does business with trade wars are good, and easy to win," he explained. "Example, when we are down $100bn with a certain country and they get cute, don't trade anymore - we win big. It's easy."

One can hear an echo of that "we can't possibly lose" perspective in the Brexiteers' misplaced confidence that, because the European Union has a trade in goods surplus with the UK, the Europeans will ultimately be desperate to sign a post-Brexit free trade deal.

"Within minutes of a vote for Brexit the CEOs of Mercedes, BMW, VW and Audi will be knocking down Chancellor Merkel's door demanding that there be no barriers to German access to the British market," the now Brexit Secretary, David Davis, famously predicted before the referendum.

What both the Brexiteers and Trump fail to understand is the nature of trade deficits. Trump is deluded to believe, as he clearly does, that a bilateral trade deficit is evidence of a country "losing" in trade and a surplus, correspondingly, evidence of "winning".

And the Brexiteers are deluded, albeit in a slightly different way, to believe we are, like a customer in a charity shop, somehow doing EU companies a favour in buying their exports - and that we could simply stop doing so without inflicting any harm on ourselves.

But, even accepting all that, Brexiteers would never advocate crude Trump-like tariffs, would they? Perhaps not. Yet leaving the EU single market and customs union are, nevertheless, inherently trade destroying policies for Britain; perhaps the most destructive since the Second World War.

No credible study has found any grounds for believing that hypothetical future trade deals between the UK and the likes of China and Australia could, arithmetically, compensate for leaving the EU's free trade institutions (which, let us remember, the Thatcher government helped to shape).

It's also worth delving a little more into the Trump position. On Twitter he embraces bellicose talk of a trade war. But speaking in Davos in January, the tone from Trump and his economic team was rather different. All they wanted, they said up in the Swiss Alps, was "fair trade", reform of a system "rigged" against America.

"The US is prepared to negotiate mutually beneficial bilateral trade agreements with all countries," Trump told delegates of the World Economic Forum.

This might get us closer to the underlying substance of the Trump position. What we have is a visceral rejection of multilateralism, or working in concert with other nations, as an equal, to achieve a mutually beneficial end. America will only negotiate with other countries one on one. For Trump, trade is really about power. It's an ideological view on the appropriate nature of international relations.

One of the most pointlessly destructive elements of Brexit when it comes to trade is that the UK will automatically fall out of the coverage of the 50 or so trade deals signed between the EU and a host of other countries, ranging from South Korea and Mexico to Chile and South Africa.

We will have to scramble to recreate those deals after 2019 merely to avoid damage to our own exporters who have come to rely on them. The net economic benefit of this upheaval is quite elusive.

Moreover, we might ask, what is the objection, if the Brexiteers feel the EU has not been proactive enough in seeking to strike new trade deals with emerging markets, to remaining in the bloc and pushing for change from within, working with similarly pro-free trade allies such as the Netherlands and Sweden?

The obvious answer is that liberal Brexiteers, like Trump, harbour a temperamental hostility to the very principle of multilateralism, even if it delivers the ends they purport to want. It's a hostility that overrides any rational cost-benefit judgement.

Working through the EU to enhance the export opportunities of our firms and reduce import costs for consumers would not enable these political narcissists to feel, on a personal level, that they had taken back control.

Despite their rhetoric, for liberal Brexiteers, leaving the EU is less about new trade opportunities, than power. And, as with Trump, the power in question is not really their country's but their own.