London sees unlikely fall in cost of expat living ahead of Brexit

18 July 2018 Consultancy.uk

Expats sent on international assignments often find themselves in new worlds, with a host of new cultural and economic realities. According to a new report looking to support these business needs, Hong Kong reigns as the most expensive city in the world for expats, followed by Tokyo and Zurich – but surprisingly London has seen costs fall over the last 20 years.

Corporates across the globe are increasingly facing costs related to talent needs as expansion into various key regions, coupled with increased talent scarcity, calls for shuffling staff across global cities. Understanding the cost of living in a broad sense, and in relation to the US dollar, allows organisations to better plan assignments and prepare their staff for the new situation.

To help them do just that, each year Mercer releases the results of its global Cost of Living Survey, aimed at providing companies with an indication of the cost of living in various global regions. The report is based on more than 200 goods and services analysed across 400 data points, covering everything from the cost of basic goods to rent and insurances.

Along with the usual warning such reports have adopted as a staple in recent times, with geopolitical and economic uncertainties ramping up prices alongside instability in housing markets and the fluctuating prices for goods and services across various locations, something unthinkable appears to have occurred. A price tag relating to life in London appears to have actually fallen. While uncertainties are only growing as the Brexit process remains stranded as the exit deadline approaches, expats living in the UK capital have seen an 18% fall in the cost of living in the past 20 years, according to Mercer.

Twenty-year Highlights

It is difficult to say exactly why the notoriously pricey metropolis has witnessed such a decline over such a long period, although it is likely to be tied up to the turbulent value of the British Pound. While London still ranked in the top 30 of the most expensive places for expats to live as recently as last year, Brexit triggered a succession of plummets in what the pound was worth compared to the dollar and the euro, at present the money of those arriving on the island nation may go further. Those already packing their bags to arrive at the suddenly affordable locale might be well advised to delay such fancies, however, as in another metric earlier this year, Mercer also revealed that London has one of the worst standards of quality of life in Western Europe.  

The study, now in its 24th year, also looked across the world at changes to the ranking over the last 20 years. Despite remaining the most expensive city for expats, Hong Kong has actually seen its relative cost fall by 25% since gaining independence from the UK, while Beijing has fallen by 34%. Egypt’s capital of Cairo has seen two decades of change create the biggest fall on the index, however, at a decline of 45%.

Kinshasa in the Democratic Republic of Congo has seen the most significant increase in that time, up 56%, while Bangkok rose by 34%. Seoul saw a 15% increase, while Sydney saw an increase of 14% over the period. Dublin, meanwhile, climbed by 15%, having been hit hard by EU-backed austerity measures over the last decade in particular.

Top ten and bottom ten

In terms of the world’s most expensive city for expats in the here and now, as was previously mentioned in Hong Kong tops the index. The city state, which remains autonomous, has high costs across a variety of categories, from accommodation to a cup of coffee ($8). Tokyo and Zurich take out the number two and three spots respectively, while Singapore moves up one spot to number four and Seoul rounds off the top five – 4 of which are in Asia.

Luanda, Angelia, which was in the number one spot last year fell to number six – the city costs are skewed by high local tariffs on goods for expats. Shanghai is number seven, while Beijing takes the number 9 spot. Bern completes the top ten, highlighting Switzerland’s reputation as one of the most expensive regions in the world. On the other end of the scale, Tashkent of Uzbekistan, Tunie of Tunisia and Bishkek in Krgyzstan are the world’s most affordable global population centres, at 209, 208 and 207 respectively. Middle Asia, particularly the old USSR countries are noted as the most affordable, alongside a number of centres across Africa.

Regional costs

By region Asia has the most expensive destinations, all five in the top ten, followed by Europe with five entries in the top 20. North America is dominated by US cities, with New York City at number 13, while the rest are in the late 20s to early 50s. Africa, meanwhile, has a host of cities in the top 20, while South America finds itself between 50th and 100th for its top five entries.

Top five by region

In the Pacific, Sydney comes in at 29, while the rest of Australia is more affordable. New Zealand meanwhile has one entry in the top five for the region, Auckland, at 81. Eastern Europe meanwhile has Moscow take the number 17 spot, while St. Petersburg comes in at 49, while Riga takes the number 92 spot.

Ilya Bonic, President of Mercer’s Career business said about the survey, “While a mobile workforce allows organisations to achieve greater efficiency, utilise top talent, and be cost effective with international projects, volatile markets and slowing economic growth in many parts of the world require them to carefully assess expatriate remuneration packages.”

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Brexit will have major impact on UK-EU electricity flows

22 April 2019 Consultancy.uk

Brexit could have a major impact on the consumer price of electricity in the UK, according to an analysis by Sia Partners. The total costs for UK society could swell to €600 million annually due to less efficient flows of electricity.

As the Brexit process has perpetually stalled, with no realistic end in sight now until Halloween, underprepared businesses have been handed a lifeline. The scramble to prepare for a No Deal scenario can now continue for another half-a-year, and one of the key factors which companies will need to consider when drawing up these plans is the cost of accessing utilities post-Brexit. In the digital age, virtually no business can survive without a ready supply of electricity – while the pay-cheques of staff will also need to inflate to accommodate future rises in bills.

With significant cross-border flows of electricity between continental Europe and the UK, Brexit is destined to have a major impact on individuals and companies in this manner, according to new analysis by consulting firm Sia Partners. These flows of electricity are governed by common European rules, but when the UK leaves EU, Britain’s electricity markets will no longer be integrated into Europe’s ‘Internal Energy Market’.

European model

Historically, electricity grids and markets were developed on a national level. However, years ago the EU set out to achieve integration in electricity grids, on the premise that coupling grids and markets can lead to significant benefits. By making electricity flows possible, price arbitrage can be faded out by allowing buyers to access cheaper prices offered beyond the country’s own borders, driving up competition and lowering average prices.

Brexit will have major impact on UK-EU electricity flows

An analysis of electricity flows between the UK and Ireland demonstrates this. Before Ireland was coupled to the UK, commercial electricity exchanges on the UK - Ireland border flowed 40% of the time against the natural direction, i.e. from the higher to the lower price market. After more effective cooperation and regulation was put into place ('After the I-SEM' went live), the picture changed drastically, with commercial flows now following the price differential 96% of the time. Quantifying this welfare benefit is not easy: according to one estimate by ACER, the economic added value of having market coupling with implicit capacity allocation on the GB-Ireland border (1GW) amounts to around €110 million annually.

Europe’s aim is to achieve interconnection of at least 10% of their installed electricity production capacity by 2020. As it stands, seventeen countries are on track to reach that target by 2020, or have already reached it.

On the UK side, the region currently has a total capacity of around 5GW connected with mainland Europe (France, the Netherlands, Ireland, Belgium), corresponding to roughly 5% of UK’s installed capacity. In comparison with other EU countries, this ratio is on the low end; however, the UK is playing catch-up and has 10 interconnections scheduled for commissioning in the next four years.

Brexit

It's clear that the UK’s withdrawal from the EU will have an impact on electricity markets co-operation. The question which remains is how large will the impact will be? To provide a forecast for this, analysts at Sia Partners ran a modelling exercise with two scenarios in mind. After leaving the European bloc, the UK will have to make agreements with European countries, similar to how Switzerland and Norway currently operate. Norway has a deal with a relatively high level of integration with the EU’s internal energy market, while Switzerland stands at the other end of the spectrum, with the country excluded from several market coupling initiatives (e.g. MRC, XBID) and from implicit capacity allocation with any other EU member state.

“If Brexit leads to a construction which is similar to the Swiss deal, where UK’s electricity borders are uncoupled from its neighbouring countries, then there will be a major loss of welfare.”
– Sia Partners

If the UK follows in the footsteps of Norway, then the consequences of Brexit could be muted. According to Sia Partners’ calculations, the economic loss would be minimised in the mid-term, with only operational challenges expected. For example, the implementation of pan-European projects, such as XBID, could run into delays in the UK. The EU currently has 7 of such interconnection projects scheduled for completion before 2022.

“In case a Norwegian style deal is struck, the UK will lose its decision power related to EU energy policy but it would allow keeping the benefits linked to the internal energy market not only for itself but also for Ireland and continental Europe,” the researchers state.

If, however, a Swiss deal is struck, then the projected costs could range between €500 million to €1 billion. An expected 60% of this loss will be borne by the UK, 16% by France, and 8% by Belgium, the isle of Ireland and the Netherlands. The researchers concluded that if Brexit leads to a construction which is similar to the Swiss deal, where UK’s electricity borders are uncoupled from its neighbouring countries, “then there will be a major loss of welfare.”