Abramovich’s Chelsea Retreat Carries a Brexit Warning
(Bloomberg Opinion) -- The U.K.’s crackdown on Russian money has hit the country’s favorite sport. Chelsea Football Club has put its stadium redevelopment on hold, citing an “unfavorable investment climate” – that’s probably a polite way to describe billionaire owner Roman Abramovich’s recent inability to renew his British visa.
This halting of at least 500 million pounds ($665 million) of London spending, whether temporary or not, is the clearest evidence yet of the potential cost to the U.K. of distancing itself from the oligarchs. It raises real questions too about what kind of role Britain might find for itself after its imminent exit from the EU.
The visa issues hanging over Abramovich appear to be an indirect consequence of Theresa May’s broader attempt to clean up London’s reputation as a haven for corruption and money laundering, which in itself is laudable (even if there is no suggestion that Abramovich himself has done anything wrong.) Tensions between London and Moscow have ratcheted up since the poisoning of a former Russian spy and his daughter in Salisbury.
Some 700 “golden” investor visas for rich Russians are being reviewed, while in February the first ever “unexplained wealth orders” were issued to shine a light on where tycoons obtained their riches. Overseas tax havens with British links are also being forced by the U.K. to disclose more details about the money they provide a home to.
The timing is awkward, though. The decision to scrutinize rich foreigners more closely has arrived just as the country is wrestling with how to implement a fiendishly complicated new trading arrangement with the EU.
The most ardent Brexiteers had imagined that their country would be free to pursue its own way in the world, liberated from the dead hand of the Brussels bureaucrats. But the irony is that the U.K. is probably going to be tied up in more of the red tape that the leading leavers so despise – whether that’s to do with how foreign investors justify their visas or how British companies trade with Europe.
Liam Fox, the international trade minister, has promised the Brits 40 free trade deals “the second” after the country exits the EU in March 2019. So far, though, the uncertainty has curtailed investment and the economy has slowed. The recent sparring over new customs arrangements with the EU suggests companies will have to spend more on paperwork to conduct cross-border trade, not less.
Alongside all the trade deals, the second plank of the Brexiteers’ dream is making Britain even more of a magnet for foreign money. But the kerfuffle at Chelsea F.C. won’t go unnoticed by overseas investors, even beyond the Russians. It’s a sign that the net is being cast wider than expected, with Abramovich’s well-established position in London and the affection of hundreds of thousands of Chelsea fans not offering him much protection.
Wider public opinion might not mind the unintended consequences of an aggressive sweep against foreign money, especially given the related hyper-inflation of London’s housing costs. But tycoons from Asia or the Middle East will wonder how dependable the U.K. really is as a bolthole.
Britain clearly wants to show Europe it won’t ditch established norms or embrace all sources of money to offset economic uncertainty. It seems to want to show its citizens too that the rich will be treated like anyone else. These are noble aims. But disentangling itself from the wealthy foreigners who have made London their playground, at the same time as doing the same from their biggest trading partner, will carry an economic cost.
©2018 Bloomberg L.P.