How to Make an Economic Success of Brexit
Some people expect Singapore-upon-Thames to emerge before the shores of Europe. But how can Britain really capitalize on its exit from the EU?
Brexit isn’t mainly about economics. Even amongst the economic benefits of Brexit, some are outside Britain’s control (eg the EU using the opportunity of Brexit to function better). But some are up to the UK. So how can it make the most of Brexit in economic terms?
1. – Maintaining independence. First, Brexit is fundamentally about the UK setting its own laws. So it needs to ensure that in any trade deal it does with the EU it retains the flexibility to set its laws for itself. Then in exercising that flexibility, it needs to be disciplined and imaginative. Disciplined, in that the EU has made it easier for decades for UK policymakers to resist pressure to do ill-advised things, such as subsidising loss-making firms or restricting foreign takeovers. Perhaps the UK may not want to restrict state aid in precisely the ways the EU does, but it should resist the temptations and pressures of the freedom Brexit will give to enact unwise protectionism.
Imaginative, in that the key regulatory challenges of the next decade will relate to emerging technologies where the best way to regulate is by no means obvious.
2. – Finding new ways. Driverless cars, other AI, green technologies, the commercial exploitation of space, lab-grown meat, biotech, “reduced risk” tobacco products — these and other areas offer the UK an opportunity to engage in regulatory experimentation, learning the most helpful ways to develop markets and production for these new technologies that will foster their growth whilst respecting social and environmental objectives and the welfare of consumers and citizens. This will not always be “less” regulation than the EU — often it may be more, since the UK’s flexibility may allow it to regulate earlier. But the UK should be willing to try measures out and, if they are not working, to u-turn rapidly — much more rapidly than the EU, by its nature, ever can — then learn from its mistakes and change.
3. – Use funds wisely. Brexit will also see the UK regain control over a range of taxes and revenues. It will need to decide how best to spend that large share of EU money that goes on agricultural support. The UK has been a critic of the Common Agricultural Policy for decades. Now it has the chance to show that it can do better. It will also recover monies spent on a range of international development projects in poorer parts of Europe. It will now have the opportunity to spend those funds on international development outside the EU, if it chooses, perhaps promoting social and civic development, eventually creating investment and trading opportunities for British citizens.
4. – Getting new Free Trade Deals. The UK will have control over taxes such as VAT. Perhaps it should consider replacing VAT with a “GST”-style tax more in line with those in countries such as New Zealand? It will also set its own tariffs. Could that mean it will remove tariffs from certain products that are made elsewhere in the EU but not in the UK?
One aspect of tariffs is new trade agreements. It should seek early agreement with Australia, New Zealand and the US, then move on to attempt deals with Japan and Canada. These deals may turn out better for UK consumers than deals the EU would have done, since the UK by itself will not need to satisfy so many diverse EU producer interests in order to do a deal. Doubtless some of these victories for UK consumers will be presented as “defeats” for UK producer interests. Look behind the headlines for the real winners!
5. – Strengthen Relationships. Economic flourishing can also be helped by the UK playing its part, with its allies (including perhaps deeper relationships with countries such as Canada and Australia), in promoting global peace, stability and justice, as well as property rights, intellectual property, and environmental progress.
Andrew Lilico is Executive Director and Principal at Europe Economics, a London-based consultancy specialising in economic regulation, competition policy, and the application of economics to public and business policy issues.