Brexit means a better future for the UK and a better partner for the EU, writes the co-chairman of the Leave Means Leave campaign.
Before writing this article, I reread the one I submitted to The Bankeralmost 15 months ago, during the Brexit referendum campaign in the UK. It was published only weeks after I had resigned as director-general of the British Chambers of Commerce in order to lead the business campaign to leave the EU.
I realised that the article was mainly a critique of what had gone wrong in the UK’s relationship with Europe and why the EU was in desperate need of reform in a way that would be recognisable to the UK, rather than the reform preferred by the Brussels autocracy: inexorable political and economic integration, protectionism, centralised control and the dead hand of bureaucracy.
The referendum concluded that the UK was right to make its own way in the world and that, on balance, the EU is unlikely to reform in a meaningful way. Since then, my thoughts have been focused on the many business and economic opportunities that Brexit can provide. Before addressing these, however, it is worth reflecting for a moment on the results of the referendum.
Nearly 17.5 million Britons voted to leave the EU; more people than in any other plebiscite relating to a single issue. Had it been a general election, the analysis of constituencies shows that it would have been a landslide victory for the leave side, with more than two-thirds of UK constituencies, and more than three-quarters of English constituencies, voting for leave.
Following the referendum, opinion has hardened, with many remain voters now wedded to the idea of leaving. Recent research by the London School of Economics (not known as a leave supporter; when I participated in a debate at the LSE during the campaign, there were only a handful that backed the leave campaign) showed 66.5% of the 3293 respondents to the survey would now support leaving the EU without any deal at all [rather than opting for a ‘soft’ Brexit’].
Closing the gap
On the vital issue of the economics, during the campaign the political commentator and strategist Lynton Crosby reported that the gap in support between those who thought remaining was best for the economy and those who favoured leaving narrowed from nearly 30% a few weeks after I joined the leave campaign in March 2016 to about 5% the week before the referendum.
Considering that the supposed negative impact on the economy of leaving was the key argument of remainers, it is a tribute to the business and economic leave campaign groups – but even more an accolade to the intelligence and common sense of the electorate – that the British people did not fall under the spell of ‘project fear’, of the ‘rentiers’ and vested interest groups. This is a particularly impressive outcome, given that all of the major institutions – the Confederation of British Industry, the Treasury, the Bank of England, the International Monetary Fund, etc – made outrageous claims of doom and disaster, none of which have come to pass. Even the mild impacts have been largely absent and where they have appeared, turned into opportunity, for example, the competitive value of sterling.
In fact, while the UK economy has slowed a little in 2017, the stock market has risen; exporter profits are healthier; exporter investment and expectations are at an all-time high; employment is at an all-time high; inward investment is running high; inflation has peaked; and commercial property is doing well. The outlook for investment is rosy.
The cloud on the horizon is business and consumer confidence – the latter largely driven by depressed wages – and therein lies both the opportunity and the risk. Having said this, many people voted to leave irrespective of the economic implications. Our forebears spent far more in blood and treasure than we ever will in these exit negotiations, in order to preserve the liberty and freedom of the British people. Given the alternative of a developing European super state, dominated by Germany, many in the UK would forego a few percentage points of growth for freedom.
Degree of certainty
As it stands, there is a massive opportunity to make the UK the economic equivalent of the best of ‘Singapore on Thames’. This of course does not in any way dictate UK social policy or civil society but it provides a high degree of certainty for business. All this is entirely within the gift of the UK government, unilaterally, provided it is clear that we will leave the Single Market and Customs Union in March 2019. This would, incidentally, create more leverage for the UK negotiating position (but more of that later).
By contrast, the current uncertainty for business is a product of the various scenarios for the next two years. The most likely are:
- that the parties negotiate an ‘interim arrangement’, whereby the UK technically leaves the Single Market and Customs Union but immediately rejoins a customs union arrangement. This could become a permanent approach, which is the remainers’ dream. Of course, this could result in a free-trade agreement (FTA) with the EU, with all attendant benefits;
– that the parties fail to strike a deal and the UK leaves in a less orderly fashion with notice, or at the end of the process in a disorderly fashion, and reverts to World Trade Organisation rules; or
– that the UK declares early its future post-Brexit economic policy, irrespective of the outcome of the negotiations, and pursues a programme to crystallise these the moment Brexit is declared, thus providing certainty to business and an assured prospect of a strong and vibrant economy.
This latter is, unfortunately, the least likely outcome and yet the most likely to secure a better economic future for the UK than we otherwise would have had by staying in the EU. For this scenario to succeed, it would require a vision and determination from the UK government and – in particular, the chancellor of the exchequer and the Treasury – that is singularly lacking. Instead, government policy has been captured by vested interests that wish to preserve what they have, which can only produce an inferior version of what we have now at the expense of the rest of the economy.
An opportunity to grasp
The UK has in its grasp an opportunity to forge a future entirely outside the doctrine of Brussels, a future that outshines the benefits of the Single Market by far and which puts into the shade the advantages of any FTA with the EU. We should not forget that only 13% of the economy is related to exports to the EU, 17% related to exports to the rest of the world and the majority is entirely domestic. Thus any advantages that promote growth in the 87% far outweigh the 13%.
If we leave the Single Market and Customs Union we will be free to: abolish the Common Agricultural Policy; repatriate fisheries; deregulate those parts of the economy not related to export; make trade deals around the world; reduce the enormous tax costs of uncontrolled immigration; unilaterally remove external tariffs; and instead use the £10bn ($12.88bn) net contribution to the EU to invest in business tax cuts and to improve infrastructure, including digital. We will also be able to better deploy the balance of the gross contribution, a further £10bn.
All this adds up to an easily achievable 5% of gross domestic product (GDP), equivalent to improving our growth rate by one-quarter for the best part of a decade, and possibly up to 7% of GDP. By contrast, the cost of EU-imposed tariffs would amount to less than half of the UK’s net contribution – tariffs the value of which have been already more than eliminated by the competitive value of sterling.
This is good news for the City of London. Not only is London a global financial centre and centre of expertise, it is also a vital source of finance for EU governments and businesses. But more than this, the promise of an outward-looking and dynamic UK economy reinforces the City’s pre-eminence as an enterprise economy that produces real productivity growth, wealth and jobs. A strong UK economy and a vital and dynamic City of London is good for the EU. A UK no longer disgruntled within the EU, but out on its own as a beacon of free market, free trading activity and liberty, is good for the EU.
Ironically, this would also give the UK government a stronger negotiating position with respect to the EU, while equally being uncomfortable for the eurocrats. The current direction of travel leads only to the waiting room of half-in, half-out status, with the even greater danger of a permanent twilight zone in which we are constrained from boosting our economy, and have only some of the benefits of membership while having no influence.
If we are to leave the EU in reality rather than in name only we will inevitably come to this economic model, one that will boost growth and productivity and make us richer than we would otherwise have been by staying in the EU. It is only a question of whether we do it in a planned way and with early warning, or in a disorderly fashion. However, in order to get this best outcome for the UK, we may first need to change the chancellor.
John Longworth is former director-general of the British Chambers of Commerce and co-chairman of the Leave means Leave campaign.
September 1st, 2017: The Banker