John Longworth was formerly Director General of the British Chambers of Commerce and Chairman of the Vote Leave Business Council and is now Co-Chairman of Leave Means Leave.
The Treasury and our key economic institutions face a tough challenge post-Brexit and something of a dilemma. The Treasury and, to a lesser extent, the Bank of England spent four months up to the referendum, telling the world that Armageddon would follow a vote to leave the EU, so it is hardly surprising that the world believed them and confidence was shaken. Armageddon hasn’t happened in the immediate post-Brexit period and in fact the Bank and others are now rowing back from predictions of recession for the UK.
Marketeers say that when it comes to communications, “perception is reality” and the one feeds off the other. If that is true, then the challenge is not only one of the future performance of the economy, but also of how the economy is perceived – particularly as performance is influenced so much by confidence. Confidence is a two-edged sword and can create a self-fulfilling downward spiral or an equally powerful upward spiral.
It is entirely possible that, in the medium to long term, the UK economy will perform better post-Brexit than it would otherwise have done if we had remained in the EU. However, this is entirely dependent on the government adopting the correct policies.
Ironically, the most recent package of measures introduced by the Bank of England (we have yet to see government measures) are designed to shore up the very confidence they were busily undermining in the run-up to the referendum – and therein lies a Shakespearian conundrum: shall they be judged as knaves or fools?
If they acknowledge they were exaggerating (or inadvertently telling porkies) prior to 23rd June, they will be considered knaves and thus not to be believed in future. If, on the other hand, they simply acknowledge they got it wrong, they will be surely fools and unreliable.
How then would they be able to build confidence? Since confidence, or lack of it, feeds off itself, there must therefore be a temptation to continue knavish behaviour. After all, it will at least prove to be true! This is especially so where “group think” continues to prevail.
There is a way out of this. To be fair the Bank and Treasury can only predict the future based on the policies of today. However, continuing with the policies of today – particularly in trying to preserve single market “access” or worse still “membership” – will merely produce a poorer version of what we had before and thus the gloom-ridden lack of confidence in the economy will be justified. We might still do well but it would be sub-optimal. It is incumbent on the Treasury, the Bank and big business, in their own long-term self-interest and most of all in the interest of the country, to embrace a new economy and a new approach to the EU and the world – something which the electorate has demanded.
Changing the paradigm will enable Britain to reach our true potential. The Government must make the UK the best place in the world to do business. Only by leaving the EU can we crystallise the true economic benefits of Brexit: repatriation of our contribution, the massive cost savings of deregulation and the removal of external tariffs, coupled with trade arrangements around the world.
Only by leaving will we have the negotiating leverage and mindset necessary to strike a deal with the EU single market, not that we necessarily need to. In the meantime, we can take advantage of both a lower currency value to boost exports and historic low borrowing costs to refinance government debt and borrow to build infrastructure and housing. We can now promote innovation and protect our strategic business sectors.
Of course, there will be challenges, especially as we come to realise that our export support regime is grossly inadequate, that we have too little to export as a consequence of poor, previous industrial policy and that we can no longer go on selling off Britain to fund an unsustainable current account deficit. We have got to get off the easy drug of inward investment and do the much harder job of rebalancing the economy and promoting exports.
By embracing this new economic reality, rather than trying to preserve what we had, the UK will prosper in the medium to long term as never before. Furthermore, by embracing the prospect of this new reality, the Treasury and the Bank will be able to legitimately and positively change its forecasts for the future, thus building a virtuous cycle of confidence, without being accused of having been knaves or fools. After all, if the facts change, they can legitimately change their minds.
23rd October 2016, Brexit Central