As Brexit pressures mount, we must remain open for business
Ahead of last year’s referendum, I was optimistic about Britain’s future outside of the European Union. I still strongly believe that the country made the right decision to leave the EU and that businesses and the economy will thrive. But the short-term impact and opportunities arising from Brexit will only ever be as good as the execution of the separation and how it is negotiated. And I fear that, unless action is taken on two fronts, we are heading towards a very sub-optimal outcome.
With regard to the Brexit negotiations, money needs to be front and centre. Most recently, we have seen the Prime Minister generously offering approximately £20bn in payments to the EU during the proposed transition period, without having a firm EU-UK trade deal in place post-brexit.
Unless the EU begins trade talks without further delay, we will – to use a phrase coined by Lord Bridges, the former minister from the Department of Exiting the EU – be discussing Britain’s gangplank, rather than the bridge to our final post-brexit destination.
Government negotiators should also have the confidence to spell out to the EU’S negotiators what the consequences will be of failing to agree terms of trade with Britain, specifically the full implications of not having access to our markets. In essence, our position ought to be that we will not pay a penny unless we have proper access to EU markets on fair terms; and that if we didn’t get that access, the EU should not expect to have access to our markets on fair terms. On the other hand, we should make clear what our financial offer would be, should we reach appropriate terms, as an inducement for European governments to put pressure towards a settlement.
Such an offer should be spread over a number of years, say 10, to help ensure adherence to the deal. Thus, for instance, £5bn a year over 10 years as a carrot, or nothing if no deal is reached. Jean-claude Juncker’s recent “state of the union” address was a timely reminder of the EU’S direction of travel. Governments across the EU listened patiently to what he had to say and several replied: “No, thank you”. This laid bare the divergent interests of the European Commission and the member states that pay for it and
‘We should aim to make Britain the number one destination in Europe for entrepreneurs to set up’
provided a useful reminder to British voters that the EU is still on an integrationist track.
On the domestic front, the Prime Minister provided a defence of free enterprise to a Bank of England audience, shortly before the Conservative party conference. But these words now need to be matched by a policy vision to support wealth creation in a post-brexit Britain.
We need more pro-business policies; more commitment to deregulation; more encouragement for small businesses; and more tax incentives. As well as aspiring to be the number one trading destination in Europe, we should aim to make Britain the number one destination in Europe for entrepreneurs to set up. One only has to look at how clever both Ireland and Luxembourg have been with their tax policies and measures designed to encourage talented people to go there.
The priorities for a pro-business agenda are simple:
♦ Deregulate – red tape continues to exert an especially onerous burden on SMES that lack the resources to handle regulatory compliance;
♦ Cut corporation tax – creating a globally competitive tax regime encourages businesses to be in Britain and will enlarge the overall tax take;
♦ Give SMES employing under 20 people a more flexible employment regime – enable firms to manage a changing commercial environment and reduce the regulatory downsides of hiring;
♦ Focus government grants – adopt the Israeli model where the government matches start-up funding for technology businesses. In the UK, funding should be available to start-ups outside of the South East in sectors where British ingenuity is world-class, such as pharma, biotech and medical devices;
♦ Commit to infrastructure – upgrades originally promised to realise the economic potential of the Northern Powerhouse initiative should be built without delay;
♦ Expand capacity at both Heathrow and Gatwick – airport capacity is vital to Britain’s future;
♦ Cut stamp duty on housing – the higher rate of stamp duty has caused tax take to fall as the top end of the housing market becomes illiquid, discouraging foreign wealth creators that want to live and work in the UK.
The clock is ticking – the Conservatives have four and a half years to put in place measures to fundamentally improve the economy.
If they succeed, they can win the next election. Fail and Britain may face the seemingly unthinkable prospect of a Labour government led by Jeremy Corbyn. The stakes are high and the Government faces two challenges, not just one.
Howard Shore is executive chairman of Shore Capital Group