No deal? Then let’s liberalise our economy
By cutting taxes and trade barriers, we would prosper
There won’t be a deal. The EU has overplayed its hand. Clocking the defeatism of Britain’s negotiators, its representatives made deliberately harsh and vindictive demands: a lengthy period of non-voting membership, the regulatory annexation of Northern Ireland and continuing EU control of Britain’s trade and tariffs. But the UK, thank God, is a parliamentary democracy. Our MPs are not about to accept the sort of terms that a victorious power dictates to a defeated adversary.
What will happen when, as seems certain, the Withdrawal Agreement is rejected? Some talk of a Norway-style association, others of a second referendum, but it is hard to see either thing happening. I favoured membership of the European Free Trade Association (Efta) from the start. Had we pursued that option after the vote, we’d have spared ourselves a great deal of trouble. We’d have recovered our trade policy, left the common agricultural and fisheries policies and pulled out of most noneconomic aspects of membership. Sadly, though, we have left it too late. What is now being mooted is not a Norway-style arrangement, but Norway plus the backstop (the very thing that makes the current deal unacceptable) and, incredibly, plus the customs union, which would mean that, unlike other Efta countries, we’d be forbidden to strike trade deals.
As for a People’s Vote (what an obnoxious name, by the way – what was the last one, an aardvarks’ vote?), even if a majority could be mustered for it in the House of Commons, there is no mechanism to turn that majority into a referendum without the collaboration of the executive. Since this Government has set its face against a second referendum, there would need to be a snap dissolution, which would require the support of two thirds of MPs. Good luck with that.
Instead of fantasising about what we might ideally have wanted, let’s focus on what’s on the table. It’s possible to imagine a slimmed-down version of the current text squeaking through. A UK government – presumably led by a different PM – might go back to Brussels following a parliamentary rejection of the agreement and seek to salvage its most uncontentious aspects, such as reciprocal rights for each other’s citizens.
Almost all the objections to the 585-page Withdrawal Agreement, after all, are focused on the 175 pages pertaining to the backstop. It is that part that no self-respecting nation could accept – not least because, unlike EU membership itself, it contains no exit clause. The other 410 pages are far from perfect – they give the European Court of Justice excessive control, and no one thinks that Britain really owes Brussels £39 billion – but both sides should be able to live with them.
Will EU leaders frustrate a managed withdrawal for the sake of a backstop that London, Dublin and Brussels all say they never want to see activated anyway? It’s hard to say. Many of the 27 governments, mindful of their own prosperity, would want to respond to an impasse by extending the current technical arrangements, pending further talks. But some Eurocrats would rather see everyone suffer than watch a post-EU Britain succeed.
So we need to prepare for the prospect of a disorderly Brexit. There would be costs for both sides. The euro crisis might flare up again, and the states nearest to Britain would take a hit. But there would also be a heavy blow to the UK, which conducts a higher proportion of its trade across the Channel than anyone else.
How might we soften that blow? Our preparations are in a better place than they were before the summer. The lights won’t fail in Northern Ireland. Planes won’t be denied landing slots. It’s true that, to the frustration of some ministers, the Treasury has refused to invest in new customs infrastructure. Then again, why should Britain want additional customs checks?
The obvious response to a no-deal Brexit is to remove all our trade barriers. That was what turned Singapore from a poor, equatorial island into a gleaming metropolis. Singaporeans went from having half our income per head in the Fifties to nearly twice as much today. Why? Because in 1965, they responded to an acrimonious split with a larger neighbour (Malaysia) by slashing taxes, creating enterprise zones and opening their economy to the world.
Such things are not easily done in a democracy. But attitudes change when people feel they are being bullied. And, make no mistake, if the EU refused to agree with Britain even the minimal courtesies that democracies take for granted with their neighbours, people would conclude that Britain was, in effect, being blockaded. In such a climate, voters would accept reforms that, in more tranquil times, they might see as too much bother.
What reforms? After unilateral free trade, the most important would be tax cuts to stimulate growth and attract investment. Corporation tax should be reduced to the OECD minimum of 10 per cent, and other taxes that impair economic activity, such as fuel duty, scrapped.
Where would the money come from? Apart from the extra £39 billion that would be immediately freed up, we could drop HS2 and privatise more government assets, including land owned by the Duchies of Lancaster and Cornwall.
We should repeal anti-competitive EU regulations: the Temporary Workers Directive, the rules on art sales, the GM ban, the internet restrictions – including GDPR. We should ease planning restrictions. We should also (and I know this won’t be popular) ensure that the City retains its global re-eminence, abolishing the EU’s restrictions on banking and fund management, removing bonus caps, undoing the Vickers Report and giving the FCA the explicit remit of increasing competitiveness. The Bank of England, similarly, should replace its inflation target with a growth target – an apparently minor reform that is critical if we need an emergency boost.
But here’s the thing. We should have already embarked on these changes in anticipation of a possible breakdown. Instead, we are spending more and regulating more. EU negotiators have concluded that Theresa May has no interest in economic liberalisation. That has been the problem from the start.
Such things are not easy in a democracy. But attitudes change when people feel they are being bullied