No deal? Then let’s lib­er­alise our econ­omy

By cut­ting taxes and trade bar­ri­ers, we would pros­per

The Sunday Telegraph - - Sunday Comment - DANIEL HAN­NAN

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

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