By signing the EU withdrawal agreement, the UK has put itself in a weak negotiating position for the establishment of future trading arrangements with the EU. However, the UK can still largely prevail in these negotiations if it prepares well and plays its cards right. In order to do so the government must wholeheartedly and enthusiastically prepare the UK for a no-deal at the end of the transition period. It remains as true today as it did in 2016 that the only way to get a good deal is to ensure we do not need one.
The time remaining until December 2020 is more than adequate to prepare for a no-deal. By preparations I do not just mean things like making sure that the port of Dover operates effectively. I am referring to ensuring that we prepare fully to reap the huge benefits that a no-deal should yield.
For starters there would be two immediate no-deal dividends. Some £18bn a year would be saved in perpetuity – the annual membership payments we make to the EU. In addition, the WTO-based tariff collections on imports from the EU would provide us with around £13bn a year. There may be an inclination in government not to levy WTO-based tariffs on certain goods, but that should be resisted in virtually all respects other than perhaps certain foodstuffs and essentials. The UK runs a large trade deficit with the EU, of some £95bn a year, and the surest way to address that and promote UK-based producers would be by levying full WTO tariffs on EU imports.
These two sums equate to £31bn a year for the UK’s Exchequer. This windfall should in part be used to smooth the path of organisations and businesses that currently depend on EU funding and grants (this would cost some £6bn a year) and those British-based businesses exposed to tariffs that will be levied by the EU (estimated at £5bn a year).
That would still leave a whopping surplus of £20bn a year. Armed with this surplus, the government must plan to make the UK a relatively low-tax, relatively low-regulation competitive economy. Tax cuts to be made a priority should be those that would most boost the UK’s economy, such as cuts in: corporation tax – not just boosting British businesses but also attracting new businesses to the UK; VAT – thereby underpinning consumer spending; and tax on fuel and utilities – thereby supporting households across the UK.
We must also prepare to jettison EU laws and regulations that hamper the UK’s ability to trade competitively. This extends to regulations to which the banks and the financial services sector are subject as well as laws that would otherwise comprise a level playing field with the EU: state aid laws, competition laws, certain environmental laws, employment laws and tax restrictions – all for the benefit of UK plc.
Capital adequacy ratios for financial institutions lending and investing in UK businesses should also be reduced for a period of time. And to make our sources of capital relatively competitive, capital adequacy ratios for lending and investing in EU-based businesses should be increased.
The above measures alone, which are by no means comprehensive, would rocket-propel the British economy.
Northern Ireland requires special mention because its new status of being in both the EU’s customs union and the UK’s customs area could be used very effectively for the UK’s and its own huge benefit in the event of a no-deal. Being in both customs areas would make Northern Ireland the perfect home for businesses seeking to export to the EU and Great Britain. With this inherent advantage, all that the government would need to do is ensure that businesses wishing to locate there, of which there will be many from both Great Britain and the Republic of Ireland, have adequate access to capital. The rest would happen automatically. Indeed, with the right stimulus Northern Ireland could and should become a tiger economy within the UK.