April 16, 2021

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Stephen Booth: Opportunities for an agile, creative Britain from Brexit – as spelt out by former Remainers


Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

The new UK-EU relationship reflects Boris Johnson’s government’s mandate for national independence. The UK secured an unprecedented zero-tariff and zero-quota deal, but “taking back control” inevitably meant some new costs on UK-EU trade. The EU made it clear that the only way to reduce these costs significantly was to accept the worst of both worlds: to cede vast swathes of regulatory control to Brussels, but without the representation in EU institutions enjoyed by a member state.

The new arrangements do place some limits on UK action. In particular, the terms of the Northern Ireland Protocol are proving to be onerous, and are the subject of a growing dispute between London and Brussels. Elsewhere, the UK-EU trade agreement’s level-playing field provisions stipulate that neither side will unfairly distort trade and investment by unfairly subsidising industry or lowering standards on employment and the environment. The UK does, however, have the capacity to amend existing rules in these areas as long as the effect is not trade distorting.

The question now facing the UK is what to do with its independence from the EU to best succeed over the long-term. This is not simply a narrow legal issue of what the UK could or couldn’t do as an EU member state. It is a much broader political question: the difference between tailoring policy to the UK’s specific set of interests rather than those of 27 members (and the European Parliament), whose interests can be either shared or disparate.  A new Policy Exchange report examines a range of freedoms and choices open to the UK post-Brexit.

It is for seasoned analysts of Conservative Party politics to debate the wider significance of Sir David Lidington, the UK’s longest serving Minister for EU affairs and self-described “unrepentant Remainer”, contributing a foreword to the paper. In it, he notes that: “The UK has the potential to be world-leading in areas such as fintech, life sciences, artificial intelligence and genetic modification – and to move with more agility and creativity than the EU in the decade ahead.”

The UK’s vaccine rollout has already provided an illustration of first-mover advantage. While the UK could have opted out of the EU vaccine procurement scheme had it remained a member state, the UK’s decision to go it alone has provided an early example of the benefits of being able to move with greater speed and suppleness than a bloc. Indeed, the recent behaviour of some EU leaders has underlined their insecurity about the UK’s success in doing so.

Similarly, the UK could have theoretically liberalised its system for non-EU migration whilst an EU member. However, the political reality was that an almost unlimited supply of labour from Europe meant that policy towards the rest of the world became increasingly restrictive. In treating EU and non-EU migrants equally, the new points-based system can be geared towards attracting highly skilled workers and applicants for occupations where there are shortages. It also represents a liberalisation for workers from the rest of the world, which could help the UK to forge deeper international relationships beyond the EU, including with important potential markets such as India.

Meanwhile, there are several examples of financial regulations the UK would have approached differently independently of the EU. For instance, the EU’s Solvency II rules for insurance firms do not adequately reflect a UK market where insurers tend to play a bigger role in providing long-term savings, such as annuities, than in most other EU countries. The government is sensibly focussed on ensuring the UK continues to play to its strengths and remains a leading financial centre, commissioning reviews into the UK’s listings regime and fintech sector.

Services account for around 45 per cent of total UK exports, making it the most specialised exporter of services in the world – the corresponding EU average is only 26 per cent (in the US, it is around 33 per cent). An independent trade policy can prioritise the liberalisation of trade in services to a greater extent than the EU did on the UK’s behalf. For example, the recent UK trade deal with Japan improved on the existing EU agreement by incorporating the most comprehensive and cutting-edge digital provisions.

EU state aid rules no longer apply (with some exceptions in Northern Ireland) and a new UK subsidy regime could make it easier for the government to pursue several of its key policy objectives. These include boosting research and development spending in economically underperforming regions, incentivising development of green technologies, subsidising transport infrastructure, assisting small businesses or reforming public procurement. Greater freedom on subsidies comes with potential pitfalls, such as the temptation to support unsustainable companies. But successfully designing such a regime, which is less bureaucratic and more flexible, is a significant opportunity.

The UK also now has the freedom to set rates and narrow or widen the value added tax (VAT) base. The UK has already removed VAT on women’s sanitary products. There is an environmental case for zero VAT on electricity bills, but maintaining the rate on gas and other fuels, in order to help the transition to low-carbon forms of heating, as well as to electric vehicles.

There is some ambiguity in what EU rules allowed regarding the ban of petrol/diesel vehicles and local electricity pricing. It is clear that outside the EU, the UK could ban the sale of new petrol/diesel vehicles and it could adopt an electricity market design based on local electricity pricing, following the example of Texas, Singapore, New Zealand and others. 

In the healthcare sector, the UK can reconsider how EU employment law and the jurisprudence of the EU court has impacted on the training of junior surgeons and doctors working in acute specialisms, introducing an inflexibility in working patterns. The UK could amend the Working Time Regulations so that there is more flexibility for training – a change that the Royal College of Surgeons has called for.

Against these opportunities, it should be acknowledged that EU membership offered the advantage of operating at scale, which had its benefits. However, when your viewpoint is the outlier among the group, as Britain’s – under both Labour and Conservative governments – surely often was, the compromises required can become democratically unsustainable.

Personally, I was in favour of remaining and trying to reform the EU. However, it is increasingly difficult to disagree with the commentator Wolfgang Münchau’s description of the EU referendum and its aftermath as a debate, fundamentally, between: “Leavers who oppose European integration and Remainers who were in denial that integration was happening.” The passage of time is only likely to reinforce just how differently the vast majority of the UK public and the EU’s political elite view the destiny of the European project.

Ultimately, the Brexit question has been settled and it is time to focus on the future. The choices outlined above will be debated and contested in UK politics, as they should be. As Sir David notes in conclusion to his foreword to Policy Exchange’s report: “Leavers and Remainers alike have an obligation to the country to haul themselves out of the trenches of the past five years and contribute to hard-headed, pragmatic debates about where our national interest lies.” 

The UK must now take advantage of the opportunity to do things differently and more nimbly. Just as importantly, Brexit offers clearer lines of democratic accountability and potentially, in time, a healthier public discourse about the EU. UK governments can no longer blame their failings on Brussels and Remainers can no longer pretend the EU is something it is not.





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