The economic opportunities of Brexit
Sir John Redwood tells us all how Brexit can make us better off.
In this article, the Rt Hon Sir John Redwood MP sets out his thoughts on the benefits which Brexit could present for the UK economy. A version of this article first appeared in Sir John’s online diary and with his permission below I present a new version for a wider audience.
So may times Brexeteers are asked by Remain EU supporters how all of us in the UK will be better off when we leave the EU. Most of us know in our hearts how we will be better off but many of us do not have the capacity to put it into words. The Rt Hon Sir John Redwood MP does it for us. it's a positive vision which looks at where we are now and where we could be if Brexit is finally enacted according to the majority decision of the British people in 2016, and a vision that can be explained to Remain, supporters,
A ‘MANY-DEALS BREXIT’ CAN MAKE US BETTER OFF
By the Rt Hon Sir John Redwood, MP for Wokingham
The government should announce a boost to the UK economy in the event of us leaving the EU soon, without signing the Withdrawal Agreement. The public wants some sensible optimism about our economic prospects based on the opportunities Brexit presents.
The aim of policy should be to ensure a growth rate a little higher in our first year as an independent country than the present estimated growth rate assuming we stay under EU rules and are making EU payments for another year. The present government has been persistently gloomy about Brexit for no good reason, and it got all its post-Referendum forecasts wrong by being too downbeat. There are already deals on customs co-operation, transport and government procurement available for an early exit.
A number of leadership candidates have been kind enough to ask for my thoughts on the economic impact of Brexit and the current state of the UK economy.
In the interests of transparency, I am setting out a summary here
The policy of a combined fiscal and monetary squeeze which the authorities have followed since the spring of 2017 has had the predictable effect of slowing the UK more than is desirable. Here are some of the policies which have not helped.
- Two interest rate rises
2. The ending of Quantitative Easing
3. The withdrawal of special facilities to encourage bank lending
4. Advice against car loans and top-end mortgages
5. The overshoot in deficit reduction last year through much higher tax revenues
6. The continued impact of the last Chancellor’s decision to slash buy-to-let investment through tax changes and increased Stamp Duty
7. And the decision to cut new car sales by a large hike in Vehicle Excise Duty
All of the above have had a marked effect on the housing and car markets and more generally on demand and output.
The downbeat Treasury view
The Treasury seems to think leaving soon would be an adverse shock to the UK economy. I think this is wrong.
The Treasury has a habit of making wildly inaccurate forecasts over the EU. They got the impact of the Exchange Rate Mechanism hopelessly wrong by failing to see the recession it would cause and got the likely impact of voting to leave in the first place wrong by forecasting a recession with big job losses which did not happen.
However, given that is the Treasury view, it means there is an even better case for taking some reflationary action in an exit budget.
A reflationary Brexit budget
We should spend £20bn extra in 2019–20 on a mixture of higher public spending to improve public services, and tax cuts to promote business investment and growth. This would use up the £12bn saved on no more net contributions to the EU and offset some £8bn of unplanned additional fiscal tightening from increased tax revenues.
The aim is not to borrow more but to reduce borrowing further as economic growth picks up and as tax revenues expand in response to lower tax rates which maximize revenue.
What could this deliver to our economy?
This would produce a 1% gain to UK output and incomes, all things being equal.
It would offset any reduction in exports from moving to tariffs on the product sold to the EU, which on a net basis should be considerably less than 1% of GDP. Any loss of exports to the EU from tariffs and other frictions would be also partially set off by
- The likelihood of substituting more home production for products we currently import
2. By cheaper imports from non-EU countries replacing some of the large import bills we experience from the EU
3. By additional exports to non-EU countries
If we assume that we cut our external tariff to the rest of the world in ways which encourage more trade and reciprocation as we sign new trade deals, the outcome will be better. A fiscal boost now of 1% of GDP should mean that after all positive and negative effects of leaving, our GDP will perform better in 2019–20 than if we stayed in.
Certainty, confidence, and positive changes
There would be a clear favorable confidence effect once we were out, with businesses able to make decisions knowing exactly what our trading and other arrangements are. We may well be able to agree on trade talks with the EU to start on exit, which would allow them and us to avoid new tariffs and trade barriers under Article 24 of the GATT.
Here are some possible measures which would help:-
- Reverse the damaging increases in Vehicle Excise Duty and create a more favorable tax regime especially for clean and low-emission vehicles
2. Remove all VAT from green products to encourage everything from better heating controls to insulation
3. Remove VAT from domestic heating fuel to tackle fuel poverty and cut inflation further (impossible while a member of the EU)
4. Take the rate of Stamp Duty down to the levels that applied prior to the 2016 budget, as the government has experienced disappointing receipts from the higher rates
5. Review buy-to-let investment taxes to allow more investment in the sector
6. Make a further reduction to business rates especially for shops, given the problems on the High Street.
Proposals for public spending
Spending priorities should include more money for schools, the police, and social care. As I know from my experiences in the Wokingham and West Berkshire Council areas, the lowest financed parts of the country like ours are struggling with low budgets for these crucial services.
We also need an accelerated program of transport investment. The government has recently announced substantial extra sums for the NHS, which is welcome but now needs careful direction to ensure the money is spent on the service improvements and the extra medical staff we need.
The great opportunities of Brexit
Many Leave voters see Brexit as a great opportunity. With the right budget, the UK economy could perform better.
Now is the time to stop the monetary and fiscal squeeze, to back private-sector growth with the right tax cuts, and to back public sector service improvements and investment growth where it is needed.
The sooner we have a stimulus budget based on the Brexit bonus the better. World economies are slowing.
Now is a good time to give things a boost in a Brexit Britain.
By the Rt Hon Sir John Redwood, MP for Wokingham.
With a new leader comes a new Cabinet. By the end of July, there will be a new Prime Minister — far too far away in MY view, but it seems that nothing will be done to accelerate this process.
Looking ahead it is essential to have a Chancellor who sees the tremendous opportunities ahead for a post-Brexit Britain and who embraces these in a dynamic and positive way.
The country has labored under a pessimistic and anti-Brexit Chancellor and Treasury for too long. It is MY opinion that someone such as Sir John Redwood could provide exactly the shot in the arm that is required.
I don’t want someone who is obsessed with his or her public image. We need someone intelligent, highly-knowledgeable, and who will act promptly to deliver all the advantages which Brexit will give the country in the coming years.
As Sir John says in his article: “Now is a good time to give things a boost in a Brexit Britain.
If anyone would like to meet Sir John and can get to London on 11th June, he’s giving a talk at the Institute of Economic Affairs starting at 6.15pm, expanding on the themes contained in his book which was just published, called “We Don’t Believe You”. This is a ticket-only event and you can buy a ticket from them here. They are at 2 Lord North Street SW1.