2 days ago
Nine years after backing Brexit, Britain's economy is more European than ever
Monday will mark the ninth anniversary of the EU referendum. As you may have gleaned from these pages, I have been critical of Brexit. That said, there were – and indeed remain – sound economic arguments for the UK's exit from the EU.
The European project, in its early years, was a force for good. By opening up trade between nations and reducing frictions to capital and labour flows, partly by harmonising rules and regulations across countries, it brought together a group of culturally like-minded nations with long historical ties in a way that enhanced both their prosperity and collective standing in the world.
But then, along the way, it got badly off track. As Brussels bureaucrats broadened their remits and imposed ever more anti-growth laws upon European economies, the club turned into a gradually worsening headwind to economic progress and a source of
political instability. This was a particular problem for the UK, with its more market-oriented economy and common law legal system.
If the UK wanted any hope of keeping pace and staying relevant in a rapidly changing world, it needed to be politically nimble and economically flexible – and the EU offered neither. That is the case for leaving the bloc.
But almost a decade on from the decision, what can we say about the results so far?
First, following waves of instability and uncertainty in the first few years after the referendum, UK politics now looks mostly settled. This is not an assessment of either the quality of policy decisions or the proposals put forward by any of the major parties, but simply to say that the temperature of politics has cooled to a normal level.
The same cannot be said for the US, where politics has taken an almost sectarian turn. Or the European continent, where openly far-Right and far-Left parties are one accident away from sweeping into power in a host of countries, including France.
Second, we have only half-managed to make the most of our freedom to act independently on matters of international economic cooperation. As the Government's recent deals with the US and India show – in addition to the temporary cut of import tariffs
to zero across a range of products in response to rising global trade frictions– the UK can now move at a much faster pace than before and can decide for itself what is in its own interest. But no deal yet has been truly ambitious enough to correct the wrong-headed notion that Brexit represents an inward turn.
Third – and this is where the failure and irony lies – with each year that passes, the UK increasingly resembles the caricature of an overtaxed Continental economy with an overgrown and heavy-handed state.
At 41pc of GDP, taxes have risen to their highest level since 1948. In 2016, the share was 37pc. While the burden of taxes has grown, ever more differentiated rates, allowances and reliefs, have made the system even more complicated.
Increases in corporation tax, which occurred under the previous Conservative government, as well as Labour's decision to increase employer National Insurance, are among the most anti-growth policy decisions in a generation.
Higher taxes, plus an eye-watering £1.2 trillion increase in the national debt, have pushed government spending from 40pc of GDP in 2016 to 45pc at present.
Today, nearly half of all spending in the UK economy is decided in the public sector, where the absence of the disciplining forces of profit and loss allow waste and inefficiencies to grow unchecked.
If only Whitehall's spending spree had brought us Swiss trains or Dutch GPs. We have the receipts, but not the perks.
While the Government, to its credit, has made some progress in easing the archaic planning rules that inhibit much-needed investment in housebuilding and infrastructure, this has been eclipsed by an intensified push for net zero and a score of new anti-employment labour laws.
Businesses now spend more time wrangling paperwork than innovating, investing and wooing customers – a sad twist of fate for a country that once ran an empire on ledger books and tea.
When it comes to taxes and public spending, and major parts of regulation, the EU never mattered all that much anyway. The fundamental choices about the overall size and responsibilities of the state, as well as the rules that govern domestic markets, were largely decided in London.
Brexit has shown, more than anything, that the UK's major economic problems were home-grown. Without the EU as a scapegoat, it has now become clear where responsibility lies. In the long run, this bitter lesson should do us a great deal of good. By returning decision-making power to Westminster, democratic accountability has been strengthened.
And while we may have to go through a few turns of the game, voting out governments that fail to solve problems and fall short of their lofty campaign promises, it stands to reason that eventually we will land on a set of policymakers with solutions that actually work. Democracies operate through trial and error.
For this reason, we should be cautious about judging Brexit on its immediate impacts. The short-run consequence of leaving the EU may not provide a reliable guide as to whether it will be for better or worse in the final analysis. Indeed, a lot will depend upon the direction in which the EU goes and Britain's ability to strike new alliances in a world that is turning more multipolar.
The English Reformation, when the Church of England broke from the Catholic Church during the 16th century so that Henry VIII's marriage to Catherine of Aragon could be annulled, is often cited as the original Brexit.
Historians debate whether the tilt toward Protestantism and its attachment to hard work, efficiency and thrift was a necessary, or merely helpful, condition for the great capitalist revolution in Britain that followed and shaped the modern world.
But the point remains that one did indeed follow the other. Most importantly, there were few early tell-tale signs that things might turn out so well, that is, judging by the ill-fated marriage record of Henry VIII.
