Navigating the Unknown

Navigating the Unknown

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The future of the economy post-Brexit

“Nobody knows anything.” When he wrote this back in the early 1980s, screenwriter William Goldman was referring to the movie industry. It’s gone on to become a famous phrase and, in 2016, could easily be applied to the post-Brexit world.

The slew of opinion polls, research, political pronouncements and upheaval has done little to lift the fog. But what we do know is this: the voice of business in shaping a future UK outside the European Union will be crucial.

As the UK lurches closer to triggering Article 50 – the formal mechanism for leaving the EU – the debate over what the Government will do to maintain a healthy economy has reached fever pitch. Many key representatives of small businesses and the self-employed are in the fray.

At the end of June, IPSE met with other organisations representing small businesses to work together on offering a consistent line of support. These included the Federation of Small Businesses, Enterprise Nation, the National Enterprise Network, Open to Export, The Entrepreneurs Network, the Institute of Chartered Accountant in England and Wales, the British Library Business and IP Centre, and Coadec.

“Smaller firms need simple access to the single market, the ability to hire the right people, continued EU funding for key schemes and clarity on the future regulatory framework. This is crucial to ensure economic growth and job creation,” Mike Cherry, National Chairman at the Federation of Small Businesses, tells IPSE.

“Self-employed business owners, consultants and freelancers currently enjoy ease of access to operate across the EU. Any model being considered by the Government must allow for easy and simple access to the single market.”

At present, there are more questions than answers when it comes to the status of workers both here and abroad. Everything rests on what kind of deal Theresa May can negotiate with the rest of the EU. Her grand tour of European leaders has so far yielded mixed results. But some commentators are confident that the Government will listen to business when the time comes for a post-Brexit plan.

“Business has a crucial role to play in helping to determine the course of a post-Brexit UK,” says Madsen Pirie, President of the Adam Smith Institute, a leading think tank. “Government will consult with business on the appropriate level of regulation to be implemented in place of the EU-wide regulations that previously applied, and this will give business the chance to replace regulations that hold back business and competition with ones that help it to grow and develop more rapidly.

“Business will advise government on how each sector can turn its new-found freedom to advantage. Thus leaders in finance, services, manufacturing, agriculture and fisheries will all liaise with government to set out the environment that will most benefit each sector.”

Madsen also believes that Brexit presents “huge opportunities” for small businesses.

“Although 95% of UK businesses do not export to the rest of the EU, all of them have had to meet EU regulations. In future, firms will only have to meet EU requirements for goods exported to the EU, and not for goods exported to the rest of the world or not exported at all. This could significantly cut the compliance costs that businesses have had to face, a burden that falls heavily on small businesses.

“People who choose to be self-employed and work under contract for others will benefit greatly once outside the EU because they will no longer be subject to the EU’s relentless policy of attempting to force self-employment under the labour protection rules that apply to full-time employment. Freed from this there will be many more opportunities for contract work, as the costs to business of using self-employed contractors will go down.”

Not everyone agrees, and the spate of collapsed deals, job cuts and plans to shift company bases to other countries since the referendum has stoked fears of a return to recession, negative interest rates and rising unemployment.

Then there’s the issue of international trade deals. As a member of the EU, the UK has been included in trade deals negotiated by the EU. There are 22 trade agreements between the EU and individual countries, and five multi-lateral agreements covering multiple countries.

This means that if the UK wants to retain preferential access to the markets of the 52 countries covered by these agreements, it would have to renegotiate trade deals with all of them.

Where could post-Brexit Britain draw inspiration from?

Perhaps the answer lies in adopting an overseas business model. There are a number of options that will have to be considered by, among others, Liam Fox, the new International Trade Secretary and a Vote Leave advocate.

One such model is the Singapore and Hong Kong approach whereby city states do not impose import or export tariffs at all – a unilateral free trade approach.

Russ Mould, Investment Director at AJ Bell, a stockbroker, says: “It is early days yet, but maybe Theresa May is looking at Singapore, where services industries and manufacturing exports worked hand-in-hand to drive growth, under the auspices of extensive – but not over-arching – government control. The appointment of Greg Clark as Secretary of State for Business, Energy and Industrial Strategy may be a clue here, especially as he replaces the free market-leaning Sajid Javid. This new-found focus on ‘industrial strategy’ suggests the May administration is going to be interventionist and not just rely on ‘the market’ to find a solution.”

But Singapore isn’t the only choice. You can take your pick but, if discussions in the upper echelons of power are anything to go by, we may be looking at a future UK economy not unlike, say, Canada, Norway or Switzerland.

Russ says: “The Canadian model is full of potential as it could represent a very comprehensive agreement, sweeping away most tariffs and smoothing regulatory barriers, although there are two potential drawbacks – financial services are excluded and the draft agreement is still bogged down in detailed negotiations.

“It’s not clear whether dedicated proponents of Brexit would accept the Norwegian model, as in return for market access and control over farming and fishing Oslo must accept free movement rules and pay budget contributions. Switzerland may represent a half-way house as it negotiates access on an industry-by-industry basis and its courts are generally exempt from EU rules. Such deals could take a long time to arrange and Switzerland largely accepts free movement, as well as EU rules on financial services. Attempts to cap immigration also ultimately fell foul of the EU courts.

“Perhaps this leaves the World Trade Organization option, as deployed by New Zealand, which trades with the EU via the international trade regime. Costs are low and most goods and services are tariff exempt, although car parts and financial services are potentially awkward sticking points.”

Whatever happens, it seems likely that the UK business arena will look fundamentally different in the future. Just now, however, nobody knows anything.

 

By Helen Nugent, freelance journalist and Online Money Editor at The Spectator

@nugehelen