Post Brexit Plan
December’s election victory of Boris Johnston as UK prime minister has energized the post Brexit plan, which is to convert the UK into a low tax, low regulation, and low public spending paradise.
Singapore’s phenomenal transformation from the world’s poorest nations in 1965 to a GDP today exceeding that of the UK’s was cited by the UK government as a showcase study of the post Brexit plan.
“Britain can draw encouragement from how Singapore’s separation from the Peninsula did not make it more insular but more open,” said former Foreign Secretary Jeremy Hunt.
The post Brexit plan, based on the Singapore model of cutting red tape, deregulation and low taxes has been a winning formula for Southeast Asian city-state
Despite Singapore’s limited natural resources, the country has become one of the world’s most advanced, ranking higher in 2017 than the UK for GDP per capita (at $57,714 versus $39,720), according to the World Bank; and ranking near or at the top of global indexes for health efficiency, education, and competitiveness.
Part of the low tax element of the post Brexit plan originates from a previous decade of the Eighties revival of urban enterprise zones
Free ports, also known as free trade zones, was a policy pursued by both Margaret Thatcher and John Major throughout the 80s and 90s. The economically deprived Isle of Dogs situated in London Docklands was part of an urban regeneration project, which became an enterprise zone. The Isle of Dogs, today is known as Canary Wharf was a success story in terms of attracting inward investment and regional economic prosperity.
The post Brexit plan entails setting up enterprise zones, with tax breaks, relaxed planning regulations and providing high-speed broadband to attract start-up companies
So companies operating in the zone are provided with a fiscal advantage such as lower taxes, reduced VAT and lower rates of employment tax. These benefits enable the firms to import goods, add value through either the manufacturing process, or engineered into whole products and then re-export the products without being subject to checks, paperwork, or import taxes, known as tariffs.
So the post Brexit plan aims to turn the UK into a global hub, where raw material can be shipped, value can be added and the finished product can then be re-exported with minimal regulations and taxes to the growing Asian market. The UK is ranked 10 among the top skilled workforce in the world and is likely to benefit from a global relocation of high-end manufacturing into the country.
The post Brexit plan could be a winner, attracting needed inward investment and generating jobs
Capital has wings, capital flows where it is treated well.
Zero taxes and minimal regulations wag the capitalist tail. What’s more, if the nation is rich in human capital even better.
The post Brexit plan also has its challenges
Applying the Singapore model to the UK could be misleading to investors.
Singapore and the UK are very different, bearing in mind that the former has a population of just 5.8 million with minimal government spending, and the latter with a population of 67.5 million has large government spending and a well-established welfare state.
Put another way, the post Brexit plan based on the Singapore model means reducing the size of public sector expenditure in the economy
The bitter pill to swallow is that it could mean privatizing Britain’s national health service (NHS) and more cuts to social services. Meanwhile, the UK is set to increase defense spending.
So Britain has a developed wealth fare system Singapore doesn’t.
The Singapore government accounts for 16% of the GDP, maybe 17%. Britain’s Government expenditure accounts for 40 to 45 percent of the GDP.
“Are you going to give up two-thirds of your government spending, state pensions and national health?”, said Singapore’s Prime Minister Lee Hsien Loong in an interview with Bloomberg’s editor in chief at the New Economy Forum in November.
The sixty-four million dollar question follows, can post a Brexit plan of free trade zones generate enough household prosperity to compensate for a massive cut in the UK’s developed social welfare system? If the answer is yes, then UK assets could be a good play going forward.
The post Brexit plan could also fail
The EU also has enterprise zones. Moreover, unlike Singapore where there are many unstable neighboring countries with low skills, Britain’s nearest neighbor, the EU is relatively stable with a well-educated workforce. The total number of people working in mechanical engineering reached almost 200,000 record high in 2019. Europe is also developing its technology hub, which some say will rival silicon valley. In short, the UK has a serious contender across the English channel.
So what if the post Brexit plan doesn’t generate the anticipated job growth and instead delivers unpopular crushing austerity in social spending. The post Brexit plan could also end in massive civil unrest making the poll tax riots of 1990 look like a picnic. Then the UK would be forced to go cap in hand to the EU under very unfavorable conditions.
So the post Brexit plan means that the UK and the EU are locked in two competing ideologies of how to tackle the brave new world of sluggish growth. The UK reckons the answer is deregulation, low taxes and diminish the social welfare state. On the other hand, the EU believes in central regulation, higher taxes, and a social welfare net, Universal Basic Income and sticking together.
The post Brexit plan is about competitive rivalry, going it alone a beggar thy neighbor policy where the UK attempts to remedy its economic problem by worsening the economic problems of others
What if the EU responded by expanding its free trade zones? That would cancel out the benefit of the post Brexit plan.
But cutting taxes, bureaucracy and red tape is what businesses want. So maybe the UK is setting a trend if so UK assets are cheap.