In this debate series, GRI asked: can a Post-Brexit Britain survive in the global economy? Analyst Rayhan Chouglay argues that yes, it can, and even prosper. Read the opposing side here.
The vote to leave the European Union has set the UK and the world alight, and now Britain is on the road to a whole new position and status in the continent and the greater world.
While there have been many doubts about this new future, in reality Britain does have the potential to not only survive in the global economy but also to thrive in it. The historical context of Britain as a whole lends many reasons to be positive. For one, the reaction of the British government and the Bank of England to the vote, from an economic perspective, has been competent, providing even more of a reason to be optimistic. Secondly, Britain’s opportunity to distance itself from the constraints of the EU could hold a great deal of promise.
Ultimately, the question comes down to whether Britain can survive in the global economy, which it can, but even more importantly, will it be able to do so?
History suggests success
In 1956 in the aftermath of the Suez crisis, Britain, along with France, was embarrassed by its attempts to retain control of the Suez Canal. When Britain decided to withdraw from the Persian Gulf in 1967, it was criticised by many, including US President Lyndon Johnson, as a dying power.
In the 1970s and 80s the country was labelled as the ‘sick man of Europe’. In 1992, following its ejection from the European Exchange Rate Mechanism (ERM), there were more accusations that Britain would decline. The country was told that if it did not join the Euro in 1999, it would be left behind. Britain has been projected to fail numerous times and yet has continued to succeed despite the odds.
The government’s reaction has been competent
Barring the political chaos caused by the Leave vote, the British government, in conjunction with the Bank of England, has largely responded competently to the result, from an economic perspective. Shortly after the vote, the Bank of England governor Mark Carney made a statement promising that the Bank would supply £250 billion of capital and also liquidity in the form of foreign currency to step in and keep the British economy running if necessary.
Furthermore, there are a number of good decisions that the government made in the immediate aftermath of the vote, which have been continued by the Theresa May administration, either directly or through implication. For example: Former Chancellor George Osbourne promised to cut the corporation tax down to 15% in order to encourage investment in the UK. He also abandoned the fiscal rule of reaching a budget surplus by 2020. He reversed on his pre-referendum threats to impose higher taxes and even greater austerity in response to a Leave vote.
The decision by May to reform the Civil Service to handle Brexit negotiations is also a sensible ruling, as it means that Britain can focus on what is set to be a very tough period of discussions. Currently, there is a specific department focusing on negotiating the exit from the European Union, led by prominent Conservative David Davis. In conjunction, there is also a specific department for International Trade, led by fellow Conservative Liam Fox.
These are indications that Britain is certainly ready and capable of adapting to a post-Brexit world.
The chance to change direction and form a new role in the global economy is another reason the country can survive. A switch in focus to ‘selling’ British services will allow the country to better utilise its strengths to maintain its prominent position in the world.
London is a city often grouped together with New York, Singapore and Hong Kong as a strong financial hub. While the idea of an independent London city state is an extreme reaction, the idea of London being the heart of a strong UK is certainly true. If the government can focus on demonstrating that London is in fact in a better position outside the EU, due to being outside EU red tape and having a stronger legal system, then it can potentially allow it to become even more successful than it already is.
London mayor Sadiq Khan has already taken steps towards this goal through the ‘#LondonisOpen’ campaign. This effort has attempted to stress that despite the Brexit vote, London is still a place worth visiting and investing in.
Furthermore, with ongoing infrastructure investment to link the North and South of the country together, such as the High Speed 2 (HS2) railway line, a more flexible system can be spread across the entire country.
Evidence of the benefit of this greater flexibility is exhibited by the fact that companies such as Rolls Royce and Huawei have stated their desire to stay in the UK. Australia, New Zealand and South Korea have expressed a motivation to sign a trade deal with the UK. Consequently, leaving the EU could be an opportunity rather than a setback.
Jumping the sinking ship and having greater freedoms
A final reason that Britain can survive and thrive in a post Brexit global economy is that it can move away from the obstacles created by the EU and focus on the subsequent greater freedoms.
While the EU is one of the largest regional economies in the world, it is currently underperforming. Having strong members such as Germany, Britain and France hemmed back by weak economies such as Greece, Italy, Spain and Portugal, the EU has had a very slow recovery from the 2008 global financial crisis. In 2015, the EU saw economic growth of just 1.5%. By comparison, Britain saw growth of 2.1% in the same year. Being outside of the EU exempts Britain from having to contribute to the EU’s attempts to shore up the weak links in the continent, most notably Greece. This should consequently free up some much needed capital to be used at home in Britain.
A more controversial but undeniable reality is that the principle of freedom of movement has led to near uncontrolled immigration within the continent. A newly gained ability to control immigration (depending on the deal Britain signs with the EU) could allow Britain to pay its people better, properly redistribute its resources, and bring in the people that the country needs to improve and progress. A prominent Remain campaigner, Lord Rose, argued that an exit from the EU could result in an increase in wages.
With the constraints of the EU eliminated, Britain could benefit economically in a number of ways, including the following:
- There is the opportunity for greater flexibility on trade deals. The new chancellor, Phillip Hammond, has already attempted to build on this through new talks with China, focusing on a new relationship between the two countries following Brexit.
- Complexities, confusions and controversies over multi-state trade deals, such as those seen with the Transatlantic Trade and Investment Partnership (TTIP), could be avoided in the future as Britain negotiates directly with other countries and reaches agreements that better serve all parties involved.
- Agricultural freedoms emerging from Brexit could lead to huge benefits. For example, outside the EU there would be no need to honour the Common Fisheries Policy, thus the UK would no longer need to allow access of up to 12 million nautical miles from their coast to EU member states. This could revive the historically strong British fishing industry, which had declined during its EU membership.
- The restrictions of the Common Agricultural Policy could also be greatly lessened, allowing farmers to increase their quotas and sell more produce. This would in turn enable the UK to utilise more efficient producers of food from outside the EU and take advantage of surpluses from around the world.
- The removal of rules limiting the ability to use state aid could allow the government to divert money to areas of the economy that need it most, such as the struggling steel industry. In this case, leaving the EU would make it a lot easier to save the UK steel industry.
These are only a few of many examples of the ways in which Britain could utilize their new position in order to survive and thrive outside of the EU.
It is clear there are many reasons to be optimistic for the future of Britain. The government has made strong steps to move forward with Brexit negotiations, history suggests Britain is skilled at dealing with supposed setbacks, and the UK can now pursue a new economic position that can better serve its interests and its people.