In this chapter, I want to explain why the future is bright for Britain. I should start by acknowledging that – at the time of writing – my optimism is not universally shared. Project Fear has gone from being a campaigning tactic to one of the UK’s major industries.
My aim is to explain that such alarmism is unwarranted, and that it is obscuring the strong underlying fundamentals that gives the UK a significant comparative advantage as we leave the European Union. That insight became even clearer to me when I served as Brexit Secretary. We are in a stronger position than our detractors suggest.
But I am resolutely clear on one thing. However much we may disagree on the substance, we do need to listen and respect the views of everyone. In the words of the great John Stuart Mill: “He who knows only his own side of the case knows little of that”. I want to offer an answer to the question which is often asked of Brexiteers like me. It’s a perfectly reasonable challenge. What is your vision of post-Brexit Britain? How will it work? And who will it serve?
Recognise the strength of the UK economy
I appreciate that there is considerable short-term uncertainty out there. And if there’s one thing that businesses hate, it is uncertainty. But we are at a moment of change. Some measure of uncertainty is inevitable.
As business knows better than most, standing still is not an option. Brexit will not just go away.
Equally, I recognise that all of the paths we could choose at this historic crossroads involve risks. But our economy has remained remarkably resilient. It defied the blood-curdling forecasts in 2016 that predicted recession, if people dared to vote to leave the EU. Those predictions were not realised. That was, in part, because the markets believed in the underlying strength of the UK economy.
In addition to that, the risks of staying yoked to the EU, while under-priced in politics, is well understood by the global markets.
For my part, I am convinced that our sights must focus on the long-term best interests of our country, and that our judgment must carefully balance the undoubted risks of Brexit with the clear opportunities it also offers.
We have no cause for complacency, but we have every reason for self-confidence. After all, in December, the UK was rated Best Country for Business by Forbes magazine, for the second year in a row since the referendum.
According to the United Nations Conference on Trade and Development, in the first half of 2018, the UK attracted the second largest amount of foreign direct investment in the world, second only to China. And data published recently by London & Partners and Pitchbook shows that in 2018 London attracted almost double the tech venture capital funding of its next nearest EU rival, Berlin.
Our critics say those who want to keep faith with the referendum result are chasing unicorns. In fact, the latest data from the consultancy Dealroom shows that London is indeed home to 36 unicorns, the tech companies valued at over $1 billion – which is streets ahead of any other EU city.
I’m proud of our unicorns and their entrepreneurial self-belief. As a country, we should rise to the challenge ahead with similar economic self-belief.
If we have every reason to be optimistic about our economy, I am also optimistic that the political battle of ideas is there to be won, for the Conservatives, and by those of us who believe in the power of free enterprise to create the opportunities of the future – especially for the next generation.
A poll of millennials commissioned last April by the Centre for Policy Studies found that younger voters believe government taxes and spends too much. They want a society based on equality of opportunity, not equality of outcome. Four out of five were not sold on the socialist snake oil being peddled by Jeremy Corbyn.
But they need to hear a positive, optimistic and authentic alternative to that seductive Marxist allure. As a pro-enterprise party, we Conservatives must have the courage of our convictions, and take a positive, aspirational and credible prospectus to that generation of younger voters. Brexit will be a crucial part of that prospectus, for younger voters and the country at large.
Free trade and SMEs
Take, for example, the Government’s repeated commitment to making the UK a global leader in free trade – which I believe is vital for creating opportunities for the next generation. The EU Commission itself estimates that 90 per cent of the world’s economic growth will come from outside the EU by next year.
I saw that for myself as a Foreign Office lawyer between 2000 and 2006, when I negotiated Investment Protection and Promotion Agreements from Mexico to Iran.
It always excited me to think about what expanding investment and trade would really mean. There are enormous opportunities for start-up businesses, looking to scale up by selling their products or services abroad to a new market. Equally, for consumers at home, there are huge benefits from a wider choice of cheaper goods in the shops.
Leaving the EU does not mean leaving Europe. We want to stay strong trading partners, and good neighbours. Nevertheless, in this century, we need to have broader, global horizons and the freedom to take advantage of the opportunities of the future – from Latin America to Asia.
Why does free trade matter? First, it’s an important way to boost SMEs. Take Indigo, a warehouse and logistics software firm based in Durham, that is grasping new opportunities in South East Asia. Back in 2016, Indigo’s CEO, Darren Baxter, saw the ‘stagnant growth in Europe’ and identified ‘untapped demand [in South East Asia] among a wide range of high-growth, local businesses … for UK-based developers of technology solutions’. Indigo now has a team in the Philippines, which also services Hong Kong and Singapore.
A liberal, dynamic and energetic approach to global free trade will reduce barriers and expand opportunities for other SMEs like Indigo, to take full advantage of the international export opportunities available, which Brexit can expand and promote. That will help those businesses create more jobs in innovative sectors like tech. I’m not in the business of bashing big business, but the value and relevance of SMEs are too often neglected in our political debate.
This is not some wistful sentimentalism. It’s economic common sense. SMEs have created 72 per cent of the new jobs in the private sector since 2010. Expanding their global opportunities will help them create the innovative and better paid jobs of the future. Overall, according to the ONS, businesses that trade internationally are a fifth more productive than those that don’t. So a more energetic approach to free trade abroad will boost wages for workers at home too.
Free trade and tariffs
Above all, free trade benefits consumers by cutting tariffs, reducing prices in the shops, and removing non-tariff barriers to trade. Whether it is the EU’s 17 per cent tariff on most shoes or the 12 per cent tariff on knitted baby clothes, Britain can do better freed from this unnecessary and damaging protectionism. The average working family will benefit, by cuts to tariffs which ultimately represent an extra tax on the cost of living.
Of course, free trade brings benefits for those we sell to and buy from as well. That’s as it should be. Free trade is not a zero-sum game. We should relish the chance to be a force for good in the world, liberalising trade in particular to help poorer countries stand on their own two feet by selling their own goods and services – the surest route to real economic independence.
Free trade and the EU
The EU is a handbrake on our ambition in this respect. Take the Maldives. They can export their tuna for free to the EU, but they face a whopping 24 per cent tariff if they have the temerity to can it in a factory at home, rather than letting the EU process it. That is unfair. It is little wonder that the Ambassador of the Maldives to the UK, Ahmed Shiaan, has extolled the opportunities that Brexit, and deeper free trade, offer his country.
The development economist Paul Collier has proposed some really interesting ways in which the UK’s post-Brexit trade policy can boost poor countries. We should extend the scope of the ‘Everything But Arms’ policy to cover the EU’s protectionist exemptions, and revise Rules of Origin to reflect wider global practice, in order to help poorer countries to build up their industrial base.
In my view, that is who free trade is there to serve: the SME creating the jobs of the future, the worker who wants a pay rise, the low-income family struggling with the cost of living, and the poorest countries in the world suffering from hypocritical Western protectionism. In political terms, that is also whose side we – as a government and as Conservatives – must be on, as we chart our course for post-Brexit Britain.
Competition-driven consumerism at home
If we are buccaneering free traders abroad, we must be relentlessly pro-competition at home. That means taking on the home-grown vested interests that weren’t caused by Brussels, but which echoed around the debate on Brexit.
Jeremy Corbyn and John McDonnell offer a deeply damaging and counter-productive economic policy agenda, of nationalisation, higher taxes and wider state intervention. However, there is little doubt that they have tapped a vein of public support in their accusations of crony capitalism and markets rigged by vested interests, all part of an exploitative and unaccountable elite.
There is at least some element of truth in the charge, even if Labour’s policy prescriptions would hurt the very working families and consumers they say they want to protect.
I started my career training as a competition lawyer at Linklaters in London and Brussels, advising small and large businesses. I quickly learnt that, wherever the charge of a rigged market held true, it was invariably the result of a poverty of proper competition. Too often, where consumers are being ripped off, it is because the market is in the vice-like grip of a small number of big businesses.
The Conservative answer to this problem should not be the big clunking fist of state intervention, but rather a robust and rigorous pro-competition approach to preserve a genuinely free market. We should not ape Labour or offer a diluted version of McDonnell’s radical agenda for state intervention. That would just spread the harm and breathe life into a stale and broken narrative that has been tested to destruction, from 1970s Britain to present-day Venezuela.
Instead, we must offer a credible, authentic and positive alternative, steeped in the economic values that underpin the enterprise economy, and the political values that forged the Conservative Party into a winning electoral machine – by uniting the aspirational working and middle classes in this country.
So yes, we need change in order to build a better economy. Our relentless strategic aim should be to level the playing field, break down barriers to entry in highly concentrated markets and encourage challenger businesses into monopolised sectors – especially SMEs – so that we can strengthen consumer clout.
Preserving the integrity of the free market is the best way to crush crony capitalism, cut prices and expand choice for customers. This should be one of our most powerful tools to ease the cost of living for low and middle-income families.
Competition and the energy market
Take energy bills, as a particular example – one of the most gummed-up markets in which consumers are regularly ripped off. In January, the Government intervened to cap prices. That carries risks, deterring new challenger entrants from entering the market. Which? magazine points to a 90 per cent reduction in cheap energy deals in the year leading up to the introduction of the cap as evidence of harm to consumers.
A better pro-competition policy, backed by Oxford University’s Professor of Energy Dieter Helm, would be to promote rather than deter switching of energy providers, by requiring energy firms to publish clearly the constituent parts of their Standard Variable Tariff (SVT) energy bill. The four components of an SVT bill include: the wholesale costs of the energy, the costs of transmission and distribution, government levies and the cost of metering and billing.
That final cost is the only element on which energy firms actually compete. If all suppliers transparently displayed the cost of the service they actually provide, it could be displayed on Ofgem’s website. That would be a better way to promote competition between providers, enabling consumers to switch to cheaper deals. Switching is the best way to save money. Compared to the estimated £76 saving from the Government’s cap, Ofgem estimate that switching can save the average SVT customer £320 per year.
Another classic consumer rip-off is the practice, by some mobile phone operators, of automatically renewing consumers on contracts that duplicate the initial cost of the handset. Research in 2017 by Citizens Advice found that over a third of customers with phones included in their initial contract were rolled over on the same contract at the end of their fixed deal period. That practice cost them an average of £22 extra each month. Ofcom estimate that the total cost of this practice to consumers is £130 million each year.
If we required all operators to make clear on their monthly bills the costs of any handset, separately from network charges, it would help eliminate this sharp practice and give those customers a fairer deal. Again, requiring transparency and promoting consumer power, rather than clumsy state intervention, is the most effective way to stamp out consumer rip-offs.
These are just a few illustrations. In my submission to the BEIS’s 2018 Green Paper consultation on Modernising Consumer Markets, I set out further pro-competition reforms in the retail banking sector, broadband and currency exchange sectors. There is a large and wide-ranging opportunity for us to pick up the mantle of competition reform – to save consumers money and demonstrate whose side we are on in the debate on capitalism.
Whose side are we on?
Think for a moment about what all this means in terms of saving money for those struggling to make ends meet. These reforms are not small change for the student, trying to get by on a student loan, or the graduate trying to hold down a first job and pay the rent, who are being stung by up to almost £50 each month, over the odds, on their mobile phone bill. Likewise, reform could make a real difference to those pensioners battening down the hatches to make their savings stretch, who are paying over £300 per year more than they should on their gas and electricity bills.
In my submission to BEIS, I set out some wider proposals to strengthen the mandate and powers of the Competition and Markets Authority (CMA). The CMA is going to be an even more vital institution in post-Brexit Britain. At present, however, it is disproportionately focused on mergers and acquisitions between big corporations. That is really important work. However, we should take this opportunity to give the CMA a broader duty to investigate all anti-competitive conduct in the marketplace, including a power to issue Anti-Competitive Behaviour Orders, or ACBOs, against firms ripping off consumers, with large fines for breaches.
If we are serious about defending the freedoms of the marketplace, they must be properly defended – in the interests of healthy competition amongst enterprising businesses, and active consumers. After all, that is who the free market is there to serve: the student, the pensioner, the family buying foreign currency to go on a hard-earned holiday. We must defend the realm of the free market, by guaranteeing that the consumer is king.
I want to see the Conservatives viewed as the party of healthy and value-conscious consumerism. We should look to the lead taken by MoneySupermarket and Which? magazine, combining transparency, competition and technology, to deliver better deals by strengthening consumer clout.
Ultimately, through competition reform, we can save low and middle-income families hundreds of pounds each year, without costing
the Treasury a penny.
The Conservative record
Brexit offers new opportunities to grasp, and we can do better at tackling our own home-grown problems. At the same time, we should also be proud of our many successes in government too. The Conservatives’ economic record is one of which I am truly proud: on jobs, on cutting income tax on the National Living Wage. Ifanything, I wish we would shout a little more loudly about our record, and the huge strides we have made since 2010. We have cut youth unemployment from over 20 per cent to 11.5 per cent, which means there are 440,000 fewer young people out of work.
Having brought unemployment to a record low, we should be focused on doing more for those who feel the pinch of the cost of living.
I am thinking of the 21-year-old fresh out of university, struggling to rent, let alone save for a deposit. Or the young couple, both working hard, doing the right thing, but struggling with the costs of childcare.
So, when we consider further tax-cutting priorities – bearing in mind the restraints on the public finances – our first priority should be those who are struggling and striving, those who want to get on. I would like to see the National Insurance employee contribution threshold raised, in line with that of the income tax personal allowance, to £11,850.
That would save £412 for someone earning £15,000 each year. The idea has been backed by the Institute for Fiscal Studies, the Resolution Foundation and the Centre for Policy Studies as a more targeted tax cut for the lowest paid, and that should be our priority as Conservatives.
Beyond National Insurance, as the public finances allow, we should also aim to take a penny off the basic rate of income tax at yearly intervals, reducing it from 20 per cent to 15 per cent over time, to further boost the pay packets of low and middle-income workers. They are the people who should benefit from the next wave of Conservative tax cuts. They are the people who need to hear from the Conservatives that we’re on their side.
Making capitalism work again
Finally, if capitalism is to work for the economic ‘little guy’ in post-Brexit Britain, it must also serve the shareholder. Instead of politicians bashing business executives for excessive bonuses, we should empower shareholders to take back control of the companies they own. Supporters of the free market should feel just as frustrated as anti-capitalist protesters at extortionate rewards for executive failure, from RBS boss Fred Goodwin to the former owner of BHS, Sir Philip Green. It drains firms, warps investment and undermines both competitiveness and confidence in our economy.
Beyond the bad behaviour of individuals, the root problem is that investors have outgrown the traditional corporate model, with the increase in the numbers owning shares, the role of institutional investors and the scattering of shareholders around the world. In many ways, that has been a positive development. However, in reality, shareholders just don’t exercise the same level of grip or accountability over the board as they used to. The relationship between the board and shareholders has frayed. It needs to be repaired.
Equally, this should be done by shareholders not bureaucrats – and certainly not politicians. In this regard, there is some interesting practice in Switzerland and the US we can learn from. For example, we should do more to encourage stronger shareholder activism, by legislating to empower binding shareholder votes on executive pay packets, not just pay remuneration policy. With new modes of IT, flexible use of extraordinary general meetings, teleconferencing and e-voting, this could be made practicable even in the fastest-moving business environments, or where swift recruitment decisions are needed.
Likewise, we should follow the US precedent by requiring ‘clawback’ policies, enabling shareholders to recover pay and bonuses paid to incompetent executives on the basis of flawed information, or where directors are responsible for misconduct that causes serious financial loss. In addition, since we regularly tout the virtues of a flexible labour market, and given how much directors are getting paid, shareholders should be empowered to sack incompetent or under-performing chief executives without a requirement for them to be paid more than their contractual notice period. If we are serious about preserving the free market, and avoiding the tainting of capitalism, then promoting more robust shareholder accountability will be a far more potent tool than crude state intervention.
Brexit carries risks. All change does. But it will also bring enormous opportunities that we must grasp. That spirit of renewal should galvanise us to address our many home-grown challenges around an authentic and credible policy agenda.
We must never forget that the central, driving purpose of the enterprise economy – and capitalism itself – is that it serves the interests of ordinary people far better than any alternative system. It can only do that by standing squarely on the side of small businesses, the shareholder, the worker and the consumer. If we keep them at the forefront of our minds,
I am confident we can make a success of Brexit and deliver a stronger and fairer economy. By offering Britain a brighter future, that is also how we can save our country from a hard-left Labour government.
This article first appeared in ‘Britain Beyond Brexit’, a collection of essays published by the Centre for Policy Studies. You can purchase a copy of the book HERE.
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