19 September 2017

Brexit must not be a race to the bottom

By Gerard Lyons

We should be positive about Brexit. For despite the near-term challenges – and regardless of how you may have voted in last year’s referendum – there are actually a host of reasons to be optimistic about the UK’s future outside the EU.

Today, ‘Clean Brexit‘ is published. The book, co-written by me and Liam Halligan, focuses on how to make Brexit a success, outlining the policies that the UK should adopt both during the Article 50 process and afterwards.

Under a Clean Brexit, the UK will be outside both the EU’s single market and customs union. But it is not just about leaving the EU. It is also what we do afterwards that will determine the country’s future success.

While we should be optimistic, it is also important to dispel some of the fears that presently exist. In particular, leaving the single market and the customs union isn’t “hard Brexit”. It is Brexit. The “hard Brexit” label, designed to make leaving the EU sound extreme and unreasonable, is used by those determined to reverse the referendum result – or keep us tied to the EU for as long as possible after March 2019.

In our view, a genuinely hard Brexit would involve a “race to the bottom” on working conditions once the UK is no longer obliged to comply with EU rules. That should be avoided at all costs – but is, anyway, highly unlikely. In fact, the government’s blueprint for post-Brexit Britain should take the opposite approach: protecting workers’ rights and at the same time setting in place policies to boost investment and innovation, including up-skilling the workforce.

Freed from the constraints of Brussels, the UK should be able to adopt an enabling environment to allow its business sector to grow. For while bureaucrats and politicians have an influence, it is entrepreneurs and firms that trade. It is necessary to have products and services that people want to buy. So it is vital that the UK is at the forefront of innovation, of developing new products for this new industrial age.

Similarly, UK goods need to compete. We can compete on price or on quality. But if we try to focus just on price, then the likelihood is that someone, somewhere will do it cheaper.

Of course price always matters. But it cannot be the only factor. While UK goods and services need to be attractive and competitive, we must avoid a race to the bottom on price, too.

After March 2019, laws and regulations will be determined by Parliament – which is answerable to UK voters. Many existing, UK-derived rules on pay and labour conditions are actually more progressive than those elsewhere in the EU. The right to holiday pay, for instance, was introduced in the 1938 Holiday Pay Act. Today, UK workers are entitled to 5.6 weeks off per year, compared to four weeks under EU rules.

The UK also has one of the highest minimum wages in the world – whereas only 18 out of 28 EU nations have a minimum wage at all. Similarly, EU law requires a minimum of 14 weeks’ maternity pay, with no minimum pay level; UK law provides 52 weeks, on 90 per cent pay for six weeks and £140 a week thereafter. And the UK legislated for equal pay between men and women in 1970, long before we joined the EEC.

Some fear that outside of the EU, these rights will somehow be eroded. In fact, the only change is that those rights previously set out by Brussels will now be determined by politicians in Westminster – responsive to the wishes of the UK electorate. So despite the frequent scaremongering, there is no reason to believe Brexit will lead to their diminution.

After Brexit, the UK will be free to compete outside the EU’s protectionist wall. As such, we must look to cut free trade agreements with some of the world’s most dynamic economies. But our competitiveness must come from our intelligence, imagination and creative abilities rather than attempts to drive down labour costs and conditions.

To this end, we need to put skills and vocational training at the heart of government policy post-Brexit. For many years, British-based firms have under-invested in UK staff – due in part due to the EU’s freedom of movement rules.

The UK must become a high-wage, high-productivity economy – which means, above all, more investment in skills. It also means aligning the UK’s tax, training and education policies to meet publicly stated skills goals, overseen by a Cabinet minister with responsibility for training and skills. This should involve not only an overhaul of the student loans system, but a shift in our approach to further education, where university numbers are too high and vocational training numbers too low.

‘Clean Brexit’ describes an approach that aims to keep the negotiations as simple and our approach as productive as possible. Brexit is a great opportunity to reposition ourselves in the changing and growing global economy.

‘Clean Brexit’ by Dr Gerard Lyons and Liam Halligan is available to CapX readers at a 25 per cent discount. To take advantage of this offer, visit the Biteback Publishing website and at checkout, enter the promo code “CPXB2”. This discount will be available until Oct 9

Dr Gerard Lyons is an economist and co-author, with Liam Halligan, of 'Clean Brexit'