11 March 2017

Britain needs to focus on more than Brexit


During the US election campaign, the Trump-supporting tech investor Peter Thiel complained that the press were taking his man literally but not seriously. Better, said Thiel, to take the Republican candidate seriously but not literally: to pay more attention to his ideas, and less to the details of each individual tweet.

Something similar could be said of the British economy: that we focus too much on the seriously dramatic and too little on the dramatically serious.

For example, much attention has been paid to the post-Brexit plunge in the pound. Yet against the euro at least, this merely takes it back to the level of 2013 – which the Bank of England thought was pretty much what was needed. The subsequent rise was largely due not so much to Britain’s great strengths, as to the European Central Bank embracing quantitative easing and tanking its own currency.

In the same vein, pretty much every analysis of the British economy takes Brexit as its starting point. The continuing boom in consumption, for example, is being hailed as a great vote of confidence by the public in our future as a nation.

But while it hasn’t been dented by Brexit, the consumption boom hasn’t been caused by it. And it’s open to question whether, in the long run, it’s really such a good thing.

Ever since the financial crisis, we’ve been told that Britain needs to shift its economy towards exports and away from consumption. Yet year after year, it fails to happen – partly due, it must be said, to the same weaknesses in the eurozone which prompted Mario Draghi to reach for the printing press.

One of the reasons so many people worried so much about a Brexit vote was that a collapse in international confidence in the UK would be particularly damaging given how reliant we are on the kindness of strangers – the foreign investors who fund our yawning current account deficit by buying up British shares, British houses and British companies. (There is a good primer on this in a recent Telegraph column by Jeremy Warner).

And one of the reasons why many people campaigned for Brexit was that they saw its potential to close that gap in the long term, by making us a nation of exporters again.

There are senior figures who are convinced that Britain does indeed need to reduce consumption, on the grounds that we can’t live beyond our means forever. That will inevitably have a knock-on effect on growth. And that will inevitably be attributed to Brexit – even though it probably won’t have anything to do with it.

All of which reminds me of one of the better lines Remainers had during the referendum campaign. It’s not Europe’s fault, they pointed out, that we haven’t built enough houses for decades. That our productivity is low, that too many of our workers are alarmingly unskilled.

This week, Philip Hammond’s Budget speech was the subject of furious controversy because of a tax hike on National Insurance that amounted to £145 million a year by 2021-22. As I pointed out yesterday in a piece on the broader state of the tax system, that’s a pinprick in terms of the overall tax take.

Yet the debate also showed how difficult it can be to raise our gaze from the dramatic to the serious. Yes, it’s vital that we get Brexit right. But it’s vital that we also keep in mind why we’re doing it, and the kind of country – and economy – we want to use it to build.

Robert Colvile is Editor of CapX