With just three weeks left until March 29, the countdown to Brexit Day has never looked more uncertain. As the clock ticks on, confusion continues over what options remain on the table, what’s firmly off the table, and even how much longer the table will exist. Crucially, an extension to Article 50 does not mean the threat of no deal disappears. In short, no deal is not dead yet.
The latest update from the Bank of England suggests that the impact of no deal may not be as bad as previously predicted. However, a softer blow is contingent on progress on preparedness continuing and accelerating as the clock runs down. The key to surviving – and thriving – in a no deal exit depends on the Government’s measures to mitigate the material economic shock. While predictions on the fallout from no deal have focused on immediate disruption or long-term forecasts, too little has been said about what the Government could – and should – do to manage the economy from day one. In a paper published today, ‘A Budget for No Deal’, the Centre for Policy Studies outlines practical policies to restore confidence among companies and consumers in such a scenario.
Businesses will need a boost to encourage investment and to compete internationally in newly opened markets. Bringing forward the planned cut to a 17 per cent headline corporation tax rate by a year would therefore be an obvious first step. Firms’ ability to immediately write-off certain capital expenditure against their tax bill should also be made unlimited. Decisive action, with clear benefits to the bottom line, would send a strong message to the world that Britain is open for business.
Small firms are most vulnerable to rising costs and mounting paperwork generated by no deal. Taking 25 per cent off both their business rates and employer’s National Insurance Contributions for a year would immediately reduce the burden on small businesses navigating the aftermath of our departure
Investment incentives should not stop at tax breaks. There is a long pipeline of shovel-ready infrastructure projects waiting to break ground. The majority of aren’t headline-grabbing schemes like of HS2, Heathrow or Hinkley, but smaller projects that offer much faster returns. Giving more minor works the green light could unblock no deal pinch-points in our transport and trade infrastructure, as well as giving the construction sector the certainty it sorely needs.
The public will also be feeling the squeeze under no deal with the value of the pound likely to fall, pushing up prices. There are number of levers the Chancellor can pull to put more of people’s money back in their pockets – and some that he should resist.
Analysis in my colleague Tom Clougherty’s paper ‘Make Work Pay’ makes the compelling case for aligning the threshold National Insurance and income tax to form a ‘Universal Working Income’. In a no deal scenario this joint threshold could be raised to £12,500, increasing the average workers’ take-home pay by £620 per year. The short-term cost to the Treasury of this move would be far lower and the impact much more dramatic than a VAT cut akin to that made during the financial crisis.
Those on low and fixed incomes feel the squeeze from rising prices most acutely. Ending the freeze on working-age benefits a year early would go some way to protect families from this, as would topping up increases in the state pension for older people. Council tax costs are likewise felt hardest by those in the smallest properties. Freezing council tax (with Government compensating councils for the shortfall) at its current level would mean an extra £80 for the average Band D household.
What fiscal mitigation plan the Government chooses will, of course, depend heavily on how well the core issues of tariffs, customs, and migration are dealt with. Unilaterally reducing tariffs to zero on the vast majority of goods should be the guiding principle for Government. It should, however, consider showing some flexibility to those that have been mostly fiercely protected by EU rules, with phasing-out periods, time-limited tax breaks or dedicated adjustment assistance.
No deal presents an opportunity for the UK to update its customs and visa systems to be the best in the world. Digitisation and simplification should be at the heart of no deal customs policy, including immediate measures like an online ‘one-stop shop’ for business support and a voucher scheme for SMEs to get professional advice on how no deal affects them.
Likewise, to continue attracting the brightest talent from across the world, we need to rethink the visa system to welcome more investors, entrepreneurs and highly skilled workers to the UK. Aiming high does not diminish the challenges of new border arrangements under no deal, but if long-term disruption is to be avoided, we need to be bolder.
The prospect of failing to reach an agreement with the EU cannot simply be ignored in the hope it goes away. Nor should it be backed on principle without planning for its consequences. Which is why we need a plan for the cliff edge, whenever it may come.
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