7 March 2022

Trading Up: a plan to boost British exports in a post-Brexit world

By Archie Hill

The recent Export Strategy, published last autumn, spoke enthusiastically of how, ‘after decades in hibernation, the UK [had] finally re-emerged on the world stage as an independent trading nation and global champion for free trade’. 

With such zeal already on display, calling for the Government to enhance its support for trade and exports might be preaching to the converted. But for all the appeal of the Government’s post-Brexit vision of a buccaneering, free-trading island striking deals across the globe, it risks favouring romance over reality. 

The stark reality is that for the small businesses up and down the country who make up the lifeblood of the UK economy, trading and exporting are, in fact, in decline. As the CPS’s new report ‘Trading Up’ makes clear, SMEs are far less likely to be exporters here than in other countries: in Germany and Denmark, for instance, the rate of exporters is double what it is here. 

This matters enormously: businesses that export are 21% more productive, make more money and pay higher wages than those who do not. If we boost trade, it is the wider economy that benefits. And yet, in the aftermath of Brexit and the Covid pandemic, exporting is becoming harder for small businesses, not easier. This needs to be reversed if the Government is to have the slightest chance of reaching its ambitious target of £1 trillion in exports per annum by 2030. 

The central recommendation in today’s report, written by CPS Research Fellow and former special adviser Nick King is the creation of a new Export Tax Credit. Based on successful similar policies such as the R&D Tax Credit and the ‘super-deduction’, this would allow businesses to offset any spending in the pursuit of export growth against their profits and eventual tax bill. This could cover a range of activity, from investment in new skills to marketing costs or business expenses in foreign countries, and would provide a real incentive to businesses debating the merits of taking the plunge. 

The Export Tax Credit would significantly help with this mission to create a new cohort of exporting businesses across the country. But if we want properly to cast the net wider, it needs to be a bottom-up, locally led approach. Councils, business groups, trade bodies, Growth Hubs and local universities all have their part to play, benefitting from on-the-ground knowledge about specific sectors and companies who might be interested in exporting. Following the Levelling Up White Paper, the Government’s commitment to a ‘place-based’ approach needs to extend to international trade.

At the other end of the scale, there are also opportunities at a global level. Now that the UK once again has its own seat at the World Trade Organisation (WTO), it is important that the Government is playing its full role in advocating for a fairer, simpler – and more up-to-date trading system. There is a lack of leadership in the WTO, reflected by the fact that the current trade in services rules were written in 1995, back when the internet was in its infancy and the world was very different. 

Brexit has forced us as a country to re-examine a number of questions about what kind of country we want to be, and how we want to be seen in the world. One obvious, positive way this should be addressed is by the UK taking a role in leading international efforts to modernise and digitise trade, in particular by promoting digital trade and trade in services as huge areas of opportunity.

Now is the time for a more joined-up, all-encompassing approach to boosting trade and exports. This means not just making life easier for small businesses who otherwise struggle with burdensome paperwork, but also making sure that, at the highest level of trade policy, the UK is helping to drive forward an international coalition, working together to simplify and expand free trade as far and as fully as possible. 

If the Government is serious about ‘Global Britain’ being more than a neat piece of boosterism – and the recent Export Strategy was a promising sign in the right direction – now is the time for ambition to be matched by action. 

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Archie Hill is a Researcher at Henham Strategy.