Britain in 2021

[Lofos-5]

If Britain became 'Singapore-on-Thames'

The British economy if the country crashes out of the European Union

July 13, 2017 · From the print edition

IT IS 2021 and Britain is out of the European Union. The two-year Brexit negotiations never really got going. Following the general election of 2017 the Conservatives, though the largest party, had no majority in Parliament. They struggled to formulate a coherent plan to present to the EU. The hardline fringe of the party promised to raise hell any time there was any suggestion of compromise with Brussels. The two sides did not get close even to a transitional deal. On March 29th 2019 Britain crashed out of the club.

The immediate result was panic. British airlines were excluded from the EU's common aviation area, so they were no longer allowed to take off in one EU country and land in another. Cars, Britain's second-biggest goods export, faced a 10% tariff to enter the EU market. Exporters did not know how to navigate EU customs, prompting long delays. The pound plummeted.
With bankers moving to Frankfurt and a severe recession looming, the Conservatives drew up a blueprint to keep the post-Brexit economy competitive. The plan called for low taxes and a small state. This was a renewed push in the direction taken by George Osborne, the chancellor in 2010-16, who reduced public spending as a share of GDP from 45% to 40% while cutting taxes on companies and the rich.

The Tories dismissed the notion, touted by the tabloids, that Britain was turning into 'Singapore-on-Thames'. They were wary of alienating left-leaning Brexiteers who had for the first time voted Conservative in 2017. Yet the plans were radical. They started by cutting the rate of corporation tax from 17% to 10% (a threat Britain made to its EU partners early in the Brexit negotiations). The higher rate of income tax was slashed from 40% to 25%. The government also tweaked Britain's tax-secrecy laws. Bearer shares (almost universally outlawed because they confer anonymous ownership of a company) were reintroduced, having been abolished in 2015.
At first the plan seemed to have an impact. Spotify, a music-streaming app, moved its headquarters from Stockholm to London. The weak pound made British firms targets for foreign buyers. Unilever, one of the largest companies in the FTSE 100 and the producer of Colman's mustard and Hellmann's mayonnaise, was finally taken over by Kraft Heinz, an American firm, to form UniKraft. UniKraft is now a British firm for tax purposes but the big decisions are taken in America.

Reality bites
Yet, beyond a brief uptick in GDP, all this has hardly helped the economy. It has also deprived public services of resources.
Take the economy first. Cutting corporation tax and introducing loopholes may induce big firms to switch their tax domiciles, but it does little to encourage firms to create jobs or production in Britain. Even the most optimistic calculation from the government, which finds that higher investment leads to faster growth and a higher tax take, suggests that after 20 years just half of the lost receipts could be recouped.

Overall, Britain remains far less attractive to foreign investors after Brexit than it was before. It is no longer in the EU's single market and, with immigration rules tighter, firms have trouble finding the right staff. UniKraft has saved a bundle on its tax bill but it also moved the Colman's mustard factory from Norwich to Poland.
Personal-tax cuts have had a similarly underwhelming effect. The 15-point cut to the higher rate has benefited only a small number of people: 15% of income-tax payers, according to official estimates. These folk are richer, so are more likely to save rather than spend any extra income.

The tax cut has thus given growth only a marginal boost. It has been expensive. Estimates from the Institute for Fiscal Studies, a think-tank, suggest that each percentage-point cut in the higher rate of income tax costs the government about £1bn. The number of higher-rate taxpayers has declined as rich EU nationals quit the country.

As the tax take fell, the government had to cut spending. The tabloids cheered the raid on the budget for overseas aid and the abolition of the Department for Business, Energy and Industrial Strategy, seen as a waste of money. But all government departments needed to economise.
That proved particularly hard for the National Health Service. The austerity plan called for a decade-long cash-terms freeze in NHS spending, the biggest squeeze in its history (compared with an average real-terms increase in 1950-2010 of 4% a year). The exodus of foreign nationals also hurt; in the early 2010s one-third of doctors were immigrants.

The NHS found it hard to cope even with a fairly mild winter in 2020. Typically Britain sees around 30,000 excess deaths each winter, but that rose to 60,000.
This hit the government's popularity. Sensing their chance, a group of pro-EU MPs have formed a new party, Britain Up! It has nearly 100 MPs, defectors from Labour and the Liberal Democrats-plus a few Tories, whose defection has triggered an election. It is campaigning on a promise to hold a referendum on whether to reapply for EU membership. The rump of the Tory party insists Brexit means Brexit. The polls suggest the race is neck and neck.

Read more at economist.com →

[Royal]

The Economist needs to stick to its day job of reporting current affairs rather than writing works of fiction.

[geoffreys]

The Economist needs to stick to its day job of reporting current affairs rather than writing works of fiction.

Good post, I totally agree.
Geoff.

[Lofos-5]

I think they are possibly slightly more qualified and informed than you armchair warriors lol

[panoscouse]

Does anybody really think May will still be PM in 2021?

I think the UK will have a Labour Government in charge with Jeremy Corbyn as it's leader well before then.
Which makes the economist speculation a bit futile and reminiscent of a certain film from George Orwell.

[ApusApus]

Does anybody really think May will still be PM in 2021?

I think the UK will have a Labour Government in charge with Jeremy Corbyn as it's leader well before then.
Which makes the economist speculation a bit futile and reminiscent of a certain film from George Orwell.

And Sturgeon will be PM of an Independent Scotland as well ............ yikes the end is nigh!


Shane

[kingfisher]

Royal- I couldn't put it better myself.
Panoscouse, small point, but I'm sure that Orwell didn't make films, altho' he wrote 1984 and Animal Farm.

[Pete G]

Five years ago, the nasty Tory scum party as a favour to their rich mates reduced corporation tax from 25% to 19%, so the rich could get richer, the poor would be poorer, and the public services would be starved of funding so the capitalist pigs can line their pockets.

All in all this has cost the exchequer.................................. no wait, hang on a minute .......................... this Government report states that the result of this tax decrease is that tax revenues from corporation tax have gone up, not down. In fact it says we are now getting 55% more revenue from corporation tax than we were in 2012.

Must be more Tory lies, right?

[geoffreys]

"no income tax. no VAT, it is a mysteree.." (Fools and Horses)
Corbyn wants to put corporation tax back up to 25% - he just does not understand business.
Geoff.

[Firefly]

A Labour government with Corbyn as P.M. ? God help us and pass the suicide pills.

Jackie

[geoffreys]

A Labour government with Corbyn as P.M. ? God help us and pass the suicide pills.

Jackie

Or escape to sunny Cyprus!!!
Geoff.

[Firefly]

Can't do it again Geoff, unfortunately.

Jackie