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In the history books, 2017 will go down as the Brexit election, with the campaign, and certainly the voting, largely dominated by the issue of leaving the EU. Yet while there is plenty of discussion about soft and hard Brexits, and some about what kind of negotiating stance we should take, almost nobody is asking the most obvious question. Given that we are leaving, how should we adjust our economy to cope with that? After all, for 40 years a completely open market with Europe has been a key attraction for investors in Britain.
Labour seems wilfully intent on scaring away business completely. You might think that leaving the single market was enough of a challenge for most companies. Or that the City, which remains one of our largest industries, has enough on its plate with the likely loss of its passporting rights. But Labour seems to think this is a good moment to slap a financial transactions tax on its banks and fund managers.
And with firms facing potential tariffs in their largest export market, it also thinks this is a good moment for a one-third increase in corporation tax (from 19% to 26%) alongside a hike in minimum wages, a 20:1 salary cap on executives at companies with government contracts, and far higher personal taxes on anyone earning more than £80,000. If there were any businesses left in Britain after John McDonnell delivered his first speech as chancellor, it would be surprising.
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And yet if you were expecting much more sense from the Tories, you'd be disappointed. They are far more worried about scooping up former Ukip and Labour voters and are taking business for granted. Energy prices will be capped. Workers will have more rights to leave. Councils will build more social housing. We haven't seen rent controls or rail nationalisation yet but heck there are still a couple of weeks to go.
There is a problem here. Over the next two years, the British economy faces its biggest challenge since the first bracing wave of Thatcherism in the early 1990s. The UK will have to re-adjust its economy. It will have to rely less on financial services, and its banks and fund managers will have to re-focus on global rather than European markets.
Our manufacturing industries will have to pivot towards the US and Asia. Service industries will have to rely less on cheap immigrant labour and concentrate on training local staff and where they can't do that, get robots to do the work instead. Farmers will have to wean themselves off EU subsidies and cheap fruit-pickers, and work out what they can supply at far lower global market prices or figure out something else to do with the land instead. As a country, we will have to decide what to do if the EU imposes modest tariffs on our exporters.
Those are all big questions, to which there are different plausible answers. We might want to go the full Singapore, and create a freewheeling offshore island with low taxes and light regulation. Many Brexiteers would certainly like that. Or we might want to emphasise industrial policy, invest more and get the state to intervene to pick winners and build national champions. Many on the left would prefer that, even if the chances of it actually working are very low. But it will have to be something. Trade deals only go so far. They allow you to export but you need something to sell.
We also need to make ourselves more attractive to business to persuade them to invest here. No one seems to be talking about all this in the election campaign. It is as if Brexit were hardly happening and that is surely going to be a costly mistake.
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Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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