I guess he didn't want to live up to these promises after all.
Economic growth in the UK has been founded on a number of unhealthy characteristics in the last decade or so. It has depended above all on large population increases based on uncontrolled mass migration. This has made the economy bigger, but not necessarily better for individual citizens, as shown by GDP per capita growth rates of two per cent or less – significantly weaker than in most decades since the Second World War. It has depended on moving a large number of people moving out of unemployment, which is good, but because the new jobs tend to be low paid it created a low productivity economy. And it all depends far too much on domestic demand, which even after 2008 is excessively funded by consumer credit. This is unsustainable in the long run.
So we need to shift our economy towards a more export-led growth strategy, based on higher productivity employment. Fortunately, this will prove eminently possible as a part of a Brexit-based economic strategy. Indeed, far from being the risky option that many have claimed, Brexit gives us many tools to deal with the very serious economic challenges that the country will face in the coming decades.
First of all, leaving the EU gives us back control of our trade policy, and gives us the opportunity to maximise returns from free trade.
Because any deals currently settled are obtained by finding a 28 nation compromise, the EU is clumsy at negotiating free trade deals. That is why we currently only have trade deals with two of our top ten non-EU trading partners. This is incredibly important to us, as about 60 per cent of our trade is with the non-EU world. In fact, we sell as much to non-EU countries with which we have no trade agreements as we do to the EU.
The first order of business is to put that right. As the amicable statements coming from the US, Australia, China and India show, these countries are as keen to knock down trade barriers as we are.
Single countries, with the ability to be flexible and focussed, negotiate trade deals far more quickly than large trade blocs. For example, South Korea negotiated a deal with the US in a single year, and with India, which is notoriously difficult, within three years. Chile was even faster, negotiating trade deals with China, Australia and Canada in under a year.
The EU, by comparison, takes more than six years to negotiate trade deals; the deals which would most benefit us, such as those with Canada or the US, take even longer. And without the often conflicting requirements of 28 different countries to consider, deals negotiated by single countries tend to be broader and have more favourable terms on matters that are important to us, such as services.
So be under no doubt: we can do deals with our trading partners, and we can do them quickly. I would expect the new Prime Minister on September 9th to immediately trigger a large round of global trade deals with all our most favoured trade partners. I would expect that the negotiation phase of most of them to be concluded within between 12 and 24 months.
So within two years, before the negotiation with the EU is likely to be complete, and therefore before anything material has changed, we can negotiate a free trade area massively larger than the EU. Trade deals with the US and China alone will give us a trade area almost twice the size of the EU, and of course we will also be seeking deals with Hong Kong, Canada, Australia, India, Japan, the UAE, Indonesia – and many others.
How will this help our economy? For a start, it will obviously provide massive markets for our exports, but it will also helps to cut the costs for our manufacturing industries. For example, let’s take our car manufacturers. Electronics in today’s cars already exceed 25 per cent of the total vehicle value, and this proportion is only expected to grow as drivers demand ever more from their vehicles in terms of performance, safety, comfort, convenience and entertainment. And the vast majority of the world’s electronic components are manufactured in Asia.
Many of these components currently face tariffs, increasing their costs. The elimination of such tariffs will decrease the cost of manufacturing a car in the UK, increasing our industry’s global competitiveness. The same thing will happen across other industries as tariffs come down and the cost of doing business with the UK is reduced.
Now the new trade agreements will come into force at the point of exit from the EU, but they will be fully negotiated and therefore understood in detail well before then. That means that foreign direct investment by companies keen to take advantage of these deals will grow in the next two years.
At home, there is much we can do to make Britain a better place to do business.
We should be expanding export support arrangements for companies too small to have their own export departments, but who wish to sell into these newly opened up market places: an 0800 number that a small specialist manufacturer in the North of England, say, could call for practical help in Shanghai and Sao Paolo, Cape Town and Calcutta.
Regulation already in place will stay for the moment, but the flood of new regulation from Europe will be halted. We can then look at structuring our regulatory environment so that it helps business, rather than hinders.
At the moment all businesses in the UK must comply with EU regulation, even if they export nothing to the EU. This impacts on our global competitiveness. Instead, we should look to match regulation for companies to their primary export markets.
To be clear, I am not talking here about employment regulation. All the empirical studies show that it is not employment regulation that stultifies economic growth, but all the other market-related regulations, many of them wholly unnecessary. Britain has a relatively flexible workforce, and so long as the employment law environment stays reasonably stable it should not be a problem for business.
There is also a political, or perhaps sentimental point. The great British industrial working classes voted overwhelmingly for Brexit. I am not at all attracted by the idea of rewarding them by cutting their rights. This is in any event unnecessary, and we can significantly improve our growth rate by stopping the flood of unnecessary market and product regulation.
We should also continue with the programme of lessening the tax burden. In particular, I would focus on reducing taxes that have a deleterious or distortive effect on growth. This Conservative government has already done good work in this area, with corporate tax rates cut from almost 30 per cent to 20 per cent, and with plans to cut the rate to 15 per cent. This will make the UK a more attractive business destination, and the tax gained from companies moving their operations to the UK, through the people they employ and the sales they generate, will more than offset any reduced corporate tax take.