Cast off the gloomy Treasury forecasts and seize the opportunities of Brexit

Cast off the gloomy Treasury forecasts and seize the opportunities of Brexit

At long last, the penny seems to have dropped with Chancellor Philip Hammond. The headline of his Budget message was that we need to “seize the opportunities” of Brexit. Hallelujah!

The solid economic performance of the UK economy since the EU referendum has proved an embarrassment to Treasury forecasters. Before the referendum, they confidently promised an immediate recession and big rise in unemployment. Instead we have seen solid (if not spectacular) growth, over 300,000 additional jobs and a net increase in the number of businesses.

For the past 18 months, the Chancellor has seemed determined to continue with ‘Project Fear’, focusing solely on the economic risks of Brexit and ignoring potential upsides. Although there is a long way to go, the indications in the Budget that Mr Hammond is at least now thinking about the possible upside to Brexit are welcome.

And let’s be clear: although there are risks from leaving a large trading bloc such as the EU, they are far outweighed by the potential benefits. Free from EU protectionism, the UK will regain the ability to cut tariffs on goods from outside the EU. On average, tariffs are generally low, but when it comes to food and clothing, the EU forces the UK to levy very high rates, in some cases well in excess of 20% on non-EU imports. These may well help to protect continental producers, but at the cost of high prices for UK consumers – as well as making it harder for developing countries to trade their way out of poverty.

Reducing or even removing these tariffs could give a huge boost to hard-pressed families, particularly those on lower incomes. It would also boost UK industry, which will be able access cheaper inputs. If we add in potential gains from refocusing regulation away from rules designed by European corporate lobbyists towards what works best for the UK economy – as well as billions saved from direct payments to the EU – there is a potential windfall available for the Exchequer in the long run. This would not only allow tax cuts for small businesses and the lower paid, but would also release even more funds for the NHS, education and infrastructure.

A key problem is that the Chancellor is constrained by the excessive gloominess of the Treasury. Rather than being shamed by the failure of their pre-referendum forecasts, they continue to be in denial about the economic opportunities Brexit can give the UK. The medium- to long-term prospects for the economy are much brighter than indicated by the Treasury and the Office for Budget Responsibility.

Since the EU referendum, foreign direct investment (a key indicator for long-term confidence in the economy) has held up well. The key for the UK is to build up the productive capacity of the economy by investing in economic infrastructure and in skilling up the domestic workforce. The Budget provides some modest but welcome moves in this direction, for example the announcement of significant investments in R&D and technical training.

The Chancellor should be bolder in setting out long-term plans to invest further in infrastructure and in UK PLC. If, at the same time, we are successful in freeing ourselves from EU protectionism and a regulatory approach driven by crony capitalism, we could have a step change in productivity which would allow the UK to become an even greater beacon for foreign direct investment and business growth.

Still, by starting to speak more openly about the advantages of Brexit, Mr Hammond has given hope of a more positive approach going forward. We must hope now that he pulls back from encouraging the Prime Minister to delay the benefits of Brexit by tying us into a long transition period after March 2019 in which nothing much changes. The danger would be not only that we continue to be tied to sclerotic EU rules and protectionist tariffs for years to come, but that we also continue to hand over billions of pounds to the EU for the privilege.

Of course the UK is right to look to offer to continue to trade freely and fairly with the EU in the future. But this cannot be at any cost. We should not be offering billions of pounds of taxpayers’ money for a trade deal with countries which sell far more to us than we do to them. There are plenty of better ways to spend that money.

With the Budget out of the way, the next step should be to give our own deadline to the EU: tell us soon if you are interested in a mutually beneficial trade deal. If such a statement of intent is not forthcoming in the very near future, we should switch our focus to developing a post-Brexit trade policy aimed at taking advantage of better links with the fastest-growing economies around the world whilst cutting import prices for UK consumers and producers.

A significant feature of the Budget is that the Chancellor has set aside £3 billion for Brexit preparations. This is a serious and important signal of intent. Now is the time for Mr Hammond to follow through on his more optimistic words, break free from EU control and protectionism and embrace a bright future for a newly-independent UK economy.