Chequers would stop a post-Brexit government pursuing a more active form of economic strategy

Chequers would stop a post-Brexit government pursuing a more active form of economic strategy

There have been too many distractions in the Brexit debate: whether the theatre of the Brexit negotiations; the divisions in the governing party; or the somewhat paradoxical delusion of whether to support a second referendum on the grounds of democratic choice, after first completely ignoring the clearly expressed will of the British people given in a prior referendum.

Instead, what people of good will should be considering is how to deliver the best possible progressive form of Brexit.

This should aim to ensure that all communities across the UK benefit. There should be no ‘left behind’ areas. Brexit must benefit workers as well as businesses; the countryside as well as urban areas; the North as well as the South. We really should all be ‘in it together’.

Taking back control is necessary but insufficient. The crucial thing is what we decide to do with this control.

In the economic sphere, this requires a transformation of the economy to deal with current long-standing weaknesses in the UK economy. These include:

  1. the very large trade deficit the UK runs with the rest of the world (primarily the EU), which means that for some time, the UK has been living beyond its means in trade terms;
  2. weak productivity growth that has characterised the UK economy over a long time period, but which has grown worse since the near stagnation following the onset of the 2008 financial crisis;
  3. comparably low levels of gross capital formation – resolving this would assist in boosting productivity growth;
  4. flaws in the labour market derived from casualisation and insecurity, together with under-investment in training and skills development;
  5. rebalancing the UK economy through creating new industries and revitalising the manufacturing sector.

Brexit should not be viewed in isolation. It is one amongst many challenges facing the UK economy. These challenges for the UK economy exist irrespective of Brexit. They need to be resolved to create a stronger and more resilient economy. This will help the UK to take full advantage of the opportunities that will arise following Brexit.

But Brexit is also potentially part of the solution. The greater policy flexibility that derives from some (but not all) forms of Brexit should make it easier to achieve.

The economic transformation of the UK requires a more active form of government. A more active industrial policy is required to rebuild our manufacturing sector by taking advantage of new products and new markets. An active labour market policy can prevent skills bottlenecks through the promotion of skill formation and training, and thereby meet the needs of the new high-skill, high-wage employment opportunities created. Active public procurement could anchor prosperity in local and regional economies across the UK, thereby ensuring that all communities benefit from Brexit. And a more active form of (post-Keynesian) macroeconomic policy could facilitate investment and growth, thereby maintaining the momentum in transforming the UK economy.

All of this is easier to deliver if the UK chooses a form of Brexit that enables, rather than frustrates, the development of this more active form of economic strategy.

Unfortunately, the Chequers proposals do not meet this criteria. By accepting the “common rule book” with the EU, the Government’s current proposals would prevent the UK introducing its own regulations to better suit the needs of our own businesses, workers and consumers. Adherence to Single Market rules would constrain the ability for a UK government to develop a more active form of industrial policy, capable of encouraging the development of new industries and revitalising the manufacturing sector.

The Customs Union approach, advocated by others, is presented as a means of maintaining frictionless free trade. But to do this, like the Chequers proposals, would also require acceptance of EU regulations – not just now but also whatever changes they make in the future. In addition, it would not allow the UK to negotiate its own future trade deals with other countries.

Both of these approaches are more concerned with minimising short-term costs associated with Brexit. It would, however, be more advantageous if the type of Brexit was chosen according to how it could best rejuvenate the UK economy to take advantage of future opportunities. The preferable Brexit option should seek an optimum trade-off between maintaining as much of existing trade patterns and cooperation with the EU as possible, yet giving policy-makers the additional policy instruments and flexibility necessary to deal effectively with the profound economic challenges facing the UK.

The only option which meets this criteria is that of a Free Trade Agreement (FTA). The deal negotiated between the EU and Canada (CETA) shows how it is possible to secure an agreement that includes a range of services without being bound by harmonised rules and regulations – and without having to make financial contributions to the EU for market access. Given the close relationship between the UK and the EU, it should be possible to include a broader range of services in any CETA-plus deal. However, to make any FTA compatible with progressive objectives, it would have to either omit the investor-state dispute settlement elements which were included in the CETA approach, or else balance these by stiffening labour standards and public service protections. A shallower but broader FTA would be the best solution. It should also be relatively easy and quick to negotiate.

By adopting this type of FTA, it is possible to deliver a Brexit which is both progressive and outward-looking. It allows sufficient policy flexibility for an active government to transform the economy and thereby start to deal with many of its long standing weaknesses. It therefore provides the best opportunity for Brexit to benefit all communities – creating a post-Brexit economy that benefits the many and not just the few.