My vision for a global-facing, outward-looking post-Brexit Britain

My vision for a global-facing, outward-looking post-Brexit Britain

What follows is the full text of a lecture delivered by Jacob Rees-Mogg MP in Speaker’s House in the Houses of Parliament on Monday 18th June. It will be shown on BBC Parliament at 9pm on Saturday 23rd, June, following its marathon re-run of the overnight referendum night coverage from 9.55am that morning, exactly two years to the day after the referendum.

First of all I would like to thank Mr. Speaker for asking me to talk in his Speaker’s Series on Brexit and Beyond: Britain’s Place in the World in the 2020s. His generosity in opening up the Speaker’s House to so many people is something that has been enormously welcome. Hundreds, if not thousands, of people have had the benefit of seeing these splendid rooms, which was much less common under his predecessors. I greatly admire the way in which he has consistently stood up for the House of Commons against the Executive and has been willing to take the brickbats that come with that. So I thank him for asking me to speak.

It is a great day to be discussing the future of Europe because it is, of course, Waterloo Day. If we go back to 1815 it was on that day that, effectively, the future of Europe was settled for 100 years. This was a period of, at least from our point of view, remarkable stability and peacefulness. Of course, the Congress of Vienna had finished nine days before Waterloo and had set out the way Europe would be managed, assuming that Napoleon could finally be defeated. That was an important political occasion, partly because it was the first one on which nation states came together to work out how to live peacefully and to settle their arguments by congress rather than by war.

This is how the modern world now works. We see it even with Donald Trump and Kim Jong-Un. A congress is a way of trying to bring two sides together. It was also important in that it recognised that once a war had come to a conclusion some settlement was needed. People had to compromise and trade off different interests, one against another. In addition, it transformed the United Kingdom’s position in the world. After the Napoleonic Wars had finished, we no longer had to think as we had done for the previous quarter century about engagement on the continent. We were able to look more broadly to the rest of the world. This perhaps is most important in terms of the Foreign Secretary-ship of George Canning. Canning recognised that the states of Latin America should have independence to be a balance to the Powers of Europe and should not simply be colonies of the Powers of Europe.

People often think of the 19th Century as being entirely, from our point of view, about the British Empire – but it was more than that. There was a degree of understanding of an international and global approach and the famous quotation from Canning is that: “I call the New World into existence to address the balance of the Old.” This was in a speech on the affairs of Portugal in the House of Commons in December 1826. Canning wanted to ensure that we could look away from the squabbles within Europe and further afield and that there could be some balance in our relationships because we were not exclusively dealing with our nearest neighbours. This proved very important to us in the ensuing century.

So, there is good historic precedent for what we are trying to do and what we are beginning to do in terms of Brexit.

However, there are three types of Brexit. There is, in the words of the advert, “I’m sticking to you, because you are made out of glue”. I seem to remember that was some kind of car advert at some point, I believe Hyundai in 2002. This is the view, quite commonly held amongst those who did not want to leave in the first place, that our best option is to stick close to the European Union. We may have decided we are no longer legally obliged to follow the EU, but will follow it anyway. This is because we are used to doing so and if we do not follow our neighbours it will damage us economically, especially if you believe gravity trade models work.

There is then the gloomy closed view, which is to say that we need to man the barricades. We need to close down immigration. We need to protect our economy. We need to create a sort of sepia-tinted 1950s version of the United Kingdom.

And last there is the view which I take, which I shall concentrate on in my comments, that the UK should be open to the world; that our history is as a global nation and that if you think of the UK as a ship of state, the ship of state has been moored in harbour since 1973 and can once again take to the high seas and look at the whole world rather than the narrow European sphere.

If you look briefly at each of those options in turn, the problem with the sticking to the EU model and following it closely is that you then need to ask what is the point of leaving. Because if we are within the EU, we may not have that much influence. It may do things that we do not want to do. We may accept unpleasant regulations but at least we have had some say in how they are created and at least we have had some votes in the Council of Ministers and some modest effect in the European Parliament. If we just accept what the EU does from outside, we must surely be the vassal state. If you look at the list of our Norman and Plantagenet Kings, there were numerous rows that they had over vassalage and bending the knee to their overlords, which of course King John agreed to do to the King Phillip II of France at Le Goulet. It was an unhappy place to be.

A vassal state is not a good state, nor is it a strong state. In truth the vassal state is worse than membership of the European Union. In this regard Norway’s example is interesting because the Norwegian people never wanted to join the EU, but Norwegian politicians have always been keen to join. So, essentially, they have set up a system where they are members but they have not quite admitted it to their electorate, which consistently votes against joining when offered the chance. This is indeed the case for most people who vote against the EU when offered the chance, which is why they are not offered the chance very much any more.

The second model economic history tells you will not work because protectionism harms those who put up the barriers. This is because they increase their own costs, they defend inefficient industries and they find as time goes on that they need to make much more radical reforms than would have been necessary if you had allowed the normal course of economic events to take place. The large-scale closure of businesses in the 1980s was in part because of the extent to which they had been protected in previous decades and eventually their inefficiencies and their lack of economic success caught up with them. This led to a dramatic scaling back, which is much harder for communities and indeed the individuals affected by such changes to cope with.

Going backwards will not work: there is no sepia-tinted 1950s vision, it will not help the least well off in society and indeed it would make them worse off. Closing doors to all immigration would be cutting off our nose to spite our face. What we want is high-skilled immigration that is beneficial to the economy. We do not want low-skilled migration for two reasons: one is that it stops productivity growth because cheap labour replaces innovation, especially mechanisation. But it is also the type of migration which it is most likely to depress wages of those who have probably been failed by the education system and have the least advantage within our society.

So, we come to point three and this really is the Canning/Peel-like opportunity. There is much we can learn from our 19th Century statesmen, that by opening to the world we offer ourselves not just economic opportunity but we offer ourselves the chance to play a full role on the world stage in influencing how things will develop. Not on our own, I am not suggesting that we have some neo-imperial vision and are going to become a superpower, but by cooperating with allies beyond the European sphere.

Within the EU we are one of 28 and we are bound by sincere cooperation to go along with what the other 27 agree. You can see this in the current trade row with Donald Trump but we will be obliged to put trade barriers on the United States. We can do nothing to limit the effect of any trade barriers that he might impose on us because we are tied into a European system and this means that even if Donald Trump said ‘look the UK is a most friendly nation and our closest ally, we are not going to put any tariffs on the UK, we are just going to stick them on France…’ we would be obliged by EU law to put tariffs on the US goods that the EU decided to penalise. So, once we are free of all that our opportunities are much greater to deal with, with other people.

Where do these benefits come? A great deal of work has been done by Patrick Minford and his team of economists on Free Trade, who have calculated that there will be a post-Brexit dividend of £135 billion just between 2020 and 2025 and a further £40 billion a year from then on. These benefits will come from a mix of global free trade for Britain outside the Single Market and the Customs Union, plus opening up the British economy to the beneficial effects of entrepreneurial dynamism. I am not going to quote George Bush Junior and say that the French do not have a word for entrepreneur as there is an obvious flaw in that argument, but that Europe is near the bottom of the class when it comes to the number of business start-ups tells you something important about its attitude to enterprise.

The most obvious benefit from Brexit for individuals and their families will be our ability to leave the EU’s prison of a protectionist Customs Union which puts up barriers to global trade and keeps prices of non-EU products at an artificially high level. On average, 21% of people’s income is spent on food, clothing and footwear. Now that figure will be higher for the least well-off in society for obvious reasons and the prices of these three commodities are crucially important to all our standard of living. The Customs Union does not care about the least well-off because these three items are the highest tariffed sectors within it. An average of 23% on food plus non-tariff barriers which make some imports impossible, then with 11.87% on clothing and 11.4% and footwear. Now some of these tariffs are on things that we simply do not produce in this country. For example, oranges are more expensive but the trade barriers do not defend any UK interest – only those of Spanish orange growers. I wish Spanish orange growers every success and happiness, but I do not want the people in North East Somerset, in Radstock, in Midsomer Norton, in Keynsham, to pay more for their oranges to benefit continental agriculture.

This cost to individuals reduces their standard of living for no benefit for our domestic economy and politicians should surely want to put their voters first. If we are to lift these tariffs then suddenly and quickly there will be an improvement in the standard of living, most particularly for the least well-off. But it is actually better than that because economically, if we open up to free trade, we will concentrate on those areas where we have got a comparative advantage and we will benefit from the lower cost of goods where others have a comparative advantage. Even better than this, because it would be generous if we were to open up our own market, it is then likely that others would be more willing to open their markets to us. Now some people do not believe this; some people say ‘let us do this all through trade deals’, but Donald Trump said it at the end of the G7 Summit, which was not much noticed. He said ‘I am putting these tariffs on you but I will also offer you complete free trade if you reciprocate’. We should grab that opportunity because it could lead to such economic dynamism and other countries, once they saw it succeeded, would want to follow. This is from a basis where it is already expected that 90% of global growth is going to come from outside the EU anyway in coming decades.

So, this is not just theoretical, it is economic sense to open up the nation to anyone that will want to trade with us. Moreover, it will boost all our living standards but especially those of the least well-off.

In addition, under our current system we currently provide a 20% wage subsidy to unskilled EU migrants, of about £3,500 per worker per annum. Getting the level of unskilled EU migration under control – and that means reducing it – could help see the living standards of the least well-off rise by 15%. This is achievable once we are outside the constraints of the Single Market. Giving a tax benefit to encourage people to come here to compete with those in our own society who are least able to compete is one of the most ridiculous aspects of the rules of the Single Market. We should not offer benefits to people who have not worked in this country for several years. We want to have an immigration policy, as the Home Secretary Sajid Javid is moving towards, that welcomes higher-skilled labour so that we do not keep out doctors who we need but protect the most vulnerable in our society by reducing the admittance of the least-skilled workers. This will have an economic benefit but it may also have a social one in that we will feel as one nation, as one society, that we are all supporting each other and putting the interests of our fellow Britons first.

In addition to these advantages economically, there is some fascinating work done by the Economist Intelligence Unit on the economic advantage of ending the colonial effect. The unit produces long term forecasts for developed and developing economies in its country forecast reports. Its model looks at the main determinants of long-term growth including quality of institutions, demography, human capital, trade, regulating the environment and so on. Interestingly, the model includes a variable on an independent statehood. The colonial effect suppresses actual growth in GDP per head by about 1%. Laza Kekic, who developed the model, has written the ‘colonial effect’ in the model is strong and extraordinarily robust on all specifications. Moreover, it is persistent over time even after the end of colonial rule.

Although EU membership is of course not literally the same as being a colony, the factor does capture the importance of self-rule or taking back control. The long-term growth model suggests a maximum positive impact from these two growth sources of some 1.2% a year (the other being the shake-up effect). By applying just half of this, we would increase annual average growth by 2050 to 2.8%, or 2.4% in per capita terms – a similar rate achieved by the UK economy during the periods 1950 to 1973 and 1995 to 2007. So it is a perfectly achievable level of growth.

But whilst economics is important, it is not everything and there are other advantages to leaving the European Union, sometimes ones which are less easy to measure.

Now, I said at the beginning of my talk how much I admire the work the Speaker has done to put the House of Commons back at the centre of our national political life. This is important not only because as a Member of the House of Commons I feel it is how it should be but it is important because I think that democracy actually works. Governments need to be checked, the power of the Executive must be held to account and the ancient obligation on Members of Parliament to seek redress of grievance is of the highest importance. When decisions are made at European level, the House of Commons simply cannot fulfil its role as I discovered in trying to get redress of grievance for a constituent where it was an EU competence. Eventually I got the message back from the Government saying that if the penalty applied to him were remitted, the British Government itself would be fined. The issue concerned a dead cow and the reporting thereof. So, the issue itself was one of bureaucratic inflexibility and the inability to put right a wrong.

The restitution of our constitution is not as esoteric as it may seem. It is not necessary to accept the Whig interpretation of history to see the advantages of our constitutional settlement and the benefits it has brought to us as a nation as it evolved. A democracy underpinned by the common law and the rights of property, responsive to the needs of the electorate and of changing times, should be flexible enough to alter when necessary but robust enough to stand up to the vicissitudes of political change.

The British constitution is, in my view, an object of great beauty as is the American constitution. Their flaws are mirror images of each other but that is a side point. It is entirely democratic but has built-in protections against raw populism. The power of Parliament to make laws is theoretically unlimited, although it may now be difficult to introduce a Bill of Attainder, but it is in fact constrained both by the requirements of election and by the independence of the judiciary. We are currently discussing, or the House of Lords may be discussing as we speak, the separation of powers. Although they are not as formalised in our constitution as in the US, they are, nonetheless, an essential part of it. Our constitution has the ability to act quickly in changing circumstances and respond to the demands of the electorate but the process of legislation and the bicameral nature of the legislature mean that only the most ruthless Prime Minister with the largest majority can force through fundamental changes. Such a person is likely to have widespread support for what is being done anyway, as Tony Blair did in 1997.

It also has, through the constituency Member of Parliament, a powerful link to individual voters, who may still seek the historic rights of ‘redress of grievance’. This is something that has been going on since 1265 from their Member of Parliament. It is carried out weekly up and down the country as MPs hold constituency advice bureaux where they undertake to act as the champions for their constituents. As an aside, it is interesting to note that in the early 14th Century the development of legislation came from petitions and that petitions came from individual Members of Parliament who were seeking redress of grievance. It is remarkably similar to the way we operate today.

The common law fits in with this, as it is a human system based on precedent and historic understanding and can only be changed by specific statute. This provides both continuity and flexibility. It avoids arbitrary or bureaucratic rule. The European Union is based on a different approach to government and a separate understanding of how the state ought to work. This is not necessarily better or worse but it has always been hard to graft one on to the other.

Restoring our constitutional order ought to lead to better government. Politicians will no longer be able to evade the blame if things go wrong by saying it was decided elsewhere. They will have to take responsibility for their actions. Equally, it will not be possible to pretend that if it were not for a remote bureaucracy we would not make mistakes. The occasions where British politicians have blamed the EU for things that they themselves have not opposed are not infrequent. It is., therefore, important that power and responsibility go hand-in-hand and will be reconnected once we have left the European Union.

Leaving will also restore our global standing. Partly this is technical. We will once again take up our own seats on international bodies where we have delegated our activities to the EU. In the World Trade Organisation, instead of being one 28th of a representative, we will have our own place. This will inevitably give us more influence because we will be there arguing our corner rather than leaving it to an EU representative to have to stand up for us.

Removing ourselves, as I mentioned before, from the requirements of “sincere cooperation” will also restore our global standing. This legal requirement of the EU has meant that even where we have maintained our own individual representation, we are bound to put our interests beneath the collective requirements of the EU. This will end once we leave and will allow us to be more forthright in defending our own interests and pursuing our own policy.

There is actually more that can be done than this. It is not just about the benefits of not doing things, it is the positive benefits of things we can do. So I have looked at the economic advantages and how, by taking back control, we can have an economic policy that is more suitable to our nation and have said how we can retake our seats on international bodies. We have a choice to make as to what type of nation we are going to be. Are we going to be in the EU social democratic mould or are we going to be a world-beating nation that deals with the rest of the world on its own terms, not on the terms that we think we can set for it?

If you look at what we have just done on GDPR, it is onerous, bureaucratic and restricts growth. There are many criticisms of data protection in the United States, but the United States is about to have the first trillion dollar company. It has Amazon, it has Microsoft, it has Apple, it has Facebook and Twitter. It has these multi-multi-billion dollar companies that have succeeded because of a regulatory system that encourages growth. Now we can be part of that, but not only can we be part of it but we can be the trend-setter that helps it if we try.

We have fallen a long way behind. An article in today’s Financial Times says that:

“…the Wikipedia ranking of unicorn start ups by value offers a peek into the future. For Westerners, it should be disconcerting. Of the top 50 entries, 26 are Chinese and 16 are American. There are none from Europe. The Chinese also dominate the proportion of the most valuable of these countries. Of the top 20 with an estimated market value of over $10 billion, 11 are Chinese, 6 are American and 2 are Indian.”

Currently, take financial services. The issue with financial services when we leave the EU is not whether business will go to Frankfurt or Paris, that is an argument of the 1970s; the argument now is will the business go to New York, Singapore or Hong Kong or possibly even to Shanghai? And how can we deal with that? Why, then, wouldn’t we start dealing more closely with – and we already deal pretty closely – the New York regulators as with the US system and set up a global regulatory framework for financial services based on the shared principles of the US and the UK to common law countries that have a similar legal approach? Because once the two of us have set a system with London and New York agreeing it, that would be the de facto system for the world. All the MiFID 2s and the AIFMDs and the Solvency Twos that the EU cobbled together that are doing such damage to business and would be fatal for the long term interests of the City of London will be gone. We can do the same on data, rather than deciding that the EU’s standard is the standard that should affect the whole world. We should say we will talk to the Japanese and to the Americans and and the Indians and the Chinese and we will agree a standard that is fit for business and will encourage enterprise and growth and help us be on that band wagon that leads to trillion dollar companies.

In Life Sciences, my friend George Freeman, who was a Remainer but is now determined to make the best of it, wrote for BrexitCentral last week saying:

“The growing hostility of the EU to ‘biotech’ has had a hugely damaging effect on the EU bioscience economy over the last 5 years. Just as the genomic revolution has been started to offer untold opportunities across medicine and agriculture, the EU has been developing an increasingly hostile regulatory framework which has undermined Europe as a hub of biotechnology… This regulatory hostility to biotech has had its most serious impact in agricultural research, where the EU’s hostility to GM led German-based BASF to announce their withdrawal from Europe in Agricultural Research and Development. That’s a €10 billion disinvestment Europe can ill afford.”

This shows how the European system is holding us back in the life sciences. We need to have a regulatory system where we can be a leader, that encourages the life sciences. Again we should be cooperating with friendly nations. That may well not be the advanced economies, it may be the emerging economies, it may be that we need to talk about the life sciences. India has the most remarkable medical industry and pharmaceutical industry which, as it happens, over my investment career, is a country I invested in quite regularly. Those are the opportunities – the opportunity as we move into the further reaches of the 21st Century, to the next generation.

It is not about how you make the EU work a little bit better; it is about how, outside a failing super-structure, a structure devised in the 1950s and dealing with the problems of the 1950s, will we deal with the problems of the 2050s? The issues that are going to arise then are going to be ones of globalisation and so, like Canning, we have to be calling the new world in to the benefit of the old.

We need to be looking at those emerging markets that are growing so fast. We need to look at the forms of regulation that will make our industry effective but, most of all, we need to have confidence in our constitution, belief in our democracy and a pride in our system of government. Because it has the flexibility to deliver what the British people want and to give them that sense of hope and determination and courage that they can do it for themselves.

I have always thought that by and large, individuals making decisions for themselves, make better decisions than others can do for them. This applies on the national scale too. The nation state can make better decisions for itself than other nations can impose upon it. I believe it for the United Kingdom and I believe it for other nations around the world. That is the opportunity for the UK in 2020 and beyond. It is to have confidence in ourselves to make the alliances that will lead to success and to ensure that we have the right economic policies in place.