LABOUR LEADER JEREMY CORBYN has put forward his strongest criticism of the Government’s approach to Brexit yet – warning that Chancellor Philip Hammond could be leading the UK into a trade war.
The UK referendum on whether to leave the UK took place over six months ago, but still the Government has taken no action to implement the result. It has not even announced whether it will be seeking just to leave the political union or also seeking to leave the Single Market, the trading bloc within the EU – which is one of the most basic decisions.
Under Corbyn’s leadership, Labour has been calling for more transparency from the Government over what they are planning to do – only to meet complete silence from the Government. The very real worry is that the Government cannot be transparent over what it’s doing because it doesn’t actually have a clue what line it is going to take.
During the long hiatus, there has been a bit of public parrying with major EU figures over what the options are – and it’s become clear that the UK is rather on the back foot. As the UK stamps it’s foot and announces we’re off, EU officials are tending to say “there’s the door” – in the manner of a sanguine parent responding to a petulant child.
The UK really has little to bargain with. Brexiters insist that Europe will want to retain good relations because European countries sell lots of their goods to the UK. As leading Tory Lord (Michael) Howard pointed out, “the Germans would still want to carry on selling us their BMWs”. The Germans could point out that the Brits will still want to keep buying German cars – after all, the UK has no mass car industry of its own.
It is in this context that Phillip Hammond tried to look tough last week by threatening to turn Britain into an offshore tax haven. There are several problems with this tactic.
•Does the world need another tax haven?
•Most tax havens have relatively small populations within which there is fairly substantial inequality. They can fund their nation’s needs very easily from the spending of wealthy visitors or by taking a tiny portion of investors’ money. It would not be possible to run a country the size of the UK on the income of super-yachts docking in Skegness or the spoilt children of billionaires playing pinball in Yarmouth.
•A tax haven would take some years to set up and establish.
•There’s relatively little spare capital washing round the world looking for a home to go to. Anything substantial that came to the UK would be linked to an unsavoury country or individuals associated with one – and the cost of the political consequences of sheltering that capital may not be what we want to pay.
In any event, Europe remains unimpressed as the petulant UK stamps its second foot.
If the EU doesn’t let the UK keep a special relationship with it – taking the benefits of EU membership without paying any of the cost – cutting corporation tax is unlikely to attract much by way of business. Most multinationals don’t pay much tax anyway, and few of the bigger businesses have large employment needs. If overseas companies come to the UK on the basis that they can pay less tax, UK-based companies will want similar deals and overall government income will drop.
All of that, as Corbyn has pointed out, likely to lead to the EU offering alternative low tax deals – leading to a trade war between the EU and the UK. In those circumstances, the first thing employers would do would be to try to cut wages – which would reduce national income and draw the UK down into a recession.
The Government needs to come up with some better ideas – and fast.