Tim Harding, Associate Director, International Affairs
As the Conservative leadership election heats up, candidates are vying for pole position on who can lower taxes the most. But amidst a steep drop in UK exports, continued uncertainty over the trade relationship with the EU, and global supply chain difficulties, we need to hear much more from the candidates to be the next Prime Minister about their approach to international trade. That is what will shape the UK’s economic trajectory, not tax cuts.
Top of the agenda for several candidates is slashing the rate of Corporation Tax, with the Business Secretary Kwasi Kwarteng (who is backing former International Trade Minister and incumbent Foreign Secretary, Liz Truss) boasting that this is the only way to boost investment and therefore productivity.
Conveniently omitted from many of the un-costed proposals was the recognition that successive Conservative governments over the past decade have repeatedly lowered the corporate tax rate with no discernible benefit to ordinary working peoples’ lives. We still await the trickle-down that has been so frequently promised.
In the midst of a cost-of-living crisis and an energy crisis that suggest a hard winter ahead for the population of the UK, this seems potentially tone-deaf.
Meanwhile, the leadership candidates have almost entirely failed to discuss how they will approach trade. What is their plan to boost exports? How will they project our fantastically successful services sector on the global stage alongside the traditional export of manufactured goods? What industries will they prioritise for a forward-looking economy, like renewable energy? And what will they do to make the UK a more attractive destination to invest and grow a business?
Answers to these questions need to be far more sophisticated and nuanced than simply “cut taxes”.
Under Boris Johnson, we saw flashy free trade deals announced under the banner of “Global Britain”, paradoxically accompanied by WTO-rule-breaking protectionism on steel tariffs and a dogmatic disregard for our trade relationships with our closest neighbours in the EU. Amidst OECD predictions that the UK will have the lowest 2023 growth rate in the G20 other than Russia, this approach to trade needs to be turned around. The EU is still the UK’s largest trading partner, accounting for almost half of our exports, which fell dramatically by 14% through the course of 2021. More recent figures point to a sharp uptick, but this is driven by liquefied natural gas (LNG) transports from the Middle East being sent on to Europe to stock up for the winter, which do little for SMEs and flagging UK productivity.
Is much likely to change with the new set of Conservative leadership candidates?
On Northern Ireland and the impending threat of trade war with the EU, this seems unlikely. Almost all of the would-be Prime Ministers have their colours nailed firmly to the Brexit mast, and those who may secretly harbour less animosity towards Europe recognise the success with which Johnson and his predecessors held the EU as the go-to whipping boy whenever a populist drama was needed to distract from problems at home.
But these problems can no longer be ignored in debates between our aspirational candidates. We desperately need to deal with our low-productivity economy. Boosting exports from SMEs would do more for regional regeneration than has been achieved through Johnson’s “Levelling Up” agenda, which has failed to achieve significant tangible benefits for deprived communities. Britain needs to break from governing by slogan and press release to find serious answers for what Global Britain can actually offer. And instead of chasing endless trade agreements which all too often offer only minimal and delayed economic value, the government must look to address non-tariff barriers and regulatory equivalence with our trading partners to boost economic performance.
Business needs to play a central role in this transformation, advocating more strongly for improvements to trade that will grow the economy for the long-term, rather than tax cuts that may help in the short term. Promoting better trade policy doesn’t make headlines, but it makes a difference.
Boosterism may have worked for Johnson, but our new Prime Minister must boost trade.
