28 February 2024: How the Brexit dream of Singapore-on-Thames was lost

 

How the Brexit dream of Singapore-on-Thames was lost

 

Westminster is lurching from one shock to the next and now has precious few options left

 

JEREMY WARNER

28 February 2024 • 12:00pm

Jeremy Warner

https://www.telegraph.co.uk/business/2024/02/28/uk-eu-are-being-pushed-back-together/

 

The dream was Singapore-on-Thames, a low tax, small state, lightly regulated economy that, freed from the shackles of European instruction, could thrive anew on the world stage.

 

Nearly eight years after the 2016 referendum, the reality is of a still deeply divided nation heading, according to new analysis by the Institute for Fiscal Studies, not towards some kind of low tax, super competitive, economic nirvana, but the highest tax burden since the Second World War, with the state some 3 to 4 percentage points bigger as a share of national income than it was before the vote for Brexit.

 

What is more, the IFS says, there is almost nothing that the Chancellor, Jeremy Hunt, can do to avoid these outcomes. Britain’s already burgeoning debt has Hunt, and any Labour successor, stitched up like a kipper with no way out.

 

Wherever you look, there is a deep sense of malaise; it is indeed hard to recall a time when people were more pessimistic about the future than they are now. The two things may not be entirely connected, but being out on our own has failed to improve the mood.

 

Nothing seems to work, there are long waiting lists for almost every public service, there’s not enough housing to go around, and at a loss for solutions, our public discourse has degenerated into the demeaning bile of culture wars irrelevance.

 

What on earth happened? Why has the spirit of national renewal that Brexit was meant to give rise to fallen so woefully short?

 

According to Liz Truss, the former prime minister, it’s all down to the “deep state”, a suffocating conspiracy of bureaucrats and quangos that is determined to thwart the noble ambitions of elected politicians such as herself. Truss, by the way, campaigned for Remain, but then there is no zealot quite like the convert.

 

There may be some element of truth in what she says about Whitehall obstinacy and the shortcomings of non elected technocrats, but her take on events is essentially just a lot of paranoid nonsense straight out of the populist playbook, where an imaginary “enemy within” is created as a hate plank to channel the discontents of voters.

 

It was up to Brexit’s political cheerleaders to make something out of Britain’s decision to leave the European Union, whatever the obstacles, but they failed. They over promised and under delivered, and the presiding government is now about to reap the whirlwind.

 

This was not because the bureaucrats betrayed them, or even the rather more credible excuse of the pandemic; it was because the vision of Singapore-on-Thames was always a fantasy that would never be capable of uniting the nation behind it.

 

Everyone wants low taxes, but on the whole they also want top drawer public services, a credible military, a free at the point of use National Health Service, and triple-locked state pensions.

 

When Liz Truss attempted to square the circle with unfunded tax cuts while at the same time launching an unprecedented package of “big state” energy subsidies, it predictably ended in tears.

 

She was right about planning reform, and right about some of the other building blocks needed to create a functioning enterprise economy. But you cannot defy gravity; her plans were never going to pass muster with markets.

 

It’s odd that she seeks to blame the Office for Budget Responsibility for the crisis that erupted, because she had in fact dispensed with its services. Markets drew the obvious conclusion – that the OBR would never have weathered her fiscal incontinence.

 

As for the Bank of England – also singled out by Truss for blame last week at America’s Conservative Political Action Conference – the economy would have been even deeper in the mire had it not acted to support the gilts market.

 

In all, Truss’s premiership was one of the most humiliating episodes in British economic history since the mid-1970s, when the Government was forced to go cap in hand to the International Monetary Fund for an emergency bailout.

 

Lots of people tried to stop her, but she insisted on putting her hand in the fire.

 

There are few politicians wiser and more insightful than Tharman Shanmugaratnam, who once told me that the aspiration of Singapore-on-Thames was “a ludicrous trope” that was quite unsuited to a mature advanced economy such as Britain.

 

There was no comparison between the two; you could not make one like the other, he opined. Quite so, and he should know, since he recently became president of the Southeast Asian city state.

 

None of this will prevent old wounds from reopening once Labour is back in power later this year. Sir Keir Starmer, the Labour leader, has pledged to put the acrimony of divorce from Europe behind us, and forge closer links with the EU.

 

Quite how close, and what conditionality might be attached to it, is not yet clear, but it seems certain that the perfect sovereignty once envisaged by Brexit supporters will be significantly diluted and compromised.

 

Sir Keir has ruled out taking Britain back into the single market and the EU customs union. The EU does not in any case want perfidious Albion back. The boil has been lanced, and neither side wants to go through all that again.

 

All the same, whatever Labour negotiates may in practice and over time amount to much the same thing. This is partly because geo-political forces are remorselessly pushing the UK and the EU back together again.

 

As trade with other blocs becomes more difficult, the UK will naturally gravitate towards its closest neighbours; it already is over Ukraine.

 

Under Joe Biden, there’s no chance of a comprehensive free trade deal with the US, and under Donald Trump there would be even less. Trump’s proposed universal tariff on foreign imports would apply as much to Britain as the EU. Besides, the chances of Trump and Starmer seeing eye to eye on almost anything are zero.

 

The same political mismatch would apply to India, now widely regarded as the next China in terms of its economic potential. Labour ambivalence on Kashmiri self determination is the reddest of red lines for India’s nationalist premier, Narendra Modi.

 

There could scarcely be a bleaker read than the IFS’s latest appraisal of Britain’s tax and spend options. You can fiddle around with detail as much as you like, but the big picture is that there aren’t any.

 

Three economic shocks in a row – the financial crisis, the pandemic and the energy price shock – in combination with the spending pressures of an ageing demographic and an ever more thirsty military have left the public finances in the most ghastly mess.

 

Unable or unwilling to take advantage of Brexit freedoms but denied unfettered access to European markets, the wider economy meanwhile splutters alarmingly from one shock to the next, seemingly holed below the water line. Singapore-on-Thames this is not.