As the preparations for the United Kingdom to leave the European Union begin to intensify, there has been a significant increase in attention given to its future international trade and investment policy.
It is almost inevitable that Brexit will lead to a marked change to the UK’s current approach to international trade and investment, with the government having an exciting opportunity to construct an independent set of policies.
In a new pamphlet written by Eamonn Ives, a researcher here at the Centre for Policy Studies, we demonstrate the opportunity that Brexit will bring to the all too often-neglected regions in the UK, through international trade and foreign direct investment (FDI).
The UK is one of the most active trading economies in the world in terms of the value of the goods and services it imports and exports. But trade does not occur equally across the whole of the UK. London and the South East dominate both the value of goods and services exported and the number of exporting business by region.
The charts below display this imbalance between London and the South East and the rest of the UK. The two regions account for more than 43 per cent of the UK’s total exports, equating to a disproportionate amount per capita compared to the rest of the UK. Moreover, there is a huge export gap between the two regions and the rest of the UK with them accounting for 43 per cent of all British businesses who sell products abroad.
This is a very real opportunity for the UK to redistribute wealth –and perhaps more importantly industry – within the country.
Value of goods and services exports by UK region
Number of exporting businesses by region (2017)
The disparity between London and the South East extends to Foreign Direct Investment. Since the Department for International Trade began accumulating figures on FDI, these two regions attracted over half of all new FDI projects.
Inward FDI by Region (2015-2018)
Brexit on Amazon
Whilst much of this dominance is down to the strength and size of these regions, the government can and must do more to redress this imbalance through a series of pro-market policies. This will increase the overall productivity of the UK, bringing the too often neglected areas up to the level enjoyed by places such as London. This is in stark contrast to the philosophy of the Left, which appears to many to create equality of misery.
As a member of the EU, the UK has been restricted by the need to adhere to a trade policy heavily shaped by rules and regulations from Brussels. Upon leaving the EU, we recommend that the government take the new and inspiring opportunities available and promotes truly open and flexible fair trade.
This needs to take a two-pronged approach. Firstly, through the maintenance of pre-existing free trade deals and preferential agreements that the UK currently enjoys as part of the EU. Since the vote in 2016 the Government has been negotiating with countries such as Israel, Chile and Switzerland to keep existing preferential agreements in place after 31st October. Yet despite this, only 5 of the 29 have been agreed, highlighting the need for the Government to focus on retaining these deals.
Secondly, the UK needs to negotiate new preferential trade agreements with other economies, focusing on the largest economies and emerging ones alike. The CPS has been championing the relationship between Britain and America, as shown in the Margaret Thatcher Conference on this topic earlier this week. This is one of the most crucial relationships post-Brexit and the benefits of getting this right will be felt by every corner of the UK.
Additionally, the CPS has long championed the establishment of free ports in the UK – publishing the seminal paper on the topic by Rishi Sunak MP. Free ports are areas that exist within the geographic boundary of a country but are considered outside of the country for customs purposes. The crux of this is goods are able to enter and exit the free port without facing any import procedures or tariffs. Leaving the EU Customs Union and Single Market, would allow the UK to establish such free ports, something currently prohibited by EU membership, in many of the poorer areas in the UK, creating jobs and fuelling the regional economy. This is a huge opportunity for our country.
Our third recommendation is the establishment of opportunity zones, with the aim of boosting investment to the most economically distressed areas. As with free ports, these are geographic areas which confer tax incentives to encourage individuals to reinvest and retain capital gains within them. The result of this would be an increase in investment in the regions that need it the most, helping to recompense the disparity between them and London and the South East.
The recommendations highlighted in this article are just a handful of our suggestions. We also advocate liberalising immigration policy, reforming regulations to boost export finance and simplifying the administrative procedures face by existing or potential exporters.
When the UK ratifies leaving the EU on 31st October 2019, the nation will have an opportunity like no other in the past 40 years to create its own independent trade policy. Although this will not come without risks, by adopting some of our policies outlines, we are confident that the UK can rebalance the economic disparity across its regions and improve opportunity for all.
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