In 1990 Britain joined the ERM (Exchange Rate Mechanism) of the European Union. This meant, in practise, that Britain pegged its currency, sterling (GBP), to a band relative to the Deutschmark, the German currency before the Euro. In 1992, with pressure mounting on sterling, it was becoming increasingly problematic for the government to keep the currency within its band and it had to keep selling foreign currency reserves to buy sterling to support it.
Eventually, on September 16, 1992, after relentless selling of sterling from speculators and others, the government had enough. They allowed the pound to come crashing out of the ERM. Sterling collapsed, speculators who bet against the government made a fortune – at the expense of the Bank of England – and the government under Tory Prime Minister, John Major, were left embarrassed. That day became known as Black Wednesday.
The initial effect was a substantial fall in GBP’s exchange rate, but a secondary, and very important effect, was that it allowed the UK government to cut interest rates, which they continued to do over the next few years. As a result, the lower exchange rate made British goods and services more attractive to businesses and individuals in other countries. The lowering of interest rates also meant that businesses could borrow money at a cheaper rate, and this stimulated growth and the economy. The mortgage rate also came down giving people more disposable income. This latter move greatly assisted a recovery in property prices which had fallen substantially from a peak a few years earlier in a recessionary period.
Meanwhile, Germany was hamstrung. Its own interest rates were high, and the government could not be competitive in lowering rates. Due, in part to the ERM, other European countries also had very high interest rates. The net result was that Britain had a competitive advantage to European countries which remained in the ERM. We led the way out of recession. Leaving the ERM, while embarrassing at the time turned out to be a huge benefit for the UK. Black Wednesday was renamed White Wednesday.
Interest rates are now quite low in both the EU and the UK. Britain can longer do what it did in 1992 – slash interest rates for competitive advantage. However, Britain has another possibility to pull off a similar feat: slash the rate of corporation tax. Corporation tax in many European countries is quite high. For example, in France it is 33.6 per cent, Germany approximately 30 per cent, Italy 27.9 per cent and the Netherlands and Spain are both at 25 per cent.
The UK government over a number of years, in the face of globalisation, has actually done something sensible. It wished to show that Britain was ‘open for business’ and as such it shifted the burden of tax away from businesses and onto individuals. The corporation tax rate in the UK has declined from 33 per cent in the mid 1990s to 17 per cent next year. There is nothing corporations tend to like more than a low corporate tax regime. Starbucks and McDonald’s, as examples, have moved their headquarters or other parts of their businesses to the UK as a result.
But it is not just a low corporate tax rate that gives Britain an advantage. For businesses, the UK’s labour laws are far preferable to many other EU countries. Whether one liked her or loathed her, Margaret Thatcher did wonders for business by taking away many of the powers of trade unions. The average amount of days in the UK lost to strikes is now a fraction of what it was before Thatcher came to power. Meanwhile, in many places in the EU trade unions are stronger and days lost to strike per 1000 employees are a multiple of what they are in the UK. France is hardly a great place to locate if the air traffic controllers there are on strike and you cannot fly in or out of the country.
If there is such a thing as cultural advantage, Britain has that too. Anyone who has ever tried to get business done in France in August will know how difficult it is – the whole country seems to go on holiday. Moreover, call someone in an office in Paris at 5.45pm their time and see if they pick up the phone. They seem to have a culture of out of the door by 5.00pm. Compared to this, in many jobs in London if someone walked out of their office at 5.00pm, they would be ridiculed by their co-workers with the taunt of ‘Half day?’
Britain also has a legal system in place where corporate law is internationally respected and trusted. International businesses have more faith in English law than EU law. As such, as corporate lawyers with international clients will tell you, many contracts will have a clause saying that any disputes must be settled by the court system in England and Wales.
The conclusion of this is that Britain has the advantages of lower corporation tax rates and a more trusted and business-friendly working environment than many other countries.
This business environment gives the UK certain advantages when we do leave the European Union. In the event of no deal, Britain should slash the rate of corporation tax. Following the shift of the tax burden from businesses to individuals, corporation tax now only makes up 8 per cent of the Treasury’s tax revenue, and that percentage is expected to fall. It is not as important a tax as it once was. If Britain slashes the rate of corporation tax, then even if the EU insists on World Trade Organisation (WTO) tariffs on imports from the UK, Britain will still be a far more attractive place to do business.
Britain should also immediately offer the EU free trade in exchange for free trade back. If the EU refuses, as it may well do, Britain should expose the bloc for what it is: anti-free market. If the EU were pro-free market, it would encourage free trade with countries not inside its own area. The EU might claim that countries outside its own bloc, and not subject to its bureaucratic rules and regulations, will have weaker standards that cannot be trusted. This is a very lame claim. As an example, consider medicine and drugs, a very important area for the UK. GlaxoSmithKline and AstraZeneca are both in the world’s top ten pharmaceutical companies. It is ridiculous to suggest that the standards of testing that the UK will have for drugs if we are not in the EU will be a sub-par standard. And that is the same for the UK accepting workmanship of German-made kitchen appliances.
The truth is that the EU is protectionist. They call it a customs union, but in reality it is a protection union. It is a racket and they should be ridiculed for it. Just as governments should not pay money to blackmailers, they should not pay blackmail money for so-called ‘free trade.’
The extensive fears about a no-deal Brexit should rightly be seen as a part of a propaganda campaign by those who would rather be under the yoke of the European Union than have an independent United Kingdom. The claim by certain Remainers that what will happen is unknown and untested is also lame. The only way we have ever had progress in the world, is when someone did something untried and untested.
Britain should take back control and not be bullied by the EU. If that means no deal – so be it. By immediately slashing corporation tax, Britain would become the ideal place for international corporations to locate. No deal could be a modern-day White Wednesday, although as March 29 is a Friday, perhaps we will call it ‘White Friday’ instead.