Brexit can be a real opportunity, so let's seize it the right way
This article appeared in The Evening Standard on Thursday 6th April, 2017. The views expressed here are the personal views of Gerard Lyons and do not necessarily reflect the views of Netwealth Investments.
So far, so good but there is a long way to go. That is my assessment of the Brexit path we are taking. Brexit offers a fantastic opportunity for the UK to reposition itself in the changing global economy and to address issues that came to the fore during the Referendum campaign.
These include the need to return sovereignty, have a sensible migration policy and a stronger economy that works for poor and ordinary households as well as for global firms that want to be based here.
We should not be surprised if there are near-term challenges. After all, it is not easy to leave something we have been in for 44 years. The beginning of any negotiation is when both sides can talk tough. This is also the time when large firms can warn of risks - perceived or real - in order to try and retain the status quo.
One of the initial difficulties is the negotiation process. Brussels believes that we need to pay a huge exit bill based on the EU's liabilities. But what about our share of the EU's assets? There will be a compromise on the size of this bill. Also, the EU believes this bill needs to be settled first before we discuss trade and our future relationship. It is important for the UK that these are both discussed at the same time.
The issue over Gibraltar also suggests politicians need to be vigilant that civil servants on both sides of the Channel, who will work on the detail, do not sell the UK short.
For Brexit to be a success, it needs to be judged alongside the Government's domestic economic and social agenda to deliver benefits for the whole country.
This points to: a business friendly strategy as outlined in the Article 50 letter; recognising the huge opportunity afforded the UK by returning "competencies" from Brussels; and not losing sight of the longer term vision as Brexit is positive for the UK.
The good news is the strategy being taken. Last week's Article 50 letter outlined the UK's principles for negotiation and built upon the Prime Minister's impressive January speech at Lancaster House.
There Theresa May made clear that the UK wished to be outside the Single Market and more or less outside the Customs Union, and wanted to conduct a Comprehensive Trade Deal with the EU and trade deals with the rest of the world. This has been reinforced by the message on overseas trips that the UK will be globally focused, not inward-looking.
The UK has been as open and transparent as it is possible to be in any negotiation. Moreover, it is not confrontational but constructive. As with any negotiation, we need to retain the option to walk away if needed. That is why it is right that the Prime Minister linked security with trade in the event of no deal.
We want a Clean Brexit and based on that we can then negotiate. We need to be outside the Single Market to return law-making to Westminster and to implement a migration policy that suits our domestic needs. It makes economic sense too. The Single Market does not work properly in services - and remaining in it would mean the EU's rules and regulations apply to all UK companies and not just the 8% of our firms that sell into the EU. Why would we want our future rules and regulations for all our firms to be dictated by the EU?
Small and medium-sized firms across London should be empowered by this. In future they can lobby their domestic MP and she or he can influence our future law-making directly.
The Opposition is right to say we should avoid a race to the bottom on workers’ rights and it is encouraging the Government agrees. But we do need to cut taxes when possible.
It is good a clear approach has been outlined, as business dislikes uncertainty. Yet the challenge is that nothing is agreed until the deal is signed at the last minute. In coming months there will be a need for the Government to focus on the longer-term positive vision, addressing business worries and ensuring firms continue to invest here as they have done since last June. We also need to start preparing more for life outside the EU. For instance, this has to include spending on infrastructure at ports, as well as regional policy.
The issue of Scotland will be important but there is a big difference between Brexit and Scottish Independence. In the EU, the UK was continuing to cede influence to Brussels. In contrast, Edinburgh continues to receive more power.
There is also a case for more fiscal devolution to London but that can wait. For London the focus will include clarifying the issue of EU citizens based here, and on financial services. The City is in a strong position - directly mentioned by the Prime Minister in her Article 50 Letter and given its combination of skills, knowledge and experience, and Europe's need for access to a global capital market.
We should also not lose sight of the changing dynamics on the Continent. Last Friday I spoke after Antonio Tajani, the President of the European Parliament, at a conference in Italy. He spoke about the need to focus on the "real economy". What struck me was how pessimistic the mood was in Italy about Europe. Income per head is lower there than in 1999. Youth unemployment is 38%. The policies of the euro have led to deep discontent there and elsewhere.
In economic terms it makes sense for the EU to do a deal with the UK. We need our Government to play the politics well enough to ensure that this is the case. So far, so good.