If the British Chancellor of the Exchequer has his way, Brexit should do the trick.
(Photo: Bloomberg)
London If a British government no longer knows how to overcome Britain’s chronic weakness in growth, Brexit is usually its last hope. That was already the case under Boris Johnson and Liz Truss.
The incumbent Prime Minister Rishi Sunak is also following the same idea. “Our growth plan is a plan that builds on the freedoms that Brexit offers,” Sunak’s finance minister Jeremy Hunt said in London on Friday.
The conservative politician promised that he wanted to make the kingdom the “next Silicon Valley”. Brexit is an opportunity to create an economic environment that is “more innovation-friendly and growth-oriented”.
Hunt confirmed his intention to abolish the so-called Solvency II rules from the time of EU membership by the summer. Insurers and pension funds should be able to invest up to £100bn (about €114bn) in new technology and infrastructure projects over the next decade thanks to lower capital buffers.
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There are mainly political reasons why Hunt felt compelled to explain his growth plans in a keynote speech before the budget proposal planned for mid-March. There is a lot of rumbling in the conservative governing party.
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Sunak and Hunt managed to stabilize the country politically and financially after the chaotic interlude of the Truss government. However, many Tory MPs are missing a plan that would lead Great Britain out of the current economic crisis and significantly improve the Tories’ prospects for the general elections, which are likely to be held in just under two years.
The first conservatives are already demanding tax cuts
In desperation, some conservatives are pushing for tax cuts again. Former Brexit negotiator David Frost is calling for tax and spending cuts again. “Give us something to fight for. And bring the Conservatives back into the party,” Frost addressed his prime minister directly. According to reports, Liz Truss, who resigned after only 49 days, wants to get back into the growth debate and campaign for tax cuts.
Hunt tried to forestall this internal party attack: “The best tax cut at the moment is a reduction in inflation,” said the Chancellor of the Exchequer, with a view to a current rate of inflation of more than ten percent. The Treasury Secretary had largely rolled back Truss’ tax plans. Tax cuts can only be achieved in the long term if savings are made on public services.
For him, stability is the order of the day. “Individuals and companies are only willing to take risks if governments ensure economic and financial stability.” However, this is not enough for the economy. “Apart from pledges to introduce investment zones and use Solvency II reform to free up capital, his vision had little to offer,” said Shevaun Haviland, chief executive of the British Chambers of Commerce.
Hunt blamed falling employment for the weak growth – the British economy shrank by 0.3 percent in the three months to October 2022. About a fifth of adults of working age are not employed.
Engine production at Bentley: The luxury brand is one of the few car makers in the UK to increase production in 2022.
(Photo: Bloomberg)
But he challenged gloomy forecasts of “Britain’s decline,” claiming that the UK economy has grown faster than its rivals from France, Italy and Japan since 2010. In addition, the kingdom produced more “unicorns” than Germany and France combined. This refers to tech start-ups with a market value of more than one billion dollars.
On the other hand, Hunt failed to mention that economic growth in Great Britain also suffered as a result of Brexit. According to estimates by the think tank Center for European Reform (CER), leaving the EU has reduced the gross domestic product (GDP) of the island kingdom by 5.5 percent. Even the non-partisan Office of Budget Responsibility (OBR) in London expects that Brexit will reduce per capita income by four percent in the 15 years after the 2016 referendum.
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The finance minister called for more honesty about the country’s economic weaknesses, pointing to low productivity growth, underinvestment and the prosperity gap between the rich south and the poor north.
Decline of the British car industry
However, he said not a word about the industrial weakness of the British car industry, for example. According to the industry association SMMT, their production fell by 10 percent last year to 775,000 vehicles, the lowest level since 1956.
For a comeback, the British would need more than just a battery factory in their own country. However, the start-up Britishvolt, which wanted to build a gigafactory in the north for more than four billion euros, has just filed for bankruptcy.
More: Great Britain is a kingdom with no future plan