THE EU’s Brexit negotiators will try to squeeze the UK into a dangerous corner, when Prime Minister Theresa May invokes Article 50 in March. Talks on the terms for withdrawing from the European Union will not go smoothly. There is no goodwill within the EU for a member that blazes the exit trail: too many people across the continent want their countries to embark on a similar course. So the UK must be damaged: relationships between the two must be rendered painful, no matter what the cost to Europe’s struggling economy.
Ferocious tactics against the UK will ignite grim headlines. Every tit-bit of news about banks thinking of relocating from the City of London to Frankfurt will be calculated to subvert confidence. One inevitable consequence: the prospects of continued growth will be prejudiced, until the terms of Brexit are signed and sealed. So the May government should lose no time in announcing Plan B.
Brussels needs to be warned that the UK is not going to be pushed over, try hard as they might to terrorise Marie Le Pen in France and the many other political parties that are riding on the tide of discontent across Europe.
But there is one Plan B only. I describe it in Beyond Brexit: The Blueprint. In essence, the correct reform of UK taxation would create a new economic space whose value would be greater than Britain’s trade with Europe.
To put it another way: by getting rid of the deadweight losses of home-grown taxes such as those on earned incomes and the profits of value-adding enterprises, Britain would generate an internal rate of economic growth that exceeded whatever might be lost behind an EU tariff wall.
This gives UK negotiators the ace card. They could warn Brussels that Europe’s loss of exports to British consumers would not be matched by an equivalent loss of economic activity within the UK.
On the contrary, the UK needs time to retrain its workforce and restructure communities up and down the land, in preparation for the more dynamic economy that would emerge on the back of tax reform. An EU-enforced cut-back in exports, in the short term, would smooth the process of adjusting the UK to take advantage of the more dynamic system that would flourish if the deadweight burden of existing taxes was removed from the backs of British workers.
But Brussels would know if Britain was bluffing. Plan B needs to be backed by action.
Mrs May needs a mandate for the reform, and the practical agenda fits the political timetable. If she launched a national conversation on tax reform by the end of this year, she could order the re-valuation of real estate in the run-up to the general election of 2020. It would then be for the people of the UK to decide their future.