Brexit offers opportunities but no guarantees in determining how free market the UK will be
25 May 2018 // Jamie Fraser
The potential that Brexit provides the UK to expand its traditional free market principles cannot be understated; unilateral free trade for example could provide exciting new prospects for the economy. But there are two substantive factors that both serve as opportunities and potential challenges for a more free market UK post-Brexit.
First is the opportunities and challenges of deregulation within the financial services sector. The increase of financial regulation in the UK since 1980 has been drastic. At that time, there was 1 regulatory employee for every 11,000 financial services employees; by the time of the financial crisis in 2008, there was 1 for every 300. By leaving the EU, the UK has an opportunity to establish its own robust regime of financial regulation which can contribute to strengthening global regulatory cooperation, as well as removing the overly burdensome EU regulatory framework that has played a large part in the low productivity exhibited across EU Member States over the past decade.
The challenge manifests itself in the inevitable and complex implementation of the eventual legislation derived from the European Union (Withdrawal) Bill. The Bill began its Report Stage on 19 April, and if the proposed provision of transposing directly applicable, already-existing EU law into UK law is passed, a lengthy and inherently bureaucratic process will ensue of the Civil Service processing every EU regulation, determining which ones are to remain in force. The likely result is that much existing EU law will remain, but it is imperative that this does not compromise the UK’s new regulatory agenda after 29 March 2019.
Second is the opportunity and challenge for the UK to rediscover its free trading traditions. Regardless of how they voted in the EU Referendum, there is now consensus between Members of Parliament across party lines that Brexit offers an opportunity to strike trade deals across the world; leaving the Customs Union for example would facilitate an independent trade policy that could reverse anti-competitive provisions currently enforced by EU regulations.
The potential challenge comes from the extent of non-tariff barriers (NTBs) imposed by the UK government when formulating new trade deals. Typically (but not exclusively), NTBs reduce consumer choice, raise prices and stifle economic growth. Despite these clear negatives, data released by Global Trade Alert (2018) indicates that since 2008, 10,000 new government interventions restricting trade have been enforced, compared to below 4,000 in the same period that have liberalised it. The UK should buck this trend in their trading endeavours post-Brexit.
Both examples of deregulation and the potential for increased international trade demonstrate that Brexit provides many opportunities, but no guarantees.
Read more on the opportunities and challenges of Brexit here:
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).