For over 30 years Shore Capital has focused on helping high quality entrepreneurial management teams to grow their businesses and, in the process, create valuable opportunities for investors. As part of this the Group takes a keen interest in the nexus of business and public policy, aiming to provide pragmatic analysis that helps clients make sense of the coming changes. Howard Shore, Executive Chairman, has been outspoken on Brexit with the aim of making a constructive contribution to the debate, particularly on Britain’s relationship with the European Union after Brexit. Here we discuss our thoughts on how Britain’s relationship with Europe can productively evolve and outline our hopes for the coming negotiations.
Single market and EU trade
Following June’s referendum vote, we advocated a pragmatic approach to post-Brexit trading relations with the EU: “We’re going to keep our access.” … “I’m confident they’ll continue to buy our services and we’ll continue to buy their goods.” Howard Shore, Bloomberg, 13 September 2016
“It’s not a question of tariffs, it’s a question of access, why would you give free access to other people’s goods if they’re not giving access to your services? It’s not going to happen.” Howard Shore, Sky News, 13 September 2016
“I think we will continue to have access to the market in one form or another, whether you’re a member or have access to me is semantics.” Howard Shore, Milken Conference, 6 December 2016
“Not providing a passport is saying ‘I won’t take your services,’ a tariff is just saying ‘our goods are going to be more expensive.’” Howard Shore, Milken Conference, 6 December 2016
The Prime Minister’s speech on 17 January echoed these views: “…we will pursue a bold and ambitious free trade agreement with the European Union.”
“We do not seek membership of the single market; instead we seek the greatest possible access to it through a new comprehensive, bold and ambitious free trade agreement.”
“That agreement may take in elements of current single market arrangements in certain areas on the export of cars and lorries for example, or the freedom to provide financial services across national borders, but it makes no sense to start again from scratch when Britain and the remaining member states have a adhered to the same rules for so many years.”
“I want Britain to be able to negotiate its own trade agreements but I also want tariff free trade with Europe, and cross border trade there to be as frictionless as possible. … I want remove as many barriers to trade as possible, and I want Britain to be free to establish our own tariff schedule at the World Trade Organisation.” Theresa May, 17 January 2017
Payments to the EU
On future payments, we took the view that Britain’s contribution to the costs of the single market should reflect its continued participation in it: “Full access to the single market should go hand-in-hand with a contribution to running it. A further contribution to the structural regeneration of poorer EU areas could be funded through our 0.8 per cent GDP commitment to foreign aid.” Howard Shore, Letters to the Editor, Daily Telegraph, 5 September 2016
The Prime Minister’s statement on 17 January shared our view: “There may be some specific European programmes in which we might want to participate. If so, and this will be for us to decide, it’s reasonable that we will make an appropriate contribution. But the principle is clear, the days of Britain making a vast contribution to the European Union every year will end.” Theresa May, 17 January 2017
Trade relations with non-EU markets
Given the EU’s decreasing share of Britain’s foreign trade: “… relations between Britain and the US will remain of vital strategic importance, and given the relative trade balance between the two countries and the history of the relationships, it is in both parties’ interests to reach a constructive deal as soon as possible.”
“If Britain were not a member of the EU we would be able to focus any trade negotiations on the sectors that are vital interest to the UK.” Howard Shore, Daily Telegraph, 13 May 2015
Following the Prime Minister’s meetings with President elect Trump, her 17 January statement noted: “President elect Trump has said Britain is not at the back of the queue for a trade deal with the United States … but front of the line.” She also said: “It is clear that the UK needs to increase its trade with the fastest growing export markets in the world.”
Looking to the future
As the effects of uncertainty following the referendum result diminish, the OBR has forecast growth recovering to 1.7% in 2018, 2.1% in 2019 and 2020 and 2% in 2021; and in February the Bank of England increased its 2017 growth forecast from August 2016’s 0.8% to 2.0%. So there is every reason to think Britain can have a bright and prosperous future independent of the EU: “The big opportunity is to deregulate, so the big fear is that we don’t deregulate enough, in other words we don’t take full advantage of the opportunity.” … “This is a once in a generation opportunity to rethink how we run our economy and focus on the things that we’re good at.” Howard Shore, Milken Conference, 6 December 2016
We hope the Prime Minister’s comments in her 17 January statement in which she said we will: “… take back control of our laws and bring an end to the jurisdiction of the European Court of Justice in Britain,” will mean a reduction in the regulatory burden. It would be wrong to keep the plethora of EU regulation or add new red tape. We need to ensure personal taxation is competitive and continue to cut corporation tax, making the UK a more attractive place to do business.
We should also be looking at how we can do more to encourage non-financial services sectors, such as engineering sciences, medical science, new media and software. Government policy should focus tax incentives and fiscal support on sectors where we have talent and strength.
Lastly, when will we meaningfully commit to much needed infrastructure investment? Crossrail is good for London, but we’re still debating airport expansion; planning needs urgent attention; and the country could greatly benefit from improvements to communications and transport networks. This is especially true of the Northern Powerhouse, where the benefits of better east-west links would enable greater economic prosperity. Likewise, the benefits to enterprise of investing in truly nationwide super-fast broadband and 5G infrastructure should not be underestimated.
We agree with the Prime Minister that there is an economically rational solution to the coming negotiations. Brexit will ultimately be good for Britain. We will retain some form of single market access and at the same time cultivate new trade relationships with non-EU nations; there will be a controlled immigration policy; and we’ll pay money into the EU reflecting our level of participation. But the big prize is to deregulate and in so doing create a more dynamic economy.
In conclusion we see a unique chance for the UK to be an open economy where entrepreneurs can flourish and businesses want to invest and grow. Politicians of all stripes often talk about fairness and how to divide the cake. Our job as business owners and managers is to strive for ways to make that cake bigger overall.