Government and Institutions

The referendum’s over. Now let’s concentrate on free-market reform


Tax and Fiscal Policy
When you read this column, the result of the referendum on Britain’s EU membership will be known. Whatever the outcome, we must leave behind the depressing campaigns and move on to a politics of optimism and hope. Whether we will have voted to stay or leave, those who believe in free trade, openness and a free and prosperous economy must make their case and work for beneficial change.

In Making the Pieces Fit – reforming Britain’s relationship with the EU, Ryan Bourne and I lay out an agenda for economic freedom whatever the result of the referendum.

If we leave the EU, we argue that the UK should promote global free trade through the World Trade Organization, unilaterally dropping trade barriers. We should remove tariffs which currently add pounds to families’ shopping bills – the EU tariff on wine, for example, is over 30 per cent, and on motor vehicles nearly 10 per cent. It may well be quite sensible to join the European Economic Area as an interim measure, but that should not be the final destination.

We should use the opportunity of Brexit to reduce regulation in several key areas. This would include labour market regulation such as the Working Time Directive and the Agency Workers Directive. We should also liberalise significantly financial regulation – this will be a difficult one for the government, because George Osborne has been just as keen as the EU to wrap our financial sector up in red tape.

Above all, we must have a liberal migration policy. The Brexit campaign has been dominated by calls for reduced migration and more restrictions so, again, this will be a difficult area for the government. We should resist a central planning approach such as the Australian points system. And, to prevent abuse, we should develop a contribution-based welfare system that ensures that welfare for all – migrants and non-migrants – is contingent upon a record of work.

But what if we stay? It is generally argued that the EU cannot be reformed from within or that reform only goes in one direction – towards more centralisation. This is a simplification. The Single European Market was a great triumph for Mrs Thatcher. Unfortunately, it did not lead to the result supporters of free markets wanted; but it showed that change is possible. There are economic liberals within the EU who want Britain to promote positive change – we must take the lead, and our allies who want change must have the courage to follow.

First, the principle of subsidiarity must be properly defined in the EU’s documents. Currently, the EU argues that action should take place below the EU level only if necessary or if it can be better undertaken at the lower level. The burden of proof should be reversed. Responsibility should never be exercised by the EU unless it cannot be exercised at a lower level. If necessary, there should be an additional chamber of the European Court charged with defending the principle of subsidiarity.

We should also end the obsession with regulatory harmonisation. The EU should strike down regulations in member states that distort trade. However, it should not harmonise regulation at the EU level in the name of promoting the Single Market. Competition in regulation can be a good thing. If governments wish to get together and harmonise regulation outside EU structures, this may well be very sensible. For example, it would have been more sensible for the UK, the Netherlands, Ireland, New Zealand, Australia and Canada to agree a common framework for insurance regulation than impose Solvency II on 28 diverse EU countries.

If we want a prosperous and free economy post the referendum, there is a job to be done. My hope is that those who believe in such a vision will unite regardless of their views on EU membership.

This article was first published in City AM.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.