Part of a series from the Fresh Start Group on what Leave would look like.
“While the EU has gone some way towards creating a single market in goods, there is no truly integrated single market in services: the European Commission’s 2014 Single Market Integration Report shows that while trade integration stands at approximately 22 per cent for goods, it is only at 5 per cent for services.”
– Rt Hon Michael Fallon MP, July 2014
EU membership – the issues
The regulatory regime imposed by the EU benefits product sectors more than service sectors. In the UK, 78.5 per cent is in services, 21 per cent of GDP is in manufacturing and 0.7 per cent in agriculture. We are bound by inflexible legislation and more is on its way. Property law and company law is to be harmonised across Europe. EU regulations apply to 100 per cent of UK businesses yet only five per cent of SMEs trade with the EU.
The commission has proposed taxes are harmonised across Europe, increasing inflexibility. VAT is already a European tax, replacing the former purchase tax. For example, the EU prevents us from exempting sanitary products and requires us to raise VAT on solar panels. With different rates on different goods and services tax returns for exporting businesses is complex. Competition is badly affected.
Government procurement contracts have to be offered to businesses across Europe; UK businesses cannot be prioritised for UK deals, and the bidding process is often far too complex for SMEs. At the same time the UK is unable to enter into its own national trade agreements outside the EU as it is an exclusive EU “competence”.
EU State Aid rules impact what financial help we can give to businesses such as our steel industry. We have already been challenged on our Enterprise Investment Scheme which provides tax relief to those investing in small businesses. While capital adequacy changes have made banks less willing to invest in small businesses, the government’s scheme to help has been deemed state aid.
The Five Presidents’ Report also looks to harmonise our finance and banking system to the potential detriment of UK financial services, a key part of our national productivity.
A way forward
There would be a smooth process of transition following a referendum vote to Leave and as all EU law is enshrined in UK law it will remain in place unless repealed by the UK Parliament. During the transition the Government can carry out a thorough review of our regulation, taxation, access to finance, import and export programmes, and incentives for SMEs. Possibilities include:
- Undertaking a full analysis of the industry sectors in which we are active as importers and exporters, identifying new opportunities and refocusing UKTI.
- Negotiating new free trade arrangements with the EU.
- Starting dialogue with non-EU countries with whom no legacy agreement exists including China, India and America.
- Reviewing all regulation to reduce the burden on businesses, exploring which EU laws should be repealed as a priority. This must include procurement rules.
- Extending the remit of the Office of Tax Simplification review of business taxation to look at what changes need to be made to help start-ups, scale-ups and investors, including a review of the Enterprise Investment Scheme
We are the fifth largest economy in the world, a powerhouse in Europe and have a prime global position in financial markets. We have substantial strengths, a reputation for quality, and an entrepreneurial spirit and national grit to deliver on this lifetime opportunity. We need this fresh start – and we will make the most of it.