Published:

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

Conversations about tax policy can take unexpected turns. It was during one such conversation in the late 2000s – I was the shadow tax minister at the time and developing our plans for corporation tax – that a senior tax lawyer at a city firm recommended a series of books on naval battles.

Peter Padfield’s Maritime Trilogy is, in truth, somewhat broader than that. Padfield alternates accounts of the most important maritime confrontations since the Spanish Armada with a broader account of the social, economic and constitutional development of the great powers.

His central argument is that there is a distinction to be drawn between maritime nations – with linked strengths of sea-fighting, trade, financial innovation and constitutional constraints – and land-based empires. The later relied on closed domestic markets, rigid hierarchies and centralisation, the former distinguished by liberty, flexibility and enterprise.

It is an analysis that many British Conservatives would share and, the argument goes, makes the UK well suited to the era of globalisation. We are historically and culturally accustomed to trade and with that comes a recognition that trading partners have other options. Our prosperity is dependent upon those partners wishing to continue to trade with us. Political stability; the rule of law; paying our debts; limited government; competitive and predictable taxes – all qualities that are necessary to succeed as a maritime nation and in the era of globalisation.

It was in this spirit that the Prime Minister’s first big speech following our departure from the EU was at the Old Naval College in Greenwich where – in extolling the virtues of free trade – he talked of recapturing “the spirit of those seafaring ancestors immortalised above us whose exploits brought not just riches but something even more important than that – and that was a global perspective”.

So how are we doing? Are we on course to be the open, outward-looking nation of which the Prime Minister spoke? Are we becoming a more flexible, enterprising, maritime nation?

My last column assumed that corporation tax rates would increase and argued that this would be a mistake. When I heard Government ministers defend the rise by saying that our corporation tax rates remained the lowest in the G7, I was reminded of my conversation with the tax lawyer.

The lawyer’s argument (which I found persuasive) was that we became economically successful from the 1690s onwards because our model was more like that of a small country dependent upon foreigners choosing to trade with and invest in us, taking inspiration from the Dutch rather than the French. Our modern tax system should seek to emulate this, he argued, encouraging international businesses to locate activities and investment in the UK. Our rates may be lower than other G7 economies but, if we see ourselves as nimble and competitive, our ambitions should be greater than that. A better corporate tax regime than France is not a proud boast.

How about freeports? The name could not be more evocative of our trading and maritime traditions. But the evidence suggests that they will achieve little other than displacing activity from one part of the country to another. And if we were really ambitious about a deregulated, low tax, low customs solution to our economic woes, why give these advantages to some places, why not everyone?

The emphasis on freeports reveals an approach to the levelling up agenda that I worry is more about creating grateful localities in exchange for pots of spending rather than a clear sighted vision for improving productivity. The suspicion must be that the preference for ad hoc ministerial decisions over a more defined industrial strategy will lead to a less economically rigorous approach. The suspicion will linger that party political considerations will be to the fore.

There is one surprising, if qualified, bright spot. We are becoming more open to talent. It was already the case that the requirements to get a work visa were much less restrictive than previously, and the Chancellor’s announcement on the skills visas is worthwhile. The qualification, of course, is that it is still much more bureaucratic for EU citizens to work here than it was – which brings me to Brexit.

Our history as a maritime nation is one often identified by supporters of Brexit – like the Prime Minister in his Greenwich speech. Even the word ‘Brexiteer’ evokes the naval escapades of buccaneers (although the Oxford English Dictionary also defines ‘buccaneer’ as ‘a person who acts in a recklessly adventurous and often unscrupulous way’). Liz Truss tops the ConHome Ministerial popularity charts largely on the basis of her energetic advocacy of Global Britain and for free trade as a benefit of Brexit.

The reality is that Brexit involves the erection of trade barriers with our largest market, as January’s appalling trade numbers suggest (although, to be fair, a clearer picture will only emerge over time). Given the Prime Minister was willing to agree to the Northern Ireland Protocol, it even involves trade barriers within the UK.

While good progress has been made by the Department of International Trade in completing free trade agreements with third countries, these have primarily rolled over existing agreements that we had as members of the EU. There was a flurry of excitement last week when the US dropped punitive tariffs on UK products that were in place because of a longstanding dispute with the EU over Airbus and Boeing. Brexit supporters rushed to declare it a triumph due to our new status, the Trade Secretary wrote a self-congratulatory piece in The Daily Telegraph. A day later, the US announced that it was dropping the punitive tariffs against the EU, too. The search for a trade benefit from Brexit continues.

What about regulatory flexibility? It is nearly five years since we voted to leave the EU, but there are still no bold plans to regulate in a different way. Plans to review workers’ rights have been dropped on the basis that this would be politically unpopular.

If the hard Brexit delivered by the Government has made trade with the EU much harder, the combative manner of our dealing with the EU has not only reduced trust but even undermined a key attribute for a trading nation – the rule of law. Having threatened to breach international law for three months over the autumn, Lord Frost has now decided to extend the grace period before internal checks come into place – unilaterally changing the terms of our agreement with the EU. A second breach of an international treaty only recently agreed begins to look like a habit. It does nothing for our reputation for trustworthiness.

The attributes of an outward-looking, open, trading nation are ones to which we should aspire. But in terms of our openness to trade, competitiveness on tax and adherence to the rule of law we are going backwards. In terms of the State telling businesses what they should do and where they should do it, we are becoming more centralised and more arbitrary.

For years, many in the UK have characterised the EU as centralised, interventionist, uncompetitive and protectionist. It would be a sad irony if our departure from it makes us more like the type of inward-looking, land-based power that we once used to disparage.