By John Longworth.
In the midst of the Party Conference season we have seen both major parties debate the merits of alignment with the EU on regulatory matters.
Whether falling into the trap set by Brussels in trying to maintain the alignment of Great Britain with Northern Ireland and thus by proxy the EU, or the commitment of Messrs Starmer and Reeves to have a better relationship with Brussels, is code for no divergence.
A microcosm of this debate is the continued revision of retained EU law, for example in respect of designations of origin of food and drink, in particular wine. Understanding what this all means in practice and having a mechanism for measuring the relative costs and benefits is vitally important, as is how divergence is perceived – as an opportunity or a threat.
Designation of origin in products is just that. It does not necessarily make a product better or worse, although in the case of wine it obviously can have an impact on the character of the product, however, grape variety is important also.
Origin marking in the EU is something of smoke and mirrors. For example Palma Ham is supposed to derive its character from being produced in a strictly designated region and if cut, sliced in that area. It has to be produced from pigs fed on the whey of milk used to produce Parmesan cheese from the same region. The banks of cheese carry great value.
Origin marking in the eu is something of smoke and mirrors.
In reality pigs are imported from Poland and finished in the region. Padano is a good, lower cost substitute for Parmesan and the boundary between the two is observed in the breach. The whole operation has a tinge of Mafia money laundering.
The fact that the U.K. can use its own Protected designation of origin (PDO) Product names and compete by differentiation in the U.K. and rest of the world’s market may be a good thing. Rest of the world producers do not follow EU rules and produce good wine. The U.K. is part of the rest of the world.
The key point is the question: Does the current system adequately measure these things?
Trade is good unless it is unfair e.g. state subsidised or dumping for example. Both exports, which generate revenue, wealth and help with the balance of payments and also imports which stimulate competition and thus productivity, reduce the cost of living and inflation, and benefit consumers play their part. But does government have the mechanisms for assessing these factors adequately?
Britain is now equivalent to an emerging market and should both protect itself from unfair competition from global giants and seek and savour the benefits of free markets and divergence where appropriate. This is a choice for government, but does it have the tools with which to measure the effects of this choice when making policy decisions?
Britain is now equivalent to an emerging market and should both protect itself from unfair competition from global giants and seek and savour the benefits of free markets and divergence where appropriate.
However, trade is not the only factor. If a measure imposes or removes a burden of regulatory compliance or leads to divergence then how it affects the domestic market is important. The majority of GDP is domestic, some 70%, and if a measure stimulates investment, improves productivity, reduces costs, this is likely to be an economic good. To have the tail of 13% of GDP which is trade with the EU wag the dog of 17% of GDP trade with the rest of the world and 70% of GDP which is domestic, would be perverse.
Aside from tax, the greatest cause of entrepreneurs reluctance to invest or work harder or even give up completely is the cumulative and overwhelming burden of regulatory compliance.
The cumulative effects and macro economic effects are things which are not necessarily measured. This points to an intrinsic (unconscious) bias in the system.
The 70% may of course be dealt with via special measures for micro, small and medium enterprises. The argument against this will be from the multi nationals, often foreign owned, who while enjoying barriers to entry of competition created by regulation and unified markets created by no divergence, will complain that allowing smaller players and market entrants to diverge is unfair competition. They argue that divergence is a cost and yet they are not prepared to allow others who wish to diverge to bear that cost. These others of course see it as a market opportunity and that is the rub. Do we measure that market dynamic?
It is always important to be conscious that Whitehall and large multi nations see uniformity as a good thing. Innovators, disruptors, entrepreneurs see divergence and competition as a good thing. Policy making is often driven by share of voice in the corridors of power.
It is always important to be conscious that Whitehall and large multi nations see uniformity as a good thing. Innovators, disruptors, entrepreneurs see divergence and competition as a good thing. Policy making is often driven by share of voice in the corridors of power.
Reflecting upon the trope that small and medium sized businesses are always in the supply chains of multi-nationals. I have met thousands of SME businesses that produce goods and services sold in the domestic market and across the world directly, independent of any multi-national. History is littered with multi nationals that have declined and failed at the hands of new and emerging businesses. Progress, innovation, productivity improvement, growth and thus wealth creation comes largely from disruptors. Governments are incapable of picking them. They are nurtured by having the right economic and regulatory environment and they pick themselves.
For a future government to decide to align with a European customs union (CU) would be perverse, even EFTA countries are not bound by customs. A protectionist CU would increase the cost of living and inflation, it would reduce competition, productivity and competition. It would also negate all the good trade deals that have been generated since the vote to leave the eu.
Similarly the continued alignment with the single market would be madness, stifling innovation, wealth creation and adding unnecessary costs and burdens to U.K. businesses.
If Mr Sunak wants change he only has to embrace the opportunities of Brexit. If Mr Starmer wants growth he only has to implement Brexit generated divergence. Getting back to Palma Ham, the old saying of pearls before Swine still rings true.
John Longworth is an entrepreneur and businessman, Chairman of the Independent Business Network , former DG of the British Chambers of Commerce and MEP. Follow John on Twitter here.
