Mayor sounds alert over ‘race to the bottom’ which would damage Britain’s standing
The Mayor of London, Sadiq Khan, has today criticised the “deeply worrying” threat from Government ministers to turn the UK into a ‘low-tax, low-regulation, tax-haven economy’ if they are unable to reach a deal with the EU within two years.
In February, the Chancellor, Philip Hammond, suggested Britain could transform its economic model into a corporate tax haven if the EU fails to provide it with an agreement on market access after Brexit, in an interview with the German newspaper Welt am Sonntag.
The Chancellor said in the interview: “We could be forced to change our economic model, and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do.” The comment was backed by the Prime Minister’s spokesperson.
Theresa May is expected to trigger Article 50, starting the Brexit process, in the coming days. But in an official report about the impact of Brexit on London released today, Sadiq Khan says that the Government’s threat ‘would be truly disastrous for our country and for all Londoners’ and warns that ‘starting a race to the bottom would inevitably bring about a decline in our country’s prosperity and world standing’.
The Mayor will use London’s official response to the Government’s Brexit White Paper to say that ‘London and Britain’s global competitiveness and influence in the world have been built on our nation’s historic openness, rich culture, progressive values and flair for innovation.’
The report also spells out a stern warning of the dangers of falling back on basic World Trade Organisation (WTO) rules if a deal with the EU is not reached within two years. Sadiq said: “The tariffs and barriers that this would place in the way of businesses would inevitably restrict trade with their largest market and significantly damage both London’s and the UK’s economy.”
He described the Government’s stated aim of completing trade negotiations with the EU within two years of triggering Article 50 as ‘unrealistic’, underlining similar warnings by trade experts including the former EU Ambassador Sir Ivan Rogers.
Sadiq warned that this complacency is ‘compounding uncertainty and risks – causing unnecessary damage to our economy’.
He will call on the Government to prioritise securing an interim deal with the EU that secures access to the single market in order to avoid a ‘cliff-edge’ for British businesses.
The interim agreement will ‘define the UK’s temporary relationship with the EU while trade negotiations are completed, and the new relationship phased in’.
The Mayor will say he is confident that London will remain the best city in the world in which to do business, and will cite recent high profile investments by Google, Apple, Facebook and others.
However, he will warn that some businesses including HSBC, UBS and JPMorgan have are already announced plans to move staff from London to other European and world cities, as many more finalise their contingency plans to do the same.
Since the EU referendum, Sadiq Khan and City Hall officials have met and spoken with many of London’s leading businesses, sectoral representatives, universities and other organisations. He has worked closely with some of London’s best economic and trade brains on his Brexit Advisory Board, including Xavier Rolet, Chief Executive of the London Stock Exchange Group, Julia Onslow-Cole, Head of Global Immigration at PwC, Professor Alice Gast, President of Imperial College London and Sir John Sorrell, Chairman of the Creative Industries Federation.
The Mayor of London, Sadiq Khan said: “I campaigned for Britain to remain in the European Union, but I accept that the British public voted to leave and we now must respect their democratic will.
“However, the British people did not vote for a weaker economy, worsening living standards or a less competitive environment for trade, investment and industry.”
On the Government’s threat to turn the UK into a tax haven economy: “The government’s deeply worrying threat to the EU that if a successful deal is not realised the UK could reshaped as a low-tax, low regulation, ‘tax-haven’ economy, would be truly disastrous for our country and for all Londoners.
“London and Britain’s global competitiveness and influence in the world have been built on our nation’s historic openness, rich culture, progressive values and flair for innovation. “Starting a race to the bottom would inevitably bring about a decline in our country’s prosperity and world standing.”
On relying on World Trade Organisation rules for trade: “London’s businesses and business leaders tell me that the Prime Minister’s assertion that ‘no deal is better than a bad deal for Britain’ fundamentally underestimates the colossal damage that ‘no deal’ – falling back on basic World Trade Organisation rules for trade with the EU – would have on Britain’s economy.
“The tariffs and barriers that this would place in the way of businesses would inevitably restrict trade with their largest market and significantly damage both London’s and the UK’s economy. This would be the worst-case scenario for business.”
On the Government’s aim of concluding a deal with the EU within two years:
“I believe that the government’s unrealistic expectation of having trade negotiations concluded within two years of triggering Article 50 – with no plan for extending this period – is compounding uncertainty and risks, causing unnecessary damage to our economy. Many experts, including the former EU Ambassador Sir Ivan Rogers, believe that concluding the negotiations within this time frame is impossible. If neither an interim or final deal is in place at the end of the two years, the government has allowed then the UK would crash out of Europe and we would suffer very significant economic detriment.”
On the need for an interim arrangement: “London’s businesses have been making the case to government since the referendum that this ‘cliff edge’ must be avoided and some have told me privately that they believe securing a comprehensive trade deal with the EU will inevitably take longer than the two year Article 50 negotiations
“Business groups such as the CBI have made a clear case to government of the need to agree an arrangement early on with the EU that would define the UK’s temporary relationship with the EU while trade negotiations are completed, and the new relationship phased in.Such an agreement would help to provide the minimum medium-term certainty for trade, regulatory and legal frameworks which businesses need to take longer term decisions with confidence.”
On London’s future economy: “London continues to command huge international confidence as the best city in the world in which to do business – as demonstrated by recent high profile investments by Google, Apple, Facebook and others.. But there is growing concern in the business community about the unnecessary uncertainty caused by a real lack of clarity on the government’s negotiating position. Some businesses including HSBC, UBS and JPMorgan are already beginning to move small numbers of staff from London to other European and world cities, and many more have announced contingency plans to do so over the coming months.”