Beyond Brexit: How to Build an Independent U.K. Economy

This article was originally published in The Conversation. Read the original article.

The U.K.'s decision to leave the EU is an exciting opportunity for its economy. There may be some initial uncertainty, but in the long run Britain will be better off independent from the EU. It will have far greater control over its economic policy and better options for trade with the rest of the world.

In the very short run, there is bound to be some turbulence in the financial markets. This is partly due to speculators betting the wrong way during the run up to the vote and having to pull out of their losing positions.

But, as the Bank of England has made clear, U.K. economic fundamentals remain unchanged and its reassurance that it is ready to take whatever action is needed should help minimize this uncertainty. There is certainly no need to panic and absolutely no requirement for an emergency budget of the type that George Osborne suggested in the referendum campaign.

A modest fall in the value of the pound is actually, on balance, a good thing. While it does make some imported goods a little more expensive, and those going on a foreign holiday will have a little less spending power, it will make U.K. exports more competitive and therefore should result in more growth and jobs if this persists over time.

Plus, even after the much publicized fall in sterling against the euro, the rate remains above levels in 2012, 2013 and 2014—which was not considered as a big problem at the time.

Looking ahead

Looking towards the medium term, the U.K. government will need to negotiate a positive exit from the EU with the other member states. Given the large trade deficit in favor of the EU (the U.K. buys more from EU member states than we sell to them), this should include a free trade agreement in goods and perhaps some service industries. The U.K. should not accept membership of the European Economic Area, as this would come with terms and conditions that would make it a poor halfway house to independence.

There is no need to rush this negotiation, as some EU leaders have suggested. The only reason to conclude discussions quickly is if it would benefit both the EU and the U.K. For example, the EU may want a quick separation in order to focus on its own problems, while, as long as we get the deal we want, the U.K. could get on planning for the future. It could, therefore, be possible to reach a mutually advantageous agreement.

But the U.K. negotiators need be in no rush—this should take as long as it takes to get the best deal. While the financial markets would prefer a rapid resolution of the negotiations, it is far more important for the future success of the U.K. economy that we secure a satisfactory conclusion. Rushing negotiations, under pressure from today's newspaper headlines, or movements in volatile markets due to the whims of speculators, is hardly a satisfactory way to safeguard the future prosperity of an economy.

The negotiating position of the U.K. government would be strengthened if the U.K. could form a broad consensus over certain key elements of a new economic strategy. This is too important to be decided by a narrow clique within the Conservative Party. Leaders of all major political parties, business and trade unions, should participate in forming this path to independence.

While it might prove impossible to reach complete agreement on all aspects of a new economic strategy for an independent U.K., it should be possible to form a consensus on certain fundamentals. There are seven key things to focus on:

1. How national regulation can be better focused than EU regulations, thereby saving businesses (particularly smaller ones) time and money in compliance.
2. How a more active industrial policy could promote a resurgence in U.K. industry. A range of business leaders could advise how a better strategy could promote high growth sectors.
3. Developing a knowledge and innovation strategy. This should involve greater investment in research and development and university research, in order to make the most of the country's ideas so that U.K. industry can better bring them to market.
4. Design an immigration policy to meet the skills requirements of U.K. industry. This must be balanced with the availability of public services that are needed to house, school and provide healthcare for all those living and working in the U.K.
5. Design new agricultural support and a new fisheries policy that is sustainable, while rebuilding the U.K. fishing industry.
6. Consider how macroeconomic policy can be redesigned to promote growth and employment.
7. Determine how the new independent economic policy can reduce inequality.

Should consensus not prove possible in all cases, these disagreements will enliven our national political discourse, as differences between political parties will mean something substantive. For too long a sizeable proportion of the electorate have expressed dissatisfaction that voting changes nothing or that political parties seem to offer a limited choice by coalescing around a broadly similar neoliberal economic agenda.

By removing the constraints on independent action, imposed by EU membership, Brexit may encourage more fundamental debates about the future of the U.K. It will also make it easier to realize different visions, with a wider range of economic policies available to any elected government.

Brexit is but the first step to a new independent future. It offers considerable potential if policymakers use the new freedoms and policy instruments to manage our economy in a different way. However, to ensure that this potential is realized, the hard work now begins.

Philip B. Whyman is professor of economics and director of the Lancashire Institute for Economic and Business Research at University of Central Lancashire.