Liberal Democrats leader Sir Vince Cable is demanding greater clarity from the government in it’s Brexit negotiations with the EU.
In an interview with Financial Director, Cable says finance chiefs that have raised concerns about their ability to plan ahead due to Brexit uncertainty needed greater clarity.
The former chief economist at oil giant Shell says more guidance is required in the context of the high risk of what he describes as an “extreme” Brexit deal- involving leaving the Customs Union, Single Market and the jurisdiction of the European Court of Justice (ECJ).
“If the government sticks to its red lines, I think the deal they will get will be quite a weak one-a Canadian style agreement essentially involving tariffs, with nothing for service industries- so financial services, digital and creative industries will probably be excluded from any final agreement.
“The details are unlikely to be available for two or three years, so FDs are absolutely right to be concerned as they have to undertake scenario planning,” says Cable.
The call for the government to clarify the UK’s position comes as the prime minister chairs two key Brexit meetings with senior ministers to sketch out what the relationship between the UK and EU might look like.
“It seems inevitable that we’re going to have a weaker economy,” says Cable. “I’m not predicting that it’s going to jump off a cliff, but it is going to be weaker than if we stayed in the EU- I can’t see any alternative,” he adds.
According to government forecasts released this week, modelling of the 15 year impact of the UK staying in the single market, doing a trade deal with the EU or leaving without a deal, suggests certain parts of the UK would face the heaviest hit- especially those that voted for Brexit.
Cable says he would back a call for economic intervention in sectors and geographies that were most negatively impacted. “There will have to be a compensating policy,” says Cable. “I think we have to be prepared to have an active regional policy that supports the weaker parts of the UK. When I was in the coalition government we had a regional growth fund that was abandoned,” he says.
Considering Britain’s prospects for global trade, Cable says that despite recent stock market volatility, the global economy appears to be in a very good state. He says along with the US, big emerging markets like China, India and Indonesia are performing quite well. But he adds: “This is pulling the British economy along, but in a way it’s disguising the fundamental weaknesses of the UK, which are very serious.”
Cable says the Liberal Democrats are seeking a second referendum. “When we’re a bit clearer what the deal is people can decide whether they want to opt out of the Brexit process or press ahead with whatever the government is negotiating,” he adds.
“If it’s still a messy outcome and the public vote for it, FDs have still got uncertainty, but at least what we want to provide people with is a sense that this mess – some kind of car crash in slow motion or however you want to describe it- is not inevitable,” he says.
Cable believes the issue of economic impact may become increasingly significant, especially for many who voted to leave the EU for fundamentally non-economic reasons. “Lots of people voted for Brexit because of immigration, and so were not focused on the economic aspects.
“Remain people, including myself, made the case on economic grounds but lost [the Referendum] because people were not engaging with that argument, so the economic consequences will be a surprise to many people.
“I don’t necessarily think it will be chaotic and dramatic. I think it’s more that there will be a hit to tax revenues, and therefore spending on the NHS. It will be a gradual, grinding process rather than something happening overnight,” says Cable.
Cable says that because Brexit is such a protracted process, it is quite difficult to crystallise a decision point- referencing late March talks on post-Brexit UK-EU trade relations and the likely September parliamentary vote as potential key moments.
But he adds: “It will be difficult to have a meaningful vote if all the government has is some kind of vague transitional arrangement,” says Cable. “So it will be quite difficult to come to a point where the public can think this is good or bad, which is why we’re very keen to have a vote on the deal such as it is.
“We’re not trying to invalidate what’s already happened, what we’re trying to say is that when you get to a clearer picture of the end product you can say: Are you happy with this deal or not?” he adds.
On corporate taxation in the post-Brexit environment, Cable says he is against what he considers is chancellor Philip Hammond’s strategy of pushing the UK to a low taxation economy- akin to a tax haven. “I don’t think that’s sensible- we should have a basic corporation tax rate which is closer to the median,” he says.
Cable says: “I don’t think we should be a high tax country, but I don’t think there’s any point in going out of our way to cut the corporate tax rate. If it was stabilised around 20% that would strike me as sensible,” he adds.
On providing an educated workforce, he says the value of an open economy is the ability to tap into worldwide talent. He says: “I think one of the more stupid policies that’s been pursued is restricting overseas students and stopping them staying on when they’ve got valuable skills to contribute.
“Similarly there’s a real danger that we lose a lot of human capital as a result of leaving the EU. If we want to have a good infrastructure of human capital we’ve got to have an open economy,” he insists.