One of the big disappointments to me of Theresa May’s handling of Brexit is how conventional she (and many of her ministers) have been regarding Brexit. Rather than treat Brexit as an opportunity to try something radically different that could reinvigorate Britain and inspire the world we’re left looking at policies that seem designed to try and make sure Brexit has as little a change on Britain as possible. Given that the UK is a long way from perfect this seems a trifle odd and far from both the rhetoric of the Leave campaign and what I believe voters wanted. Now it is certainly true that the civil service hates the idea of Brexit and hates the idea of change. Yes (Prime) Minister absolutely nailed that in the 1980s and if anything it has got worse in the new millennium. There’s a memorable episode of Yes Minister where Sir Humphrey shuts down radical ideas by describing them as “Courageous”.

But while it is certainly true that some new, radical ideas are bad that is of course not the same as saying that they all are. Moreover the status quo and the likely Bog Roll Brexit – soft, yielding and infinitely long (yet another memorable quote from BoJo) – are likely to be pretty bad too, in a gradual decline sense.

So what might a courageous and unconventional Brexit strategy look like? Here are some ideas presented roughly in order of least radical to most. I don’t have a unifying policy here other than the basics of less government and more market.

Unilateral No Tariffs

The simplest thing to do, and one that would make the whole “Irish question” and “Dover question” not our problem, is to declare that the UK will not impose import tariffs on anything. If the EU wishes to impose tariffs on goods entering the EU from the UK that is up to them, and if they want to create a hard Irish border to stop the inevitable smuggling that will occur if they do then that is their problem not ours. By not having tariffs we allow everyone in the world to sell us their products at the lowest price. We also don’t need an HMRC bureaucracy to check that importers have paid the required tax and so on. Now it is important that we understand the difference between tariff, duty and VAT/sales tax. Importing, say, booze into the UK for sale would require that the importer pay the alcohol duty and VAT when the booze is sold (or sold on to a reseller/store) and we might well want to go back to the whole Duty Free Allowance thing for personal use. But having a customs force that concentrates solely on dutiable products and a revenue force that concentrates on VAT is a large simplification. Plus of course it allows UK consumers – and that might include large providers of things, such as the NHS w.r.t. imported drugs – to benefit from lower prices which is a clear benefit. Indeed it will undoubtedly help British industry as well. Hardly anything in the UK is made from products that are purely British from source and thus any product made with imported subcomponents becomes potentially cheaper.

Farming and Fishing

Related to no tariffs is a thought about what to do about farmers. Right now most of the UK’s farmers are heavily dependent on the perennially mismanaged CAP subsidies, quotas and payments. The UK should look at New Zealand as a model for how to move from that subsidy heavy model to one that subsidizes as little as possible. Note I do think that, for example, it is likely beneficial to subsidize some farming – for example I think sheep farming on the hills should be encouraged because it is a major part of the UK landscape – but these sorts of activity based subsidy need to be limited and based on maintenance of the landscape rather than the actual product of it (wool, lamb etc.). There’s a related idea here to do with planning permission but I’ll get to that later.

Fishing likewise could see some radical differences. First we ought to do an Iceland: regain control of our waters and forbid fishing of them by non UK registered vessels. The laws around this need to have serious bite to it and serious enforcement. For example vessels that are caught flouting the law the first time will have their catch seized and sold in the nearest British port to benefit the local fishermen. On the second offense the boat is also seized and sold.

Each British fishing port is then allocated a section of sea for their exclusive fishing. The area would be based more or less on the size of the fishing fleet in the port and would be generally in the same area to the port. There might be minimum and maximum allocated areas and parts of UK waters might not be allocated but be available for the use of the highest bidder, however what there would nto be is quotas – if you catch it in your permitted area you can sell it. Initially this might well lead to a large part of UK waters being underfished because the UK fleet is pretty small, but that seems like a major bonus because allowing time for fish stocks to recover seems like a good thing. There might also be ways for ports to trade areas to each other etc. but the key is that some known group has the exploitation rights to every part of the UK’s waters and thus they have ownership of something. There have been a number of studies (from the classic tragedy of the commons) that show that you generally get better management of resources when the property rights are clear.

Enforcement of the fishing areas would be down to the Royal Navy which would have to build and man a number of fishery protection vessels. These would need to both enforce the ban on foreign fihing vessels and ensure that British ones not fish where they are not permitted to. There might need to be quite a lot of these vessels and that seems like an excellent thing. It would likely put a major dent in smuggling, the Navy would actually be doing something local and growing so maybe it could have more ships than admirals etc.

Planning Permission

There’s a lot of NIMBYism in the planning system. And a lot of potential (and maybe actual) corruption as being allowed to build houses (or shops, factories…) on a plot of land raises its value considerably. It seems to me that we should liberalize the planning process considerably. Perhaps we could start with a “right to build” as the default and that this right may be challenged. However in order that the challengers have some skin in the game, they are required to pay the land owner compensation – and that this compensation may be an annual rent or a lump sum that prohibits development for a fixed number of years. In either case it is a simple commercial contract. The more valuable the land, the more rent they have to pay the land owner, thus the owner is rewarded for not changing the character of his land. If the owner thinks she can get more by developing the land then she can assuming she hasn’t signed a contract not to. If it’s something really amazing then there’s no reason why a large group of people should not pool together to pay the rent/lump sum. In places such as National Parks and AONBs all owners are paid by the government for land maintenance and as compensation for their not being allowed to change the land use. This isn’t exactly a Brexit related change, but it makes sense if introduced as part of the rest. In particular it ties in well with the farm subsidy approach proposed above.

Corporation Tax Based on Location

So far I don’t think the ideas have been too novel apart from the rent for planning permission one. They may be not acceptable to Brussels and probably unthinkable to Whitehall (or vice versa) but I’ve seen similar ideas proposed in other places. My corporation tax idea is not one I’ve seen proposed anywhere before.

Some background. One of the big drivers of Brexit and one of the big problems in the UK is that the UK is very London-centric. London is (depending on how you measure it) either the world’s leading financial centre or second only to New York in that regard. As a result a very large part of the UK’s economy is based in London and hence London is a very popular, very expensive place to work. It is also a very expensive place to live and thanks to planning permission and NIMBYs it is proving very hard to provide enough affordable housing in the London area. Also congestion, crowded trains etc. etc.

Lots and lots of people have said they think it would be good if the UK Economy were less London-centric and I agree. I’m not saying that we shouldn’t strive to keep London as the global financial centre but in these times of high-speed internet, videoconferencing and so on it seems to me that there is less need for companies to have an HQ or even a physical presence in London or its environs. Some will, but some are in London for reasons of inertia and “you can’t get the right people” excuses.

So here’s the plan. Corporate Taxes (and possibly also Income Tax bands) are based on the distance of the entity from London. You set up in the Hebrides and your rate is, say, 25% what it is in Mayfair. In Cornwall it is perhaps 50% and so on. The closer you get to London the higher the rate. For companies the measure is based on the total wages/salaries paid by branch location so if you have 1 employee in Mayfair on £1 million and 100 employees in the Hebrides on £10,000 (i.e. total £1 million) you are considered to have the rate of somewhere halfway between the Hebrides and London. One could also do a similar thing for personal income tax so that if you live further from London you get a lower tax rate. As with fisheries you need to have some enforcement rules to make sure that people aren’t claiming to be working in the Hebrides when they actually work in London and so on, but we already do this for non-doms and other sorts of tax exemptions so we already have most of the rules written down.

Note we can combine this with allowing the Scots and Irish to raise their own income and corporation taxes. They get to pick their rate and it is separate to the UK rate. So a business in the Hebrides might have a 5% UK coporation tax rate and a 10% Scotland tax rate. That might turn out to be a better deal than a company in Northumbria (no Scotland tax but closer to London) or it might not, depending on what the Scots decide to set their rate at.

The key to this is that you create a large incentive for individuals and companies to be based outside the South East of England. Given that (IMHO) the quality of life in many respects is superior outside the South East I suspect that given the initial incentive we might well see a lot of high-paying jobs moving from the SE to the rest of the UK and that, in turn, would give a major kick to the economy in the rest of the UK too. The more I think about it, the more I see second and third order benefits (no need to build over the green belt in the SE for example) although not everything is rosy as it would, coincidentally, also end up providing a justification for HS2 as now there will likely be a lot more people “oop north” that need to meet in person now and again with people from London.

If income tax rates are also made location specific then it could well cause an interesting clash of priorities for bureaucrats, and employees of charities and other similar organizations such as the BBC. On the one had you want to be near London because that’s where the politicians are, on the other your money goes so much further when you aren’t there.

Welfare State And Immigration

As I mentioned in my previous post, Milton Friedman said that you could either have immigration or a welfare state. As I have remarked then voters in the developed world like the idea of the welfare state. However there might be a way to get both. It might also help to wean people from the welfare state and the NHS but it is a concept that would be completely incompatible with the EU.

The idea is relatively simple and definitely “courageous”. British citizens will have a choice of paying their current (relatively high) income taxes and having access to the welfare state and NHS or a lower tax rate and not. Anyone who has access to the NHS has a biometric medical card that contains their key medical history and links to NHS databases for longer history/registered GP etc. That card also has your rights to social security, housing benefit, unemployment benefit etc. (in the case of foreigners – see below – those rights are zero) and acts as they key to accessing UK government assistance in any form. If you don’t like the idea of a government ID card tracking you then you can opt for the low tax no card and no benefits regime. If you don’t have a card you are not eligible to NHS coverage (except I guess A&E to a minimal extent). So tourists and the like don’t get NHS access at all. They have to purchase some kind of travel insurance to get UK emergency healthcare.

Anyone can change to the no ID card option at any time. Changing back to the full benefit system will require contributions or a reduced amount of benefits (or some combination e.g. you cannot claim unemployment for 10 years, say, or incur more healthcare costs than you have paid in tax per year). Foreigners don’t get to have the choice of access to the welfare state. They can however pay the same level of tax as opted-in British citizens and have access to the NHS only (actually they probably should get the same rights as British citizens who change from opt-out to opt-in so that their welfare benefits only work after N years of contributions etc.).

There are some tricks to get this to work and they imply that the income tax/National Insurance contribution proportions of take home pay will change dramatically. First employer paid National Insurance needs to go. Everyone gets a nominal payrise by the amount of the Employer paid NI contribution and then those who are in the full-benefit system have to pay all that amount. Then what happens is the NI rate is raised and the income tax rate is lowered so that income tax does not cover (much) NHS/social security spending. This makes individuals liable for their own NI contribution and makes NI actually mean what it says on the tin (i.e. Insurance). Everyone pays income tax on all income but NI is only paid once your post income tax income is above a threshold. If you go for the opt-out alternative you don’t pay NI, just income tax (probably at a rate of something like 5-20% depending on total income). I figure we’ll end up with NI rates of something like an average of 33% of income above some basic survival threshold. This means that low paid people will pay just 5% tax whether opted-in or opted-out. At some point NI kicks in for the opted-in and their effective tax-rate goes up faster than the opted-out. This continues up to the top NI and Income tax threshholds. I suspect that a top rate opted-in taxpayer will end up paying about 50-55% of their income to the government. An opted-out one will probably pay more like 20%. Of course, it is quite possible to combine this proposal with the location specific one.

There are a lot of benefits to this. If you are rich, you have a significant incentive to not use the NHS but look for private healthcare and private pension/unemployment insurance. And since, in such a case, we don’t care if you are a British Citizen or not so I suspect that the UK will remain highly attractive to rich foreigners.

Employers have no incentive to hire immigrants or citizens, opted-in or opted-out because they pay the same wage to all. The take-home pay, however, will vary. This may need a tweak because we actually do want to positively discriminate in favor of British citizens, particularly for lower paid work. One way to do this is to have a fixed “stamp tax” on all paid work by non-British citizens of say £1000 per year and per employer (this also incents them to not hire and fire cheap labour). £1000 is chump change when it comes to a skilled professional such as a programmer, lawyer or doctor on £50k+/year but it is a significant addition to pay for someone on a minimum wage of ~£200/week (= ~£10,000/year). It hits even harder if you only want to pay for seasonal work for a few months.

The great thing about this is that the infrastructure to support foreigners and opted-out citizens is already in place as the NHS has yet to totally kill the private heathcare sector and pension plans, unemployment insurance etc. are all things that the city of London can handle in its sleep. What this also does in create competition for the NHS and the various NHS trusts so as to keep them honest because it provides the demand for more alternate infrastructure.

Will Any of These Happen?

Probably not. But the first few might and the last two are ideas that could use some serious analysis to see if they are worth doing. I’m sure they would need tweaking because I have almost certainly missed/ignored some critical factor but I think it would be well worth gaming out the likely results of both and looking and what they would do to the UK and its population. I expect that if the EU continues they way it is now and fails to negotiate sanely, there is a strong chance of a No Deal hard Brexit. In such a case the Tariff and Fishing concepts are quite likely to appear attractive because they cause pain to EU members but not British citizens.