This is an extract from a speech to be given at the Institute for Turnaround Conference in London on 8 September 2016.
Britain's future is brighter than the British realise. This is perfectly obvious to outsiders but the British can’t believe it.
Britain has been for some time the second most compelling investment destination after the United States. Investors from emerging markets like China and from the industrialised world alike are scrambling to buy assets in the UK, in spite of Brexit, and sometimes because of Brexit. After all, Britain is now both cheaper and freer than before. But Brexit isn’t the driver. The fact is that Britain is simply competitive again.
This is partly because China and most emerging markets are no longer as competitive as they were. Wages in China have risen five fold in three years. Costs there are up too. Meanwhile, quality control in the UK is outstanding, as everyone knows who has followed the success of British auto manufacturing. Britain also excels at the creative industries that are so essential to growing the value of global brands. So, many manufacturing firms, including Chinese firms, have invested more in the US and the UK.
Of course there are other emerging markets which attract capital. Mexico’s wages are now 20 per cent cheaper than Chinese wages but their quality control is far better. They are deeply integrated into the US economy as well. Today the most dynamic part of the world economy is the Mexico/Texas/Midwest corridor. This area has also emerged as the centre of “additive” manufacturing, by which we mean 3D printing and high tech production.
But the next most competitive location is the British Midlands from Birmingham to Manchester and beyond, plus the High Tech triangle that runs between King’s Cross, Cambridge and Oxford. Germany and Northern Italy probably come third.
The British are shocked to find so much interest in the Midlands. I hate to say it but to an American or Chinese person, Birmingham and these other cities are not very far away from London. They will be even closer once foreign investors are permitted to build HS2 and other transportation infrastructure, which they are dying to do. The Chinese have already put huge sums into Manchester Airport and Birmingham City Centre. Frankly, compared to just about anywhere in China, Birmingham is an incredibly luxurious place to live and work, as is Manchester.
What about tax? The British think that their tax rates are outrageously high. But everyone everywhere in the world seems to think this of their own tax rates. Perhaps the Irish are the one exception. But the EU has just put them on notice with the Apple tax ruling. The message is clear – they want Ireland to harmonise their tax rates to EU levels. Frankly, thanks to Brexit, Britain has only narrowly avoided harmonisation of EU company and employment law, which the Commission tabled last year. Britain, especially in the aftermath of Brexit, can put its taxes and business policies wherever it likes.
Britain’s tax rates today are actually very competitive considering the lack of alternatives. Switzerland is no longer competitive. Its economy is small, interest rates are negative and privacy protection is only available to actual residents. Still, many worry that the City will collapse when the EU revokes “passporting” rights for the banks when Britain invokes Article 50.
As a person who worked in the City for many years and who advised the US President on financial services, I know this: money will go wherever it finds the lowest tax rates and the least red tape and the most economic growth. The EU is pretty easy to beat on all these fronts. I think the City may be on the verge of a massive expansion.
But what about losing the Single Market? Well, first of all, why is Britain doing so much of its business with a part of the world that isn’t growing and that offers its own citizens as much as 50 per cent youth unemployment? Britain needs to work more with places that are growing like the US, with Mexico, Australia and others.
Also, Brexit has reinforced other exit movements in Europe – Frexit in France, Auxit in Austria, Itaxit (ironically) in Italy. The EU itself is undergoing much-needed changes. If they can grow again, it would be great. In the meantime, Britain needs to cultivate profits not politics.
The greatest irony of all is that the British seem to gravely doubt their ability to write new laws. Perhaps they outsourced all that to Brussels for too long. The rest of the world believes that the picture of the Queen on the currency represents what Britain is most famous for – Rule of Law. I predict that many fortunes will be made in the British legal profession as that community constructs the foundation for Britain’s future.
The future is both British and brighter.