How business benefits from Brexit

Brexit was declared done a month ago, the complex process of EU trade deal negotiations has just begun. In the second of a two-part series, Jamie Gough and John Kirby analyse why business will benefit from Brexit

February 1, 2021 · 10 min read
City of London at night. Credit: Colin

The UK has finally left the EU. Out of the single market and the customs union, the Trade and Cooperation Agreement (TCA) reached on the 23rd December 2020 now forms the basis of the new UK-EU relationship. For many, we have reached the culmination of lengthy process through which the Tory party has turned against the interests of ‘British business’.

This line of argument dictates that the Tory party has been taken over by a reactionary clique of fantasists, nostalgic for the (bygone ‘glory’) of the British Empire and detached from the needs of contemporary British and international capital. Yet, such an analysis misreads the current situation. There are, in fact, a number of ways in which this deal benefits business.

The contradictory interests of capital

It is important to note how the impact of the Brexit deal will vary for different aspects of capital. To take a general example, productive capital operating within Britain, both British and foreign owned, is now in a very different situation to, for instance, international capital invested through the City of London.

First and foremost – and most contradictory – is the issue of trade. Around 45 per cent of UK exports and imports are with the EU. Trade in goods has been free of tariff and non-tariff barriers on condition that each product meets minimum quality specifications, common labour market and ecological regulations are enforced, and state aid to industry is not ‘anti-competitive’. For manufacturing production within Britain, this framework is essential. Supply chains that have evolved over decades of alignment cannot easily be unpicked or redirected. While the TCA avoids tariffs (for the time being), many manufacturing sub-sectors were reliant on EU-wide collaborations in high-tech research and production and will be negatively impacted by regulatory dis-alignment.

But this imperative for production is not necessarily one for capital.  Since 2016, many manufacturing transnationals have looked to offset the impact of Brexit by moving production or new investment from Britain to existing or new sites in the EU. This has been particularly prominent in the vehicles industry. Ineos, for example, is to build its new Land Rover clone in France. Many British-owned manufacturing corporations have located all their factories outside the EU, and are therefore indifferent to the Customs Union. For example, since 2002 Dyson has produced its white goods in Malaysia. These internationalisations of production have muted some of the opposition of manufacturing capital to a hard Brexit.

Elsewhere, many sectors of the economy have long maintained a strong interest in escaping EU regulations. To take one example, Jim Ratcliffe, owner of Ineos, whose major operations are in oil, gas and fracking, is an ardent Brexiteer who denounces EU ‘bureaucracy’ and ‘interference in business’. Ineos closed its Middlesbrough manufacturing plant in 2019 due to the ‘excessive cost’ of meeting EU rules on air and water pollution. A similar school of thought can be seen in many arenas of locally supplied service capital (i.e. retail, hospitality and leisure).

Since the referendum the Conservative Party has therefore had contradictory pressures on it. With some manufacturers and farming on the one hand (looking to maintain close proximity to the EU) and locally-supplied service capital on the other (looking to exit the EU’s regulatory orbit).  May and Johnson tried to square this circle by demanding tariff-free access to the EU without adherence to the ‘level playing field’ conditions. But the EU proved to be intransigent. By autumn 2020, while much manufacturing capacity in Britain had closed or been relocated to the EU, the remainder faced having to trade with the EU on WTO terms, which would result in short- or medium-term loss of three-quarters of a million jobs. Johnson was forced to put the immediate interests of manufacturing over the long term interests of locally-supplied service, building and oil capital.

Accordingly, the agreement on trade concluded on 23 December was a near complete capitulation by Johnson. Providing no role for the European Court of Justice, the agreement has been hailed as a victory for British sovereignty. However, in order to maintain trade in goods without tariffs or quotas, Britain will continue to have equal minimum standards with the EU in labour market and ecological regulation and on state aid to industry. Britain will remain within some of the high tech industrial collaborations of the EU and the Horizon research programme. In this field, the Brexiteers have achieved no increase in ‘sovereignty’.

Capital gains

This does not mean, however, that Brexit has yielded nothing for the Tory Right or for capital.

Brexit has enabled a major gain for capital in corporate taxation. Britain has such low rates of taxation of corporations that it has been dubbed a tax haven, and there is zero corporate taxation in its archipelago of overseas dependencies. Since the ‘financial’ crash of 2007-8 and the subsequent crisis of the Euro, Germany and France have led a push for unified taxation policy throughout the EU. Excepting the Eurozone, types and rates of taxation are presently a matter for national governments only, yet there is a strong trajectory towards common tax policies.

The EU’s clamp down on tax havens is already underway, and this affects Britain directly with its numerous tax haven dependencies – the Cayman Islands was added to its tax haven ‘blacklist’ in February 2020. Minimum common taxation of e-businesses, particularly the US-based big four, is being discussed, and has already been introduced in France. For British capital, a key aim of Brexit has therefore been to head off any increase in corporate taxation. This basic and simple aim is shared by all capital operating in, from and through Britain. This aim of capital has been completely absent in most commentary on Brexit.

The neglect of this issue is connected to the invisibility of another major beneficiary of Brexit, the large number of British-headquartered (‘British-owned’) corporations whose production is entirely outside Britain and the EU. This includes manufacturers like Dyson; large property, building and civil engineering corporations operating abroad, especially in the Middle East; mining, oil and gas; and tropical agricultural producers such as Tate and Lyle. Collectively these corporations constitute a large proportion of British-headquartered capital, reflecting Britain’s imperial history. They have no interest in Britain’s trade relationship with the EU, but they have a strong interest in Britain’s low rate of corporate taxation.

The second major gain for capital is in the regulation of finance and business services, though again, not without contradictions. According to reports, the EU has been looking to reduce trading in derivatives and other high-risk assets in order to prevent another financial crash. One means to do this, though not the only one, is the imposition of a financial transactions (Tobin) tax. The EU also wishes to clamp down on the inward flow of kleptocrat, corrupt oligarch and mafia capital (the latter alone making up perhaps 15 per cent of world capital). The City of London is the global centre for both derivatives trading and money laundering, and accordingly has strong reasons to support Brexit.

Faced with uncertainty about the outcome of Brexit, many large City-based institutions decided not to rely on the outcome of parliamentary debates or any post-Brexit trade deal. Starting in 2018, they began to establish operational hubs in cities such as Dublin, Luxembourg, Paris, Frankfurt and Amsterdam (paralleling the relocation of manufacturing into the EU). In 2018 alone, it is estimated that over 250 City businesses created new, or upgraded existing, offices in EU27 countries in order to continue operating freely in the EU after Brexit. The City now has its cake and is eating it: trading as before with EU clients, and continuing with high-risk trading and money laundering in London.

There have been, then, two important fields in which Brexit has advantages for capital: evasion of increased corporate taxation; and continuing freedom for high-risk finance and criminal money capital. These affect distinct but overlapping sectors of capital. Note that the first of these does not specifically concern financial capital, and we disagree with the common view – ‘Brexit aims to create Singapore on Thames’ – that it is only finance, or only hedge funds, which benefit from Brexit.

What now for the left?

It is remarkable how little has been said by the left about the interests of capital in Brexit. Before and after the referendum, Corbyn rightly highlighted the wish of sections of capital to deregulate the labour market and the environment. But Labour said nothing about capital’s wish to avoid increase in corporation taxation, nor the wish of finance and business services to avoid EU regulation. These are the elephants in the Brexit sitting-room.

Now that we have capital’s relation to Brexit clearly in our sights, what are the implications for the campaigning priorities of left? First we need a serious increase in taxation of capital, as in Labour’s 2019 manifesto, and closure of Britain’s offshore tax havens. Outside the scope of EU intervention, we’ll need large scale, long term campaigns by the left and labour movement. Such campaigns must also aim to constrain trading in risky financial assets, and to restrict the servicing of kleptocrats, oligarchs and mafias by the City of London.

Second, the Brexit agreement prevents a medium-term collapse of manufacturing and bonfire of labour and eco regulations. But the government will attempt to weaken these regulations while avoiding EU sanctions. With the ink scarcely dry on the treaty, Johnson is proposing to allow gene editing of animal and plant DNA, and has already authorised the use of nicotinoid pesticides, both of which are banned by the EU. Though labour conditions and environmental protection are already abysmal, as is investment in manufacturing, caring work, public services and green infrastructure, the labour movement will have to expose and oppose every case of such backsliding. It is clear therefore, that while Brexit might in a formal sense be ‘done’ our struggle against the latest manoeuvres and political pressures of capital must intensify.

Jamie Gough is a retired lecturer in political economy from Sheffield University and John Kirby is a retired Senior Lecturer at Sheffield Hallam University. Read the first part of this series – on the road ahead for progressives–  here

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