At least to some extent the vote for Brexit was a protest vote – a sign of people’s disenchantment with the status quo.
Few voters will have wanted to leave the EU to hand over more power to big business, but this might exactly be what the government ends up doing.
Yesterday Chancellor Philip Hammond hinted Britain could become a tax haven if it were to be closed off from the EU single market.
It wasn’t the first time we heard the government say this.
In November last year Prime Minister Theresa May promised something similar when she vowed to make further cuts to the corporate tax rate.
It’s supposed to make Britain more attractive to foreign companies as they would get to keep more of their profits.
The only trouble is that it doesn’t help the people who voted for Brexit or address the reasons why they voted for it in the first place.
A Brexit for the rich
Remember we still have no idea what kind of Brexit the government is aiming for other than that its colours will be red, white and blue.
The pound fell against the dollar and the euro when the markets opened following the news that May will not take away concerns about a ‘hard Brexit’ in a speech she’ll deliver tomorrow.
We’ve actually heard May consider a hard Brexit before. And why would she take this possibility off the table if she thinks it might spook European negotiators?
Besides, as Ben Traynor rightly points out in today’s Daily Reckoning, it’s easier for May to offer the public something she can deliver rather than commit to a scenario for which she depends on 27 other European governments.
However, since one of the few things we’ve heard about the government’s strategy is that it could make Britain a tax haven, it invites a closer look at its implications.
Philip Hammond’s suggestion in the German press that Britain could lower its tax rate for businesses isn’t a new idea.
The previous government already brought down the corporate tax rate from 28 per cent to 17 per cent.
This strategy has worked wonders for Ireland, though an important reason for its success may be precisely the fact that the country has direct access to the EU’s single market.
It’s therefore possible that Britain will have to undercut the Irish tax rate to compensate for potential tariffs UK-based companies could face post-Brexit.
Hammond also mentioned that Britain could abandon the European Social Model and move more toward a US-style economy if Britain were to be denied single market access.
The European Social Model stands apart from its US equivalent through its emphasis on social protections and commitment to good working conditions. In reality there isn’t one European Social Model adopted by all, as regional varieties exist.
Among the people who voted to leave, think tank NatCen identified three main groups: the economically deprived, the older working classes and affluent Eurosceptics.
Transforming Britain into a tax haven and leaving behind the European Social Model would ignore the first two groups and instead reflect the utopia of the last group, who are “noticeably anti-welfare”.
To see why, let’s consider two important factors in the EU referendum: immigration and the NHS.
There’s no doubt immigration was an important factor for the group of voters belonging to the working classes and the economically deprived to vote to leave.
The high volume of immigrants was thought to depress wages. A vote to leave would make it easier to reduce net migration to the country, the argument went.
Instead what they could get is a more American-style economy in which big corporations are given carte blanche.
As it is, multinationals already aren’t the biggest fans of paying taxes or the minimum wage. Abandoning the European Social Model could leave employees more vulnerable to corporations, especially if the government follows through with its plans to scrap the Human Rights Act.
Another big campaigning point was the NHS.
It was implied that an amount of £350m was being sent to the EU each week which could alternatively be spent on healthcare.
The money for more corporate tax cuts will have to come from somewhere, though, and there’s a very good chance it’ll go at the expense of public services.
It’s how the previous government bankrolled a lower business tax rate and it’s in line with Hammond’s comments in the German media.
It’s therefore hard to see how the situation of low-wage earners would improve in case the government replaced the current model with the more cut-throat US equivalent.
We should be careful in assuming too much about the outcome of the Brexit negotiations at this stage.
But from the sounds of it the government could be planning a ‘let’s avoid the EU’s crackdown on tax evasion’ Brexit rather than a ‘let’s fund our NHS’ Brexit.
Becoming a tax haven may well attract companies to Britain, but at what cost?
The government would be giving the companies leverage as it makes it clear it’s willing to do anything to get them to Britain.
It means more power will be handed over to big corporations and they would get an even stronger grip on the government’s policy agenda.
If that’s the case then the government would completely misread the public mood. Brexit would cease to be a popular revolt and instead become a coup by the elites.