Interview with Richard Teather: Brexit and Trump Are Not the End of the World

brexit-image
Elionas2 via Pixabay || Creative Commons

A big changes are ahead of the EU. With the Brexit on its way and Donald Trump on the other side of the Atlantic, a turbulent times seem to lie ahead. However, it may not be as dismal as it may appear – at least one country should benefit from all this. Will the United Kingdom, now on the verge of a significant systemic shift, really be better off without the EU? Richard Teather, Senior Lecturer in Taxation at Bournemouth University and a strong supporter of Brexit, comments on the recent phenomena in a gripping interview for Olga Łabendowicz and the Liberté! magazine.

Despite the prevalent criticism of Brexit and the Trump presidency, you seem to be rather optimistc. Why is that?

<laughs> It’s an opportunity. It’s whether you see life as a series of opportunities or threats and numerous aspects are based on that attitude. A great deal of the European Union is fear-driven. A lot is about protecting what they’ve got rather than going outwards and looking for new opportunities, new growth. And so, employment market is always about protecting the jobs we already have rather than encouraging new jobs to be developed – which is disastrous for young people because it makes companies less willing to hire people. Because once they’ve hired them, they cannot get rid of them. So the EU protects the people who already have jobs – but at the expense of those that are looking for new opportunities.

The same goes for trade as well. You look at the TTIP attempts at creating trade deals and it is all about protecting the businesses that Europe already has – especially in terms of the agriculture sector, but many others as well.

I hope that the UK approach is going to be more about trying to encourage new opportunities, new businesses and growth. Yes, we might loose something – some things will go. But as long as you manage that transition well, as long as there are more opportunities than losses, then it is a very positive attempt.

Will the two phenomena be, as you call it in one of your articles, “a reboot for global tax policy”? Are they truly, as you said, “a breath of fresh air on both sides of the Atlantic”?

Gage Skidmore from Peoria, AZ, United States of America || CC 2.0
Gage Skidmore from Peoria, AZ, United States of America || CC 2.0

Trump has made very protectionist speeches, but actually, Trump’s protectionism is still more liberal than the EU’s free trade policies – certainly between the EU and the rest of the world. While before the Brexit campaign Barack Obama said the UK will be at the back of the queque for the UK-US trade policy, Trump did say “we will do a deal with the UK”. So despite those protectionist comments, I think and I hope that he is not going to be as bad as he is being perceived.

As far as the tax policy is concerned, the world – partly the EU, partly the OECD – are moving much more towards tax harmonization, reducing tax competition, trying to effectively drive up tax rates across the world. They are making it more difficult for countries to operate low tax jurisdictions and companies to use them.

If you look at the current moves, they are really going against the way the world is working at the moment. This is going back to old-fashioned mentality of heavy industry. So the tax system that we have had for fifty, sixty years – even longer in the UK – for international tax has been that you can set up companies in different countries and different parts of a corporate group will be located in different countries. They each make their own profits. And as long as you do that on the arm’s-length basis, as long as the prices you charge between these different bits of multinational group are fair prices, then that is fine. You have profits that arise in different countries, they get taxed on a different basis, because each country has its own tax laws.

What we are moving towards, however, is that the big high-tax countries (especially France, Germany) with high spending and government debt are desperate to get in more money. What they are trying to do is to introduce consolidated tax. They want to calculate the profits of the muli-national groups on a single, global level and then allocate that profit – divide it up between different countries so that each country can tax this little bit. But the way the are doing that – eg. the EU’s proposal, the CCCTB (Common Consolidated Corporate Tax Base), is by looking at three things: where there employees are, where the physical assets of the business are, and where the customers are. There is nothing in there about the intangible assets, intellectual property, nothing about financing – the things that we know to be now the drivers of modern business and innovation. These are just being ignored as if they were not important. Because it is difficult to tax them, there is an attempt to allocate the profits in case the company moves to a low-tax location.

So the mentality of the 1950s rather than of the 21st century.

Yes, but it is even worse than in the 1950s! Back then, the OECD was actually doing something good and was removing tax barriers to international trade. Now it is going the other way – it is imposing barriers. So yes, it is even worse than in the 1950s. The two big drivers, mechanisms behind it that France, Germany, and similar countries are using are, first, the EU (imposing the CCCTB, and lots of other things as well – eg. Harmful Tax Practices initiative, etc.), and the other one – the OECD, driven largely by Europe, based in Paris, largely following the French agenda. One of the things I am hoping for is that the U.S., the biggest financial contributor to the OECD bureaucracy, and Trump are going to say “hang on, we don’t want these policies, we want to pursue a different policy”, as a result of what the OECD will change its agenda due to the pushes they are getting from the member countries. That it will change after Trump and Brexit.

Will Brexit truly be an opportunity for the UK to become the tax haven of Europe?

Hopefully. It is not just about everyone from Europe investing into the UK. It is about the UK being the route by which outside investment comes into the EU. There is a huge amount of far-East or Latin-American investment – International funds coming around and I am hoping that the UK is going to become the route for that.

The Chancellor, Phillip Hammond, threatened that if the UK did not get a good deal with the EU, then we would become the Singapore of Europe. I do not believe we should be using it as a threat. I think that should be our policy! Whatever deal we get, we ought to be going for that low-tax route. A lot of it is already coming through the UK-connected coutries anyway. Jersey, for example, is a big route for the financial capital coming from the far East – through Jersey, through the UK, to the European Union. I am hoping that this will continue.

Of course, we are not the only country in Europe that does that. Ireland is very successful in attracting international capital. Lots of the U.S. capital is coming to the UK via Ireland. It also goes without saying that Luxemburg is very successful. The Netherlands designed their tax system to really attract these international holding companies and be their main location for that. We are not the only ones.

I am sorry for the rest of the EU because you are losing the UK’s vote. Now many tax policies and other things the UK would probably have stopped either by voting against it directly or that would just never be proposed because the UK would block them anyway may now be on the agenda. As the European Union gets worse in this respect, a lot of these things will come in faster because the countries that are left to oppose them (Ireland, Luxemburg, the Netherlands, Malta) are not the big EU countries, they do not have the “big votes”. My prediction is that the EU tax systems, tax policies, will get worse. Which will give the UK an even greater opportunity.

In terms of the UK being the tax haven of Europe, half of Europe already regards it as a tax haven! Corporate tax rate is 19%, it is going down to 17% – by German standards that makes us a tax haven.

But isn’t the UK jumping the EU ship prematurely?

No, we are only just getting out in time! <laughs> The four stages of CCCTB, which harmonizes the method of calculating corporate taxes across the EU, are supposed to be coming in in 2019. We are only just going to get out in time before that happens. I do not think we want to stay any longer. If you look at the way euro or the financial crisis is going, you start to wonder: what is going to be next? The Italian banking crisis that everyone is predicting? I am just hoping that 2019 is soon enough.

So it’s lucky that the UK kept its currency then.

Oh, definitely! That would have made Brexit much more complex as well.

But what would happen if the UK voted “remain”?

It was close! It was only 48:52. Which, again, underlines the stupidity of the Commission for not negotiating. If it is that close, you did not have to offer very much to have swung the vote the other way.

If we stayed, our negotiating position within the EU would have been destroyed. Because the threat of exit – or not even the threat of Brexit but the possibility of Brexit – was one of the things that strengthened the UK. You cannot keep overriding us in what we do. Somebody said the other day in response to why the UK is leaving that it is because they only ever objected to 20% of EU regulations anyway. And somebody else said that the UK’s voice is going to be weaker because you are speaking on your own in international affairs, you are not speaking within the EU – well, yes, we might be a bit weaker but actually, we can say what we want. Whereas within the EU – okay, we were the stronger block but that block was not negotiating for what we wanted. The TTIP is not the way we wanted international trade policy to go. But we were not a big enough part of that discussion.

Theoretically, we are weaker outside. But because we are able to act on our own views, make our own argument, we are, actually, in a much stronger position. Having had this big debate and having said if you do not renegotiate the way we want, we are going to have the Brexit referendum and we are potentially going to leave – if we had decided to stay in, we would have no negotiating power at all. The Brussels’ attitude would be “you’ve decided to stay, you’ve got to do what we say”.

So in two years the Brexit will have already taken place. Where will the UK be in five years from now? And where the EU will be at that point without the UK?

The EU will be going downhill. I think that without the UK to put that break on some of things they will become more protectionist, more high-tax, more regulatory. The UK might become more protectionist as well – it might become Little England (but I do not think this will happen). We’ve got the UK election coming, of course, and the predictions are that the Conservatives, the current government, is going to have a big majority. That then gives them five years until the next election.

By the end of those five years (or really four years) the government needs to be sure that Brexit has worked – to give time for people to realize that yes, it has worked, before the next election comes. I expect that there is going to be a big drive by the UK government to make this work, to get some international trade deals together because we need to show that we can do this and we need to show it in time, within that five-year electoral cycle.

There might be some protectionist things as well because politics is always a trade-off. However, I believe that the need to show that Brexit is working and that Britain can make international deals, that it can stand on its own two feet, is going to mean that this will happen.

And what are the current moods in the UK as far as Brexit is concerned?

As far as the general public opinion goes, the opinion polls are all saying that the support for Brexit is increasing after the referendum. There was this so-called “Project Fear” – the old Cameron government was trying to push the “remain” votes in the referendum – which was saying that if we leave, then everything will be a disaster: the economy will collapse, there will be no jobs, no investment. And they were saying that this would happen not just after Brexit, but actually immediately after the referendum because companies would look ahead and say “you’re leaving in two years, we’re not going to invest anymore”. This has not happened!

Companies are continuing to invest. Even some of the companies that the government put pressure on to say that they would pull out. Actually, some of them are now announcing more investment into the UK. So people have realized that the disaster has not happened and there is no sign that it is going to happen. The world hasn’t ended. So the support for Brexit has increased.

Politically, at the moment we have some very good people in charge of Brexit – David Davies, the Minister for Brexit, is an extremely good, very capable and intelligent politician who supports international free trade. I’m hoping he still will be doing that job after the election. I don’t think the instincts of Mrs May are the same. It seems to me that she has more protectionist instincts.

Overall, politically, Brexit is not going to be reversed. Certainly not by the Conservatives. So they are going to do it and they are going to have to make the best of it. Even though it is perhaps not what Mrs May’d wanted, the political need to show that it is successful is going to mean that we are going to get at least partially the sort of Brexit that we want.

The interview took place during the Free Market Road Show in Warsaw on May 22, 2017. Special thanks to the Civil Development Forum (FOR) for organizing it.

Richard Teather
Olga Labendowicz
Liberte