The idea that the UK might become a low tax economy to attract major corporations to Europe’s largest offshore island is repugnant to many British people, but it is perhaps what Theresa May considers as her “hole card” in the game of Brexit poker that she is about to play with the EU. The UK position is that it wants to remain close to its (former) European partners and forge a win-win bespoke trade deal which will grant it freedom to pursue global trade deals yet maintain many of the advantages of the EU membership that it currently enjoys. The EU has steadfastly maintained that it doesn’t want to see the UK leave the EU, that it respects the UK’s decision and that the nation will not be offered any kind of Europe a la carte solution.
The failure of the Commons to attach amendments to the Article 50 bill means that should it be impossible to reach an acceptable deal, the UK will fall back on WTO rules (unless the House of Lords insists on such amendments and can persuade the lower chamber, of course). Should this happen, the government has suggested that it would change the UK’s economic model, by slashing corporate tax and easing regulation.
The Bank of England’s Sir Jon Cunliffe has a remit for ensuring financial stability and has cautioned against any relaxation of banking regulation which in his view could damage the global economy. Donald Trump has already ordered a review of the Dodd-Franks banking regulations in the USA that were brought in in response to the Global Financial Crisis. They restricted the use of complicated financial instruments, bolstered liquidity requirements, ended banks’ abilities to use their own funds to invest in intricate equity and debt vehicles for their own advantage.
In an interview with the BBC, Cunliffe noted: "We've made very substantial progress since the financial crisis, increasing the resilience of the financial sector and increasing its ability to support the economy in times of stress both nationally and in Europe and globally, including the US. Those changes were necessary. None of us want to see again the sorts of events we saw between 2007 and 2009 and the costs of those events are still very clear. In order to have a resilient financial sector and consistent regulation internationally we need international standards, we need the reforms we have had and it is important we preserve them."
Currently, as a major global financial centre and member of the single market with its “passporting” arrangements, the UK financial centre contributes about 8% of total GDP. Sir Jon argued that it was imperative that the highest regulatory standards were maintained:
"It is important we have proportionate, highest quality regulation - robust and in line with best international standards. The UK - in order to be a successful financial centre, you need good regulation, you need robust regulation and you need regulators that have credibility and experience. One doesn't become successful as an international centre by having lax standards and by being open to crises and regulatory arbitrage ."
Such views do not bode well for the likely success of Mrs May’s Plan B; and relying on Plan A when it is not within your gift, but requires the assent of 27 other nation states and other regional and pan-European bodies is hardly a strategy guaranteed to succeed.