I read a very interesting article in the Times by Danny Finkelstein regarding the Singapore model and whether the UK could follow this. Lord Finkelstein was somewhat sceptical about the UK adopting the Singapore model and pointed out some important differences between the two countries.
It took me back to the start of my working career when I was selling timber doors made in the Far East and Brazil for my family firm. Even then in the 1980s, I struggled to sell doors produced in Singapore factories because of the price that was being charged. This reflected the relatively high costs of labour and land compared to Singapore’s neighbours.
At the same time as in the UK, Singapore was undergoing a substantial change in its economic base; moving from a manufacturing economy to a service economy. A number of factors have not changed. First of all, as Finkelstein points out, government spending as a percentage of GDP is less than half of the UK’s. Secondly, there is a wide differential between the UK top rate of income tax at 45% and Singapore’s at 22%. Interestingly, the rates of corporation tax at the moment are relatively close to each other with the UK at 19% and Singapore at 17%.
Singapore has not prospered by accommodating Western manufacturing which has been offshored. Rather it has built up its services and in particular its financial services sector as well as its high-tech industries. I’m sure that the door factory which I used to sell for has long disappeared.
Originally, Singapore was at independence to be federated with Malaysia, its larger neighbour, on the mainland, despite having different languages and culture from Malaysia. As a result, it was expelled from the Federation after only two years. Despite having no hinterland, it has grown and prospered as a City State. As a separate political entity, it has also managed to avoid the problems which have been experienced on the mainland.
So, in what ways could the UK seek to emulate Singapore which now has a considerably higher income per person than the UK does? There, I think Danny Finkelstein falls into the trap of looking at this in a binary fashion. Just as the UK sought to position itself as between Europe and the United States; being less regulated than Europe but providing more protections than the USA; it could look to emulate some of Singapore’s approaches without adopting them wholesale.
Take regulation; it is difficult to get rid of large amount of regulation, once they have been enshrined in law. The recent move by Kwasi Kwarteng, the new BEIS Secretary of State, to stop any further consideration of changes to the working time directives is evidence of this. It is also the case that adopting new regulations with all the implementation costs is inherently more disruptive and expensive than maintaining them once they’ve been in for a number of years. However, if the EU carries on increasing regulations and the UK does not follow, this would create a divergence that will grow greater over time. The recent decision to scrap most of the DAC 6 regulations (tax disclosure requirements for intermediaries), which had not fully come into force, and only keep those required to be in accordance with OECD requirements is perhaps a portent of what might happen.
As a member of the EU, the UK was assiduous in implementing directives and rulings from the courts extremely quickly; certainly, by comparison with other member states. One of the complaints about the EU regulations was that the UK tended to add to them and gold-plated them. Bringing the control of these regulations back to the UK Parliament is likely to put more scrutiny on the creation of further regulations.
In regards to taxation, the current deficit in the public finances is unlikely to give the Chancellor the opportunity for substantial tax cuts for a number of years. This does not however mean that the UK can ignore the competitive tax position as it looks to compete on the global stage. This means it needs to keep an eye on the tax position of other financial centres such as New York and Singapore. The good news for the UK is that under Joe Biden, taxes in the US are likely to increase substantially.
The other element which is as important as the regulations themselves, is the way that they are administered and the mindset that entrepreneurs and governments adopt. A good example of this has been the position on the vaccines. It is true that there was nothing in EU law to stop the UK approving its own vaccines independently of European Medical Agency. This course of action was also open to every other member state of the EU. The fact that the UK alone did approve them substantially in advance of the EU and uniquely chose not to join the European vaccine procurement programme run by the European Commission, points to a question of attitude rather than legislation.
If BREXIT does lead to a renewed spirit of innovation in dealing with challenges as well as creating new markets, then the UK may well achieve something closer to Singapore’s economic success; while still retaining the political, cultural and social features which make it so different to Singapore.