As post-Brexit Britain ponders how best to tackle Donald Trump’s global trade war, fostering growth and repositioning the country as a major player on the global stage, the lessons of the past must be heeded.
Such was the message of former chancellor Jeremy Hunt when he urged Sir Keir Starmer to follow the example of Singapore by resisting ‘the siren song of protectionism’ and embracing free trade.
‘If we put up fewer barriers to goods imports, there will be some short term pain as we cope with a glut of exports being redirected from the US,’ Hunt wrote in the Telegraph. ‘But if we hold our nerve, lower input prices and more innovation will make British factories extremely competitive. More people will want to build their factories here as a result.
‘It won’t be easy to resist the siren song of protectionism. But, as countries like Singapore demonstrate, openness can still deliver excellent results.’
There is nothing new in the comparison between modern Britain and circumstances in Singapore when it gained independence in 1965. Like the UK following the Brexit referendum, Singapore was involved in a rancorous divorce from a much larger geopolitical entity that left it facing an uncertain path. For one island’s withdrawal from the European Union in 2016, read another’s split from the Federation of Malaysia 55 years ago.
As many a minister has pointed out in recent years, Singapore went on to conjure an economic miracle. In the space of a generation, it has transformed itself from a country where the average citizen was two and a half times poorer than the average Briton, to a hotbed of soaring prosperity where total economic output is now 70 per cent higher than in the UK.
‘Over the last half century, its living standards have grown five times faster than ours,’ wrote Hunt. ‘Those who deride the idea of ‘Singapore-on-Thames’ fail to understand that the heart of their success has not been a harder-edged social policy but the building up of internationally competitive businesses through willingness to trade.’
So what are the key areas in which Britain could learn from its south-east Asian counterpart?
Tax
In a country where the average monthly salary is about S$70,000 (£40,000), residents pay income tax of just 7 per cent – less than half of the 20 per cent charged in the UK – while a salary equivalent to £46,000 would attract 11.5 per cent tax.
The individual tax ceiling is 24 per cent, payable only by those earning more than 1 million Singapore dollars; the equivalent rate in the UK is 45 per cent, a bracket that comes into play for anyone with a salary of more than £125,140 (about 217,000 Singapore dollars).
The country’s more favourable tax regime extends to corporation tax, which stands at 17 per cent in Singapore compared with 25 per cent in the UK. There is no capital gains or inheritance tax.
Following the Singaporean model – which also allows partial tax exemptions for some businesses – would require significant tax cuts, with obvious implications for state spending power.
Public spending
At approximately 15 per cent of GDP, government spending in Singapore is two-thirds lower than in Britain. Yet the gap in public expenditure is narrower, with the south-east Asian state spending almost £10,000 for each of its 6 million people, compared with about £13,000 in the UK.
Adopting the Singaporean model would therefore involve cutting public expenditure by almost one-third. That would have significant repercussions for the National Health Service, social care, education and criminal justice, to name but a few areas.
Regulation
A transparent regulatory regime that minimises bureaucracy and encourages innovation and entrepreneurship has helped to establish a business-friendly environment in Singapore.
The same cannot be said for Britain, where the path to economic growth is too often strewn with red tape. The chancellor, Rachel Reeves, urged financial, environmental and health regulators to streamline their approach in a meeting at Downing Street last month, adding that they would henceforth be under close scrutiny.
‘There are a number of things over the last decade or so that have held back growth, and one of them – if we are honest, and you know better than anyone – is the regulatory landscape,’ said Reeves. ‘Too much overlapping regulation, too much bureaucracy, too slow to get things done.’
In contrast, potential foreign investors in Singapore receive guidance from designated officials to make compliance as simple and clear as possible.
Reeves has taken tentative steps towards such a model, warning the City against overregulation, pledging to abolish the Payments Systems Regulator, a financial watchdog, and moving to simplify measures around nature conservation.
Net zero
International energy price comparisons have shown that Britain has the most uncompetitive electricity costs in the industrialised world. Net zero policies are at least partly to blame.
The Labour government has promised an array of green policies, including a pledge to make the electricity system ‘clean’ by 2030. But amid the push for clean power, which includes environmental levies and carbon permits, soaring energy costs have hit manufacturing industries hard.
Like Britain, Singapore is committed to reaching net zero by 2050. This means total greenhouse gas emissions would be equal to the emissions removed from the atmosphere.
But whereas manufacturing accounts for more than a third of all British goods and services exports, in Singapore the figure is closer to 20 per cent, with fewer of the relevant industries central to its economy.
An overhaul of Britain’s approach to the net zero target – one that does not impact industry so hard – would be required to keep step with Singapore as 2050 draws nearer.
EU
If evidence were needed of the EU’s fears about having a low-tax, regulation-light rival on its doorstep following Brexit, they were clearly articulated by former German chancellor Angela Merkel.
‘With the departure of Great Britain, a potential competitor will of course emerge for us,’ said Merkel in late 2019. ‘That is to say, in addition to China and the United States of America, there will be Great Britain as well.’
In order to prevent British firms from undercutting their European counterparts while granting tariff-free access to the single market, a ‘level playing field’ was agreed to ensure open and fair competition.
Any attempt to emulate the Singapore model would therefore be sure upset the apple cart, with Brussels likely to adopt retaliatory measures were the UK to break agreements around environmental standards, labour law and state aid.
Singapore-on-Thames would certainly fulfil the economic dreams of Brexiteers, but its realisation would be fraught with difficulty.