Yesterday I published proposals for a new UK economic policy through Politeia. I set out why I think Brexit is a great opportunity to promote more UK growth. The freedoms we gain will enable the UK government to follow policies friendlier to jobs and domestic output.
One of the big themes I suggest is to correct the worst of the balance of payments deficit. 25% of the deficit in 2015 came from UK government payments abroad in the form of net contributions to the EU and overseas aid. The sooner we are out of the EU the sooner we will benefit from that saving on the external accounts. The government should make sure more of the money spent on overseas aid is spent on buying goods and services from UK producers, where the money cannot be spent directly in the country we are seeking to help. That will boost UK business and cut the strain on the balance of payments.
36% of the 2015 deficit came from the excess of interest and dividends we pay away to foreign lenders and owners of UK assets over the money we receive from our investments and loans abroad. There is no quick fix to this, as the longer we remain in deficit, the more the claims of foreigners on UK assets will build up. However, the government could work to ensure that in future when adding to our power stations and other privately financed infrastructure the investment is offered on decent terms to UK savers and institutions rather than to foreign interests. The Chinese financing of Hinckley will b e a long term drain on our balance of payments.
The remaining 38% of the deficit comes from the deficit on trading in goods with the rest of the EU. The UK is in surplus with the rest of the world on trade account, and in surplus on services with the rest of the EU, but has a huge deficit in goods. Some of this will reduce as a result of the devaluation of the pound. People will look to buy domestic substitutes or cheaper goods from non EU destinations. Some will reduce as a result of new UK policies. Why need we continue with a deficit on fish, once we take back control of our own fishing grounds? Won’t a UK farming policy be more helpful to UK flower and vegetable growers? Won’t more market gardens flourish?