Dominic Raab: To defend free-market capitalism, we must stand with the small business, the worker, and the consumer

I have always been a champion of our nation’s dynamic, free-enterprise economy. It creates the jobs we need, and improves our quality of life. It generates the revenue to pay for our schools and hospitals. It is also why I have been so consistent in my view that Britain is better off once we secure Brexit. The European Union is not a free-market organisation. It is interventionist, protectionist and statist. We have to make Brexit happen, to escape that institutional cage. Yet, Brexit only represents a step towards a new economic future for our country — not an end point.

For me, the ultimate Brexit destination is a fairer Britain for all, brought about through a comprehensive economic policy with three dimensions: a buccaneering approach to concluding free-trade agreements across the world, which pays off in lower prices in the shops, and more export opportunities for our small businesses; a programme of tax cuts targeted at helping people on lower incomes; and a renewed emphasis on boosting competition to end corporate rip-offs, and ensure the consumer is king.

Take trade. I believe it’s the single biggest economic opportunity we will get from Brexit. We will no longer be tied to the EU’s red lines, and its instinctive insular protectionism. Looking global makes economic sense. After all, the EU Commission itself estimates that 90 per cent of the world’s economic growth will come from outside the EU by next year. A liberal, dynamic, and energetic approach to global free trade will reduce barriers and expand opportunities for SMEs. That will help create the jobs of the future in innovative sectors like technology.

A focus on SMEs is not some wistful sentimentalism. It’s economic common sense. Since 2010, 72 per cent of the new jobs in the private sector have been created by SMEs. Expanding their global opportunities will help them create the innovative and better-paid jobs of the future. Above all, free trade benefits consumers by reducing prices in the shops and removing non-tariff barriers to trade. Whether it is the EU’s 17 per cent tariff on most shoes, or the 12 per cent tariff on knitted baby clothes, Britain can do better freed from this unnecessary and damaging protectionism. It is the average working family who will benefit if we remove tariffs, which represent an extra tax on the cost of living.

Next, we must carefully prioritise our future tax cuts. There has been a fashion in recent years for people in my party to back away from tax cuts. And, yes, they have to be affordable. But we must constantly strive to put money back in people’s pockets, because they spend their hard-earned money much more effectively themselves than governments ever do. My priority is to focus on the lowest paid in work. I think that’s the right thing to do. These people are the aspirational working classes, who need to know we’re on their side. That is why I propose we should take a penny off income tax, and raise the national insurance limit, so that the lowest paid are taken out of payroll taxes altogether.

Finally, a free market needs to be properly policed, to safeguard its freedoms. Socialist rhetoric offers a deeply damaging and counter-productive economic policy agenda of nationalisation, higher taxes, and wider state intervention. But accusations of crony capitalism and markets rigged by vested interests do resonate with people, because they chime with their real experiences. We free-marketeers need to offer a compelling answer, or risk being ignored.

I started my career training as a competition lawyer at Linklaters in London and Brussels, advising businesses, small and large. And I learnt that, wherever the charge of a rigged market stuck, it was invariably the result of a poverty of proper competition. Too often, consumers were being ripped off because the market was in the vice-like grip of a small number of big businesses.That’s why I believe we need to strengthen the mandate and powers of the Competition and Markets Authority (CMA).

The CMA is going to be an even more vital institution in post-Brexit Britain. But it is currently disproportionately focused on mergers and acquisitions between big corporations. That’s really important work, of course, but an emphasis on consumer markets could make a massive difference to the things that really bite on individual consumers. These are things like energy bills, bank and mobile phone charges, and the commission charged on foreign exchange — a whole series of markets in which consumers have been ripped off. In all these sectors, a heavy dose of transparency over consumer charges, along with a burst of competition to allow small businesses to challenge the entrenched players, is long overdue.

I’d also like to see a broader duty to investigate all anti-competitive conduct in the marketplace, including a power to issue Anti-Competitive Behaviour Orders, or ACBOs, against firms ripping off consumers, with large fines for breach. Take energy bills — one of the most gummed-up markets, in which consumers are regularly ripped off. Caps and interventions are not only anti-freedom but are also ineffective. I would take a different approach. Clearer information — as recommended by the economist Dieter Helm — would promote the switching of energy providers, by requiring energy firms to publish clearly the constituent parts of their standard variable tariff (SVT) energy bills. Switching is the best way to save money. Compared to the estimated £76 saving from the government’s cap, Ofgem estimates that switching can save the average SVT customer £374 per year. That’s the kind of practical step we need to take to put consumers at the heart of policy.

Free markets only work if the participants have access to the right information, and the power to take their custom somewhere else. That’s something I think should be put right at the heart of government policy. A commitment to the free market is not just an economic principle. It’s a political declaration, too. The best way to defend capitalism from the current socialist assault is by making sure it — and we, its supporters — stand squarely on the side of the small business, the worker, and the consumer.[1]

 

[1]As with all FREER and IEA publications, the views and positions presented in these economic freedom essays are those of the authors, alone. Neither FREER nor the IEA takes any corporate position on policy positions. For alternative views on Brexit, see, for instance, the range of arguments presented in our recent democracy debate: https://www.freeruk.com/media/video-why-democracy/

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