1. BREXIT – The elephant in the room
Presentation at the CIMR workshop UKs Industrial Strategy in Context Friday 23rd March 2018 Klaus Nielsen Birkbeck, Department of Management

2. The Industrial Strategy – strengths
Overall approach
- the need for a strong strategic state
avoiding the ‘picking winners’ stigma
moving away from tax cuts and deregulation only
Rebalancing
Grand challenges
Sector deals
Some strategic policy initiatives

3. The Industrial Strategy - weaknesses
SMEs kicked into the long grass
No cure to the short-termism disease
Distorted view of innovation (R&D only)
Little learning from the past
No learning from other countries

4. The Industrial Strategy - uncertainties
Funding (modest, what about the future?)
Long-term political priority
Brexit – the elephant in the room (p )

5. Brexit uncertainty Hard or soft? Trade regime: a la Canada or Norway?
Some certainty regarding withdrawal deal, exit date and transition period but not about future relationship
New referendum or general election

6. Likely Brexit Outside of single market and customs union
Canada ‘plus’ (with some cherry picking)
- member of some agencies
- taking part in EU research programmes
- some financial services (equivalence)
- regulatory alignment
- costly and restricted
Immigration of skilled labour largely unaffected
Northern Ireland??? (“custom partnership”, magical thinking, “full alignment”, “highly streamlined customs arrangement”)

7. Effects of likely Brexit (a)
Lower growth (EU Exit Analysis – Cross Whitehall Briefing, Jan 2018: 2% -8% over 15 years depending on type of Brexit; assumes US-UK deal offsets some of lost business with the EU)
More effects in North than South
Significant negative impacts on some industries – financial services, retail and manufacturing (in particular, industries with integrated EU/UK supply chains)
Neutral or positive effect on other industries

8. Effects of likely Brexit (b)
FDI (some relocation)
Financial services (some job loss)
Labour shortages in some industries
Replication of most EU regulation
Research funding (no net inflow)
Independent trade policy?

9. Independent trade policy? (a)
A significant Brexit dividend (counteracting the growth effect)?
Highly unlikely, ‘fantasy world’
Difficult to replicate existing ties (several hundred new treaties required)
Impossible to improve most existing ties (EU versus UK negotiating strengths)
What can be achieved by an independent trade policy? (where exactly is it possible to achieve improved trade deals?)
America first, China first

10. A look at the Department of International Trade
Any evidence of likely favourable deals?
Focus on the strength of the UK economy (irrelevant, will be weakened by Brexit)
Focus on championing general free trade (more efficient outside than inside EU?)
Focus on export strategy and export support (nothing that cannot be done in EU, nothing that similar departments in other countries also do)
Focus on the fact that future growth will mostly happen outside of the EU (true, but is UK better equipped to take advantage of this inside or outside of the EU?
General and vague statements about the virtues of independent trade deals (no evidence at all)

11. Brexit and the Industrial Strategy
So no doubt trouble ahead
Has EU rules constrained the strategy?
Industrial strategy more important after Brexit
Negative effects on implementation conditions (funding, political priority)