RSM argues No Deal Brexit a chance for tax cuts

24 July 2019 Consultancy.uk

With a dreaded No Deal Brexit once again accumulating headlines across the British press, the UK could be in line to endure a recession in or out of the EU. However, according to consultants from RSM, a No Deal would also present a major opportunity for Britain’s largest companies to lobby for tax cuts.

The on-going saga of Brexit has left Britain’s economy in a state of disarray in the last year. With no conclusive end to the UK’s exit from the remaining bloc of 27 in sight, the UK’s economic prospects do not seem to have improved. The Scottish Chambers of Commerce recently found firms were struggling to grow, amid political deadlock over Brexit, while elsewhere, this uncertainty saw softening orders subject UK manufacturers to negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months of slowing growth at the start of 2019.

As a result, the UK economy appears to be teetering on the brink of recession, especially after the Brexit Secretary declined to rule out the possibility of a No Deal Brexit resulting in a depression. The last time the UK entered into a recession it prompted a decade of austerity measures that hit the nation’s poorest hard, while ushering in an era of tax cuts as the Government theorised it would attract larger numbers of super wealthy companies to do business in the UK.

RSM argues No Deal Brexit a chance for tax cuts

While on one hand, this worked to return the UK to GDP growth, it has done little to share wealth across society, however. Wages remain broadly stagnant, while public services have been decimated to pay for both the financial crisis mop-up and tax cuts in the private sector. With or without Brexit, then, critics would argue the UK’s economy was muzzled regardless, due to the broader economic model it has been committed to.

However, according to experts from RSM, a ‘strong stimulus programme’ of tax cuts and incentives is still what is required to support the UK economy in the event of a No Deal hard Brexit and the resulting recession. In an event hosted by RSM in Bristol at the end of June, professionals from the audit, tax and consulting firm told an audience of business leaders from across the South West that tax cuts would be the only way to stimulate demand.

As reported by Business Leader, the Beyond Brexit event saw RSM’s US Chief Economist Joe Brusuelas and the firm’s Brexit lead Partner Simon Hart set out the possible consequences of a No Deal hard Brexit, which could see GDP fall, inflation jump and wage growth slow, leading to a drop in overall living standards. When asked what policy response would be required in the event of a No Deal, Brusuelas said interest rates would need to “go down to zero”, while the Bank of England will have to “act boldly and aggressively” to maintain this for a sustained period.

Beyond this, Brusuelas added, “Second, there will have to be tax cuts for both households and businesses to stimulate demand. And finally, there will need to be incentives targeted at jumpstarting productivity-enhancing investment which has recently ground to a halt.”

Hart, meanwhile added that the “period of exceptional uncertainty” meant businesses should hope for the best but “plan for the worst.” He added that when Britain reached its initial Brexit deadline, many businesses were unprepared for the possibility of a No Deal, despite being warned consistently for the best part of two years to do so. Despite the option remaining on the table, he suggested “not much has changed.”

“Indeed,” Hard concluded, “there may be up to 150,000 small and middle market businesses who currently trade with the EU who aren’t ready for the potential changes to customs processes. Whether this is because of time-induced Brexit apathy, ignorance or a ‘cry wolf’ mentality that’s set in following the missed March deadline, businesses need to take swift action to ensure they can continue to seamlessly trade with their EU customers and suppliers in the event of a No Deal. The time to act ready for beyond Brexit is fast approaching.”


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