After Liz Truss’s disastrous 45-day reign as Prime Minister, it appears that the adults are back in the room as the United Kingdom gets its 54th Prime Minister in Rishi Sunak. Following decades of low productivity due to a low-growth, high-regulation economy, Truss intended to transform the UK into ‘Singapore-on-the-Thames’ by embracing the UK’s post-Brexit regulatory freedom. Characterised by low-taxes, low-regulation, high-trade, and high-growth, the Singapore model was meant to recoup the £30 billion lost in tax revenues after Brexit, but the Truss-Kwarteng “dash for growth” spooked the markets and crashed the pound. Consequently, expectations for Sunak are low and the country eagerly awaits the Autumn Statement, hoping that there is a steady hand on the tiller again.
Sunak inevitably has the “in-tray from hell”, with inflation reaching 10%, the government needing to find over £60 billion in spending cuts, the country facing nationwide energy shortages, and threats of industrial action by trades unions whose members’ wages lag behind inflation. Sunak shares Truss’s view that low growth, low skills, and low productivity are the biggest issues in Britain’s economy and, according to his leadership campaign pledges, he will focus on settling the markets and making spending cuts before tax cuts, reminiscent of the austerity measures employed after the 2008 financial crisis. He will also be pushing for trade deals with parts of the world that have managed to keep growing after the pandemic, such as India, America and other English-speaking countries. During his campaign he took a hard line against China but this may have to soften if he intends to push for foreign investment and trade. Whether he will push forward with his ‘Singapore-on-Thames’ dream after Truss’ failed attempt is yet to be seen but, while reform is needed, he will need to calm the markets first.
‘Singapore-on-Thames’ is a post-Brexit economic model often proposed and embraced by the tax-cutting wing of the Conservatives. The name refers to Singapore’s prosperity achieved under Prime Minister Lee Kwan Yew (LKY) between 1959 and 1990. The reasons for the country’s transformation are complex but a brief overview will clarify the thinking behind the Tories’ model. There were four strands of the transformation that the Conservatives hope to emulate. First, the moral transformation came from an act of self-sacrifice by LKY. Early in his administration he jailed the financier who bankrolled his election campaign for abuse of office. This act, much like Volodymyr Zelensky’s decision to stay in Kyiv, exemplified his commitment to public sector integrity. Second, his fiscal plans revolved around low taxes on businesses supported by heavy stealth taxation of land appreciation. Compulsory land purchases with compensation based on 1973 valuations allowed the state to buy two-thirds of Singapore’s land area before reselling it to developers at much higher market prices. Third is Singapore’s social transformation which contained many bold policies, such as cheap social housing, but more crucial was the pushing of wages, intentionally diminishing the importance of labour-intensive sectors, such as the textiles industry. Entreprenurial efforts were consequently focused on creating highly skilled jobs, while educational policies sufficiently equipped young people with the skills to do the jobs. Fiscally conservative economists mocked the strategy but LKY came out on top. Finally, the Prime Minister’s market strategy focused on exports by building strong trading relationships with the primary marketing in Europe and North America. Simulating this in a post-Brexit Britain would be…challenging. These four strands were intended to bring the country together around a new and morally worthwhile purpose. Similarly, tax reductions would help Britain to ‘level up’ the struggling regions and assist the poorest, secure the Tories’ Red Wall seats, and stimulate innovation by entrepreneurs and universities.
The nickname of ‘Singapore-on-Thames’ is believed to have originated with Margaret Thatcher’s 1989 Bruges speech deploring the increasing regulatory dominance of the then-European Economic Community. This inspired many members of the Conservative party to become Eurosceptics and has since become popular with libertarian Brexit supporters. The term was widely used by the media after Chancellor of the Exchequer Philip Hammond said in a 2017 interview that if the EU refused access to its single market on terms favourable to the UK then the UK would have to change its economic system to one unlike EU countries to remain globally competitive, a result he didn’t want. Leaving the EU was seen by Brexit supporters as an opportunity to revive Thatcherism by slashing rules, laws, regulations, taxes, and safeguards. These are believed to be the ingredients of a successful, low-tax, high-productivity country and, as a result, the UK would become ultra-efficient and boom just like Singapore, while other European countries would look on in envy and the EU would swiftly dissolve, in theory.
However, the UK and Singapore are two very different countries with contrasting economies. Taxes are low in Singapore, as the highest level of income tax is just 22%, VAT is set at only 7%, and there are no zero capital gains tax to be paid, but the country has become a tax haven for foreign investors and companies, with much of the money being illegitimate. This level of investment is unlikely in the UK and likely to dwindle because, previously, they would come to the UK to produce in a low-paid, low-taxed, low-regulation area while having seamless access to the entire European Economic Area, but Brexit means we no longer have that attraction. Regardless, Brexit supporters relentlessly insist that slashing UK standards, cutting pay, making the labour market more flexible, and cutting business tax will encourage investment, but we were already one of the most loosely regulated states in the EU so any gains from degrading ourselves further will be minimal. A side of Singapore’s tax system that isn’t so eagerly discussed by Brexiteers is the compulsory savings system on top of taxation, requiring employers to pay an extra 17% of each worker’s wage into the Central Provident Fund, while citizens have to save 20% of their wages with the government. The government invests this money in pet projects but the citizens have no say in how it’s invested, making Singapore not such a low-tax economy after all.
Another key difference is that Singapore has the whole of Asia to trade with, while our main trading partner is the EU. Asia has different standards and requirements in terms of trading, allowing Singapore to cut corners and save money, while there are EU requirements that the UK still has to abide by if they want to continue trading with EU members. The ‘Trade and Cooperation Agreement’ includes “level playing field” provisions, requiring the UK to stick with similar or identical standards as the EU or face consequences such as tariffs or bans on exports to the EU. So the UK cannot undercut the EU if they want to continue selling there.
The ‘Singapore-on-Thames’ model is regularly held up as a free-market utopia that will solve all of the UK’s problems, while ignoring the amount of state interference in the economy. The six largest state-owned companies make up 17% of the value of the Singapore stock market due to the state having its fingers in various pies, including airlines, transport, power companies, property companies, media, and engineering businesses. For example, 80% of homes in Singapore are publicly built and the state runs the property sector, meaning that you can buy the property on a 100-year lease but the state owns the land and manages the estates. It also decides how many houses are needed and builds them, so four out of every five homes are council-owned and managed (communism, anyone?). Additionally, 20% of Singapore’s economy comes from its manufacturing industry which imports raw materials, processes them, and reships them around the world. This could work for the UK…if Thatcher hadn’t decided 40 years ago that manufacturing wasn’t the future and prioritised our services industries instead, simultaneously diminishing our manufacturing industry and decimating the North. Therefore, it would appear as though Brexit supporters are in favour of major re-nationalisation. Perhaps even more uncomfortable for them is the fact that attracting foreign talent and money required Singapore to admit huge numbers of people into the country, with two-thirds of the country’s population growth coming from immigration between 1990 and 2000. Even Liz Truss recognised that growth would require greater immigration as she planned to raise the number of workers allowed to enter the UK, risking a strong backlash from pro-Brexit voters in “red wall” seats.
Geographically, Singapore is in a much better position than the UK. It’s at the crossroads of Asia, so shipping across the region passes near and through it. The UK lacks this advantage and it is not a major shipping destination either. Of the top 50 container ports in the world, seven are in the EU and none are in the UK, so we would have to alter our shipping infrastructure significantly if we were to try to compete. In summary, we are a large, service-based economy outside of the EU, we aren’t a gateway to the EU and we can’t undercut them while maintaining our current trade links with them. The ‘Singapore-on-Thames’ concept is an illusion to make Leave voters feel like they did the right thing, when they actually demolished the economy and will hold us back for years, if not decades.