It is not our place to offer UK voters any suggestions for their Brexit vote, scheduled for June 23. Moreover, we see no reason to duplicate George Osborne’s widely-discussed analysis of the economic impacts of a vote for leaving the European Union.
Rather, we simply want to give our assessment of the United Kingdom’s current economic situation and prospects, assuming that the country stays in the EU. Start with the bad news. The UK is suffering from a severe productivity slowdown, which is dragging down growth and real incomes. But it’s not purely a UK problem—the same slowdown is hitting the U.S. as well continental Europe.
But the good news is that the UK is about to take advantage of its key position in the global economy.
The UK is the country best poised to take advantage of the reforms in the global tax system. The country is in the midst of lowering its corporate tax rate to 17% as of 2020, and has put into place a “patent box” that will attract research and development activity from higher-tax countries such as the U.S. and Germany. What’s more, the BEPS reforms from the OECD make it more difficult for multinationals to seek out tax havens without actually moving workers into those countries. As a result, the low-tax UK—with its network of connections to the rest of the world and attractiveness to skilled workers—will be increasingly appealing to global companies.
At the same time, the UK is establishing itself as a tech powerhouse. The information and communications sector now in the UK accounts for 4% of total jobs. That’s higher than the comparable 3.2% figure in the US.
Moreover, the UK has 321,000 App Economy jobs, first in the EU by a wide margin, according to PPI research. The UK also has 178,000 jobs in the Fintech Economy (these figures include a conservative estimate of spillover effects). London leads all EU cities with 136,000 App Economy jobs, way ahead of second place Paris. The city also has 109,000 Fintech Economy jobs, somewhat ahead of New York City and way ahead of Silicon Valley (based on our update of 2014 research).*
Currently the UK is benefiting from its dual status. On the one hand it is part of the European Union, giving it access to the continent’s markets and skilled workers. On the other hand, its historical ties to the US makes it the logical landing place for US multinationals. These economic advantages are not to be given up lightly.
As the world becomes more connected and our shared economic prosperity is related to global scale, investment from the US, Asia and other strong economic players need a friendly home inside the EU. The UK is winning that race by a long mile–why would they quit now?
*This figure includes spillover jobs, making it not directly comparable to our 2014 figure for fintech jobs in London).