Free trade has always championed people who are ‘just about managing’. In the nineteenth century, free-traders reduced food tariffs in order to provide a ‘big loaf’, namely cheaper bread, for working class consumers, while protectionist policies raised food prices. Today’s Brexit debate sees a similar split between free-traders and protectionists.
On the one side, free-traders want to leave the customs union so the UK can strike new trade deals with countries across the world. On the other, protectionists are pushing for continued membership of the customs union, a protective barrier against non-EU imports. By withdrawing from the customs union and other damaging EU policies, Brexit should be the biggest victory for ‘big loaf’ economics since the Corn Laws were repealed in 1846 by the great Victorian reformer, Sir Robert Peel.
As lower income households face a rising cost of living and stagnant wage growth, free trade and market liberalisation is crucial in the post-Brexit era. An important market which can be reformed for the benefit of consumers is agriculture. In 2014, the average household spent £58.80 per week on food and non-alcoholic drinks, which is the fourth highest component of household expenditure. By using repatriated powers to reform UK agriculture, the Government can cut the average household’s weekly food bill.
Forging free trade deals with non-EU countries, including nations with major agricultural sectors, would drive forward competition and innovation in agriculture and incentivise farmers to become more productive. This can only be done if the UK withdraws from the customs union and becomes a fully independent member of the World Trade Organisation, as recommended in the recent CPS Pointmaker report Brexit, Agriculture and Agricultural Policy. The Government can prepare UK agriculture for this new era of free trade through a bold programme of market liberalisation.
There is already an appetite for deregulating agriculture. Andrea Leadsom, the new DEFRA Secretary, has committed herself to cutting red tape post-Brexit, specifically targeting the ‘three-crop rule’. There is also a case to be made for revising regulations regarding GM crops, but important environmental protections should remain intact. Forthcoming agriculture legislation can help realise this vision for a less heavily regulated agricultural market.
A more controversial aspect of the agriculture debate is the issue of farm subsidies. Under the Common Agricultural Policy, the Basic Payment Scheme awards subsidies to landowners according to the size of their estate. The bigger the estate, the bigger the subsidy. This is supplemented by the UK Government’s rural development programme. Philip Hammond has guaranteed continuity in funding for farmers until 2020 so as to provide certainty. This is understandable but it should not be the end of the conversation. Serious reform is needed for the long-term success of UK agriculture.
One powerful example of successful agricultural reform is New Zealand in 1984, when the Labour government abolished all subsidies for farmers. There was short term pain due to high interest rates and low land values, but the result has been a robust, diversified market with lower prices. Total factor productivity growth went from 0.7% in 1972-84 to 1.9% afterwards, with labour productivity increasing by 85% since 1984. This allowed market incentives to operate for the benefit of consumers and taxpayers alike. The UK Government should strongly consider the gradual elimination of farm subsidies from 2020 to 2030.
This is no easy task. Resistance from the farmers’ lobby would be immense, but the economic benefits for consumers and taxpayers would be even greater. Instead of giving in to protectionists, Brexit should be led by the ‘big loaf’ economics of free trade which works for everyone, especially those who are ‘just about managing’.