11.5pc tax and overhauling net zero: What Singapore-on-Thames would look like

Telegraph

04-04-2025

Singapore's first leader, Lee Kuan Yew, was famed for his iron self-discipline. Yet, even he broke down in public when he announced Singapore's expulsion from Malaysia and its enforced independence in 1965.
For an island state barely 30 miles wide, this was an economic shock infinitely greater than anything Donald Trump's tariffs might inflict on Britain today. 'We had said that an independent Singapore was simply not viable,' wrote Lee. 'Now it was our unenviable task to make it work.'
But make it work he did: under Lee and his successors, Singapore flourished into a country where GDP per capita is now 70 per cent higher than in Britain. More than anywhere else, Singapore demonstrates how a sudden economic dislocation can be transformed into an opportunity to prosper.
Jeremy Hunt, the former chancellor and foreign secretary, wrote in The Telegraph on Friday that this was an example for Britain to follow.
Singapore built its success on free trade and openness, allowing the country to create and attract globally competitive businesses, generating high wages and high-skilled jobs.
So how practical would it be for Britain to turn itself into Singapore-on-Thames? If we decided on this course, our driving national mission would have to be maximising the UK's competitiveness. Hunt argues that we should resist protectionism and remain defiantly open to imports, even when others impose tariffs on British goods. Instead of fearing an incoming tide of cheap products, Hunt says that we should welcome any such inflow as a spur for British companies to innovate and succeed.
But would they rise to the challenge or simply go out of business? How exactly would Britain adopt Singapore's model?
Taxes
Low taxes are a crucial component of Singapore's success. The highest income tax rate is 24 per cent, paid by anyone earning over 1 million Singapore dollars (£570,000), while the UK's comparable rate is 45 per cent. Someone earning the equivalent of £46,000 pays only 11.5 per cent in Singapore. Meanwhile Singapore strives to encourage investment by having no capital gains or inheritance tax.
As for corporation tax, Singapore charges 17 per cent compared with 25 per cent in Britain. If the UK were to embrace Singapore's model, this would require sweeping tax cuts, designed to give British business a competitive edge. That would, in turn have profound consequences for the size of the state.
Public spending
Singapore can afford low taxes because government spending is around 15 per cent of GDP, barely a third of the UK's 45 per cent. Because Singapore has less than 6 million people, that still allows a relatively generous public expenditure per capita of just under £10,000. The British state, meanwhile, spends about £13,000 for every individual in the country.
Copying Singapore would, therefore, require Britain to cut per capita spending by about 30 per cent. Could any British party win an election by promising to slash public expenditure by £3,000 for every single voter?
Lord Lilley, the former trade and industry secretary who now sits on the House of Lords committee on financial services regulation, believes that any comparison between UK and Singaporean state spending is misleading. He points out that Singapore requires compulsory contributions to a Central Provident Fund, which covers health care and pensions. 'We fund them through compulsory contributions and we call it taxation; they do it differently, but actually the difference [in spending per head] is much less,' says Lilley.
Even so, reducing income taxes to anything like Singapore's levels would entail radical surgery on the British state, including the NHS and the welfare system.
Regulation
Singapore has developed a thriving financial services industry – now a pillar of its economy – and Lilley holds up its approach to regulation as a model. 'People constantly mention Singapore,' he says. 'When you ask what happens in Singapore, it's not that they don't have thorough rules against fraud or financial manipulation, they just do it in a much better way.'
If a bank or a wealth manager is considering Singapore as a location, the regulator will assign an official to tell the company exactly how it can comply with the rules. The emphasis will be on making it as easy as possible for the new operation to come to Singapore.
Lilley says that Britain should adopt the same mindset. 'We need to look at all our rules and regulations,' he says. 'Part of the reason why we don't do that is because the whole civil service, for 40 years, preferred to leave it all to Europe. Even now, when we're free to make changes, they look for every reason not to do it.'
Shanker Singham, a leading trade expert, agrees that Singapore's broader approach to regulation is a model for the UK, stressing how one reason for Trump's tariffs is America's conviction that other markets are over-regulated.
'If we were to improve our regulatory system, then we get a win-win situation,' says Singham. 'First of all, we improve our own economy, but we also increase the chances of getting a deal with the US.' Trump's unpredictability was shown yet again today when he raised the possibility of cancelling all tariffs on Vietnam in return for a bespoke deal with the US.
Singapore's attitude to regulation would, in principle, be easiest for Britain to replicate, though the EU would certainly object. But the country's emphasis on national competitiveness would still collide with other priorities of the British state.
Net zero
The drive to decarbonise power generation has given Britain the highest industrial electricity prices in the developed world. The consequence is that swathes of energy-intensive manufacturing have been rendered uncompetitive at a stroke.
Britain is in the process of closing down the remnants of the steel industry. Other enterprises like chemicals are in similar difficulties. The government has also promised to stop issuing new exploration licences for the oil and gas industry.
Deliberately undermining the viability of entire industries flies in the face of Singapore's ethos and the imperative of national competitiveness.
Singapore has a similarly ambitious target to reach net zero by 2050 – with the crucial difference that the industries most threatened by this project are less important to its economy. If Britain is going to emulate Singapore, the government would have to review its approach to net zero.
EU
Any talk of Britain becoming Singapore-on-Thames is anathema to the EU. Throughout the Brexit negotiations, the EU feared the emergence of a low-tax, low-regulation market of nearly 70 million consumers next door.
The solution was the level playing field guarantees (LPF) in the Trade and Cooperation Agreement between the EU and the UK. The LPFs cover environmental standards, labour law and state aid. Britain could choose to deregulate anyway and simply break the LPFs, but the EU would hit back with 'rebalancing' measures designed to negate this advantage.
If, for example, Britain adopted new and divergent environmental standards, the EU could retaliate with tariffs and not necessarily in the same sector, perhaps targeting fish exports. Any such decisions would go to independent arbitration by a panel of experts from both sides.
Whatever the outcome, adopting a Singapore approach would jeopardise the deals that Sir Keir Starmer wants from Brussels, including one to ease the trade in plants and animals between Great Britain and Northern Ireland and the EU. As the smaller market without the protection of membership of a trade bloc, the UK would be at a disadvantage in any negotiations.
The irony of Singapore's story is that the country would never have chosen the model that delivered such success. Lee Kuan Yew strove to avoid independence for his homeland. Once this was thrust upon him, he made it into a virtue.
Faced with the similarly unsought pressure of Trump's tariffs, Britain could undoubtedly adopt some of Singapore's virtues: its approach towards regulation and above all its single-minded pursuit of national competitiveness. But going the whole way to Singapore-on-Thames would mean slashing taxes and radically shrinking the British state.
Sir Keir Starmer already has five missions; of all prime ministers, it's hard to believe this might become his sixth.