As Sir Keir Starmer lurches from U-turn to U-turn, many of his MPs want him to do another one: there has been growing pressure for the Prime Minister to ditch his red lines on Brexit.
Ever since he became Labour leader in 2020, he has held firm on those promises – no return to the customs union, no return to the single market, no freedom of movement between the UK and EU. This was a deliberate – and successful – attempt to win back pro-Brexit voters who had abandoned Labour, particularly in the North and Midlands.
The Prime Minister’s “reset” of relations with Brussels has focused on ways Britain can get closer to the EU while staying outside the customs union and single market, such as rejoining the Erasmus student exchange programme and aligning regulations in certain sectors like food standards.
Now he is being pushed to consider the idea of rejoining the customs union, which would make trade smoother by removing the need for checks on many imports and exports. David Lammy and Wes Streeting have openly mused on the potential benefits of such a move, and polling suggests that fully 80 per cent of Labour voters would back it.
One reason that this chatter has grown louder is because of desperation within Labour at what they see as a lack of ambition. The thinking is that big ideas, almost no matter what they are, have become necessary to shift the dial and rescue the party from its current doldrums.
Another is because the consensus has grown that Brexit was indeed damaging to the UK economy. While no one can quite agree on the size of the hit we have taken from leaving the EU, there is now little room to dispute that there was a negative impact.
Ironically, however, it is economic concerns that are holding back Starmer from signing on to the notion of sending Brexit into reverse.
Rachel Reeves has long seen the EU reset as a way of boosting Britain’s growth, by knocking down some of the barriers to trade that the last decade has thrown up. She is fully on board with the Prime Minister’s ambition to keep finding new areas of co-operation with Brussels. But more than many other ministers, I’ve been told the Chancellor is also adamant that the post-Brexit settlement can also bring benefits to the UK that were not possible when we were in the club – and would become impossible again if that settlement were fundamentally challenged.
Rejoining the customs union, for example, would mean scrapping all the trade agreements struck with non-European countries, such as the India deal finalised last year, and Britain’s entry into the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK would be subject to the same US tariff rates as the EU, cancelling out Starmer’s success in negotiating more favourable treatment from Donald Trump.
Economists differ on how important these trade pacts are for generating growth, but Reeves has put them at the centre of her arguments on how the current Government is boosting living standards. She would fiercely oppose any humiliating climbdown on the issue; and in any case, experts do tend to suggest that the benefits of rejoining the customs union would be fairly limited – nothing like the gamechanger that its proponents claim.
Similarly, Labour’s flagship policy of slapping VAT on private school fees would have been much more complicated, and potentially impossible under EU law. Get too close to the bloc, and there is a risk that that too would have to be reversed.
A trip to Brussels this week by one of Reeves’s deputies is a good demonstration of the tightrope that the Treasury is walking. Lucy Rigby, the City minister, will meet EU officials including financial services chief Maria Luís Albuquerque to talk about how British and European capital markets can become more joined up, cutting red tape for banks and other firms trying to work on both sides of the Channel.
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The visit was preceded by a warning from the City that the UK adopting EU financial regulations wholesale would be a disaster, tying Britain to the rules of a bloc which – while larger economically – is less of a player in the finance industry.
I am told that Reeves wholeheartedly agrees with this, and would resist any move for “dynamic alignment” with the EU (that is, automatically changing our regulations to match theirs) on this policy area.
Everyone in Labour agrees there is more scope for the UK-EU relationship to evolve. But if the push to roll back Brexit wholesale continues, expect the Chancellor to push back.
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