Rachel Reeves has suggested following EU rules should be “the norm” across swathes of the economy in a significant post-Brexit shift designed to boost growth.
The Chancellor said that although there are some industries in which the UK will need to retain the freedom to set its own rules, these are likely to be “the exception, not the norm”.
Her comments were seen as a statement of intent to take “half a step” back into the European single market in a major upending of the Brexit settlement that would mean the UK becoming a rule-taker of Brussels law in several industries at significant financial cost.
A Treasury source confirmed Reeves and the Government were “looking at more alignment” in “several sectors” beyond the current negotiations for deals on food and drink trade, joining the EU electricity market, and matching carbon taxes.
The i Paper also understands officials in the Cabinet Office EU unit have for weeks been probing which sectors would be most appropriate for alignment.
British industry said the Government should consider moving closer to Brussels regulations on chemicals, cars and pharmaceuticals to boost the economy.
More alignment with the EU would need big concessions to Europe
But the Chancellor was warned that this would come with a significant price tag as the EU would likely demand payments into the billions of pounds and more British concessions to allow Europeans to travel and live in the UK more easily.
The EU’s top negotiator has this week already demanded concessions in current negotiations lowering university tuition fees and paying into the Brussels budget to unlock talks on the further cooperation Reeves craves.
In a sign of goodwill, Reeves also said the UK would “look carefully” at contributing to an EU plan to give Ukraine a 90bn euro loan, which could unlock billions of pounds of arms deals for UK manufacturers.
But her comments on alignment with EU laws were the most significant yet as Sir Keir Starmer and the Government have openly called for closer ties with Brussels to boost Britain’s spluttering growth rate.
UK risks being ‘stranded’ between trading blocs
Despite freedom from Brussels regulation forming a major part of the successful campaign to Leave the EU, Reeves said that this approach risks the UK being “stranded” between rival trading blocs in a world where globalisation is receding, unless it seeks closer ties with Brussels.
“The prize is considerable,” Reeves said, claiming closer alignment would help bring down prices and inflation.
Setting out the “deep damage” of Brexit, Reeves said it had hit gross domestic product (GDP) – a measure of the size of the economy – by up to 8 per cent and contributed to higher prices for businesses and consumers.
She insisted she was not trying to “turn back the clock” on Brexit but to build a “new and stable future relationship” with Brussels.
“Where it is in our national interest to align with EU regulation, we should be prepared to do so, including in further areas of the single market,” the Chancellor said at the annual Mais lecture at Bayes Business School in London.
She set out three tests for further alignment – that it would lead to higher growth and investment, more jobs and consumer benefits; that it would set the UK on a stable future policy direction that is compatible with its values and objectives; and that it must preserve or enhance national security.
“When those principles are satisfied, alignment should be forward-looking and durable, providing the certainty that businesses on both sides need to invest and grow,” she said.
“Now, there are areas in which regulatory autonomy may be necessary for sectors with unique characteristics or strategic importance for the UK, but that should be the exception, not the norm.”
Reeves’s plan would not breach Labour’s manifesto to stay out of the EU single market.
EU unlikely to want a deal without significant trade offs
But former UK trade official and Brexit expert David Henig told The i Paper Reeves’ comments suggest she wants to take “half a step” back into the single market, although her three tests may make this more difficult.
The EU would also seek to extract a hefty price, Henig, the UK director of the European Centre for International Political Economy, said.
“The UK can align more but the EU isn’t particularly interested in offering much more single market integration without financial contributions or greater movement of people,” he said.
UK In A Changing Europe director Anand Menon told The i Paper: “It is quite obvious why Rahcel Reeves should be wanting far-reaching alignment with the EU.
“It offers a way to treat down those trade barriers Labour promised to tear down in its manifesto without obviously breaching the red lines in that same document
“The problem is this is not something the EU has shown any interest in at all.”
Elsewhere, Reeves set out plans to increase regional economic growth, including by giving local elected leaders greater spending powers, with proposals to hand them a share of income tax and other national levies to invest in their areas.
She also set out “city investment funds” backed by £2.3bn of funding, focused on northern England and the West Midlands, giving regional leaders control of “long-term, self-sustaining capital” to invest, with a commitment to the retention of business rates.
But while admitting the student loan system is “broken” amid widespread concerns about costs, she said it was not a priority.
“So, yes, we want to fix it. Yes, we want to make improvements. But is it front of the queue? No, it’s not,” she said.
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