Sir Keir Starmer’s push to bring Britain closer to the EU is unlikely to turbocharge economic growth, experts have warned – and rejoining the customs union would not be a game-changer, either.
The only way to provide a significant long-term boost to growth from stronger ties to the continent would be rejoining the single market or even going back into the EU completely, economists said – a step that is politically implausible.
The Prime Minister launched a “Brexit reset” after taking office last year, and he claims it will help the economy grow faster, reduce the cost of living, and put more money in people’s pockets.
Starmer has come under mounting pressure to agree to a closer trading relationship with the EU, even from within his own Cabinet.
The i Paper revealed on Friday his potential leadership rivals have been plotting to pitch for the UK to shift closer to the bloc ahead of a possible challenge to the PM.
And, in an interview with the BBC on Sunday, the Prime Minister confirmed he wanted to move towards the EU, with “even closer alignment with the single market”.
Doing so, Stamer suggested, would be in the UK’s national interest. But he said he would not join a customs union because it would risk undermining trade deals.
“I actually think now we’ve done deals with the US which are in our national interest, now we have done deals with India which are in our national interest, we are better looking to the single market rather than the customs union for our further alignment,” he said.
Meanwhile, the Liberal Democrats are pushing him to go further with a bid to rejoin the EU’s customs union, eliminating the need for customs checks on goods passing between Britain and the continent.
Most economists now agree that Brexit has made the UK poorer, taking at least four percentage points off GDP growth. But several experts told The i Paper that partially reversing the “hard Brexit” policies implemented by Boris Johnson will only have a marginal impact in the years to come.
Starmer’s reset plan
The Government struck a deal with Brussels in May that agreed to take a number of steps to build ties between the EU and the UK. These include aligning regulations on animal and plant products – which should cut red tape for importers and allow for lower prices in the shops – and joining up carbon trading systems in a bid to cut business costs. A “youth mobility scheme”, which will allow young people from across Britain and Europe to spend time working abroad, is also on the cards.
Rachel Reeves told the Treasury committee in December: “We recognise that making it hard to trade with your nearest neighbours and trading partners is not exactly good for businesses and not exactly very good for growth.”
Part of the agreement would effectively eliminate health checks on foodstuffs being imported from Britain to the EU and vice versa. Stephen Millard, deputy director of the National Institute of Economic and Social Research, said: “We import a heck of a lot of food from the EU, so anything that would reduce the costs of importing from the EU would certainly help.”
But Andrew Goodwin of Oxford Economics said that with the UK still outside the customs union and single market, red tape would still harm trade. He warned: “You might get some benefits, you still fundamentally need the checks and the paperwork that comes with not being part of those two regimes. We are going to make some really incremental benefits – if that – by taking that approach, but it is not going to shift the dial.”
And Anand Menon, director of UK in a Changing Europe, cast doubt on ministers’ claims that they will be able to reach more deals with Brussels in the future. He said: “We have got the agenda of the reset, and after that I would be surprised if the EU gave us much more. I don’t think they are in the market for doing us any favours.”
A Government spokesman said: “We have reset our relations with the EU – our closest partner and biggest market – to support British businesses, back British jobs, and put more money in people’s pockets. The food and drink and carbon markets linking deals alone are set to add nearly £9bn a year to the UK economy, in a significant boost for growth.”
Entering the customs union
A bill tabled by the Liberal Democrats that would force the Government to negotiate re-entry into the EU’s customs union was narrowly backed by the House of Commons in December, although it is unlikely to make any further progress.
The customs union allows for the free flow of goods throughout the EU and a small number of other countries such as Turkey. Deputy Prime Minister David Lammy recently said that joining it could be advantageous, even though No 10 has publicly ruled this out; while Starmer’s economic adviser, Minouche Shafik, has also privately floated the idea of rejoining.
The Lib Dem spokesman on Europe, Al Pinkerton, told The i Paper that entering the customs union was “the only lever available to get us out of our economic malaise”. He said: “The catastrophic Brexit deal, sold by the Conservatives and celebrated by Farage, has blown a £90bn hole in the public purse. Labour must wake up to the fact that it is repairing this bombshell – not damage limitation trade deals with Trump’s White House – that will finally bring growth back to Britain.”
The party estimates the economic gains from this move could be £25bn a year or more. But even some pro-European campaigners think this view is too optimistic.
Naomi Smith, who runs Best for Britain, warned: “The customs union alone really is a red herring. In economic terms, it doesn’t get you what a full regulatory alignment gets you and certainly not what rejoining the single market gets you.”
The single market covers almost all areas of the economy, rather than just goods trade, with members adopting the same regulations and products and savings, while also allowing the free movement of workers.
Millard said: “Rejoining the customs union is not rejoining the single market. It would hopefully ease trade in goods, there are customs forms and checks that you could avoid… If you were part of that single market, then the gains would be a lot higher than simply joining the customs union.” He also cautioned that joining the customs union would mean junking trade deals agreed with other countries, including the US which is Britain’s single biggest trading partner.
Going the whole hog
Rejoining the single market as well as the customs union would, economists agree, provide a greater boost to growth than any possible piecemeal approach – but would come with significant downsides.
Menon said that “the single market is where most of the costs of Brexit are bound up”, but warned that rejoining it without being a full EU member would mean accepting rules over which Britain has no say – adding: “We fought the referendum on the principle of ‘take back control’, so to end up with less control than when we were in the EU would be sub-optimal.”
That leaves the nuclear option: going back into the European Union, a decade after the vote to leave. Polls suggest that the public now leans in favour of rejoining by a modest margin – a survey for The i Paper by BMG Research in November found 43 per cent backing the idea with 39 per cent wanting the UK to stay out.
The Greens are the only major party to back Britain rejoining the EU in the near term. Their Westminster leader Ellie Chowns said: “Rejoining the EU would mean frictionless trade for British manufacturers and farmers, renewed freedom of movement for young workers and students, and deeper co-operation on climate, defence, and innovation. Poll after poll shows a majority of Britons recognise that Brexit was a mistake; the question now is when, not if, we begin the process of returning to the fold.”
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Millard said he was sceptical that this would be viable, however, saying: “I would imagine it would be very hard – actually, forget about very hard, it would be impossible – to rejoin the EU at the moment. Firstly because you would have to put to it to our voters, and secondly I don’t think the EU would be particularly anxious to have us back except on highly penal terms, so I don’t think that is going to happen.”
The EU has always indicated that it is unlikely to give the UK special treatment in any future talks, because of the risks that it would encourage other member states to consider leaving.
Millard added that despite the economic damage done by leaving the EU: “To blame Brexit for all that is wrong with the UK economy is not accurate.” This view was echoed by Julian Jessop, a fellow of the Institute of Economic Affairs, who said: “Brexit has proved to be a bit of a sideshow compared to everything else that has gone on.”
He said that there were some “sensible” policies the Government could pursue to boost the economy, such as joining the Pan-Euro Mediterranean Convention which “tidies up some of the rules of origin” between trading partners, but said: “You are not going to fundamentally transform the relationship for the better without rejoining the single market and customs union, which regardless of whether you think it is a good idea economically isn’t going to happen politically.”
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