23 September 2024 – Peter Holmes is a Fellow of the UK Trade Policy Observatory and Emeritus Reader in Economics at the University of Sussex Business School.
In recent weeks Sir Keir Starmer has visited Germany, France, Ireland and Italy, each in the name, he says, of turning a corner on Brexit, resetting the UK’s relationship with Europe and – most importantly – raising economic growth. The OBR estimates Brexit in its current form to be costing the UK a permanent non recoverable 4% of GDP pa.
So far, the PM’s visits to the EU have been good symbolism. Recent UK opinion polling shows increased public support for building back closer ties with the EU, reflecting that there are many in the UK, including a growing contingent of “Bregretters”, who would like to repair the economic and political damage done since 2016. On the European side the optics of welcome have been decently warm, although perhaps this is not so very surprising after almost ten years of dealing with EU-shy Conservative governments.
However, it is quite striking that, at the time of writing, Starmer has not yet made a visit to Brussels. He may be waiting for Ursula von der Leyen to launch her second term Commission. However, his absence to date has been noted at the Berlaymont and his immediate rebuff of an EU proposal for a youth mobility scheme went down badly. EU officials are reported to be asking how serious about a Brexit reset he really is. There is doubt he has a clear strategy beyond his “red lines”[1].
While the new Commission awaits final confirmation, the UK has a breathing space which it can use to clarify its own strategy. But by the time the new Commission starts to plan its five-year agenda, in early 2025, the UK needs to have put together a clear proposal for the EU to react to. To be good enough to deliver an economic upturn for Britain, it will have to be more than just a few cherry-picked ideas and restatement of what the UK doesn’t want.
But even as he enthused about a bilateral deal with Germany on his Berlin trip, Starmer doubled down on his red lines of “no single market”, “no customs union” and “no rejoining the EU within his lifetime”. If he intends to stick to these red lines, he may find they hinder his goal to boost the UK economy, a point also made by the Resolution Foundation.[2]
EU officials have always insisted that the first requirement for improved relations with the UK would be a renewal of trust, and a willingness by the UK to adhere to the commitments it made in Boris Johnson’s 2020 hurried and flawed “get Brexit done” deal – the treaty formally known as the Trade & Co-operation Agreement (TCA).
The TCA is due for its first 5 yearly review in 2026. Although the EU has repeatedly made clear that they do not want to review the body of this agreement, the treaty does contain provisions for modifying some of its rules without modifying the treaty itself or making a new one. For example, the TCA Title X provides for “Regulatory Co-operation” which would allow UK and EU regulators to discuss and agree potential areas of joint interest, with a fairly open-ended agenda, and it includes concrete provisions for cars, aviation and medicines in annexes. They could then extend the models in other areas. Similarly, the UK-EU Joint Partnership Council which oversees the treaty can agree to change the rules of origin, and has already done so for electric vehicles.
Ahead of the 2026 review the EU has made it clear that the original Barnier red line of “no cherry-picking” no longer apply. Side agreements or “mini-deals” can be signed at any time. Their youth mobility proposal[3], for now declined, was a mini-deal and they have also proposed an SPS [4] mini-deal which would allow meat, fruit and vegetables and flowers to move between the UK and the EU more quickly. To get recognition of our food safety rules we need to make binding commitments to total equivalence, (including how we check third country imports). The British ambition of a comprehensive agreement on Mutual Recognition on Conformity Assessment is unrealistic. Piece by piece might work, including rejoining EU regulatory agencies as associates, eg EFSA and EASA.[5] There is scope for the signature of new UK-EU mini-deals on a range of topics including carbon pricing, aerospace and mutual recognition of professional qualifications. These could require formal endorsement by the Council of Ministers and even possibly the European Parliament, but they are a key avenue to explore. The UK government is placing its hopes in a deal on defence and security, which, although contrary to the Conservatives’ views, Labour hopes will have the broadest economic security dimension.
The UK also has the option to voluntarily match certain EU rules, to ease the burden of compliance on UK businesses. Known as “voluntary dynamic alignment”, it could be a useful approach in principle. It could also help reduce paperwork and the number of border checks faced by UK goods going into the EU. However, this would not eliminate paperwork and checks entirely – in order to do so, we would need to rejoin the EU or at least something like the EEA. On CBAMs, UK firms are unlikely to face any charges if the UK voluntarily aligns fully with the EU. However, unless we agree to be legally bound to apply ETS rules and carbon prices virtually to the EU’s (including coverage and how we have treated third country good that may enter value chains), UK firms will be subject to the need to prove compliance. It may be that the UK way of treating electricity in the ETS might be better than the EU’s plan but this is unlikely to be worth facing the CBAM process.
Often performative divergence such as the UKCA or UK REACH regimes, in the name of “sovereignty” deliver nothing to business except regulatory duplication. The gains to admitting the need to follow the “Brussels Effect” will be at least as much domestic, simplifying business and generating certainty that is needed to restore investment. However, the EU will not automatically recognise the validity of our rule enforcement, even though we have no choice but to accept EU quality certification. An EU negotiator said to me: “We’ll be like India”, i.e. tough on the UK. And they will get to pick more cherries than the UK.
As David Henig[6] points out, there is still appetite on the EU side for a better relationship. Yet, for the UK to benefit, it will need to be prepared to negotiate in all of the above areas. As part of quickly pulling together a new strategic plan, the UK must figure out what it can offer that the EU wants. At the same time, the UK must decide on its own top aims; identify where it can make offers that cost little but will show goodwill; and consider what it is prepared to give up, even though there may be some gain from regulatory autonomy in that sphere. It will not be all or nothing, but there has to be a package.
Unfortunately, the improvements to Brexit that would make the biggest and quickest difference for the UK’s economy are the ones that are currently off-limits, behind Starmer’s red lines. This does not mean the UK can’t do anything at all. There is some low-hanging fruit, including some sort of youth mobility deal. But to make a big difference in reducing border frictions and the uncertainty created by Brexit, the UK will have to go further than Starmer is willing to admit. Making this policy flex work is going to require engaging with the public openly. He could even try one of his now-familiar messages, along the lines of “the Brexit situation was a lot worse than we thought”.
The new EU Commission will start in January 2025. By that time, it would make sense to have dispel any doubts about the UK’s commitment to improved relations, and to be ready – after considering what the UK can offer the EU – to put some attractive proposals on the table. If we take the lead and find areas of mutual interest that generate visible benefits quickly, we can create the political momentum to go further.
[1] Poltiico https://www.politico.eu/article/keir-starmer-european-union-brexit-relationship-reset/?
[2] https://www.resolutionfoundation.org/app/uploads/2024/09/Growth-Mindset.pdf
[3] See https://www.theguardian.com/world/2024/sep/20/eu-youth-mobility-proposal-uk
[4] Sanitary and Phyto Sanitary ie Food safety.
[5] European Aerospace Safety Agency, European Food Safety Authority.
[6] https://ecipe.org/wp-content/uploads/2024/09/ECI_24_PolicyBrief_17-2024_LY04.pdf
Peter Holmes would like to thank Karen Triggs for her support in creating this blog post.
Disclaimer:
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or the UK Trade Policy Observatory.
Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.
A terrific piece – informative, lucid and level-headed! Thank you for unpicking a complex matter – hope it enjoys a wide readership, it deserves to.