Labour’s EU plan will have ‘minimal’ impact on cost of Brexit, says think-tank

Labour’s plans to improve the UK’s trading relationship with Europe will have “minimal” impact on reducing the economic costs of Brexit, a report by a leading group of academics and trade economists has warned.

The 72-page report from the UK in a Changing Europe think-tank was published as shadow chancellor Rachel Reeves promised to improve EU trade ties by aligning the UK more closely with Brussels regulations and seeking a better deal for service professionals. 

However, the report found that Labour’s plan to seek “mainly technical agreements” to improve the EU-UK trade deal, including cutting red tape on food exports and visas for travelling musicians, would only “sand away at the sharpest edges” of the problems caused by Brexit.

 “Any gains from technical improvements will be relatively minimal: useful in reducing trade frictions, but not enough to really address the continuing economic impacts of Brexit,” the report added.

Central estimates for the hit to UK GDP from Brexit range between 2 and 4 per cent of GDP, including a 15 per cent hit to trade, according to the Office for Budget Responsibility, the independent fiscal watchdog.

The Labour leadership has repeatedly ruled out rejoining the EU single market or entering into a customs union with the EU if it wins next month’s general election.

But in an interview with the Financial Times Reeves said a Labour government would try to improve trade by aligning industrial regulations, including on chemicals.

UK in a Changing Europe fellow Joël Reland, lead author of the report, said that unilaterally aligning with EU regulations in areas such as chemicals would have limited benefits since UK companies still needed to demonstrate compliance at the border, requiring additional paperwork.

“Alignment is a tempting position for Labour, because it can be done without negotiation, but the flipside is that the economic gains are very marginal. You cannot unilaterally align your way out of post-Brexit border checks,” he said.

A unilateral decision by the UK to align with EU rules on chemicals may also face resistance from some parts of the chemicals industry.

Steve Elliott, chief executive of the Chemical Industries Association trade body, said that while the UK needed to remain “closely connected” with the EU on regulation, this must not mean “the UK becomes a ‘rule taker’ without any further consideration of the economic and environmental implications”.

Since the EU-UK Trade and Cooperation Agreement entered into force in 2021, UK goods exports have suffered. The UK now has the lowest level of goods exports among advanced G7 economies, while services exports have continued to grow strongly.

Labour has said that it will also seek to negotiate a veterinary agreement with the EU to remove the need for so many checks on plant and animal products.

A study by Aston University suggested that such an ambitious deal could increase UK exports by 22 per cent, or about £2bn a year. However, this remains only a small fraction of the £150bn total annual UK goods exports to the EU. 

On services, Reeves said the UK would also seek a deal to mutually recognise the qualifications of professional services workers, such as lawyers and architects, which she said would boost the City.

However, she repeated Labour’s rejection of an EU plan for a youth mobility deal to enable young Britons and Europeans to live and work in each others’ countries, despite this being a key demand of both Brussels and EU capitals.

John Springford, of the Centre for European Reform think-tank, said Labour’s decision to rebuff a youth mobility deal — one of the few concrete proposals from the European Commission so far — also sat uneasily with its demand for a deal on service professionals.

“If Labour proves unwilling to offer the EU any significant concessions on the movement of people, dynamic alignment with changing EU rules, and enforcement by the European Court of Justice, then the economic gains from any renegotiation will be small,” he added.