At last, tentative glimpses of realism are emerging from Rishi Sunak’s new UK government on one of the country’s biggest economic challenges: its threadbare Brexit deal. Chancellor Jeremy Hunt has said he favours removing the “vast majority” of trade barriers with the EU. After uproar from hardline Brexiters, Sunak denied reports that Britain might seek a deeper, Swiss-style deal with its European partners. Yet with the country facing recession and the steepest fall in living standards on record, the prime minister should heed the increasingly urgent calls from business to improve its EU deal.
Brexit is not, to be sure, the primary cause of the dismal outlook. That is the income shock bequeathed by the pandemic, amplified by Vladimir Putin’s weaponisation of energy, after years of weak productivity growth. But Brexit is an exacerbating factor and damaging UK trade performance in a way that is not happening in other advanced economies. It is one reason why the OECD reckons the UK economy will be the G20’s worst performer bar Russia in the next two years. The Office for Budget Responsibility forecasts that barriers with its biggest trading partner will lead medium-term GDP to be 4 per cent lower than it would have been.
The Financial Times has not changed its view that Britain would be best placed inside the EU, but rejoining is not politically feasible, for years to come, and has no popular mandate. Re-entering the single market would bring fewer advantages but all the downsides Leavers associated with full membership — accepting EU rules (in this case without being able to shape them), free movement of people and paying into the budget. A Swiss-style mosaic of multiple bilateral deals has similar drawbacks, and is not on the table.
The only viable option, then, is to pursue incremental improvements to Britain’s EU deal where it can. Benefits for the foreseeable future would be scant, but worth having. A first step must be to resolve the festering dispute over trading rules with Northern Ireland and at least allow the bare-bones deal negotiated by Boris Johnson to function properly. Sunak has shown encouraging signs of flexibility. A resolution on this could unlock broader progress, for example, towards rejoining Horizon Europe, the EU’s €96bn science funding programme.
The government should also dump ideologically driven but flawed legislation that would worsen Britain’s legal and business environment and further damage UK credibility in EU capitals. Most egregious is a bill that would repeal a vast pile of EU-derived laws if they are not revised by the end of next year.
More active steps to improve market access would quickly run up against the government’s restrictive “red lines” — where Sunak is hemmed in by his backbenchers — by requiring alignment with evolving EU rules and oversight by the European Court of Justice. They would also run counter to the insistence that the freedom for Britain to set up its own regulatory regimes is a key Brexit benefit. Yet Downing Street should recognise that large parts of industry would instead prefer closer alignment.
A sanitary and phytosanitary agreement to reduce veterinary and food safety checks would ease the Northern Ireland protocol dispute and benefit agribusiness UK-wide. Many businesses want Britain to continue to recognise the EU’s CE safety mark on industrial and electrical goods rather than set up a rival UKCA mark. The UK should make a public cost benefit analysis of alignment in certain areas.
A concrete opportunity to make positive tweaks is the five-yearly review of the EU-UK deal due in 2025 — after the next election. It is to be hoped then that a Labour or rebooted Conservative government will be prepared to make bolder overtures. Dogma and Johnsonian “cakeism” have for too long bedevilled the Brexit debate. It is time to replace it with more pragmatic realism.