If only Labour would address the gorilla in the room

James Moore, The Independent

The idea that putting a wall between yourself and your biggest external market would damage trade is so obvious one would think it would hardly need to be said.  Trouble is, the level of magical thinking that went hand in hand with Brexit refuses to die, even now we have a government without such a slavish ideological commitment to it. Hammering away with research and those inconvenient things called facts is therefore very necessary.  Over to Aston University in Birmingham, and a report by economists from its Centre for Business Prosperity. Unbound: UK Trade Post Brexit is admirably comprehensive (it runs to 93 pages) and choc full of those facts. Most of them inconvenient to the status quo.

The study looks at the “significant and persistent impact” of Boris Johnson’s trade and cooperation agreement (TCA), which replaced the UK’s membership of the world’s biggest free trade zone: the European single market.  It found that between 2021 and 2023, there was a stunning 27 per cent drop in UK exports and a 32 per cent reduction in imports. The export squeeze also encompasses “a significant reduction in the range of goods the UK trades with the EU”. The variety of these has fallen by a third (33.5 per cent) “equating to 1,645 fewer products per EU country”.

Thanks to stifling red tape, many smaller firms have simply given up the ghost. It won’t surprise anyone to learn that sectors dominated by larger companies with narrower ranges of products have experienced less damage than those dominated by smaller businesses with wider-ranging offerings.  Again, this ought to be seen as a statement of the obvious. But people have become blase about the scale of the damage. The scale of it is simply stunning and bears repeating.  Just as problematic is the impact on the UK/EU supply chain “evident across consumer, intermediate, and capital goods”. Supply chains, and disruption to them, have become one of the issues of our age. It is something that causes those of us reliant on medication to lose sleep.

There are those who would hail the “shift towards local production” that the study finds. But that will only take you so far. The UK remains dependent on the EU for a range of goods and that isn’t going to change.

There are two potential results from all this. What we could call the “sunlit uplands” outcome is that businesses and markets eventually adjust and trade recovers. Perhaps not to the extent had the UK remained. But recovers nonetheless.
The second isn’t so cheerful. It is that the negative impact of the TCA intensifies over time with trade continuing to fall, creating further damage to UK plc as it does. Care to guess which one is winning? But you already know. It is hardly a surprise that the study finds that 2023 witnessed “more pronounced trade declines than previous years” which suggests “that the transition in UK-EU trade relations post-Brexit is not merely a short-term disruption but reflects deeper structural changes likely to persist”.

Needless to say, none of the post-Brexit trade deals since signed by the UK government — the vast majority of which were EU rollovers — come close to compensating for the nation’s losses. To the contrary. The EU is next door in geographical terms. It is always going to be the UK’s biggest trading partner.

Can this be fixed? The report says it can be mitigated. It suggests specific negotiations to ease log jams, digitisation of customs and, crucially taking steps to “reduce unnecessary differences, particularly in highly regulated sectors like chemicals and pharmaceuticals”.

This would ease the formidable burdens faced by UK firms attempting to trade with the EU while having to comply with two sets of regulatory rules. The ability to diverge from EU standards was often held up to be one of the great benefits of Brexit. In reality, it is a curse. The UK’s childish game of being different for the sake of it is self-defeating theatre.
There are other suggestions such as offering more help to smaller firms, strengthening the trade infrastructure, and pursuing more bilateral partnerships. All fine and dandy.

However, the most obvious answer to all this — rejoining the single market — isn’t there, probably because it isn’t on the table despite a recognition by the majority of the UK public that the whole exercise has gone badly wrong.
The damage to UK plc, which needs all the help it can get both from the perspective of its recent struggles (it is stalling) is huge. Ditto for the new government’s prospects. It is only through sustained economic growth that the UK can handle the ongoing crisis in the public finances.

Keir Starmer and Rachel Reeves constantly bang on about how their government is going to be the most pro-growth in history. But they persistently fail to address the gorilla in the room. You can’t simply magic up growth unless you can somehow find a spell to free the nation from the suffocating Brexit straightjacket.  We all know what the recipe for that particular potion is. The tragedy is that Starmer and co are too scared to even talk about it.