By Chris Johns on 06/10/2023
Five ways that Labour can make Brexit work (better)
If the UK is to reap any material economic benefits from Brexit, the terms of the discussion have to change. It will be difficult and require colossal effort, but the British people – those still exercised by Brexit at least – need to be convinced that economics must supplant politics. Leave voters must be persuaded that you can’t eat sovereignty – and sovereignty is routinely traded internationally, via a multitude of treaties and other negotiated settlements. Agreements are reached in many, often invisible, ways that yield tangible British benefits. Remain voters need to accept that Brexit itself is done and that the only reasonable way forward, for the foreseeable future at least, is to make it work better. Rejoining or membership of the single market are matters for another day. Ways must be found to eliminate or lessen the toxicity of the discussion. ‘The economy’ is that way: talking about the benefits of what we do next is the way to win hearts and minds – the Brexit referendum revealed that we respond to upside promises, not warnings or threats.
Build bridges and join in – note: not the same as (re)joining. Don’t underestimate the power of connection. In a crisis, Whitehall needs EU phone numbers on speed dial. During quieter times, relationships can be rebuilt at both the personal and institutional level. ‘Getting closer’ starts with talking to Brussels, at all levels throughout Whitehall and Westminster. There is a diplomatic gap that needs to be closed. There is a plethora of important committees and councils that Britain is currently excluded from. But the UK could, in principle, at least start the application process to join, to obtain seats at very important tables.
Alignment. If the objective is improving trade with Europe then the sectors most affected by Brexit need to be identified and proper cost/benefit analysis applied to the question of aligning rules and regulations with the EU. Labour’s pledge to negotiate a veterinary deal should be an immediate priority.
End the uncertainty. Business Investment in the economy has essentially failed to grow since the referendum – seven years of stasis. Uncertainty is an investment killer.
Make things easier for professionals, the young and musicians. EU students coming to UK universities should be welcomed back with easier visa rules and lower costs. Similar, visa bureaucracy for under 30s travelling between Britain and the EU (both ways) need to be rethought, especially for school parties. Musicians need similar negotiated dispensations. Mutual recognition of professional qualifications is also necessary.
VAT. Do a deal that simplifies what is currently a costly mess.
Implementation of the Windsor Agreement didn’t make our top 5. That’s because, fingers crossed, it’s done. Brexit has affected the island of Ireland in many ways – some surprising, some less so. The Irish economy has been a net beneficiary of Brexit, something that was forecast by precisely nobody. ‘The only English-speaking gateway to the EU’ has become a big selling point, one that looks set to yield plenty more positive economic surprises. The Windsor Agreement has kept the border open between Northern Ireland, one of the UK’s poorest regions, and the Republic, one of the richest nations on earth. That gap can now begin to be closed, building on Northern Ireland’s unique position sitting astride two single markets.
The UK’s relationship with the EU will be far from static. Every country outside the EU faces evolving terms of engagement. Put starkly, Britain will move closer or further away from Brussels. The next government must choose. That’s a particular point with general applicability: toxicity is one thing, but fantasy is another. Far too much debate about Brexit is wrapped within a reality distortion field.
‘Muddling through’ and just tinkering with the Trade and Cooperation (TCA) agreement will not help the economy – things (trade) will get worse. A renegotiation of the TCA is not on offer, notwithstanding belief to the contrary evident in many political circles. The process that begins in 2026 is an implementation review, nothing else. Things could change, but the bruising battles of the past few years mean that Brussels is wary about the aftermath of the 2029 election, not just next year’s.
Recognition of reality narrows the field of possibilities that are discussed quietly amongst a small number of think tanks, journalists, trade specialists and economists. This conversation is for the most part conducted behind closed doors, between few people, because of what happens when the discussion becomes public. Earlier this year, the Ditchley Park meeting – about how to make Brexit work – between both sides of the Brexit debate led to the usual febrile and depressing headlines. It’s what happens when pragmatism meets Brexit ideology.
That short list of suggested – pragmatically possible – small steps to make things better starts with time: this will be a decade-long (or, more likely, longer) project. It starts with ’closing the diplomatic gap’. Relations, which are getting better, need to be much improved. Officials in London and Brussels each need the other’s phone number.
Seats need to be obtained at tables that nobody has heard of. For example, there is a US-EU body called the Trade and Technology Council. The UK should quietly seek to join. Formal and informal Defence cooperation exists and can be made much stronger, for its own sake and for the ties that it will create. Join the Pan-Euro-Mediterranean Convention on preferential rules of origin.
Alignment is the big trade issue. Brexit has been a relatively mild hit to big business but has severely impacted smaller companies who cannot afford the bureaucracy or impact on profit margins. Over time, specific regulatory alignment should be negotiated for the sectors that need them the most. Cars, chemicals and agriculture all need particular care and attention. On agriculture, for example, Labour’s aspiration for SPS and veterinary agreements makes abundant sense. But someone in Whitehall needs the expertise and skills to assess the cost-benefit possibilities of every negotiation. The costs will arise because Brussels will always want something in return. The Centre for European Reform has suggested a new(ish) European Secretariat in the Cabinet office to coordinate EU-related Whitehall work. It is a good idea. This is where the cost-benefit analysis should be done. This is where public education about the benefits (and costs) of any deal can originate. Acknowledging trade-offs is something that has disappeared from British policy debate, at least in public.
The way in which the global trade debate has shifted in recent years is not widely understood in the UK, where free-trade orthodoxy still rules, particularly for those who see the future in forging multiple bilateral free-trade agreements, particularly with the US. The rest of the world has moved on – a long way from the simple free-trade mantra. The US, EU and China now see trading arrangements in a much broader strategic context. Hardly any economically significant country is interested in doing a free-trade deal, for its own sake, with the UK. While we talk about tariff-free trade, others focus on non-tariff rules and regulations, supply chain security, carbon border adjustments (a deal on this with the EU would really help) and labour standards. Better understanding of how trade negotiations function today, and what the other side is looking for, will be essential to make progress.
End the uncertainty. Capital investment collapsed in the aftermath of the referendum and shows few signs of recovering. Companies have been unable to work out what happens next and have (not) invested accordingly. Ending magical thinking requires honesty, particularly with business – even if being honest means admitting that things are not going to change very quickly. Policy U-turns have dominated the agenda for far too long.
Agreements should be negotiated on mutual recognition of professional qualifications; musicians should be able to move more freely between the EU and UK; young people need a much better visa deal, as do students (EU numbers coming to the UK have collapsed). Do a deal on VAT bureaucracy to reduce just one of the heavy burdens on small businesses.
The TCA itself, while not up for renegotiation, does contain clauses that could allow for increased cooperation, but both sides have so far shown little interest in taking advantage of them. As Lord Mandelson said, “the TCA is floor, not a ceiling”.
Chris Johns has almost 40 years experience as an economist including spells teaching at London and Cambridge Universities, at HM Treasury, the National Institute of Economic & Social Research in London as well as chief economist at Bank of Ireland and roles at a number of other banks.