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Repairing our damaged relationship with the EU is vital to boost trade


5 min read

Last week, the government celebrated International Trade Week. Across the United Kingdom, events were held on decarbonising business, harnessing new technology and building global partnerships.

All these are very important, but the facts – as shown by recent industry surveys and official statistics – tell a less optimistic story about our trade. Research by the ESRI shows reductions in UK to European Union goods trade by 16 per cent and trade from the EU to UK by 20 per cent relative to the scenario in which Brexit had not occurred. 

One in five SMEs have given up trade with the EU altogether, and figures published by HMRC show that the total number of UK businesses exporting goods to the EU fell by one third in 2021 compared to 2020. In the long run, the Office for Budget Responsibility (OBR) estimates that both exports and imports overall will be around 15 per cent lower than if the UK had remained in the EU and that Brexit will also reduce productivity by 4 per cent. The OBR concluded that the UK has “missed out on much of the recovery in global trade.”

Saddling businesses with two regulatory regimes does not free the economy or take back control

The impact on UK-EU trade is just one part of the story. Whole sectors have also had to restructure supply chains and recruitment policies. The fashion industry reports that over half of its businesses have cancelled orders due to Brexit, while pubs, theatres and restaurants in the West End have lost a fifth of their staff, a problem faced by hospitality businesses across the UK. Saddling businesses with two regulatory regimes does not free the economy or take back control. It means higher costs, more red tape and less trade. 

These are depressing assessments but perhaps even more extraordinary is that government ministers refuse to acknowledge this is happening or to ask themselves why. After all, making trade with your biggest trading partner more difficult – which is what leaving the EU has meant – is hardly a good way to boost growth. Coupled with impending recession and a cost of living crisis, a government in denial is unlikely to help British businesses survive in very difficult circumstances.

Based on evidence gathered since April 2021, the UK Trade and Business Commission which I co-convene, has made recommendations that can help, including a successor to the Brexit support fund and streamlining visa rules for industries relying on seasonal labour. While we and others have had some success, including on securing more seasonal visas for agricultural workers, most of these recommendations have yet to be implemented. 

One obvious step we should take is to prioritise regulatory alignment with the EU where possible and advantageous to the UK. However, with the Retained EU Law Bill, the government is threatening to do the opposite. Scrapping EU laws and regulations for no reason other than ideology will not promote trade and investment because it creates enormous uncertainty. Ministers are saying to businesses and potential investors that the rules which apply today may not apply in 14 months’ time. It’s hard to think of anything that would damage business confidence more than this. 

The other problem is that we have no idea which EU-derived laws the government wants to keep, leading to great concern that things we have taken for granted – like animal welfare regulations, environmental protections and workers’ rights – could potentially be undermined with no public consultation and minimal parliamentary oversight. None of this makes the UK look like an attractive place to do business.

Instead of accepting what is happening, ministers seem more interested in prolonging the argument. We see this in the stand-off over the Northern Ireland Protocol Bill which breaks a treaty the UK signed and threatens to undermine the UK-EU trade relationship, with potentially serious economic consequences in both Northern Ireland and Britain. This is a self-inflicted mess which reinforces the perception of the UK as an unstable and unreliable market. 

The UK’s record on post-Brexit trade agreements has also been fairly dismal. Any deals which didn’t simply roll over terms the UK enjoyed as an EU member, cover only a tiny fraction of UK output such as those with Australia and New Zealand. Meanwhile the trade talks with India are in difficulty and a trade deal with the USA – which was billed as the great Brexit prize despite the US already being our second biggest trading partner after the EU - has disappeared into the distance as the government has been forced to admit. 

So what can we do?  First, the government must repair our relationship with our closest neighbours in the EU by rebuilding trust. This must start by dropping the Northern Ireland Protocol Bill and the Retained EU Law Bill and negotiating with the EU to resolve outstanding disputes. Next, the government should increase its practical and financial support for businesses facing Brexit-created red tape and work to remove this red tape where possible. 

If International Trade Week is really to achieve something worthwhile, then we need to realise that the biggest priority is to build a new and better relationship with our biggest single market which enables both UK and EU businesses to trade with each other more easily than is the case at the moment. The government must recognise this and work to change things rather than refight old battles.

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