New economic partnership with EU will 'do little' to offset the costs of Brexit
The new trading rules the government has pledged to negotiate with the European Union will do little to offset the economic damage caused by Brexit, according to analysis carried out by the Centre for European Reform (CER).
John Springford, an associate fellow at the CER, estimates that a “reset of the relationship” of the sort Labour set out in its election manifesto, combined with the demands the EU is making in return, will raise economic activity in the UK by between 0.3% and 0.7% in the long run.
According to the Office for Budget Responsibility (OBR), the government’s economic forecaster, the Brexit deal secured by Boris Johnson’s government will leave the UK economy 4% smaller in the long run than it would otherwise have been.
The Brexit reset is being "oversold" says John Springford from the Centre for European Reform
The OBR, which has cited Springford’s work in the past, has said it believes much of that 4% “hit” has already been felt.
Springford himself found that the reduction in UK Gross Domestic Product caused by Brexit to be greater - around 5% by the summer of 2022.
Prime Minister Sir Keir Starmer has promised to “make Brexit work” by “tearing down unnecessary barriers to trade”, but he has also pledged not to restore the free movement of people between the UK and the EU and ruled out rejoining both the Single Market and the Customs Union.
On Monday, Rachel Reeves will become the first British chancellor to attend a meeting of European finance ministers since Brexit.
The government believes improving trade with the bloc is vital to boosting growth.
We have a sketch of the sort of deal the UK is hoping to secure, but not the full details, and we haven’t been told what the UK is prepared to offer the EU in return.
Springford has carried out what he calls a “rough and ready” set of estimates of the benefits of the “Brexit reset” as it has been explained.
He concludes that the prize glitters brightly enough to make it worth having but no more - that the negotiating demands for a new economic partnership don’t really add up to very much.
A “veterinary agreement” to reduce the need for paperwork and border checks on trade in food and agricultural products between the UK and the EU, combined with a deal to ease visa and transport restrictions on performing artists touring in the EU, would “raise GDP by around 0.1% in ten years”.
This is tiny. While alignment with EU animal and plant health rules could lift trade in food and agricultural products substantially, the sector makes up a very small part of the UK economy.
Springford assesses that an agreement on the mutual recognition of professional standards, another Labour manifesto pledge, allowing UK lawyers and architects to practice freely in the EU, would also lift growth by around 0.1%.
Springford believes a Youth Mobility Scheme of the sort the EU is demanding would have a more significant impact on UK economic output than anything the government proposes.
The EU wants 18 to 30-year-olds to be able to move freely between the UK and the EU, to live, work or study, for up to four years.
The government has already rejected the idea and forecasting migration is notoriously tricky but Springford says a “high estimate” - in which net migration in the UK increases by 30,000 a year - would lift GDP by 0.45% in ten years time.
Although, population-driven economic growth doesn’t necessarily leave the average person feeling better off.
An EU proposal to allow UK and EU students to pay the same tuition fees as home students in each other jurisdictions (UK universities currently treat EU citizens as “international students” and charge £12,000 more in tuition fees) could raise GDP by an extra 0.1%, as more EU students move here and spend money in the UK.
Last week, the German ambassador to the UK told ITV News the government’s decision to rule out rejoining the EU’s single market and its customs union means that the economic gains Reeves can achieve will be very limited at best.
Springford’s analysis supports that view.
He told ITV News that the pitch was being "oversold" and despite there being some helpful changes, Springford said: "To the average person on the street I don't think they are really going to notice more money in their pockets or cheaper goods and services."
“Far from ‘tearing down’ barriers to trade and migration, Britain’s proposed reset is likely to do little to offset the costs of Brexit,” he concludes.
A Treasury spokesperson said: "The Chancellor is in Brussels today as part of the government’s commitment to resetting our relationship with the European Union.
"A more business-like relationship with the EU going forwards will benefit working people and put more money in their pockets by breaking down barriers to trade, creating opportunities to invest and help UK businesses sell in European markets."
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