Sir Keir Starmer, Prime Minister, is right to want the UK to join the European Union’s (EU’s) Single Market. Sir Ed Davey, Liberal Democrat leader, is wrong to want us to join the Customs Union instead. Re-uniting with the EU as a full member may be a long-term aim for some but is, at present, neither practical nor desirable.
Joining the Single Market would do much more than membership of the Customs Union to ease the border friction between the UK and the EU which has done so much to damage trade with our biggest market and our whole economy since we left the Union in 2020. At the same time it would allow us to keep the relatively advantageous, if shaky, trade deal we have with Trump’s USA as well as other countries like India.
The Single Market’s biggest disadvantage in the eyes of opponents is that it would involve accepting free movement of people, opening the floodgates to more waves of immigrants. This is a misunderstanding. Membership of the Single Market would open us to free movement of labour, along with the other economic factors of capital, goods and services, not of people – not of 60mn Turks, as Brexiters disgracefully scare-mongered during the Brexit campaign (see below).
Some action to restore our economic relationship with the EU – still our largest trading partner – is certainly necessary. America’s National Bureau of Economic Research has found that by 2025 Brexit had reduced UK GDP by 6% to 8%; it found investment down by between 8% and 12% and both employment and productivity by between 3% and 4%. These large negative impacts, it said, reflected a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process.
Single Market: the pros and cons
Membership of the Single Market, according to Joel Reland of UK in a Changing Europe would be the single biggest lever the government could pull to boost economic growth.
The UK’s regulatory standards would be harmonised with those of the EU, removing the need for checks, including routine sanitary and phytosanitary (SPS) checks at Dover and other crossing points. It would thus enable frictionless, barrier-free trade with 500mn consumers across 28 states (including the UK).
Manufacturing supply chains would be more easily integrated as there would be no restrictions for manufacturing parts moving, sometimes multiple times, across borders. There would be fewer barriers to services such as financial, legal, management consulting, advertising and marketing, scientific research, education and retail, which together comprise about 80% of the economy, though completion of the Single Market in services is admittedly still a work in progress.
Free movement – the main objection to the EU for many people – can be restricted for reasons of public policy (based on an individual’s conduct), public security and public health. Otherwise, jobseekers can remain unconditionally for three months, but after that must be able to show they are genuinely seeking work and have a real chance of finding it; meanwhile social benefits can be limited. Others allowed to stay are students and those who are self-sufficient and with health insurance. Sir Ed Davey must know this but presumably fears most voters do not, which is why he chooses the Customs Union instead.
The UK in The Single Market would have to align with EU regulatory (product) standards, not only when it joins but as they evolve, as well as competition and state aid rules. Regulatory alignment is an important economic benefit, doing away with costly and time-consuming border checks, but an affront to those who value Brexit for its assertion of sovereignty.
Another disadvantage is that we would have to make a contribution to the EU budget. the amount of which would be negotiated. We would probably not get the rebate we enjoyed before Brexit – the rebate that Boris Johnson ignored when he toured the country in a bus emblazoned with the figure of £350mn a week. Norway, a much smaller economy certainly, currently pays roughly £2.5bn – £3bn a year.
Customs Union: the pros and cons
Membership of the EU Customs Union would bring the UK, by definition, tariff-free trade without any customs checks at Dover or other crossings. But we already have that through the post-Brexit Trade and Co-operation Agreement negotiated by Boris Johnson’s government in 2020/21.
The Customs Union would also remove the need for rules-of-origin checks – a major source of friction – which the TCA does not do.
But it would also bring us two serious disadvantages. First, unlike the Single Market it would not do away with other barriers of trade, the regulatory checks that ensure that products being exported to the EU meet EU standards. SPS checks on agriculture products would remain.
Second, as a member of the EU Customs Union, the UK would be unable to have its own free trade agreements with other countries such as the USA, with which we have succeeded in negotiating a more advantageous deal than the EU, which we would have to relinquish. We would have no independent trade policy.
Our deal with the USA, however, is not a full-blown treaty, ratified by the US Senate and scrutinised by the UK Parliament. It depends solely on President Trump’s signature, and he could change his mind at any time. It is also quite narrow in scope, covering mainly steel, aluminium and automobiles.
Implications for the UK and the North East
Joining the Single Market would help give an important boost to manufacturing industry throughout the UK and increasingly to our dominant services sector, as itemised above. Because of their dependence on supply chains, reliance on frictionless movement, skilled workers and services beneficiaries in the North East would include advanced manufacturing, including automotive, chemicals and pharmaceuticals, energy, digital and technology, logistics and life sciences. Agriculture would benefit from the abolition of SPS checks at the border.
Comment
There is clearly a balance to be assessed between the economic advantages and issues of sovereignty like free movement of labour, an independent trade policy and alignment with EU regulatory standards. At the Brexit referendum the people made their choice and decided very narrowly to leave the EU. That decision cannot simply be set aside, but neither can it be allowed to stand for ever unchallenged. After all, we don’t choose a for-ever government but a new one at least every five years.
But trying to join either the Single Market or the Customs Union during this Parliament would be undesirable, even unacceptable, because it would be a betrayal of an explicit pledge in the Labour Manifesto 2024: “There will be no return to the Single Market, the Customs Union, or freedom of movement,” it said.
“Instead, Labour will work to improve the UK’s trade and investment relationship with the EU”, There is a list of specific ways in which it would do this.
All of this is desirable in itself. But rejoining either the Single Market or the Customs Union, never mind the EU itself, in this Parliament is impractical as well as undesirable, because there would almost certainly not be time to complete the negotiations and, more importantly, doing any of those things without a popular mandate would cause turmoil at Westminster and in the country. Besides. EU leaders would want to know we mean it before admitting us again into anything.
What Labour can do now, however, is start working towards rejoining the Single Market as soon as possible after the next general election – and make a virtue of it. One of the biggest problems with the Brexit vote was that no one knew what would come next, and it took four years and two elections for Parliament to pass the Withdrawal Agreement Bill.
So Starmer should start straight away exploring with EU leaders what sort of a Single Market deal they would be prepared to offer. He should then put a pledge in Labour’s next manifesto so the electorate know what they are voting for. If re-elected that would be mandate enough to go ahead. Given the respect that the UK is currently enjoying in Europe because of its leadership over Ukraine, there is no better time to get started.
