Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
The new Prime Minister will need to address significant short-term economic challenges before the next election, with inflation rampant and the war in Ukraine weighing on global growth. However, the change of leader also presents an opportunity and the need to set out a longer-term post-Brexit strategy for the country.
In 2019, Boris Johnson ended the agonising parliamentary impasse and got Brexit done. With Jeremy Corbyn’s Labour Party offering another EU referendum, the central question that dominated the election campaign that delivered the Conservatives a landslide victory was whether Brexit would happen. How the country should carve a new path for itself under this new constitutional settlement was left largely open to further interpretation.
The political coalition that delivered Brexit and the 2019 election victory was necessarily a broad one. It straddled those in favour of free trade and smaller government, on the one hand, and those supporting greater state intervention, backed by greater public spending, on the other, and a range of views in between. It is not entirely surprising that Johnson was often criticised for trying to please everyone but pleasing no one. He may have been toppled for other immediate reasons, but the difficulty of reconciling this tension contributed to a perception of the government and the country lacking a sense of direction.
Nevertheless, the most significant legacy of the Johnson Government is that the parameters of the UK’s relationship with the EU have been largely settled for the medium term.
Keir Starmer has calculated that there is no electoral benefit to the Labour Party in reopening the Brexit debate in a fundamental way. In his Brexit speech last week, the one significant dividing line the Labour leader set out was over the Northern Ireland Protocol.
Starmer’s proposed solution is to negotiate a new UK-EU veterinary agreement for agri-food products to reduce checks, including across the Irish Sea. However, Brussels has always made clear that what this means in practice is ongoing UK alignment with EU standards. The current Government has consistently ruled this out, noting that it would limit the UK’s flexibility to negotiate trade deals with other partners, particularly the US. Will the various leadership candidates rule out alignment with EU food standards?
Notwithstanding the crucial issue of the Northern Ireland Protocol, Starmer’s stated Brexit policy is not substantively different to that of the current Government. The Leader of the Opposition made it clear that, under a Starmer premiership, “Britain will not go back into the EU. We will not be joining the single market. We will not be joining a customs union.” He also ruled out returning to free movement and said, “We will use our flexibility outside of the EU to ensure British regulation is adapted to suit British needs.”
Starmer’s intention is to remove Brexit as an electoral weapon from the Conservatives. It therefore requires and allows a new leader to move on from a debate dominated by Brexit polemics on both sides and to get to grips with the trade-offs post-Brexit Britain faces.
The economic benefits of EU membership were vastly overstated by project fear in the referendum, but reduced access to the single market will mean we trade less with the EU than otherwise would have been the case. One cannot credibly argue that the EU’s Customs Union and Single Market is inherently protectionist and at the same time that the transition from member to non-member will have no economic impact, all other things being equal. The question is how the Government uses the UK’s international and domestic economic policies to compensate. In other words, it makes little sense to leave the EU and not do things differently if the UK is to maintain and improve its economic performance over the long-term.
The UK has made significant progress in a short time in negotiating trade agreements but more remains to be done. The new agreements in principle with Australia and New Zealand are important in demonstrating that the UK is prepared to be more liberalising than the EU.For example, under the UK-New Zealand deal, the UK will phase in a complete tariff removal on New Zealand beef over 10 years and the year-one tariff-rate quota will allow 12,000 tonnes of beef to be imported tariff-free (for context, in 2021, the UK imported around 240,000 tonnes in total). In contrast, under the EU-New Zealand free trade agreement, the EU will phase in over 7 years a tariff-rate quota that will allow for only 10,000 tonnes of per year to be imported at the tariff-rate of seven per cent.
However, although Australia and New Zealand are relatively small economies with similar standards, the prospect of tariff-free trade reportedly led to divisions in Cabinet between free traders and protectionists. New deals with larger markets – India, Canada, Mexico, and possibly the United States – are likely to be more controversial for certain producer interests. The new Prime Minister will need to be prepared to make a strong argument that trade liberalisation with non-EU markets is vital to improving UK productivity.
Meanwhile, it makes little sense to leave the Single Market and not use new regulatory freedoms to improve the business environment and encourage the innovation the UK needs to compete. However, since Brexit, the Government has been slow to prioritise and deliver more efficient regulation.
For example, Solvency II, has long been seen as too onerous by UK insurance companies, but the EU published proposals to ease the burden before the UK. In fact, since Brexit, Government has increased regulatory costs for business. According to the Stephen Gibson, Chair of the Regulatory Policy Committee, during the 2017-2019 Parliament, the Government increased the regulatory cost to business by £7.8 billion. In the current 2019 Parliament, the costs to business have increased by £4.5 billion, excluding covid regulations.
The UK has many strengths. Its services sector is world class. And Global Britain is not simply a slogan. In different ways, it has been exemplified by the diversity of the field of Conservative leadership candidates and the UK’s early and steadfast support for Ukraine.
However, the world beyond Brexit requires the UK to use all the tools at its disposal to up its game and become more globally competitive.