Labour’s shadow chancellor Rachel Reeves has recently sparked renewed dialogue on EU trade relations. She aims to dismantle trade barriers and foster regulatory alignment, promising a potential boost for the UK’s economic prospects. However, with the shadow of Brexit still looming large, businesses question how much change can truly be expected. As Labour gears up for a likely general election victory, they tread carefully on these sensitive issues.
Labour’s New Stance on Brexit
Shadow chancellor Rachel Reeves has opened a dialogue about reforming EU trade barriers, aiming for regulatory alignment and a better deal than Boris Johnson secured. This shift indicates Labour’s confidence in an upcoming general election. Previously, discussing Brexit was too risky for Labour. Revisiting Johnson’s trade & cooperation agreement (TCA) and aligning with EU standards is on the table.
Economic Growth and the Trade Barrier
Labour recognises that boosting economic growth is essential for their ambitious plans. The trade barrier along the English Channel poses a significant challenge for growth. The Office for Budgetary Responsibility (OBR) updated its Brexit analysis, revealing a 4% decrease in long-run productivity due to increased non-tariff barriers. Exports and imports are predicted to be 15% lower in the long term, with minimal gains from new non-EU deals.
Financial Implications and Labour’s Approach
Financial transfers to EU institutions are already covered in the government’s departmental spending, offering no additional relief. A Cambridge Economics report commissioned by Sadiq Khan shows the UK economy has shrunk by £140bn due to Brexit. The capital alone has lost £30bn. Rejoining the European single market or a customs union is off the table for Labour, marking clear red lines. Reeves is willing to make some sacrifices for economic revival but remains cautious. Labour aims to limit damage rather than reverse it completely.
Challenges for Businesses
Brexit remains a significant hurdle for businesses trading with Europe, impacting all from large corporations to small enterprises. The Federation of Small Businesses (FSB) has urged the government to reduce international trade costs. Tina McKenzie, FSB’s policy chair, emphasised the need for removing intermediaries in the EU VAT system and mutual recognition of product standards and professional qualifications. The Confederation of British Industry (CBI) echoed these calls, seeking improved regulatory cooperation and reduced administrative and customs burdens.
Political and Business Reactions
Keir Starmer’s rejection of the EU’s offer on youth mobility highlights Labour’s cautious approach. The willingness to engage in discussions and consult with businesses is a positive step. However, Brexit’s adverse effects are profound, likened to the Suez Crisis in its impact on the UK’s economy and international standing. The EU remains reluctant to make concessions, viewing any changes as cherry-picking by the UK. Relations may improve under Labour, but significant progress requires mutual efforts and compromises.
Future Prospects and Labour’s Commitment
Labour’s commitment to improving trade relations with the EU involves hard work and a lot of give from Britain. The business community should temper its expectations, carefully observing how far Labour is willing to push for beneficial changes.
Labour’s ambition to improve EU trade relations may offer a glimmer of economic hope, but businesses must remain realistic about the extent of potential changes. Brexit’s aftermath is complex, and while Labour’s dialogue signifies progress, significant barriers remain. The effort required to bridge these gaps is immense, demanding patience and cooperation on both sides. Ultimately, while the conversation is promising, the journey ahead is fraught with challenges that may temper expectations.