Protecting the UK economy

singlemarket.jpgTo minimise the cost of leaving and maximise national opportunities for trade, innovation, jobs and growth, the UK should be a member of the Single Market. This should be based on a bespoke UK-EU agreement which prioritises continued elimination of non-tariff barriers and continued influence over regulatory decision-making so the UK is a ‘rule maker’ not a ‘rule taker’.

The Single Market

We believe the UK must seek to negotiate the trading arrangement with the EU which minimises the economic cost of leaving, and that means remaining a member of the Single Market. This poses huge challenges, not least that there appears to be no existing model which would enable the UK to both respond to the messages sent on June 23rd and the needs of an economy of our size, and so a bespoke UK-EU arrangement appears necessary. This will, however, depend on both the UK and the EU being open to compromise in the forthcoming negotiations.

Why the Single Market matters

In independent analyses of the economic consequences of Britain leaving the EU Single Market membership has been shown to be the trading arrangement that is the least damaging and which offers the greatest opportunities for future growth.

Uniquely, the Single Market removes tariffs, customs duties and quotas on all goods traded within the EU; it removes non-tariff regulatory barriers by harmonising rules and standards of products and having the principle of mutual recognition of laws so that these are accepted across the bloc. The Single Market also provides a guaranteed right to deliver services within the EU without national impediments. These conditions offer the best deal for Britain for services and manufacturing alike, in particular allowing British-based companies to be part of integrated European supply chains and incentivising overseas businesses to invest in the UK as a launch pad for export to the Continent.

But the Single Market is about much more than just freeing up trade and investment. It sets common standards in labour market rights, health and safety regulations and consumer and environmental protections, ensuring there are no competitive advantages in adopting lower standards in a race to the bottom. Its importance is underlined by the commitments in the 2015 Conservative, Labour and Liberal Democrat manifestos to the UK remaining within it.

The Secretary of State for International Trade has already revealed that the Government is prepared for the UK to leave the Single Market and rely instead on basic World Trade Organisation (WTO) rules without preferential trade arrangements in place, which would be the most damaging outcome for the UK economy. Single Market membership must, therefore, be fought for.

Why Single Market membership is necessary

During the referendum campaign the country was blatantly misled by Leave campaigners. We were told we could leave the Single Market while retaining all its barrier-free benefits. We were told we could end free movement of people entirely, end budget contributions to invest £350m a week in the NHS, and simultaneously ensure no new barriers to trade. David Davis said it would be possible to “ensure that trade with Britain continues uninterrupted” and that “trade will almost certainly continue with the EU on similar to current circumstances”. Boris Johnson said “there will continue to be free trade.” Michael Gove said, “It should be win-win for us and it will be if we vote to leave and we can maintain free trade, stop sending money and also have control of our borders.” Vote Leave stated, “The idea that our trade will suffer…is silly.”

With the campaign over, and with Leave campaigners taking to ground, these claims are no longer made. There is no way of fully benefitting from the Single Market without fully participating within it.

Leaving would erect trade barriers between the UK and EU since even under a comprehensive Free Trade Agreement (FTA) total tariff elimination cannot be guaranteed and, without the full, unfettered market access and policy-making influence that comes with membership longer term regulatory divergence would make UK-EU trade costlier for UK businesses. New barriers would reduce trade and deter investment, which is a price we cannot afford to pay given the EU is and will remain by far our largest trading partner.

The only realistic path to retaining the economic benefits of being in the Single Market is, therefore, to seek membership of it and argue for reform from within.

A new, bespoke UK-EU arrangement

Retaining Single Market membership of course raises the question of how and on what terms, and it is difficult to see an existing trade ‘model’ which suits the UK’s needs.

Membership of the European Economic Area (EEA), as Norway has, would provide Single Market membership but may prove too inflexible in the conditions it imposes. An FTA, as Switzerland has and if modelled on existing agreements, might provide more flexibility but would offer insufficient market access, in particular in service sectors. Defaulting on to the World Trade Organisation would be the worst outcome of all and would see the UK facing stringent tariffs on 90% of the UK’s goods exports to the EU by value, including 10% on cars.

This points, therefore, to the UK Government attempting to pursue a new, bespoke UK-EU arrangement. In determining the precise configuration of this arrangement, there are two principles against which it must be judged.

Single Market Membership. The UK requires an arrangement which goes beyond tariff-free market access alone and prioritises the continued elimination of non-tariff, regulatory barriers. This is particularly vital in service sectors, especially as the Single Market expands, and, at present, this can only be achieved through participation within the Single Market.

A ‘rule maker’ not a ‘rule taker’. Adopting EU rules and regulations with no say, as other non-EU countries do, would be inappropriate for an economy of our size and would create difficulties, for example in our financial service sector. The UK should therefore seek to negotiate continued influence over regulatory decision-making. Without such an arrangement we would have no way of shaping EU regulations which UK businesses exporting to the EU, our largest trading partner, would have to adhere to whether we remain within the Single Market or not.

Such a bespoke arrangement would of course depend on reform to free movement and limitations over EU budget contributions, but there are a number of wider issues that must also be considered. 

Customs Union

In establishing the Department for International Trade the UK Government appears to have stated its intention to leave the EU’s Customs Union come what may to pursue bilateral trade deals internationally, which would be compatible with Single Market membership. 

This raises a number of challenges. The UK was promised by Leave campaigners that we would be able to secure all the equivalent international agreements to those previously negotiated by the EU. Again, the Leave campaigners must be held to account on this. This is especially important as the Secretary of State for Exiting the EU has stated that he expects many new trade deals to have been concluded within two years. It is vital for Ministers to provide evidence that this timetable is achievable with clear evidence that they would be as valuable to Britain as the existing EU agreements.

Leave the Customs Union also raises the prospect of tariffs on agricultural products, over which the UK Government must provide future guarantees. 

Making the Single Market work for everyone

While membership of the EU’s Single Market has brought increased prosperity to the UK, one of the defining lessons from the referendum must be that prosperity has been unequally shared. Low employment rates, lower wage growth and lower perceptions of future opportunities have all been shown to be important indicators of whether people favoured leaving the EU.

Many of those who rejected economic warnings in the referendum campaign did so because they felt ignored by the political mainstream, faced by an economy that was failing to spread opportunity. Inequalities in growth and living standards have been laid bare but, in our view, people didn’t reject the global economy – their vote was a call to share more equally in it.

After June 23rd an argument for a global economy must acknowledge the limits of free trade alone to deliver higher living standards for all. An open economy must be coupled with a national strategy for fundamental economic change to deliver more equitable gains through regional regeneration, investment in infrastructure and far wider educational opportunities. 

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