For the first-time since the referendum, senior politicians from the three major UK parties will share a stage at an event for the Open Britain campaign where they will outline the value of the Single Market to the largest and fastest growing sectors of the economy. They will present new research to argue their case.
At an event in central London this morning [Monday], Anna Soubry, Chuka Umunna and Nick Clegg will argue that if the Government were to cherry-pick priority sectors when negotiating a Free Trade Agreement (FTA), they risk damaging the UK economy. They will argue that the Government should put UK membership of the Single Market at the heart of their negotiating strategy.
The research, How the UK economy’s key sectors link to the EU’s Single Market, was written by the respected, independent think-tank, the Centre for Economics and Business Research (Cebr), commissioned by the Open Britain campaign. It looks at the contribution made to the economy by its main sectors and examines their links to the EU Single Market. Considering economic size (GVA); growth (GVA growth); and existing trading relationships (captured by trade, trade growth and employment linked to trade with the EU). It concludes that all major sectors are linked to the EU – in different ways and to different degrees - and could be harmed if the UK Government sought a Free Trade Agreement which prioritised some sectors over others.
The research shows that broad wealth-creating sectors within the UK economy would be negatively impacted, including manufacturing; retail and wholesale; administrative and support services; financial services; professional services; and energy. Additionally, sectors such as tech, digital and creative, which are fast-growing – sometimes called the ‘Flat White Economy’ – could be damaged by tighter migration controls and restricted access to a future deeper Single Market.
The key findings of the report are:
- ‘Every major sector is linked to the EU Single Market and could be harmed’ by opting for a sector-by-sector FTA that prioritises certain sectors over others.
- A sector-by-sector approach to pick winners ‘cannot be achieved without the risk of creating losers.’
- Cherry-picking would be made difficult because ‘there is considerable linkage between the sectors.’
- Leaving the Single Market is likely to entail ‘secondary effects’, such as falling investment.
Many of the largest and fastest growing UK sectors export most to the EU. It highlights the manufacturing sector, saying it is ‘heavily dependent on exporting to the EU and would certainly suffer significantly if access is restricted or held back by tariff barriers.’
- It says the creative sector is set to become the largest sector in the UK economy and is heavily dependent on EU labour: ‘Any move to cut immigration from the EU would be a body blow to this sector and would have a significant impact on UK GDP growth.’
- Warns against the dangers of the WTO model saying ‘importers and exporters would face tariffs and possible regulatory divergence problems.’
- If there is a change to UK-EU trade arrangements ‘the effects can be expected to reverberate throughout the economy’, while the uncertainty of negotiating an FTA would generate would ‘hold back investment.’
- The UK, in or out of the Single Market, will have to comply with market-relevant EU regulations if it wishes to trade with the EU. The important issues are the initial form of compliance and the influence that the UK can eventually negotiate.
- Regulatory autonomy could lead to decreased market access so could be ‘a costly ideal.’
- Under an FTA, ‘the UK could end up being a rule-taker for industries where it wishes to secure access’, with less potential to influence decision-making than from within the EEA.
In her speech, Conservative MP Anna Soubry, supporter of the Open Britain campaign, will say:
“Today we are posing a challenge to those who want the UK to leave the Single Market.
“Those who talk of a new trade deal – like Canada’s but better – as if the benefits would be comparable to Single Market membership and easily achievable. They say we can end free movement; stop making any financial contributions; and be free from the jurisdiction of the ECJ, yet continue to enjoy the same terms of trade we have today. All the benefits with no obligations, which is a simplistic fantasy.
“What would a Free Trade Agreement would mean for individual sectors; what are the implications if certain sectors didn’t have the market access they have today; and why is it important to have agreements on regulations, not just tariffs, to maintain open trade?
“There are no inevitable outcomes. There is no mandate for one particular Brexit option. The only question on the ballot paper was whether to leave, which we will, but how we execute our extraction must be debated.
“I disagree with my fellow panellists on much. We’re from different parties, with different policy and political outlooks. But our joint starting point is that the best future for Britain’s economy lies within the Single Market.”
In his speech, Labour MP Chuka Umunna, supporter of the Open Britain campaign, will say:
“Every major sector of our economy is linked to the Single Market and could be harmed through an arrangement that prioritises one sector over another. The benefits we have within the Single Market cannot be replicated outside it without cost, since every alternative inevitably means increased barriers to trade.
“It would be an honest position to say this cost is worth paying for severe immigration controls or regulatory freedom or another reason to leave the EU. But it dishonest to deny any cost exists. In short, cherry-picking winners creates losers, and I am not aware of anyone proposing or voting for creating economic losers.
“In a dynamic and complex market economy, it is never possible to predict where growth is going to come from next. Sectoral selection may well pick winners but it will also inhibit other future potential winners.”
In his speech, Liberal Democrat MP Nick Clegg, supporter of the Open Britain campaign, will say:
“It is the height of irony that free-market Brexiteers often claim European regulations are the product of an overbearing European super-state, when in fact EU regulations are designed to liberalise markets.
“It is ironic too that arguing to leave the Single Market on the basis of reducing the regulatory burden we face would in fact lead to reduced trade due to an increase in regulatory trade barriers.
“It is incumbent on all those who want to leave the Single Market to tell us which parts of the EU’s market framework they will refuse to comply with and to be clear about the which sectors in the UK economy will lose out.
“Many Brexiteers and Government Ministers repeatedly say that their key objective is tariff-free access to the EU Single Market. But tariff-free access would be a narrow, limited achievement for an economy as big as Britain's and a market as vast as the EU Single Market.
“True access to the Single Market has little to do with tariffs and all to do with the consolidated rules – so called non-tariff barriers – which allow British exporters of goods and services to export not only free of tariffs but free of all administrative and bureaucratic hassle at Europe's borders.
“What the Brexiteers never admit is that removing ourselves from the EU's Single Market will create more, not less, bureaucratic hassle and reduce not increase trade. This report shows how important it is that the Government finally comes clean on its plans.”
Notes to editors
The full copy of the report by the Cebr, commissioned by the Open Britain campaign, can be seen here: http://openbrita.in/CEBR
- “Every major sector is linked to the EU Single Market and could be harmed” by opting for a sector-by-sector FTA that prioritises certain sectors over others:
“The analysis demonstrates that every major sector is linked to the EU Single Market and could be harmed through an arrangement that prioritises one sector over another.” (p.7).
- A sector-by-sector approach to pick winners “cannot be achieved without the risk of creating losers”:
“The central finding is that most, if not all, sectors are linked to the EU. There appears to be no single sector whose economic characteristics – whether GVA, growth potential of trade density – do not link closely to and benefit from trading within the EU’s single market today. A sector-by-sector approach, which seeks to prioritise or choose ‘winners’ in isolation of others, therefore, cannot be achieved without the risk of creating ‘losers’ through reduced access and reduced future mutual benefits.” (p.6)
- Cherry-picking would be made difficult because “there is considerable linkage between the sectors”:
“Although it might seem theoretically possible to cherry pick a number of sectors and negotiate trade agreements for the sectors, there is considerable linkage between the sectors. It has taken a quarter of a century to negotiate the single market as it exists today and could take nearly as long to renegotiate a new arrangement on a sectoral basis.” (p.5)
- Leaving the Single Market is likely to have “secondary effects”, such as falling investment:
“The broader economic impact of having more restricted market access also has to consider secondary effects. Industries such as real estate could be affected if the landscape for foreign direct investment changes.” (p.5)
- Many of the largest and fastest growing UK sectors export most to the EU. It highlights the manufacturing sector, saying it is “heavily dependent on exporting to the EU and would certainly suffer significantly if access is restricted or held back by tariff barriers”:
“The manufacturing sector is heavily dependent on exporting to the EU and would certainly suffer significantly if access is restricted or held back by tariff barriers.” (p.4)
“There are close links between the broad sectors that matter the most to the UK economy in terms of size and growth and the sectors for which exporting to the EU is of vital importance.” (p.19)
- It says the creative sector is set to become the largest sector in the UK economy and is heavily dependent on EU labour. Any move to cut immigration from the EU would be a body blow to this sector and would have a significant impact on UK GDP growth:
“Currently the UK’s third largest sector at 9% of GDP is the so-called Flat White Economy, which combines technology with the creative sector. This sector has accounted directly and indirectly for more than 40% of UK GDP growth in the past 4 years and is forecast to account for 15.7% of UK GDP by 2015 making it by then the largest sector in the UK economy. This sector, currently heavily based in London but spreading rapidly to other major parts of the UK is critically dependent on labour from the EU and elsewhere…Any move to cut immigration from the EU would be a body blow to this sector and would have a significant impact on UK GDP growth.” (p.4)
- Warns against the dangers of the WTO model, saying “importers and exporters would face tariffs and possible regulatory divergence problems”:
“If the UK ends up outside of the Single Market and without a free trade arrangement, importers and exporters would face tariffs and possible regulatory divergence problems. Meanwhile, being outside the Customs Union, exporters and importers could be hindered by rules of origin, even if the UK opts to remain in the EEA Single Market.” (p.5)
- If there is a change to UK-EU trade arrangements “the effects can be expected to reverberate throughout the economy”, while the uncertainty of negotiating an FTA would generate would “hold back investment”:
“But it is also true that most, if not all, sectors (including the key exporting ones) rely to some extent on imported intermediate inputs (including from the EU) and that UK households, government and investors are also heavily reliant on imported final goods and services. Whatever the basis on which the UK and its sectors will be able to trade with the EU, if there is a change from the current situation, the effects can be expected to reverberate throughout the economy.” (p.20)
“The practical problems of negotiating agreements that cover the majority of our trade would not only take years but the uncertainty thus generated would hold back investment and damage the economy.” (p.5)
- The UK, in or out of the Single Market, will have to comply with market-relevant EU regulations, and the important thing is the form of compliance and the influence the UK can negotiate:
“Whether the UK is inside or outside of the Single Market, EU regulations cannot be avoided if Britain wishes to trade with the European Union. What can potentially be decided is the form of compliance, either though EEA rules, FTA equivalence or firms individually complying with standards for their exports. The more regulatory independence the UK tries to carve out, the more difficult it is likely to be for British firms to export to the EU without facing trade barriers.” (p.5)
- Regulatory freedom could lead to decreased market access so could be “a costly ideal”:
“In determining future trade arrangements, policy-makers need to consider the balance between the perceived benefits of regulatory freedom and the downsides of regulatory divergence, such as having multiple production lines if the sector is a major trader with the EU. The fact is that, to a varying degree, every sector relies on EU market access, so regulatory freedom could be a costly ideal.” (p.28)
- Under an FTA “the UK could end up being a rule-taker for industries where it wishes to secure access”, with less potential to influence decision-making than from within the EEA:
“Rule-taking cannot simply be avoided by opting for comprehensive bilateral trade either. On a de facto basis, under a deep FTA the UK could end up being a rule-taker for industries where it wishes to secure access, in that an equivalence regime would need to reflect changes to existing rules and new rules introduced by the EU. The impact of not following through with this would again most likely come back to a loss of access.” (p.30)