The uncomfortable truth on EU trade for Labour

Good afternoon and happy Easter weekend everyone. This being the season of redemption and resurrection, I thought I’d start with a couple of cheerier Brexit stories for once.

Back in November 2021 I reported how Isabelle Regiani, an English teacher from Jean Jaurès middle school in Sarreguemines in eastern France had — after 22 years — given up going on school trips to the UK with her students because of Kafkaesque post-Brexit visa issues.

Instead, pathetically, she was reduced to taking her students to Calais to look at English-style medieval castles while peering across the Channel through binoculars at the White Cliffs of Dover. 

But just this morning Isabelle sent me a joyful picture of her class at the Eden Project in Cornwall — their first school trip since 2020 — made possible by Rishi Sunak’s decision to row back on rules that made it hard for EU schools to bring their kids on trips to the UK. Alleluia! 

And in a second piece of good news, the British Chambers of Commerce announced that — after a lot of lobbying — the EU has waived requirements for UK exporters to have “mill certificates” proving their products don’t include Russian iron or steel. Alleluia! Alleluia!

Of course, both those happy tales also serve as parables for the incremental nature of fixing the frictions thrown up by Brexit — the visa deal is unique to France, took three years of lobbying to secure and will, hopefully, be extended to other countries over time. 

The mill certificates waiver followed multiple meetings and roundtables, according to the BCC’s head of trade policy William Bain. All of which is a testament to what can be achieved now relations between London and Brussels are warmer, but also a reminder that for third countries, the wheels grind slowly.

Elsewhere in Brexitland, normal service continues. We reported today how Salmon Scotland reckon the post-Brexit border is costing them £100mn a year in lost sales to Europe; while Bloomberg covered the announcement by Indian-owned Royal Enfield motorcycles that it was setting up a Dutch distribution operation.

Lots of businesses have done this (some on the advice of the UK government) but I was struck by Arun Gopal, Royal Enfield’s international head, saying the new EU warehouse will cut lead times “to two weeks from 90 days currently”. Brexit blues in a nutshell.

These are the kinds of frictions that have contributed to the UK’s dismal goods trade performance since leaving the EU single market, alongside weak investment flows in several key sectors for the UK economy.

That was the subject of a big new British Chambers of Commerce report this week on how to reboot “Global Britain”. The report was a partial re-tread of Lord Richard Harrington’s excellent plan (commissioned by Chancellor Jeremy Hunt) to re-attract investment to the UK.

The political subtext of this is interesting. You could hear in BCC President Martha Lane Fox’s quotes in the report the first tinges of frustration that neither of the main political parties really want to talk about trade as part of a UK growth strategy.

The Tories duck the issue (or just make political statements that smokescreen the awful data) because it is ultimately Boris Johnson’s Brexit trade deal which is responsible for the mess, as salmon farmers and motorbike manufacturers will testify. 

Labour ducks it because the obvious fixes beg political questions on regulatory alignment and a customs union that the leadership doesn’t yet want to answer, for fear of sparking “Starmer Secret Plan to Rejoin the EU” type headlines before the coming election.

You can see the political advantage for Labour in this, at least as far as the outward-facing conversation goes. The risk is that it paralyses, or at least severely curtails, the internal conversation that the Labour party policy machine needs to have as it prepares for government.

Lane Fox is impatient for politicians to set out a strategy “on how we manage EU regulation and — where it makes sense — to diverge so British business can benefit”. But that’s not possible until Keir Starmer and his top team decide, in concrete terms, where to set the cursor on EU relations.

This situation is somewhat reminiscent of David Cameron’s edict in before the 2016 referendum that Whitehall ministries and British embassies should not prepare for a Leave vote, or risk sending out the wrong signals. 

The result was that the UK system was wholly unprepared for what came next. It was the  first step in a decision-making vacuum that Theresa May’s former Europe adviser Raoul Ruparel eloquently describes here in the UK in a Changing Europe oral Brexit archive. 

An election strategy based around deferring difficult decisions on EU relations — whether to accept dynamic alignment on veterinary standards, accept youth mobility deals (see below) or relink the UK’s carbon market to the EU’s — makes it hard to prepare a truly coherent growth plan.

Labour has announced that it wants a new security pact with the EU, but partly because, as one insider puts it, “that’s all the political market will bear”. As this UKICE report makes clear, there are both institutional and political constraints to what a third-country security pact can deliver.

As Jannike Wachowiak, Richard G. Whitman, and Joelle Grogan of the UKICE shrewdly observe the UK-EU relationship “currently sits somewhat uncomfortably between one of alliance and one of rivalry”. 

Labour may still harbour designs at cherry-picking, but to make a real difference to trade and investment they need to get off the fence.

As Wachowiak et al correctly note, the recent pressures militating in favour of greater cooperation (Ukraine, a second Trump presidency, fiscal constraints), “have not, to date, proven sufficient to overcome structural and institutional constraints”. 

Labour perhaps shouldn’t bet too heavily that Brussels will treat Starmer so differently than it does Sunak when it comes to the nuts and bolts of trade — see this chilling story, for an example of how EU carbon taxes will hit UK electricity exports and investment in North Sea wind. 

Fixing the mechanics of trade will require levels of rule-taking that, in the nature of the asymmetric EU-UK relationship, will be uncomfortable but — if Labour wants a growth strategy that delivers — may be unavoidable too.

Brexit in numbers

This week’s chart comes via the British Future think-tank which published a new report on UK attitudes to immigration based on surveys by polling firm Ipsos.

It shows that Labour supporters clearly trust the party to strike the right balance on immigration for work but also highlights in these charts the risk that, once in office, fickle voters can quickly blame you for getting that balance wrong.

As British Future boss Sunder Katwala wrote in this column: in opposition Starmer can attack Tory policies freely, but once in office the Labour leader “will inherit the dilemmas of control” and need to convince the public that he actually does have a better plan.

This is an area where Starmer, if elected, is going to have to make choices and show leadership, including with regards to Europe and whether or not to seek reciprocal youth and professional mobility arrangements.

I was recently at an event with former Gordon Brown adviser Lord Stewart Wood and was surprised to hear him warn that if Starmer’s majority was on the smaller side, and particularly if his marginal MPs were from ‘red wall’ seats, then the politics of a youth mobility deal with Europe might quickly become sticky.

It is notable that despite calls from a broad coalition of industry and society groups for Labour to commit to a youth mobility deal with Brussels, they have declined to do so. 

Perhaps this is smart politics, because, as Manchester university politics professor and Brexit analyst Rob Ford explains, the voters that are more liberal on immigration are clustered in cities and university towns where Labour has big majorities. 

But while it makes tactical sense to avoid upsetting less liberal-minded voters in more marginal seats, it’s also partly a reflection of how captured the Labour party leadership is by Tony Blair-era “2005 thinking” when it comes to immigration. 

As his own polling work for UKICE shows, the British public is overall, much less alarmed and more nuanced on immigration than it used to be. Which is why, on the question of a youth mobility deal, Ford says Starmer can afford to be bolder, at least when in office. 

He notes that if Labour wins a majority at the next general election, it will be the first time ever that a UK government, based on his polling data, will have been elected with a majority that is pro-immigration. That is quite a thought.

“Labour are scared of their own shadow on this, they think it’s 2005 still and it just isn’t,” says Ford. “I don’t think it’s a problem to sell a youth mobility deal. Parts of Labour are socialised into the ‘British public just won’t wear it’, but that’s no longer right.”

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