Why business shouldn’t expect Keir Starmer to come to the rescue on Brexit

Good afternoon and happy New Year. We’re still in the foothills of 2024, so I thought that as I closed before Christmas with a review of last year, today I’d look ahead to what might — and might not — happen in Brexitland over the next 12 months.

First there are some diary events, starting with the introduction of new paperwork and border control on imports from the EU which, as I report today, are a source of considerable trepidation in exposed industries, like the horticulture and meat trades.

The expectation is not for big border delays (since the UK government has pretty much said it will soft-pedal the new border checks in April to avoid this) but there is some risk of supply chain disruption and higher prices.

The border will see many EU businesses feel the force of Brexit for the first time. We know what happened to many UK small businesses in 2021 when the EU introduced its border (they stopped trading with the EU) so it’ll be interesting to see if that’s replicated in the other direction.

More broadly, business group surveys show UK businesses are already finding it harder to get EU clients and customers to trade with them, and the introduction of the EU-GB border (which had to happen at some point) is almost certainly going to increase this. 

UK businesses often absorbed Brexit border costs because they had no choice. But for EU businesses, their trade with the UK is, on average, a less important share of their overall activity. They also have other, easier options inside the single market. Put that together and the incentives to conquer the paperwork and absorb costs in order to keep trading are likely to be weaker.

More likely to create chaos at the border is the EU’s scheduled introduction of its biometric entry system this October. This has been repeatedly delayed, and may be again. It’s still not clear how it will work in places like Dover Port and the Eurotunnel, where there are carloads of passengers to process, without causing even longer delays than at present.

Other Brexit topics that I suspect I’ll be writing about this year include the impact of ending the supremacy of EU law in the UK (in short: more uncertainty, more litigation); upcoming legal appeals testing out the UK’s post-Brexit subsidy control system; and the success or failure of the UK’s attempt to reclaim its place in the Horizon Europe science research scheme.

We also wait to see whether construction products will be spared the hassle of getting “UKCA” conformity assessment marks. It is something the Department for Business and Trade has already extended to other categories of goods but because construction is regulated by the housing department that industry is awaiting a separate decision — a classic example of how Brexit has balkanised regulation.

Then there’s Northern Ireland and Ireland. We wait to see if the Democratic Unionist party will return to power-sharing, but whether it does or not, there is a democratic consent vote to be held by Northern Ireland Assembly members late in 2024.

The new checks on the Irish-GB border are also likely to land hard on the Irish meat industry that is heavily reliant on GB markets for exports — that will see Brexit’s effects landing in Ireland in a way that, until now, farmers and the meat industry have been shielded from. It’s also likely to create so-called “trade diversion”, with more meat going from Northern Ireland into Great Britain over time.

At the same time, relations between the two governments look like being further strained by Dublin’s decision to launch an interstate legal action against the UK in the European Court of Human Rights over UK legislation that grants amnesty for atrocities committed in the Troubles.

The challenges ahead for Starmer

That’s all the nitty-gritty, the vast majority of which will rightly not trouble voters in this election year. Which brings me to the real Brexit question of 2024 — what happens if the polls are correct and Sir Keir Starmer becomes prime minister in the autumn?

The short answer is that any reshaping of the EU-UK relationship after a Starmer victory will depend to some degree on significant domestic and international political variables — most obviously, the size of any Labour majority; but also the political complexion of the new European Commission and Parliament (Europe has elections too), and whether Donald Trump takes back the White House.

But in recent conversations with both official and political contacts, I’m struck by two things about the emerging shape of Labour’s vision for patching things up with Europe.

Firstly, the clear signals about the limits of Labour’s ambition, as it looks to reset the relationship around a warmer, less confrontational approach that focuses on the UK as a more strategic partner with the EU.

There is evidently a desire to create a new piece of diplomatic apparatus and to find common causes in the diplomatic and security space (Ukraine, the Balkans) and in other areas of strategic common interest, for example energy co-operation (some of which is already happening). 

But whether that extends, for example, to concrete but legally challenging steps such as linking the UK and EU carbon pricing schemes (as opposed to the UK just having its own Carbon Border Adjustment mechanism, which was announced by the Sunak government in December) is still to be confirmed.

In short, it’s all fine, as far as it goes. The Times columnist Patrick Maguire (well connected with the Labour establishment) outlined the apparent thinking in a column after Christmas, borrowing the words of the late Jacques Delors to describe a new relationship based around a “privileged partnership” with Brussels.

Maguire breezily asserts that that means aligning where “interests overlap” but not seeking single market membership “by stealth” since Labour believes it can shake the UK from its economic torpor via domestic reforms. 

It’s a prospectus that echoes what I also hear, but one that’s shot through with what a former senior EU diplomat with long experience of the often binary realities of the EU single market, calls “affable cakeism”. 

It’s driven by a desire (which is not unique to Labour) to shy away from the harder choices presented by Brexit in order not to upset domestic political audiences, and a general woolliness around the nuts and bolts of trade.

This week’s Bagehot column in the Economist alludes to something similar, but attributes it to a kind of “Euro-agnosticism” among Labour’s top table and an unwillingness to confront issues that “would require of Labour hard diplomatic graft, a willingness to spend political capital and a vision that is currently lacking”.

Which brings me to the second point, which is the yawning gap between this kind of thinking and actual daily challenges that business faces in trading with the EU that were outlined, for example, in the British Chambers of Commerce recent report on Brexit, three years on. (See my precis and report here)

This is not a point about Labour specifically, but there is a chronic lack of empathy and understanding in the upper echelons of the UK’s political and bureaucratic classes about the world that moves things and makes things. 

For businesses now struggling with German VAT rules or being required to gather data on carbon usage for EU exports or wrestling with supply chain due diligence requirements or plastic packaging directives, finding real fixes will require much deeper engagement. 

Because just like those EU businesses grappling with the new UK border controls, the line of least resistance for Brussels is to stick pretty much to where we are now — a basic Free Trade Agreement that can be improved at the operational margins, but not much more. 

Labour needs to consider what are the levers that might create a genuinely “privileged partnership” that delivers concrete benefits — on, say, mobility, professional qualifications, conformity assessment, border and VAT controls — not just a diplomatic talking shop.

That means really hard choices about where the UK becomes a rule-taker, how much money to put on the table and what the actual ‘offer’ to the EU is going to be, beyond warm words.

There is an awareness among diplomats and officials that the first conversations between prime minister Starmer — who set out his vision to voters earlier today — and his opposite numbers in Paris, Berlin and Brussels will be crucial in setting the parameters of the first-term discussion. 

“You only get one go,” as one official acknowledges. 

In theory, that means there’s a lot up for grabs in terms of shaping Labour thinking between now and the day when Starmer — should he win — gets to pick up that phone. But on the strength of current signals, business shouldn’t hold its breath.

Brexit in numbers

This week’s chart comes from the mega-poll that was commissioned by Best for Britain, the campaign group, which showed just how much of an uphill battle Rishi Sunak faces if he wants to remain in Number 10.

On the Brexit front, however, it is clear from the polling that whoever wins the next election there is clear support for a “closer” relationship with Europe — although what that actually means, and the trade-offs involved, were not put to the respondents.

But the overall takeaway, says Best for Britain’s head of policy Tom Brufatto, is that whoever becomes prime minister, the public want a closer relationship.

“The data shows that there is a broad understanding and expectation among the public that Keir Starmer should seek a closer relationship with the EU and that people are willing to support Labour on that basis,” he says.

That isn’t surprising given that, overall, a clear majority of the public say that Brexit has had a negative impact on the UK. As this Opinium survey for the Observer confirmed, the public think that leaving the EU has put up prices and made it harder to trade, staff the NHS, and protect the environment.

Unfortunately for Starmer, if he wins it will not be possible to quickly deliver these things via rebooting the EU-UK relationship — that in turn becomes a rationale for not expending too much political capital making anything happen. (See above)

Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.

Source: Economy - ft.com