No reset would be better than this damaging deal

Yahoo

19-05-2025

One might be tempted to say that no reset is better than a bad one. The UK's economic reset with the EU does not produce much in the way of tangible, immediate gains for the UK. It is as much about the direction of travel.
The key to any reset is to ensure it does not tie the UK's hands in future on domestic economic or trade policy. It makes sense to have a sensible and mutually beneficial working relationship with the EU. In this reset, however, the UK will have to both pay and align in return for closer ties.
Brexit was a political event, about democracy, control of our laws and ensuring power remained with UK voters as the EU moves towards ever closer union. I agree with the former governor of the Bank of England, Lord King, who said in an interview: 'It isn't really an economic issue: it's a political issue.'
Both the Prime Minister and EU president described this deal as 'comprehensive'. It is not just about the devil being in the details, but also about what follows. The so-called Common Understanding document accompanying the reset has many references to exploratory talks and references 'dynamic alignment with EU rules' where necessary.
The Government has said it does not plan to rejoin the single market or the customs union. That's important as this will not provide a solution to the UK's economic challenge and should not be part of any pro-growth strategy.
Remaining outside the single market allows the UK regulatory autonomy in key areas of future growth such as artificial intelligence.
Being outside the customs union has allowed the Government to make a trade deal with India, to agree on tariffs with the US, and to reposition the UK in a changing global economy, including having membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The major driver of future growth is the Indo-Pacific, with the EU the slow growth region.
This reset effectively sees the UK join the single market in the area of agricultural products. The post-Brexit border in the Irish Sea should go. The Government expects trade in agriculture to rise, but this will be at the expense of the UK being tied to EU rules.
The SPS agreement, for instance, covers sanitary, phytosanitary, food safety and general consumer protection rules, so effectively the UK will come under EU rules on production, which are widely seen as anti-innovation in agricultural products.
The latter ties UK agriculture's hands in gaining efficiencies with the rest of the world. The ECJ will also oversee areas of dispute.
Unfortunately, one headline-grabbing aspect is the damage it may cause to the UK fishing industry, and it will have a further painful impact on deprived parts of the UK.
The other is UK access to EU defence procurement. This could be positive, but the details and cost still need to be clarified. Seeking improved defence and security ties is understandable as the changing global landscape of geo-economics has led to national security being alongside economic prosperity in policy making.
Access to the EU energy market and emissions trading schemes is also to be explored, but again with a cost and realignment.
The reset should allow scope to address areas that, with better negotiation, should not have been in the original deal. Access to e-gates at passport control now faces 'no legal barriers', but their use is unclear. The UK wanted to address the ability of UK artists to tour, but this has not been resolved.
Youth mobility is the big unknown out of this reset. Few would want to deny opportunities to UK young people, although previously these were limited by language issues and the lack of jobs in the EU.
The genuine worry is the UK's tendency to underestimate badly how many people may wish to come, given our dynamic labour market and free health system and the high numbers of young people with EU residency permits.
The major challenges facing the UK have long predated Brexit and solutions are not reliant on being in the EU. The UK's investment shortfall dates to the 1970s, its trade deficit problem to the mid-1980s, and regional imbalances have persisted for some time.
Germany's recent recession, Italy's stagnation and France's weak growth are not blamed on Brexit, and with Britain being hit by the same global influences, our sluggish growth should not be either.
The doppelgängers that some have used to suggest we would have grown faster within the EU have been shown to be flawed, with the comparator groups changing within and across economic variables.
The inability of British politicians to articulate a coherent vision and deliver a properly thought-out economic policy have allowed figures vehemently opposed to Brexit to define the debate and helped to create an economically damaging narrative about the UK on the global stage.
While some politicians wrongly presented Brexit as transforming the country's fortunes overnight, we are still better placed to pursue a reforming, pro-growth agenda from outside the EU.
Making maximum use of the competencies that have returned to Westminster in recent years remains an opportunity, before we seek to give them away in a reset without them being used.
Though this need not necessarily rule out dynamic alignment in a few sectors, the UK needs to focus on the domestic policy levers that can be pulled to boost competitiveness.
Gerard Lyons is a senior fellow at the Centre for Policy Studies
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