Starmer's trade deals will do nothing to fix Britain's broken economy

Telegraph

11-05-2025

After a torrid time since July's election, last week must have seemed glorious for both the Prime Minister and the Chancellor. Vindication and deliverance at last!
Not only did the Bank of England announce an interest rate cut, perhaps with the prospect of more cuts to come, but the UK managed to secure trade agreements with India and the US. Is this the turning of the corner that both have been longing for?
The interest rate reduction, although welcome, is no game-changer. As I wrote last week, it has been possible simply because of the weakness of the economy. This hardly sets the economic pulse racing.
The two trade deals, although not completely surprising, are more newsworthy. Both are significant in relation to what they say about Brexit. It may seem incredible that nearly nine years after the Brexit vote, we are still debating whether the whole thing makes sense. But we are.
At the risk of going over old ground, let me make it clear that most of those economists who were in favour of Brexit, myself included, conceded that there were some losses to be borne from leaving the customs union and the single market.
Quite apart from the political factors, which many of us regarded as paramount, the essence of the economic case for Brexit was that there were two positive factors to lay beside the likely losses. The first of these was the ability to sign trade agreements with various countries around the world, and the second was the ability to break away from the stifling EU regulatory regime.
With regard to trade agreements, the Remainers argued that our prospects for securing good deals were slim because, as a medium-sized country, about the sixth- or seventh-largest in the world, we would carry very little clout compared to the EU, which is the second- or third-largest economy in the world, not that far behind the United States.
I never disputed this point. My argument always was that clout isn't everything. Indeed, there was a major factor offsetting clout, namely the ability actually to make an agreement.
Getting the EU to forge a trade deal with almost anybody was always going to be extremely difficult because it involved getting the agreement of 28 member countries, each of which had very different interests. Not to mention that one of those countries is France.
So the fact that we have managed to secure an agreement with India – already the world's fourth-largest economy, while the EU is still engaged in negotiations which may lead nowhere, was both revealing and amusing.
Much the same goes for the trade agreement we have managed to secure with the US.
Of course, there is the predictable carping from all the usual suspects about what damage will be done to our economy from opening ourselves up to imports from India and America.
We all know the old adage that there are only two inevitabilities in life, namely death and taxes. In fact, there are three. The third is opposition to tariff-free trade from producer groups, which fear competition from overseas.
Nevertheless, it has to be admitted that neither of these deals will dramatically enhance the UK economy. With a following wind, the Indian deal may increase UK GDP by something of the order of 0.1pc.
Although the US deal will give a major boost to the UK's car industry, the overall effect will be small because the trade deal's coverage is so limited. It stops well short of the full free trade agreement that has been on the table for several years, and is likely to remain there for several more, blocked by mounds of chlorinated chicken and hormone-treated beef.
Notwithstanding the possible gains from trade agreements, most Brexit-supporting economists argued that the main economic benefits of Brexit would be realised from breaking away from the EU's regulatory ambit.
Yet during the last Conservative government, there was next to no progress on this front and, unsurprisingly, there has been nothing from Labour. In fact, the travel has been in the opposite direction. Evidently, deregulation is 'difficult'.
But it is a sad fact of economic life that major economic gains are rarely to be had by doing the easy things. After some years of negotiations, it may seem that securing trade deals with India and the United States are one of the hard things.
I beg to differ. These are the easy things. Similarly, the looming 'reset' with the EU that Labour has been salivating over. It will bring scarcely any economic benefit to the UK and may even bring a net loss.
The really hard thing that would make a difference is to take a scythe to large parts of the public sector in order to be able to reduce taxes. Instead, the Government is about to pour more money into the NHS in order to raise doctors' pay.
The damage wrought by the increase in employers' National Insurance contributions and the large increases in the minimum wage would outweigh umpteen trade deals and any EU 're-set' combined.
Mind you, there is one easy thing to do. If the Government is serious about boosting the economy, and especially if it is serious about reviving manufacturing, there is actually a lever to pull, namely to radically postpone the rush to net zero and dramatically reduce the price of energy to both businesses and consumers.
One and a half cheers for the Government for securing these trade agreements. But on their own, they won't achieve much. Economic policy needs a complete change of direction.