The UK's departure from the EU has led to a 12% reduction in exports to the bloc, with the overwhelming majority of this downturn attributed to the decision to leave the single market rather than the customs union. New research by economists John Springford and Anton Spisak highlights that regulatory costs, such as new certification procedures and compliance checks for EU standards, have had a far more significant impact on UK-EU trade than customs-related obstacles.
The study, shared with The Guardian, reveals that services sector exports to the EU are estimated to be 7% lower than they would have been had the UK remained an EU member, while goods exports have seen an even sharper decline of 16%. Approximately 10% of the total 12% export decline is attributed to the UK's departure from the single market, suggesting that regulatory complexities rather than tariffs are the primary impediment to UK businesses trading with the EU. Sectors most affected include travel, finance and insurance, chemicals and pharmaceuticals, and agrifood.
The Centre for European Reform's findings hold significant implications for ongoing political discussions about the UK's future relationship with the EU. While Labour leaders have expressed a desire for a closer trading relationship, they have ruled out rejoining the single market or customs union. However, some potential future candidates have suggested a long-term goal of rejoining the EU.
The Liberal Democrats' position has shifted, with leader Ed Davey announcing that the party will campaign for the UK to re-enter the single market. Yet, the research warns that such a move would necessitate difficult political compromises, including contributions to the EU budget and adherence to EU rules without direct input. The economists argue that recovering the majority of lost trade would require significant economic re-integration with the EU, either through a goods-only single market arrangement or full single market membership.
Such paths inevitably involve navigating challenging political choices that successive governments have so far been unwilling to make. As the UK grapples with its post-Brexit identity, the CER's research serves as a stark reminder of the complexities and trade-offs involved in re-establishing a close economic relationship with the EU.