The latest thinking, news and events from the world of Recruitment

UK Heading for ‘Costly Economic Rupture’ with EU and Lower Growth

SHARE
,

First analysis by think tanks warns of continued uncertainty over future and likelihood of barriers to EU trade

The draft EU Withdrawal Agreement leaves so much uncertainty over the outcome of the Brexit process that even the relatively poor growth forecasts in last month’s Budget are likely to prove over-optimistic, according to a first analysis by IPPR.

The think tank’s first full take on the Agreement, which it has published today, highlights the lack of clarity about the UK’s future trading relationship with the EU – and says this will continue to damage investment in the economy.

It also warns of the adverse economic impact of the “distant” relationship with the EU that the draft deal apparently envisages.

Describing the Agreement as “more than a ‘divorce settlement, but less than a ‘deal’”, IPPR points out that the outline political declaration contains just three pages of high-level bullet points on the future economic partnership.

Among key findings in IPPR’s analysis is that the Agreement does not represent what has been described as “soft Brexit” – with the UK and the EU are headed for “a far more distant economic relationship than the status quo”:

  • The “bare-bones” customs union between the UK and EU proposed as part of the Irish “backstop” will not deliver frictionless trade, as non-tariff barriers (such as sanitary checks, measures to protect people, plants and animals from disease and checks on product regulation) will be introduced.
  • Measures to ensure a “level-playing field” between the UK and the EU – either as part of a “backstop” or longer term – are strong on regulating state aid but significantly weaker for labour market regulation and environmental protection. Nor is there any requirement for the UK to update environmental or labour laws in line with EU developments.
  • The future relationship’s ambitious provisions for trade in goods fall short of the Chequers proposal of a common rulebook, and are likely to generate “significant new non-tariff barriers in goods, particularly in heavily regulated sectors such ass chemicals and pharmaceuticals”.
  • There will be significant barriers to trade in services with the EU, with financial services particularly likely to be hit by the loss of “passporting”. The alternative route suggested, known as “equivalence”, is vulnerable to being withdrawn at short notice by the European Commission.
  • The effect of Northern Ireland effectively remaining within the single market for goods under the “backstop” will come at the cost of regulatory divergence within the UK and a border down the Irish Sea.

Taken together, the analysis concludes, the Withdrawal Agreement and outline political declaration suggest “a slight softening of the UK’s position” in some areas, but the future relationship – based on a Free Trade Agreement – will be far more distant than at present.

Despite claims that the UK risks becoming subject to EU rules without any say, much of the agreement maintains regulatory autonomy at the cost of frictionless market access, IPPR says.

Marley Morris, IPPR Senior Research Fellow, said:

“The Withdrawal Agreement and political declaration comprise a wide-raging deal, but they should not be interpreted as representing a pivot to a soft Brexit. The UK is still heading towards an economic rupture with the EU, which may prove costly in investment, jobs and living standards.”

IPPR Director Tom Kibasi said:

“The Withdrawal Agreement fails to deliver either the certainty needed for business investment or the greater control that was a key demand of Leave campaigners. It is therefore hard to see the Prime Minister’s proposal attracting enthusiastic support from any quarters.

“Despite running to some 500 pages, what is striking is what is missing: the negotiations have failed to secure a British say in either trade or the ultimate decision on the Irish border. Indeed, the backstop envisages Northern Ireland being half in the EU and half in the UK if it is ever activated, and notably subject to European Court of Justice decisions.

“This is not a soft Brexit: the government has negotiated a barebones customs union that alone will not deliver frictionless trade. Its temporary nature means businesses will go into the 2020s with no certainty about UK trading arrangements. The cliff edge has been postponed rather than eliminated. The Agreement is an indeterminate pit stop on the way to a hard Brexit.”