Sadiq Khan just can’t help ploughing his own furrow. From his controversial ultra low emissions zone to his dealings with trade unions and his universal free school meals policy, the Mayor of London often doesn’t follow the script set by Keir Starmer.
But perhaps Khan’s biggest break with the Labour leadership is over his calls for the party to talk more openly about the negatives of Brexit.
In a keynote speech to the Mansion House in the City of London, the Mayor is even daring to say what is currently unsayable among Labour MPs: that the UK should consider rejoining the single market and customs union.
To support his case, Khan has published a new study by analysts Cambridge Econometrics that claims the UK economy is £140bn smaller than it would have been if Britain had remained inside the EU.
The report claims that Brexit’s hit to GDP has already been 6 per cent, and will about 10 per cent over the medium term. That has sparked criticism from economists of various stripes, not least because it is out of kilter with other independent research.
Last year, the National Institute of Economic and Social Research estimated the negative impact at between 5 per cent and 6 per cent by 2035, whereas the Office for Budget Responsibility (OBR) estimates GDP will be hit by 4 per cent.
But perhaps a more interesting update on the impact of Brexit is the latest “UK trade tracker” produced by the UK in a Changing Europe think-tank.
This found that in the third quarter of 2023, trade with the EU rose to 53.3 per cent of total UK trade – significantly up on pre-Brexit levels, and at a level the UK has not seen consistently since before the 2016 referendum.
This confounds the predictions of some ultra “Remain” voices, who expected such trade to be curbed dramatically due to higher costs and red tape.
But it is hardly great news for Brexiteers either. That’s because the think-tank found that the situation is not primarily driven by growth in trade with the EU, but rather “by relatively weak growth in trade overall, especially with non-EU countries”.
There are lots of uncertainties, including different inflation rates in different countries and data collection, yet what is hard to ignore is that all those boasts about signing new post-Brexit trade deals have not yet made an impact.
Most importantly, it seems that the laws of economic gravity are just as strong as the laws of political gravity. The closer countries are to each other, the more likely they are to trade because of the sheer costs and time involved in shipping goods long distances (even when shipping lanes from the Far East are not threatened by Houthi rebels).
Given that 80 per cent of UK trade is actually in services – like finances, accountancy, law, engineering and IT expertise – rather than goods, one would also think that we would be more immune to such gravity. Services can be provided at the click of a button, without any travel or border checks, after all.
Yet one of the most fascinating aspects of modern services is that even they are affected by proximity. One study found that face-to-face meetings are vital to build the trust needed for trade in services, so ease of travel between countries – something done smoothly between the UK and Europe – is a key factor.
That’s not to say the UK can’t try to do more to boost its non-EU trade, in both services and goods. Future trade deals with emerging economies should focus much more on the UK’s strength in services (where after all, we have a surplus with the EU, unlike our goods deficit).
Financial services will continue to generate tax revenues that fund our public services too. Warwick University professor Dennis Novy told a London Assembly meeting on Thursday that the City of London’s role as a one-stop shop for financial services was still strong because no single European rival had emerged since Brexit.
Instead, the EU had seen fragmented services across the bloc, with asset management done in Dublin, banking in Frankfurt, clearing in Amsterdam and other services in Paris. Location really matters here too – the UK’s time zone means it’s well placed to be the best European finance centre between the US and Far East.
There may even be some benefits for the City in designing financial regulations that are more nimble than the EU’s, though overall it seems inevitable that in many areas the UK will have to align itself to European regulations simply to make life easier for globally mobile businesses.
As for our free trade deals in both goods and services, new agreements with the US or India would be hugely welcome but look fraught with difficulty. More effective might be sector-specific partnerships, such as with Washington on green tech or with New Dehli on bioscience.
Labour’s plan to take the Board of Trade out of the Department for Business and Trade and turn it into an independent body – that could help with Parliamentary scrutiny of trade deals and identify areas of regulatory divergence and alignment – may prove beneficial too.
Although Trade Secretary Kemi Badenoch has opposed the idea, the new body could boost Britain’s post-Brexit position by playing a role similar to the OBR’s relationship with the Treasury.
However, this spring, Brexit may bite harder too. New border checks, which have been repeatedly postponed because of fears of their impact on the cost of living, are due to be imposed by the UK on EU goods from April.
The Government claims the plans will have a “minor” impact on headline inflation, possibly less than 0.2 per cent over three years. But others worry that it will lead to more expensive food.
It will be another reminder that geography still matters. And, despite the rhetoric of some Brexiteers, that trade with Europe will still matter for years to come.
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Andrew Mitrovica
Mort Laitner
Rami G Khouri
Ali Fathollah-Nejad
Nikkei Editorial
visit website
