Is this a sweet trade deal with the EU – or does it sound a bit fishy?
Keir Starmer will be boasting about his latest catch in international diplomacy: a trade deal with the European Union, which the government hopes will boost the chances of landing higher growth.
In an agreement that hands EU boats continued rights in British seas until 2038, slashing red tape on food checks and increasing cooperation on defence and migration, businesses are getting a sense of whether this deal may be sweet – or sound all too fishy.
Starmer has flexed his muscles, and the Downing St comms machine is pumping out videos explaining how the PM “rolled up” his sleeves and is “putting money back in your pocket” by securing three deals in the space of a fortnight.
Whereas a recent trade deal with India was estimated to inject £4.8bn into the UK economy by 2040, the new agreement with the EU is set to bring in £9bn, an estimate which has been questioned by opposition leader Kemi Badenoch.
In other words, rather than adding 0.1 per cent to GDP over 15 years, the UK economy will see an uplift of 0.2 per cent.
This is a meagre sum in comparison to the heavy – and often disputed – claim made by the fiscal watchdog, the Office for Budget Responsibility (OBR), that Brexit has held back UK productivity growth by up to four per cent.
Professor Stephen Millar, director at the National Institute of Economic Social Research, said the cuts in red tape secured were not likely to put much cash in people’s pockets.
“This agreement is unlikely to ‘shift the dial’ in the sense that the gains are small relative to being back in the single market or customs union,” he said.
Starmer is perhaps acting a tad ambitious to link all three agreements together. The US trade deal was more of an emergency measure, based on specialised agreements on areas such as steel and car exports to save industries hardest hit by President Trump’s ‘Liberation Day’ announcements.
The London summit attended by EU and UK officials was described as much more consequential by several business groups and Chancellor Rachel Reeves herself, who said before meeting US treasury secretary Scott Bessent that securing an agreement with the world’s largest economic bloc was “arguably more important” than coming to terms with the US.
And no wonder. UK exports to the EU were valued at £358bn, representing 41 per cent of all UK sales to overseas partners. The EU also accounts for around half of all UK imports, which stood at around £454bn last year.
The proposed “reset” in trade relations is an attempt to reverse the post-Brexit slump. Services exports were 18 per cent below 2019 levels, while goods exports to non-EU countries have fallen by a similar degree.
Could another trade deal be made?
As wars are being fought – both on the field of international trade and on land in Eastern Europe – businesses will celebrate anything that offers a morale boost.
While the gains may be “small” or agreements on areas such as a youth mobility scheme or defence may be lacking in detail, industry groups are largely upbeat about the opportunities presented by EU and UK officials.
The chief executive of Britain’s biggest business lobby, the Confederation of British Industry, suggested the new deal was a “leap forward” amid difficult times.
“The bleak global trading environment – from escalating geopolitical tensions to sluggish growth – has underscored the importance of deepening ties with trusted, like-minded partners,” Rain Newton-Smith said.
This sentiment has been echoed by leading executives at the British Retail Consortium and the Federation of Small Businesses, where leaders have said agreements will keep costs down and enrich British companies looking to import cheaper produce or export goods to European markets.
BRC chief executive Helen Dickinson said the removal of veterinary checks on food would help secure supply chains and support UK competitiveness, while FSB policy chair Tina McKenzie suggested that “bottleneck at the border” could be cleared as a result of fewer checks being made.
M&S Food managing director Alex Freudmann also said “pointless” bureaucracy in trade within the UK – between Great Britain and Northern Ireland – would be removed.
But some elements of the trade deal were conspicuously absent. The document only pointed to the possibility that a deal on a youth mobility scheme – or, as it is now called, a “youth experience scheme” – could be agreed in the near future, in signs that Starmer was kicking more contentious issues down the road.
Demands made by the Institute of Chartered Accountants in England and Wales (ICAEW) to trade minister Douglas Alexander over the recognition of British qualifications, which are supported by other leading business groups, fell on deaf ears.
“With elements not yet set in stone, there will be further effort required to ensure that what has been promised is delivered for the benefit of the UK economy, the business environment and wider British society,” said Emma Rowland, trade policy adviser at the Institute of Directors (IoD).
Red herrings
Starmer is facing some backlash over his agreement to give the EU access to British waters for another twelve years, with the last agreement made in 2021 having been due to expire in 2026.
Tory politicians and UK fisheries have accused Starmer of selling out coastal communities, as Mel Stride said Starmer had been “reeled in by the EU hook, line and sinker” while Scottish fishing groups said the deal was a betrayal of British fisheries.
Countryside campaigners at the Country Land and Business Association pointed out that the food standards agreement meant the UK was allowing the European Court of Justice to oversee regulations – “an unnecessary surrender of control”.
“Cutting red tape on food exports and plant and animal health for trade sounds positive if unlikely, but tying us to an agreement that involves European Court of Justice oversight is deeply concerning and could hinder our ability to strike future trade deals with other countries,” the Association’s vice-president, Victoria Vyvyan, said.
For all the positive soundings of being “friends”, “sovereign neighbours”, “allies” and partners in a “unique relationship” at a press conference held by Starmer and EU Commissioner Ursula von der Leyen, the deal wades into some of the bygone debates seen during the EU referendum debate nine years ago.
Starmer talked about wanting to “move on from the stale old debates” but this trade deal risks reigniting old political battles – unless tangible economic results are delivered, which seems far from certain.
ING’s James Smith suggested more dealmaking on goods trade would have to be done for the OBR to raise its UK growth forecasts for the years running up to 2030, thereby easing concerns about extra tax hikes coming.
“Generally, we doubt this deal on its own will convince the OBR to change its outlook in any meaningful way,” Smith said.
“The UK needs quick results if it wants the OBR to make meaningful forecast changes at the autumn budget. The EU is in no such hurry.”