• Sun. Dec 11th, 2022

UK-EU trade deal delivers sovereignty craved by Eurosceptics but critics say Brexit’s economic benefits are harder to see

Jan 1, 2021

Boris Johnson ended a bleak political year with a smile on his face. “I’m off to vote for your deal,” Keir Starmer, Labour leader, ruefully remarked to the UK’s prime minister after an emergency debate on his post-Brexit EU trade deal.
“You won’t regret it,” Mr Johnson jibed, as they headed together into the same House of Commons voting lobby on Wednesday. After four years of Brexit acrimony, it felt like a chapter was closing on British politics.
Mr Johnson’s approval ratings were battered during 2020 over his handling of Covid-19, but on Brexit he ended the year on a rare high, praise ringing in his ears from Conservative MPs, for negotiating a new relationship with the EU.
During Wednesday’s emergency debate various Tory MPs put Mr Johnson’s name into the same sentence as Winston Churchill, Margaret Thatcher and Alexander the Great. Sir Keir grudgingly admitted that, while the trade deal was “thin”, it was better than no deal at all.
There was criticism. Theresa May, former prime minister, noted that Mr Johnson had secured a trade deal partly because he had set his sights so low: “We have a deal in trade that benefits the EU, but not a deal in services that would have benefited the UK.”
Sir Keir noted that Mr Johnson’s claim that his deal eliminated “non tariff barriers” was palpably false: business faced a raft of new customs bureaucracy, checks and delays to trade with the EU from 11pm on New Year’s Eve.
But Mr Johnson had achieved something that many had not predicted. He led a unified Conservative party into the division lobbies — alongside 162 Labour MPs — to support a new settlement with the EU. Neither Conservatives nor Labour want to revisit it any time soon.
“The leave-remain argument is over — whichever side we were on, the divisions are over,” Sir Keir said. Mr Johnson, for once able to rise above the morass of the Covid-19 crisis, said: “The destiny of this great country now resides firmly in our hands.”
Now Mr Johnson has his Brexit — the “hard” version that he has championed — the obvious question arises: what is he going to do with it? Given that Brexiters have had almost five years to answer that question, critics say the answer remains surprisingly sketchy.
The Office for Budget Responsibility calculates the country has already foregone growth worth 4 per cent of GDP, while companies will from Friday morning start grappling with the new trade bureaucracy spawned by Brexit.
The global free trade deals promised by the Brexiters have so far been little more than “rollovers” of the terms Britain enjoyed from EU trade deals that expired on December 31. Government figures suggest the recent flagship Japan trade deal would lift UK GDP by 0.07 per cent.
Exercising the “freedoms” of Brexit in a way that starts to make up for the economic hit will be one of Mr Johnson’s biggest tasks for 2021 and for now the details are unclear. He says he has asked Rishi Sunak, chancellor, to do a “big exercise” on business taxes and regulation.
The prospect of deregulation — notably scaling back EU social protections such as the working time directive, which sets workers a maximum of 48 hours a week — was a big driver of Tory Euroscepticism in the past, but not so much now.
A party that now represents swaths of working class northern England is unlikely to bolster that support by cutting workplace protections: in any event the EU-UK trade deal includes “non-regression” clauses to stop either party going backwards on regulation and standards.
Instead the government offers piecemeal ideas such as the abolition of the “tampon tax”: a new zero rate of value added tax will be applied to sanitary products from January 1, a move previously complicated by EU VAT rules.
Mr Sunak has a policy of “freeports” in train — souped up enterprise zones — but economists argue that such zones are allowed under EU rules and fear they will simply shift economic activity from one part of the UK to another.
Mr Johnson wants to raise animal welfare standards, for example banning live animal exports. He also said in his New Year’s message he wants to introduce nimbler regulation, helping “to turbocharge our ambition to be a science superpower”. But the economic arguments for Brexit seem less well developed than the sovereignty ones.
“That was always my concern — that we are buying a notional right to diverge, which we will not use, at a very high economic price.”
Philip Hammond, former Conservative chancellor
Mark Francois, head of the pro-Brexit Tory European Research Group, said: “Now that we have ‘cried freedom’ it must make sense for government departments to put their heads together and undertake a thorough analysis of areas where it makes sense of us to apply that freedom to diverge from EU regulation.”
The UK-EU trade deal has put in place a mechanism to deter either side from excessive divergence on regulation, but some wonder whether Mr Johnson’s primary interest was securing “sovereignty”, rather than having a coherent plan on how to use it.
Philip Hammond, former Tory chancellor, says he expects a few “cosmetic divergences” but nothing that transforms Britain’s competitiveness. “That was always my concern — that we are buying a notional right to diverge, which we will not use, at a very high economic price.”
Meanwhile David Lidington, a former Conservative deputy prime minister, said he expected the government to deploy a range of tax incentives and other subsidies to boost regional development — echoing the EU’s own €750bn Covid-19 recovery fund.
But Mr Lidington added there was “no doubt” Mr Johnson’s position has been strengthened by securing an agreement, as he faces a daunting 2021 with perilous elections to the Scottish parliament and in local authorities, let alone the economic and health crisis of coronavirus.
“It has been sorted,” Mr Lidington said, reflecting on a Brexit saga that has consumed the British government for almost half a decade. “And having had this success, it frees up time, energy and resource at a ministerial and official level to focus on Covid and the recovery.”