A Norway deal? Rejoining? What are Labour’s options for forging closer ties with Europe?

<span>Keir Starmer and Rachel Reeeves at a campaign event at the port of Southampton container terminal.</span><span>Photograph: Stefan Rousseau/PA</span>
Keir Starmer and Rachel Reeeves at a campaign event at the port of Southampton container terminal.Photograph: Stefan Rousseau/PA

Labour’s plans to re-engage with Brussels after a tumultuous and often acrimonious eight years since the referendum will be welcomed by all those who have recognised Brexit as an act of self-harm. Keir Starmer and Rachel Reeves have put forward tentative ­proposals tackling discrete issues in the UK’s relationship with the EU. Here we look at what might be achieved – and the benefits of ­taking a bolder approach.

Animals and animal products

Labour says it will seek to negotiate a “veterinary agreement to prevent unnecessary border checks”.

The thinktank UK in a Changing Europe asked three experts – Jun Du and Oleksandr Shepotylo of Aston business school and Gregory Messenger, an associate professor at the University of Bristol law school – to rate this policy. They said new regulations relating to live animals and animal products had created significant disruption, adding that the introduction of checks on food – from the UK to the EU from January 2021 and into the UK since January this year – had contributed to a decline of UK exports to the EU.

The agreement “could lead to a 22.5% increase in agrifood exports and a 5.6% increase in imports,” they concluded. “This matters to the survival of many SMEs [small and medium-sized enterprises] and the price of UK food.”

Chemicals

Reeves says she wants to talk to the EU about a “bespoke” arrange­ment for the chemicals industry to try to avoid costs connected with registering products in a UK system.

Her singling out of this sector may have something to do with Jim Ratcliffe’s support for Labour. Ratcliffe is the UK’s fourth richest man, with a fortune estimated at almost £30bn by the Sunday Times rich list, much of it generated by his chemicals empire.

A government impact assessment estimates the costs of registering chemicals on a new UK database – often duplicating existing registrations with the EU – at £2bn, and £3.5bn in the worst case.

By the time any agreement is reached, much of this money will have been spent, but ongoing costs could be eliminated.

Professional qualifications

A mutual recognition agreement for professional qualifications would “help open up markets for UK service exporters”, says the Labour manifesto.

This would help professionals with UK qualifications work in the EU – but without the free movement of labour that comes from being inside the EU single market, there is little to be gained, says Anand Menon, the director of UK in a Changing Europe.

“Without free movement, professionals or anyone else will still find it difficult to move around for work between the UK and EU,” he says.

Menon says there is an appetite inside the EU to talk about trade barriers, because member states wants to keep the UK onside as security concerns, and especially the Ukraine war, become more acute.

However, “there is no mood to offer the UK cherries,” he adds.

A Norway-style deal

Norway, Iceland, and Liechtenstein are members of the single market through the European Free Trade Association (Efta), importing goods tariff-free from the EU, with the exception of farm produce and fish.

The deal, which makes the three countries part of the European Economic Area (EEA), allows Norway to maintain formal sovereignty while delegating actual sovereignty in this area to Brussels via a steady flow of EU rules overseen by the Efta court and the EU court of justice. Norway is not in the customs union, so sets its own tariffs on imports from outside the single market.

UK membership of the single market under this model would require a donation to the EU budget without any vote on how rules are made. Many economic benefits would flow from ree movement of labour and the reduction in trade friction, but the democratic deficit would be stark.

Rejoining the EU

Going back inside the EU would be costly: Britain would probably be asked to pay a higher annual fee than France, which has an economy of a similar size and contributes €21.6bn to the near-€190bn EU budget.

However, the benefits of EU membership would be considerable – felt by SMEs on trade, where they have lost sales, and by large businesses with respect to investment. While large corporations have largely overcome trade barriers and absorbed the extra costs, they have balked at making further commitments to a UK outside the EU.

A recent update by the Office for Budget Responsibility, the UK Treasury’s independent forecaster, on the impact of Brexit found it was continuing to do the UK permanent harm, equalling a 4% hit to GDP, or around £100bn in 2024 values.

The politics are a different matter. Even if Labour performed a U-turn tomorrow, Menon said, EU leaders would take a good deal of convincing before opening negotiations with the UK again. Talks would take many years and could be junked by a Tory/Reform government if Labour fails to win a second term.

“That said, the EU recognises that its relationship with the UK is suboptimal and needs to be improved,” he said.

Phillip Inman is economics editor of the Observer and an economics writer for the Guardian