The Single Market remains the wrong answer to the UK’s future prosperity

The Single Market remains the wrong answer to the UK’s future prosperity

by Ewen Stewart
article from Tuesday 23, October, 2018

IT IS A CLICHÉ but Britain is a trading nation. Last year the UK exported £615bn of goods and services to the world. Trade is the lifeblood of the nation and the historic UK referendum vote of 2016 that decided we should leave the European Union provides the first opportunity, since the UK joined the Common Market in 1973, to operate an independent trade policy designed to maximise British strengths. It is a likely to be a once-in-a-lifetime opportunity to get it right.

Brexit is not a panacea in itself. It will be a success if we can adopt the right micro- and macro-economic policies and trading relationships. What we do with those tools will be a major determinant of our country’s future economic growth. History will judge it a failure if we do not. 

To help pull the Brexit debate away from personalities, party politics and usurping the democratic process, Global Britain thought it worthwhile to revisit the case for the UK remaining inside the Single Market in a new paper published this week

This is pertinent because although the 2016 Remain campaign said Brexit would mean leaving the Single Market, and although the Vote Leave campaign also said we would leave the Single Market, and not forgetting too that the Conservative and Labour party manifestoes of the 2017 general election said we would leave the Single Market – the Chequers Plan being promoted by the Prime Minister aims to keep us in the Single Market for goods and most foods. 

It will do this by adopting what it is calling a Common Rule Book, but which in reality will be the relevant EU laws pertaining to the Single Market in goods and foods – then afterwards adopting any future rules even though the UK will not have had a say in their formulation.

This might make sense if being inside the Single Market is vital to UK commercial interests, but it is not. Using official data provided by the ONS Pink Book on trade and EuroStat, we could identify the current trading and asset balance sheet patterns, the balance of UK trade and comparative advantage, coupled with an analysis of where future opportunities lie. We could also examine the reasons for the continuing and growing asymmetry in trading with the EU and the rest of the world and draw conclusions as to what a good trade deal might look like. 

The data shows that while the UK has a £96bn deficit with the EU it has a surplus with the US, the world’s most competitive market, and a broadly neutral position with the rest of the world. Between 1993-2015 UK goods exports to original Single Market countries grew at under 1.0% pa between whereas our exports to countries we trade on WTO terms with grew three times as much at almost 3%.

It is often claimed by Nicola Sturgeon and some Conservative supporters of the EU that Scotland is even more reliant on the Single Market, but again the reverse is true. The facts speak for themselves. Scottish exports to the EU single market – where we automatically meet EU regulations and face no tariffs – grew by 10.4 per cent in 2002-16, rising from £11.5bn to £12.4bn – but by comparison over the same period, exports to the rest of the world – under WTO rules and often in the face of tariffs – grew by nine times as much, at 90 per cent, rising from £9.0bn to £17.1bn.

Is it not odd that the UK (and Scotland) can trade well with countries where there is no trade deal yet have a massive deficit where there is a common rule book and so called frictionless trade?

The scare stories that surround the concept of leaving the EU with “no deal” and trading under WTO rules melt like snowballs in the Sahara when seen in this context.

The reason membership of the Single Market is not important to the UK’s trade is made clear by looking at the UK’s relative performance in goods and services. In trading with the EU the Single Market does not play to UK comparative advantage in services but binds us in on goods, where we run a large deficit. It does this by taking an overly centralised, prescriptive and bureaucratic approach to regulations – an approach that is less prevalent in the rest of the world or for services in the EU.

This trend in the EU of smothering business with health and safety kindness cannot be reversed because vested interests support regulation as an anti-competitive tool to the detriment of small and medium sized companies and the consumer.

This, together with the clear underperformance of the Eurozone has resulted in UK business voting with its feet by divesting out of the EU into faster growth areas – notably Asia and Australasia.

The major UK trading opportunity is, therefore, increasingly in fast growing services areas that are often high margin, more immune to developed market under-cutting and enjoying structural growth. They are also in new markets where the UK has a distinct lead over most competitors, such as AI, Biotech, Fintech and Intellectual property. These are markets that have not yet been regulated by the Single Market, but that will undoubtedly change and the rules will not be made by us – but by our jealous competitors. 

While the Chequers proposal is wrapped up in a different language using innocuous sounding words, like the common rule book,the legal text is very clear. Chequers means the UK is bound by common rules that will emanate exclusively from the EU with the UK having no say whatsoever in their framing.  It would not be a partnership of equals.

Chequers is therefore the equivalent of remaining in the Single Market in all but name while abandoning any pretence to take back control of resetting any regulation. It breaks the spirit of the referendum result and the manifesto pledges of both Conservative and Labour parties. Chequers has to be chucked – or the Single Market will continue to hold our businesses back.

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