Sir Keir Starmer won over voters at the last election, by saying he wants to reset relations with the EU, including improving the UK’s trade. Unfortunately, he’s sticking to Boris Johnson’s F… business, trade-bashing, Trade and Co-operation Agreement (TCA), and has pledged to continue enforcing Theresa May’s three red lines: No freedom of movement, No Single Market and No Customs Union, which means the UK will continue to languish at the bottom of Michel Barnier’s preferential trading staircase.
Can UK trade and investment grow without crossing these red lines?
Significant economic growth will be impossible without rejoining the Single Market and Customs Union. According to the Centre for European Reform (CER) and the Office for Budget Responsibility (OBR), who have been tracking the economic impact of Brexit since the 2016 referendum, the UK’s economy will be 4% smaller by 2035 than it would have been had we stayed in the EU. This means a cumulative loss of £311bn – a massive sum that reflects diminished trade, reduced investment, and weaker productivity across the country. It’s a direct hit to the UK’s GDP, which could have supported public services, driven business growth, and boosted wages.
What does this mean for Scotland?
The Scottish Government has estimated that Brexit is causing the Scottish economy to shrink by £3bn per year, which is twice the amount spent on Scottish higher education, and is contributing to the rising cost of living. This is because the trade barrier that now exists between Britain and the EU, is leading to higher costs for exporters.
Preparations are beginning for the first review of the TCA, which is due in 2026. The EU commission have warned that this review “does not constitute a commitment to reopen the TCA or to renegotiate the supplementary agreements”. Nevertheless, in anticipation of this review, a cross-party group of Members of the Scottish Parliament has published a report entitled: UK-EU Trade and Cooperation Agreement: Barriers to trade in goods and opportunities to improve the UK-EU trading relationship. This report is based on in-depth submissions and interviews with Scottish exporters.
The committee discovered that non-tariff barriers have placed considerable administrative, resource and cost pressures on Scottish businesses, and harmed exports. Non-tariff barriers are the requirements for all imports from the UK to meet EU standards and be subject to customs formalities, regulatory checks, and controls, as well as the application of rules of origin, to qualify for preferential trade terms. These pressures have been particularly acute for exporters of agri-food products, which are required to meet the EU’s strict Sanitary and Phytosanitary (SPS) measures.
Divergence from EU regulations are barriers to trade
Scottish farmers complained that certain agricultural exports are now banned by the EU because of divergence resulting in differing regulations on pesticide residues, genetic engineering, toxicology, seed treatments and carbon emissions.
Pre Brexit, Scottish farmers sold 20,000 tonnes of seed potatoes to EU customers each year. That trade has now collapsed. The UK government has so far refused to dynamically align with the EU SPS measures, while allowing a derogation for seed potatoes being imported from the EU into the UK, putting Scottish producers at a huge disadvantage.
According to UK in a Changing Europe there has been a “slow drip” of divergence that is creating new regulatory barriers between the UK and the EU. Scottish trade bodies and businesses have been left to monitor this divergence themselves as the UK government has failed to set up a mechanism to do this. The Scottish government is unable to prevent divergence from EU regulations because the Internal Market Act stipulates that standards set in other parts of the UK must automatically be accepted in Scotland, regardless of laws passed by the Scottish Parliament. It is now clear that this Act was specifically designed to undermine Scottish devolution.
More trade barriers: labour shortages, form-filling and veterinary certificates
A lack of certainty surrounding access to labour for the Scottish horticulture sector has resulted in crop losses, a drop in production and disruption of supply to the domestic and export markets. Members also reported continuing difficulties in securing returning staff which adds costs to businesses.
Salmon Scotland reported losses of up to £100m, compared with export sales in 2019. While Seafood Scotland said that, despite their hard work trying to adapt to the Brexit trading regime, they are merely “standing still” as regards EU trade, maintaining trade flows and relationships with existing EU businesses and customers, rather than growing or improving them from the position prior to EU exit.
Quality Meat Scotland said that for small and medium sized enterprises (SMEs), “exports continue to face much greater disruption and cost, and some smaller firms have exported significantly less, or even stopped exports altogether due to the level of cost becoming prohibitive”. Many SMEs could not afford to employ the vets that are now needed to inspect their produce.
The Scottish Chambers of Commerce highlighted that for most local businesses, preparing declarations and certificates has become part of the everyday task of cross-border trade, but for others, in 2023 as in the previous two years, the burden proved too much, and some have stopped exporting to the EU. Meanwhile, the Federation of Small Businesses (Scotland) reported that 4-5% of SMEs have stopped trading with the EU permanently.
The minimum mitigation measures required by Scottish traders
Scottish traders are calling for a veterinary agreement, mutual recognition of safety standards, alignment of emissions trading schemes, improved governance of the existing TCA, more civil society engagement, and a formal body to track UK-EU divergence, including where the extent of divergence or alignment with the EU differs in Scotland from the rest of the UK.
The Scottish government cannot make these vital changes because international trade matters are reserved to the Westminster government.
Brexit red lines will continue to constrain economic growth
It has been reported that Starmer’s initial attempt to reset relations with the EU has already run into difficulties. His request for a veterinary agreement, visa exemptions for touring artists and mutual recognition agreements, have been dismissed as cherry-picking by the EU Commission. They want the UK to first agree to the full implementation of the TCA (e.g. full checks on imports, which have been delayed until 2025) and a youth mobility scheme,
Meanwhile, Labour minister Wes Streeting has admitted that Brexit is lowering economic growth but says that the UK has moved on from Brexit and the EU has no desire to re-litigate those arguments (Sky News, 14.10.24).
If Starmer becomes the third UK Prime Minister to fail at trying to make Brexit work, there’s a danger that English voters will protest at the continuing fall in their living standards and elect an extreme right-wing government, such as Nigel Farage’s Reform UK party, at the next general election.
Scottish voters have not moved on
The UK government’s adherence to its Brexit red lines has ensured that independence in the EU is an economic necessity for Scotland. Seventy percent of Scots are unwilling to live with the impacts of Brexit, while a recent YouGov poll has indicated that support for Scottish independence would rise to 56% if joining the EU was guaranteed.
The first step in joining the EU will be to negotiate an Association Agreement, which would cross all of Starmer’s red lines, get rid of Brexit red tape and allow access to the Single Market, within the first few months after independence. Several recently elected Members of the European Parliament have already pledged to ensure that independent Scotland’s application to join the EU is welcomed with a ‘spirit of friendship and solidarity’. English ‘rejoiners’ should also welcome the idea of Scottish independence – how long will England remain within its red lines, once the union with Scotland has been terminated, Ireland is united, and these former unequal partners are safely back in the EU?
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