The Sound of Music is considered by many people to be one of their favourite things. This is is surely down to the catchy songs as the plot isn’t too relatable – one minute you’re falling in love with someone who turns out to be a Nazi and the next thing you know you’re hot footing it over the mountains to Switzerland with your naval captain dad, former nun of a stepmother, and your singing siblings. In reality they just walked to the nearest railway station and boarded a train, but that’s less dramatic.
Like the von Trapp family, the UK government is also apparently viewing Switzerland as a safe destination for its Brexit woes. Although what has been briefed appears to resemble Swiss cheese with a number of holes in it, it is an encouraging step in the right direction. As I explained in my first blog post, one of the main factors contributing to the UK’s economic decline is how Brexit was handled. It has caused political instability and introduced friction with our largest trading partner. This is because in order to appease the ERG Tories, the government went for the hardest possible Brexit and the government has subsequently pursued an agnostic approach to EU relations. As such, a more mature and closer relationship with the EU is a good thing.
What appears to have been leaked is a Swiss style relationship with the EU in which the UK agrees to regulatory alignment with the EU on goods but will not accept Freedom of Movement. We don’t know exactly what this means as the UK government has a tendency to say ‘We want an X style deal’ like when Boris euphemistically referred to crashing out without a deal as an Australia type deal. However, what has been briefed does sound a lot like the UK wanting to have its cake and eat it, which is something the EU obviously won’t accept and isn’t something it should be trying to do anyway.
What should a relationship with the EU look like?
The UK should push for the closest possible trading relationship with the EU. This is because, although the government is right to push for trade deals with other countries and to join agreements such as CPTPP, these are not enough to replace the trade lost with the EU. Gravity matters in trade and so countries tend to do more trade with other countries and blocs that are large and close to them. That’s why the EU is a much more important trading partner to the UK than Australia, for example. The UK should still aim to strike trade deals with the rest of the world, and if we do manage to agree something with India then that would be very significant, but the priority needs to be on improving the relationship with the EU.
Therefore, the UK should rejoin the Single Market via EFTA. Such a move would give the UK frictionless access to the Single Market while being free of the worst aspects of the EU such as the Common Agricultural Policy. It should also help prevent UK politicians from meddling in the economy due to strict State Aid rules. This will boost trade between the UK and the EU and help to attract more investment into the UK, all of which would be good for the economy and help to reverse the UK’s decline. It is the model the UK should have originally pursued, but politicians on both sides of the divide acted shamefully by ignoring reality and calling for either the hardest possible Brexit or a complete reversal. After the Referendum, the government should have seen Brexit as a long term project where it initially left the EU while maintaining the closest possible trading relationship with it by rejoining EFTA. That would have been the prudent thing to do while assessing where the world is in 10, 20, 50 years time.
Such a solution will anger many hardline brexiteers, including those in the Tory Party. They will argue that it will make the UK a ’rule taker’ and unable to diverge on regulations. This ignores the fact that all countries are, to some extent, ‘rule takers’. Joining any organisation or forging a trade agreement means accepting and being bound by rules which can be adjudicated by a foreign court. Unless you want the UK to have zero political and economic relationships with other countries, then you have to accept being a ‘rule taker’ in some form.
As for the divergence point, this is another non-starter. A country might be able to think up better and more efficient product regulations, but if larger and more powerful countries and blocs do not accept them then you’re in trouble. It is deeply damaging for an economy to push for sovereignty in this area at the expense of frictionless trade with your largest trading partner.
Rejoining the Single Market would also involve signing up for Freedom of Movement. Many in the Tory Party will hate this, but I think it would be excellent. The UK has a relatively liberal system of immigration for high skilled workers, but this is not the case for low skilled workers. The UK is facing high vacancy rates and massive labour shortages. This is hurting British businesses and contributing in part to low productivity and high inflation. We need much more low skilled immigration in the UK. Rejoining the Single Market would help with this. It would cut the red tape meaning businesses no longer have to jump through hoops to hire the workers they need, lowering their costs and boosting productivity. It would also be good for young British people as it would give them the chance to live and work in another country where they can learn new skills which will benefit their careers and improve their currently dire prospects.
I’m not saying any of this will ever happen. It would be unwise, for example, for the UK to say to the EU that it is seeking a Swiss style relationship. Many politicians in the Tory Party will hate it and try to thwart the UK rejoining the Single Market which would obviously hamper negotiations and could bring down the government. The negotiations will also no doubt be tricky and will take up a significant amount of the government’s bandwidth. However, rejoining the Single Market would be one of the most effective ways of stopping the rot and reversing the UK’s economic decline.
The UK is currently the Sick Man of Europe, but rejoining another SM can help to get the country back on track and improve things for people in the UK, especially the young.