The Labour Government is making an effort to reset the country’s relationship with the EU. But Owen Parker and Matthew Bishop argue that while electoral worries dictate Labour’s tentative EU policy, the ongoing damage wrought by hard Brexit will undermine its ability to win re-election in 2029.

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We have witnessed a step-change in UK policy towards Europe under Labour. A UK government in collaboratively pursuing a “re-set” instantly transports us to a very different place than the interminable delusions of the post-Brexit era. The inane spectacle of the nostalgists who sold us the snake oil – a project that has palpably failed and is perceived as such – remaining stuck in the same doom loop screaming “betrayal” only emphasises this.

So, it is good that Sir Keir Starmer’s administration has sought, finally, to move us forward and, given Brexit’s toxic politics, understandable that it has done so in a tentative way. Moreover, the “new strategic partnership” is more substantial than many anticipated and appears likely to deliver tangible, not-to-be-sniffed-at benefits, especially around agri-food exports, youth mobility and, as it develops, defence cooperation (the latter becoming very significant over time).

Regardless of how much tinkering softens the TCA’s sharpest edges, it unavoidably acts as a drag on growth.

Yet despite this welcome softening of the hard Brexit settlement negotiated by Theresa May and Boris Johnson, we remain a very long way from the genuinely soft Brexit that was plausible post-2016 (i.e. within the European Single Market). This will remain the case as long as the UK-EU relationship is framed by the Trade and Cooperation Agreement (TCA) and its appendages — a distinctly thin Free Trade Agreement (FTA) of the kind that has long been out of fashion amongst European states — which, by reinforcing hard Brexit, unavoidably circumscribes the extent to which the kind of deep economic integration that existed prior to 2021 may be reconstituted. Regardless of how much tinkering softens the TCA’s sharpest edges, it unavoidably acts as a drag on growth.

Tinkering with the old settlement isn’t enough

At best, the new direction of travel will moderately improve our economic fortunes, while implicating us in never-ending Swiss-style negotiations with Brussels of the kind that the single market was designed to eliminate (or, at least, assuage) but without the deep integrative benefits that Switzerland enjoys. At worst, we will continue to experience the hardening of a settlement that limits the growth potential of the economy, undermines investment, prevents most British people — unless they are fortunate to be young, dual citizens or wealthy — from working across the continent, let alone retiring, and, ultimately, intensifies the fraught xenophobic politics that afflicts stagnant economies and is a troubling hallmark of the contemporary UK.  

We remain stranded in the same kind of pretence that has pervaded the entire Brexit process, with politicians essentially still trying to argue that the benefits UK citizens previously enjoyed can be reconstructed without the associated trade-offs implied by membership and sharing of sovereignty. If we want to “tear down unnecessary barriers to trade“, why not seek to join the mechanism that actually delivers this, rather than clinging to one explicitly designed to prevent it? It is in this insidious space, moreover, where the malign forces of “Brexitism” (as Chris Grey has called it) are, and will continue to be, incubated.

We remain stranded in the same kind of pretence that has pervaded the entire Brexit process, with politicians essentially still trying to argue that the benefits UK citizens previously enjoyed can be reconstructed without the associated trade-offs implied by membership and sharing of sovereignty.

This is why, despite representing a good start within an evident set of political constraints, the EU-UK re-set remains, for many, so underwhelming. It is also why, instead of howls of betrayal, the Brexiteer hard right should perhaps be thankful that Starmer has preserved and further institutionalised their project, softening its edges in ways that may insulate it from counter-revolutionary opposition and militate against the kind of genuine soft Brexit we advocate here. Either way, Starmer’s tentativeness is a distinct legacy of Labour’s post-2019 electoral trauma.

But, remaining stuck in that trauma may be ill-advised for two reasons. First, as Peter Kellner has noted, Labour cannot afford to take its progressive base for granted: there is ample evidence that they are already turning to the Lib Dems and Greens. In fact, many did so prior to the 2024 election in which Labour won a huge majority on a percentage vote share only marginally higher (and a popular vote share lower) than that achieved by Jeremy Corbyn in the “disaster” of 2019. Second, delivering the bold progressive developmental agenda that Britain urgently needs and that the government had pledged to deliver in opposition, will require a much more substantive re-set in relations with the EU.

If globalisation is over (it isn’t, it’s just different) we need the EU even more

Some on the British left — particularly those sympathetic to so-called “Blue Labour” — argue that globalisation is unravelling, therefore the UK should embrace hard Brexit and continue its autarkic retreat. This is misguided. For one thing, state aid is not an end in itself: industrial intervention only makes sense if it generates greater export competitiveness and, ultimately, inward investment. For another, “deglobalisation” is a complicated, contested and counter-tendential process. Consequently, improving the UK’s terms of trade with the enormous fortress and regulatory hegemon 33km away becomes more, not less, crucial.

Well before Trump 2.0, Brussels had been pursuing an increasingly interventionist (and less neoliberal) policy agenda, driven by the pursuit of greater “strategic autonomy” in a more divided world.

Indeed, if “reshoring” is occurring, the highly integrated nature of contemporary production means that this will continue in regional and continental value chains on the vast scale of Europe (or North America, or China). Pursuing participation in those European production networks therefore also becomes more, not less, vital for growth. The UK is already at a marked disadvantage precisely because of the regulatory friction now imposed at the border (hence the ongoing collapse in investment). Yet it gets worse, because European rules around industrial policy have, since the UK left, become more flexible following what has been termed a “geopolitical” turn in the EU’s post-Brexit, post-pandemic, political economy.

Well before Trump 2.0, Brussels had been pursuing an increasingly interventionist (and less neoliberal) policy agenda, driven by the pursuit of greater “strategic autonomy” in a more divided world. Its NextGenerationEU programme saw it issue, for the first time, collective EU public bonds and effectively redistribute funds in the form of grants to facilitate post-pandemic recovery. There was debate about whether this constituted the crossing of the rubicon on fiscal integration — a “Hamiltonian moment” — but it is now being urged by many, including mainstream voices, to do the same in relation to defence investment, the green transition and digital economy. Trumpism only intensifies this agenda.   

The significant point for the UK is that, even if the government were to rediscover a progressive economic vision, it would struggle to successfully pursue it with Brussels as a competitor rather than a collaborator. While the EU itself has a long way to go to catch up with the US and China in future growth sectors, it is, to put it mildly, questionable whether the UK can meaningfully compete with any of the big three global economies alone.

This is especially so when it faces huge regulatory barriers vis-à-vis its main continental export market, relative exclusion from the latter’s advanced production networks which are both integrating rapidly and receiving huge amounts of public subsidy — multiples of the £28bn that Labour jettisoned before the 2024 election — along with heightened competition from them for the scarce resources that will drive the green transition. Brexiteers often complained that Fortress Europe was exactly that: a deeply protectionist bloc guarded by an inordinately powerful trade bureaucracy aggressively opening markets globally.

Hitching its policy agenda firmly to the EU wagon offers the best (indeed, in our view, only) chance of delivering substantial growth and material improvements domestically.

The problem is that these institutions are now ranged against the UK rather than working for it. No amount of tinkering in any “re-set” is going to change that reality without a fundamental shift. It is therefore inconceivable that the UK can generate the kind of growth promised by Labour and close the lost output gap, which amounts to approximately £100bn in GDP annually and £40bn in foregone tax revenues. So, hitching its policy agenda firmly to the EU wagon — a shift, in other words, towards a much softer Brexit by seeking to join an increasingly interventionist single market — offers the best (indeed, in our view, only) chance of delivering substantial growth and material improvements domestically.

It is such tangible material improvements that are most likely to gain the support of the various constituencies that Labour will again need to win over at the end of the 2020s if it is not to be a single-term government. They include millions of progressive waverers of the sort Kellner highlights. Ironically, the tangible benefits flowing from a far closer alignment with the EU may also persuade the red-wall voters to return to Labour in 2029 and, politically, it is the only kind of agenda that will put Farage on the back foot, compelled to defend the abysmal record of Brexit. It is to be hoped, then, that Labour fully overcomes its 2019 trauma and starts worrying less about chasing lost voters and more about the first-order problem of resolving the country’s deep-seated socio-economic stagnation.

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