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Forget whatever you may have read about how Labour’s planned ‘reset’ with the EU will boost UK economic growth. The evidence for such a proposition is at best dubious.
A reasonable assessment would be that Labour’s plans might add at best a few tenths of a percentage point to UK GDP over several years, but that these gains will be offset by financial losses elsewhere and a loss of policy autonomy that will create even larger losses over the longer term.
What Labour’s EU reset is really about is starting the process of putting the UK economy back under EU control as a precursor to the UK’s eventual political reabsorption into the EU, essentially the same playbook that was used in the fifty years or so to 2016.
Let’s examine some of the things that government briefings have suggested Labour wants from its talks with the EU, and their likely consequences:
A veterinary agreement between the UK and EU
The UK is not a large food exporter. In 2018, perhaps the last year before UK trade was unaffected by Brexit-related factors, the UK exported around £17 billion of food and drink goods to the EU (volume, 2022 prices). This represented about 4% of total UK exports of goods and 2% of UK exports of goods and services, shares that had been broadly stable since 1997 (Chart 1).
Some observers claim that UK food exports to the EU have suffered badly since 2018 and a veterinary agreement with the EU could give them, and UK growth, a strong boost by reducing border red tape.
Arithmetically, this is nonsense. The volume of UK food exports to the EU in 2024 was around 16% lower in 2024 than in 2018. Even if we take the extreme position that this was all due to Brexit and the even more extreme position that a veterinary agreement would fully restore the lost trade, the additional exports would be around £2.5 billion or 0.1% of UK GDP. A rounding error, not a game changer.
In reality, even this figure is far too high. Firstly, quite a large chunk of UK food and drink exports to the EU are not going to be affected by a veterinary agreement (e.g. Scotch whisky). We estimate that sectors that could benefit might total only around a half of UK food exports to the EU, so our crudely estimated gains would fall to around £1.2 billion or 0.05% of UK GDP.
Even this figure is probably too high, because as we have shown elsewhere a chunk of the UK’s lost food and drink ‘exports’ to the EU is the result of the UK no longer re-exporting food products that it didn’t actually produce in the first place, such as tropical fruit and nuts. This is a consequence of the UK leaving the EU customs union, which a veterinary agreement would make no difference to. And even if you could restore these re-exports, the economic value-added they created for the UK was small.
It’s also unlikely that a veterinary agreement would even remove all of the additional border processes for food and drink exports to the EU. If we factor in this as well, the potential ‘gains’ from such an agreement look miniscule.
This kind of analysis also completely ignores imports. Any deal that eases UK imports of food from the EU could well be negative in terms of the effect on GDP. It is worth noting in this regard that the UK is a massive net importer of food from the EU – it is the EU which has most to gain from easier trade in food products across the channel. In principle, there could be a benefit from this in terms of lower consumer prices but the evidence that Brexit has had any significant upward effect on UK food prices is very weak. Notably, food prices in the EU have risen faster than those in the UK since 2015.
Any deal on food trade with the EU is also going to come with significant costs. Firstly, the EU wants to extend its current generous access to UK fishing waters beyond 2026. The EU’s catch in UK waters is worth around £900 million per year, catch that could instead be landed by UK fishermen, adding to UK GDP. UK catches in EU waters are worth far less, around £340 million so that the EU benefits from current arrangements to the tune of around £550 million, that is half the amount of notional gains we estimate the UK might reap from a veterinary agreement with the EU.
A veterinary agreement with the EU is also going to mean the UK copying and pasting all EU law on food and farming standards (all overseen by EU courts) – the EU has made it quite clear that a looser arrangement such as it has with New Zealand is not on offer.
The UK becoming a passive rule taker from Brussels in this area will stifle innovation in the UK food and farming industries. Nor is this just a theoretical point. The UK has already used the policy autonomy gained by Brexit to alter rules in areas like gene editing. Genetically modified food products are essentially banned in the UK and one estimate suggests this ban has cost UK agriculture up to £80 million per year since 1996. With new technologies promising reduced costs for fertiliser and pesticides and higher yields, there are probably even larger gains to be had in the future – but only if the UK retains policy autonomy in this area.
Becoming a passive rule taker from the EU has other downsides too; the UK would need to adopt stricter (and costlier) regulations on packaging, single use plastics, food additives, geographical indications and pesticides while being obliged to weaken regulations on live animal transport and cosmetics (testing on animals).
Finally, a veterinary agreement with the EU makes it impossible for the UK to make regulatory agreements with other economies as part of broader trade deals. Once again, this is not just a theoretical issue. The UK is now in talks with the US to try to have the new tariffs imposed by President Trump on UK goods removed, but one of the main issues the US has regarding its trade with Europe – including the UK – is what US officials (rightly, in many cases) see as protectionist regulations in agriculture. One estimate shows that these regulations are equivalent to tariffs of 23%-102%.
UK goods exports to the US are worth about £58 billion, and the new tariffs of around 10% will conservatively reduce these by around £6 billion. This is between 2.5 times and 6 times higher than the gains from a veterinary agreement with the EU.
Overall then, we can see that the net value of veterinary agreement with the EU is highly questionable. The possible gains in terms of exports are very modest and are likely to be offset by higher imports, loss of fishing opportunities, loss of the gains from new tech such as gene editing and – most of all – the losses of other exports to the US (Chart 2).
Alignment with the EU’s carbon border mechanism
The EU’s carbon border adjustment mechanism imposes tariffs on some categories of imported goods (aluminium, cement, electricity, fertiliser, hydrogen and iron and steel), depending on their carbon content. The idea behind the UK aligning with it as part of a reset is that these tariffs will also apply to some UK goods – despite the UK-EU trade deal.
Once again though, the costs and benefits of this don’t stack up very well. The share of UK exports that might benefit from such a move is again very small. UK exports to the EU of CBAM-affected goods in 2024 were around £8 billion, just 2% of UK goods exports, 1% of exports of goods and services and 0.3% of UK GDP.
In fact, the UK is a much bigger importer of these goods than an exporter so that joining the EU’s CBAM and driving up import prices will damage the competitiveness of UK businesses that use these goods as inputs. One estimate suggests the CBAM could lead to losses of £300-£650 for each UK person. UK electricity prices could also be forced up yet further as UK carbon prices under the current emissions trading scheme are substantially lower than those in the EU, hitting consumers and damaging the competitiveness of UK industry.
Longer term, the costs will grow. While the EU CBAM is at present fairly limited in scope, the EU has made clear that it intends over time to expand it to cover most, if not all, goods. This means that the losses from higher costs to UK businesses will increase and productivity may also decline.
There are also serious issues relating to the UK’s trade policy. The CBAM is very possibly not WTO-compliant and will antagonise the fast-growing emerging economies the UK wants to improve trade links with. Worse still, as the scope of the CBAM expands, the UK will effectively lose control of its tariff schedule to the EU because the UK will have no say in determining how the EU imposes tariffs under its CBAM. The UK’s independent trade policy will be snuffed out.
Youth mobility agreement
A youth mobility agreement, aimed at the under 30s, is also apparently part of the reset. The UK has very little to gain here. Under freedom of movement when the UK was an EU member, the number of young EU citizens in the UK was much higher than the number of young UK citizens in the EU. It was an unbalanced system that helped reduce youth unemployment in the EU. Sharper competition for young UK citizens in the UK labour market, leading to higher unemployment, is not obviously a good idea. Moreover, the EU apparently also wants a return to EU university students paying UK-level tuition fees – a direct financial loss for UK universities.
Defence pact
There have been suggestions recently that the big ‘win’ for the UK from the reset talks would relate to defence procurement. Specifically, the UK might by signing a ‘defence pact’ and making various concessions in other areas, get ‘access’ for its defence contractors to funds spent by EU governments using the Commission’s proposed euro 150 billion loan facility.
Yet again, this looks like an incredibly poor deal. Only a small fraction of the funds raised by this loan scheme will be spent in the UK, and the UK will be required to pay billions up front for this ‘privilege’. Moreover, as we have noted here and here, the proposed defence pact threatens to dismantle UK defence sovereignty (requiring the UK to follow EU treaties, fund EU military projects and deploy forces at the EU’s request) and jeopardise intelligence sharing with the ‘five eyes’ alliance.
Deep alignment on all goods trade with the EU
It should be clear from the above analysis that the reset promises very little in the way of economic benefits for the UK in return for substantial costs and a sizeable loss of control over economic and defence policy. As deals go, this is in the same ballpark as the Chagos Islands deal or the sale of Manhattan in 1626.
But this isn’t the end of the story. There is a longer-term strategy visible in the government’s Product Regulation and Metrology Bill, which while it may appear innocuous allows ministers to align with EU rules across a wide range of economic sectors. With an expanding CBAM meaning loss of control over tariff policy and alignment with product regulation via this bill, the framework exists for the UK to be put back under EU economic control over time. Importantly, the UK will become a passive rule-taker across most of its economic life accepting EU rules – however damaging – with no say. This is the vassal state position that the UK authorities first tried to create under the premiership of Theresa May.
