A deeper trade deal with the EU that stops short of joining the customs union or single market could bring in £25bn of tax revenue and pay for reversing benefit cuts, according to research cited by the Liberal Democrats.
The party is writing to all Labour MPs this week asking them to join forces in a push for a much more comprehensive deal with Brussels, saying that backing closer trade ties would help revive the public finances.
It said research from the Best for Britain campaign group has found that GDP would be boosted by 2.2% as a result of deep alignment of goods and services, while staying within Labour’s red lines of no return to the single market or customs union.
A new House of Commons library analysis, commissioned by the Lib Dems, found that a 2.2% boost to GDP would bring in roughly £25bn of extra tax revenues.
The party acknowledged that the estimates from the Commons library should be considered rough and a rule of thumb, as tax generated by higher growth depends on how it takes place.
However, it said the boost to tax revenues from a fuller deal with Brussels should be more than enough to reverse the winter fuel allowance withdrawal and proposed £5bn cuts to disability benefits.
In his letter to Labour MPs, Calum Miller, the Lib Dem foreign affairs spokesperson, will say his party wants to work constructively to secure a new trade deal with Europe in order to boost public finances.
“A far more ambitious trade deal with Europe, including a new UK-EU customs union, would be the single biggest thing ministers could do to boost growth and fix the public finances,” he said.
“The Liberal Democrats stand ready to work constructively with Labour MPs to boost trade with Europe and avoid savage cuts for vulnerable families and pensioners.”
The move comes as Keir Starmer prepares to host a crucial summit with Ursula von der Leyen, European Commission president, on Monday, at which a deal is expected to be signed on some greater alignment on defence, fishing and food, alongside other areas. Easing trade restrictions is expected to be an ambition rather than a concrete plan.
More than 60 Labour MPs have already urged the government to go further than its plans at Monday’s summit – including on a youth mobility deal where a time-limited version is now under discussion.
At the same time, more than 100 Labour MPs have signed a letter calling on the government to back down from the welfare cuts, and many of them regard the means-testing of the winter fuel payment as even more toxic with voters.
Ahead of the UK-EU summit, the chancellor, Rachel Reeves, said it was a “step towards” a deeper and ongoing partnership with Europe, saying any deal struck next week will not be a “one-off”.
In an interview with the Guardian on FridayReeves suggested the government was looking for closer ties with Europe beyond what was on the table this coming Monday, adding: “There will be future areas in which we can do more.”
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She said the government would show there had been a decisive break with the ideological Brexit battles of the past, saying “there is a lot of room for improvement” for ways to trade with the bloc.
Asked if the UK had raised its future sights beyond fixes, such as a veterinary deal that was set out in the Labour manifesto, Reeves said there would always be the red lines of no single market, customs union or a return to free movement, but suggested there was still more that could be done.
“We think that because of the trust we built, we can get a better deal. The European Union has understood from the beginning those red lines,” she said.
“I am ambitious for our future. This isn’t a one-off. There will be things that we achieve, some concrete outcomes on Monday, but there will also be a step towards where we want to go next between our countries.
“And I see that as a journey, not that what happens on Monday is the end; there will be future areas where we can do more.”
However, Nigel Farage, whose Reform party is topping the polls, has pledged to undo any deal that Starmer strikes, saying it is a reversal of Brexit.
UK-EU Trade Deal: A Path to Economic Recovery? A Q&A with Trade expert Professor Anya Sharma
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Time.news Editor: Professor sharma, thanks for joining us today. The political landscape seems rife with debate regarding the UK’s future trade relationship with the European Union. A recent article highlights the Liberal Democrats’ push for a deeper deal, citing research suggesting a potential £25 billion boost to tax revenue. What’s your initial reaction to these claims?
Professor Anya Sharma: Well, good to be here. These figures certainly catch the eye. it’s crucial to unpack them. The core of the Lib Dems’ argument relies on research from Best for Britain proposing a 2.2% GDP boost from deep alignment in goods and services, without rejoining the customs union or single market. That’s a important caveat,and the impact of Brexit on trade has been a major source of concern for many.
time.news Editor: So,is that 2.2% GDP boost realistic in your expert opinion?
Professor Anya Sharma: Any economic forecast is fraught with uncertainty. A 2.2% boost isn’t outlandish in theory. Deep alignment could involve reducing non-tariff barriers, streamlining customs procedures, and harmonizing regulations in key sectors. These moves can reduce costs for businesses and increase trade flows. However, the devil is always in the details of the actual agreement. The effectiveness hinges upon the specific measures implemented and how effectively they are enforced. A well executed UK-EU trade deal is a potential route to economic prosperity.
Time.news Editor: The article mentions this £25 billion in extra tax revenue could perhaps reverse benefit cuts, specifically the winter fuel allowance withdrawal and disability benefit cuts. Is this a viable solution to addressing budget concerns?
Professor Anya Sharma: That’s the political argument, and it’s a potent one. Any government is looking for ways to ease budget pressures. The key here is understanding that GDP increase is not a guarantee of direct tax revenue. the House of Commons Library acknowledges the £25 billion figure as a “rough rule of thumb.” The tax yield depends heavily on WHERE the growth occurs. Is it in sectors with high tax rates? Are businesses reinvesting profits or distributing them? These are all factors. It’s a promising prospect, but far from a sure thing and the UK economy would benefit.
time.news Editor: Keir Starmer is slated to meet with Ursula von der Leyen. The article suggests a focus on areas like defense, fishing, and food, with easing trade restrictions being more of an ambition than a concrete plan. how do you view this current approach?
Professor anya Sharma: It’s a pragmatic approach. There’s a lot of political capital tied into the UK-EU relationship, and a step-by-step approach is therefore expected. addressing those areas you mentioned – defense, fisheries, food – can represent the ‘low hanging fruit.’ Though, the real economic gains will come from tackling trade barriers more directly. Whether they can achieve that level of easing trade restrictions remains to be seen. I’m following that meeting very closely.
Time.news Editor: Labour appears to have set red lines: no return to the single market or customs union. How limiting are these commitments in achieving meaningful trade improvements?
Professor Anya Sharma: Exiting the single market and customs union was a fundamental part of the leave vote. By all accounts they are staying out. Those red lines severely restrict the depth of any potential trade agreement. The single market provides frictionless trade through common regulations and the customs union eliminates tariffs and customs checks. By ruling these out,the UK is essentially aiming for a free trade agreement (FTA),a more limited form of integration. A well-designed FTA can still yield benefits, but it comes with more hurdles – rules of origin, customs procedures, and potential regulatory divergence.
Time.news Editor: The article also mentions potential opposition from Nigel Farage’s Reform party, which has threatened to undo any deal Starmer strikes. How significant is this threat to stability and investor confidence?
Professor Anya Sharma: A fragmented political landscape always creates uncertainty. Such political wrangling does little to inspire confidence.Businesses need stability and predictability to invest and trade effectively. The threat of constantly renegotiating trade deals creates a level of risk most businesses are not willing to shoulder. This has a negative impact on both inward investment, and businesses committing to exporting at any level. And this is something the Reform party need to understand – it’s their rhetoric pushing businesses further from investing and trading.
Time.news Editor: Any final thoughts for investors and businesses trying to navigate this complex situation? What practical advice would you offer based on your expertise?
Professor Anya Sharma: Diversification is key. Don’t rely solely on the EU for trade. Secondly, scenario planning. Model different potential outcomes – a deep trade deal, a modest one, potential policy reversals – and assess their impact on your business. Lastly, engage with industry bodies and government agencies to stay informed about policy developments and potential support schemes. In the context of business a UK-EU trade deal will present both opportunities and challenges. The key is to be prepared.
Time.news Editor: Professor Sharma, thank you for your valuable insights.
