Labour wants a new Brexit deal – here’s why business shouldn’t get its hopes up

That shadow chancellor Rachel Reeves has finally chosen to talk about Europe – about breaking down EU trade barriers, regulatory alignment with the continent, and negotiating a better deal than Boris Johnson managed – is a clear indication that Labour thinks it is all but home and hosed as far as the general election is concerned.

This had been one of those subjects the party was desperate not to mention for fear of frightening the horses. Now, we’re once again talking about revisiting Johnson’s trade & cooperation agreement (TCA) and admitting that this would inevitably mean agreeing to align with EU standards.

A Labour government is only too well aware that it needs to boost economic growth if it is ever to make its shaky-looking numbers add up. The trade barrier erected along the English Channel is one of the biggest impediments to that.

How big of an impediment has been made clear by the Office for Budgetary Responsibility (OBR), which updated its Brexit analysis at the beginning of last month.

It expects that the TCA will result in a reduction in desperately needed long-run productivity by 4 per cent when compared to remaining in the EU, citing “the increase in non-tariff barriers on UK-EU trade”. These include multiple forms, red tape, customs checks, and lots of unproductive waiting around while the slow wheels of bureaucracy turn. It thinks that both exports and imports will be around 15 per cent lower in the long run, and that new deals with non-EU countries “will not have a material impact” on this.

And for the savings associated with financial transfers to EU institutions, after factoring in the cost of the financial settlement? They are already “entirely captured within the government’s departmental spending”. So there will be no help coming from that quarter.

A report commissioned from Cambridge Economics by the Labour mayor of London, Sadiq Khan, at the beginning of the year found that the UK economy is now almost £140bn smaller as a result of Brexit. It has cost the capital, the nation’s economic driver, £30bn.

There is no near-term prospect of rejoining the European single market or even a customs union. These are both “red lines” for Labour. Reeves has said she is willing to “upset some people” to charge-up the UK economy. Just not too much.

So we’re left with damage limitation. There is still something to be said for that, given the sheer degree of damage that continues to be done. Brexit has become the bane of any business trying to trade with the continent. It casts a pall over the entirety of Britain’s corporate fauna, from the biggest multi-national companies to the smallest micro businesses.

On the day Reeves let fly, the Federation of Small Businesses (FSB) warned that the government needed “to reduce the cost of international trade”. It fears that the supply chain “could crumble” unless this is made a priority.

Tina McKenzie, policy chair at the FSB, said: “In the 2026 review of the UK/EU trade and cooperation agreement, the government should negotiate to remove the need for an intermediary for the EU VAT system. They should also aim for mutual recognition of product standards and professional qualifications in key sectors.”

Sean McGuire, CBI Europe and international director, said: “Whoever wins the election, the UK and the EU going forward need to work together more effectively to maximise the full potential of the TCA and develop closer cooperation. For business, we call for further action on regulatory cooperation, progress on Mutual Recognition Agreements, securing a long-term agreement on data adequacy, reaching an agreement on youth mobility, and a reduction in customs and administrative burdens. Our members don’t want politics winning out over economic common sense.”

Quite. Trouble is, economic common sense has been hard to find of late, and this is almost as true of Labour as it is the Tories. Witness Keir Starmer’s swift decision to rebuff the EU’s olive branch on the subject of youth mobility, which is apparently one of those (painfully stupid) red lines.

The fact that Labour is now at least willing to open a conversation – and has been consulting with business – is still welcome. Brexit is the greatest act of self-harm this country has indulged in. The Suez Crisis is often mentioned as a point of comparison – but Brexit eclipses that short-lived act of military adventurism in terms of economic damage, international prestige… you name it.

The problem facing Reeves and Starmer is that any change to the TCA requires buy-in from an EU that is reluctant to consent to anything that would reek of the UK engaging in cherry-picking. The message coming from Brussels is that this is the bed you chose, you’re going to have to lie in it.

Relations will be better under Labour – but it is going to take a lot of hard work and, crucially, a lot of give from Britain to achieve anything more concrete. Which begs the question, just how far will Labour really go on Europe to benefit British business and thus the British economy? The business community would be wise not to set its hopes too high.