A more distant relationship might be worth the economic risk. If ministers at Chequers are concerned about the wellbeing of the worst off, they should opt for a high-alignment regimeby Marley Morris / July 5, 2018 / Leave a comment
Theresa May holds a cabinet meeting at Chequers in 2016. Photo: PA This week’s Cabinet showdown looks to be a decisive moment in the UK’s Brexit debate. As ministers prepare to meet at Chequers to agree the government’s new plans, Prime Minister May is squeezed between the EU’s tough negotiating position and her own government’s red lines on immigration and sovereignty. The government must now make a decision between two competing visions of Brexit: staying closely aligned to the EU as a means of retaining our trade links, or risking new barriers to trade in order to diverge from EU rules. For a Prime Minister who began her tenure in Downing Street with a heartfelt call to fight injustice, the impacts of her decision this week on the most vulnerable must be of critical importance. Indeed, in recent months, both sides of the argument have sought to ground their case in progressive values, on the basis that their preferred post-Brexit settlement would be in the interest of poorer income groups. “Both sides of the argument have sought to ground their case in progressive values” Those in favour of a hard Brexit have argued that outside the customs union we would be able to reduce import tariffs on goods from the rest of the world, which would especially benefit low income households. At the same time, those in favour of a soft Brexit have argued that a ‘no deal’ would weigh most heavily on vulnerable groups, because they are typically more exposed to economic shocks. IPPR’s new report suggests that both these arguments are overly simplistic. Our analysis finds that Brexit is unlikely to widen the gap between rich and poor. In fact, more highly-paid sectors are expected to be somewhat worse hit in the short-to-medium term, because of the disproportionate effect on the finance and business sectors (where employees tend to be more highly paid). But this doesn’t mean that poorer households and regions won’t lose out after Brexit, especially if the UK leaves the EU without a deal in place. In particular, price rises post-Brexit will squeeze spending across households from all income groups. Moreover, it is misleading to claim that leaving the customs union and then unilaterally reducing all of our import tariffs will benefit the poorest: while it will help to bring down prices, this is highly unlikely to fully compensate the rise in prices associated with new trade barriers between the UK and the EU after Brexit. This is because tariffs are already on average low and much of the friction in trade with the EU is expected to emerge from non-tariff barriers, such as regulatory differences or customs checks. In fact, price rises are likely to have the biggest impact in parts of the UK outside of London. This is because households in other parts of the country tend to spend less on housing—where price rises are expected to be relatively small—and more on transport, where price rises are expected to be relatively large. (Think, for instance, of the increase in the price of cars imported from the EU after Brexit). What does this tell us about the next steps for the Cabinet as they prepare to meet on Friday? It depends on their priorities: if they want to prioritise taking charge of trade and regulatory policy above all else, then a more distant relationship might be worth the economic risk. But if the Cabinet are concerned about the wellbeing of the worst off, then a high-alignment regime would be the best route to minimising negative impacts on less well-off households and regions after Brexit. IPPR’s proposal for a ‘shared market’—combining a customs union with regulatory alignment with the single market—is in our view the most sensible and negotiable option for protecting the poorest households and regions. Whatever the Cabinet decide on Friday, it is critical that they carefully consider how the new settlement with the EU will affect the most vulnerable parts of the UK. As the Prime Minister said at the steps of Downing Street nearly two years ago, once it leaves the EU, the UK must be a “country that works not for a privileged few, but for every one of us.” As she and her Cabinet prepare to make their decision on the future direction of Brexit, this message applies now more than ever.