Juliet Samuel
It may seem like a safe option, but tying ourselves to Europe with no voice is the most reckless choice
Available to a good home: a statue of the Iron Lady, in bronze. If Britain can’t find a suitable place, I have a suggestion. Send her to Brussels. This might sound odd. Wouldn’t Bruges be more appropriate? But all the recent talk about the virtues of the EU single market has made me think that a statue of one of its architects, as Margaret Thatcher was, might be most welcome among the bureaucrats who talk endlessly about its “integrity”.
They do so without any apparent sense of irony. The single market, insofar as it exists, is certainly an impressive achievement. But the dream, as then-mrs Thatcher put it, of “a single market without barriers, visible or invisible” remains unrealised. Contrary to claims by EU negotiator Michel Barnier last week, it doesn’t yet provide “free, frictionless trade”. And without a voice at the top table, it would be a bad idea for Britain to stay permanently inside it.
That does not mean we need to flee immediately. Britain should implement Brexit sensibly, with an ample transition period to let businesses adjust, which might involve temporary single market membership. It would be bizarre, however, for the UK to march out of the EU, only to accept a permanent situation in which other countries can dictate our regulations with absolutely no input from us. This is, nonetheless, the position that many Conservatives, and Labour’s Right-wing, support. The Labour Right, led by Chuka Umunna, was defeated in its first attempt to amend the Queen’s speech to this effect, but with Parliament so finely balanced, the debate is still live.
Single market junkies claim that staying inside guarantees British exporters’ access. Mr Umunna says it provides “a guaranteed right to deliver services within the EU without national impediments”. If it were true, this would be a compelling argument. Britain runs a big trade surplus in services and, unlike trade agreements covering goods, it is hard to negotiate deals covering them.
Unfortunately, the single market’s record on services liberalisation is abysmal. In theory, a provider of services operating in one part of the bloc should be able to sell anywhere else within it. In reality, companies face a multitude of barriers due to differing regulatory regimes and national protectionism. Despite the rhetoric about the single market’s “integrity”, services trade within the EU has barely grown faster than services trade between the EU and the rest of the world. The UK exports more services to countries outside the single market than it does to those within it.
An assessment of the single market, published by the OECD last year, stated that “deepening of the internal market in services has been slow”. The Brussels think tank ECIPE came to a similar conclusion in 2016, asking: “What is wrong with Europe’s single market?” and answering: “It does not really exist.”
The single market has undoubtedly liberalised trade in goods enormously compared to the situation before it existed, but that, too, is incomplete. There was no increase in internal EU goods trade as a proportion of its economy between 2007 and 2012, according to the OECD, and the EU lags far behind the US, where interstate trade accounts for more than a third of GDP. If the single market were genuinely one market, said Meredith Crowley, an economics lecturer at Oxford, “you would expect prices to be the same throughout the area”. In fact, there are wide divergences.
The obvious answer to these problems is that we should improve the market, not leave it. I myself argued that Britain should remain in the EU in order to defend its interests. But staying inside the single market without EU membership gives the UK no ability to push policy in any direction. We would be an entirely passive receiver of any new regulations the EU throws at us.
If this policymaking always moved in a liberal direction, as Baroness Thatcher had hoped, that might be tolerable. But the single market doesn’t necessarily liberalise the rules; it has simply centralised them. Given a new power, the instinct of EU regulators is to raise standards, rather than reduce the burden of regulations.
A salient example is the pensions sector. In 2010, the EU established a new regulator, known as EIOPA, charged with introducing cross-border rules for the industry. As a country with a mature pensions industry, the UK stood to gain from the opportunity to sell services to some of the many millions of Europeans with no private pension savings.
Unfortunately, allowing for wider pension provision and competition wasn’t on EIOPA’S agenda. Instead, it tried to introduce a totally unnecessary new regulatory capital regime for the pension industry that, far from letting UK firms export more, would have imposed a massive cost without any obvious benefit to consumers. The regulation was watered down after an enormous UK lobbying effort, but this is exactly the sort of initiative that would be much harder to fight off if we were passive members of the single market.
There are two further reasons why Brexit must take us out of the single market. The first is that it is extremely likely Britain will conclude a reasonable deal with the EU to cover our trade in goods. Britain runs a huge deficit in goods and both parties have recognised the value of cutting tariffs. If the EU can embrace the prospect of free trade with Japan, it should be able to stomach it with Britain.
The second reason is that it is possible to cooperate on services regulation outside the auspices of the EU. As Andrew Bailey, chief of Britain’s Financial Conduct Authority, argued last week, the UK has no interest in cutting off regulatory cooperation because of Brexit. We participate in numerous international regulatory forums because it serves our interests to do so and we are not about to withdraw for no good reason.
Implementing Brexit will be difficult and risky. The EU is the bigger party and is motivated by all sorts of ideological concerns. But those who argue that staying inside the single market provides the best protection from the EU’S might do not understand the nature of the beast. The single market only exists insofar as it suits the interests of the bloc’s major economies. Tying ourselves into it permanently without any power over its direction might look like the safe choice, but in the long run, it’s the most reckless option of all.