The Single Market vs a free-trade agreement – Problems with cherry-picking

  • There are huge challenges to being in the Single Market, but it is the economically best option for us.

  • EEF, The manufacturers' organisation
    Broadway House, Tothill Street, London

    Chuka Umunna MP

Check against delivery

As Anna says, and I want to reiterate, I accept the result of the referendum – the Government has a mandate for our withdrawal.  I have said so in Parliamentary debates. And I repeat today – I do not support calls for a second referendum.

But I insist, as a Member of Parliament – representing those who voted to Remain in overwhelming numbers and to Leave – on our right to a say on the terms of any deal given its inevitable impact on the interests of every constituent I was elected to serve.  It is the jobs, wages and financial security of the British people which should be the priority here.

De-industrialisation and too much change in too short a space of time helped drive the understandable discontent that led many communities to vote to Leave and which now leaves my party vulnerable to UKIP in Northern seats.  But a Hard Brexit will speed up and extend de-industrialisation.  Many on the Right of the political spectrum have never cared too much for our manufacturing sectors but we on the Left will never be forgiven if we aid and abet the process of de-industrialisation in post Brexit Britain, which is what a Hard Brexit will do.

There are those who wish to muzzle any debate on this and the terms of our leaving, as if we live in some dictatorship.  They have already gone for the Governor of the Bank of England, then it was the judiciary with the impending march on the Supreme Court in the offing, and now it is the Office for Budget Responsibility.  We see people targeted simply for doing their jobs and giving an independent assessment of how the law should apply or how Brexit will impact on our economy.

Enough is enough.  If we allow this to go unchallenged, we will be going down a very dangerous avenue as a country, betraying our history and our tradition of promoting lively discussion and free speech.  Those under attack are public servants.  Neither they nor any of us should be silenced and prevented from doing their jobs: serving the people.  It is in that spirit that I am speak here today with Anna and Nick.

Anna has made the general point that the goal in the Brexit negotiations should be Single Market Membership.  There are those who disagree and argue that negotiating a Free Trade Agreement on a sector by sector basis between the EU and the UK would be just as advantageous, indeed preferable.   They argue for ‘Cherry-picking’, choosing the bits of our current arrangement we believe suit us and dropping the others.

The problem with what they are proposing however, is not only is this something the EU is highly unlikely to entertain for practical and political reasons; but it is also against the UK’s economic interest. The comprehensive market access that comes with trading within the Single Market – tariff-free and with a common regulatory framework – is by far the most advantageous.

The analysis in this CEBR report shows that every major sector – every sector – of our economy is linked to the Single Market and, therefore, could be harmed through an arrangement that prioritises one sector over another.  So the benefits we have within the Single Market cannot be replicated outside it without cost, since every alternative inevitable means increased barriers to trade.  Cherry-picking sectors will create winners and losers, and I am not aware of anyone proposing or voting for creating economic losers.

If the UK were to reject the Single Market and go for a sector-by-sector approach, this would presumably focus on protecting our largest and most productive sectors; maintaining access for sectors that have the best established links to the EU; industries that have exhibited high growth potential; and sectors which are set to benefit most from future liberalisation of the Single Market. But every sector the report examined falls in to one of these categories. Every sector of economy is important and every sector needs the Single Market.

Here is a general overview of our economy.  The largest market sectors of our economy are retail and wholesale, then manufacturing, financial services, professional services, construction and the creative industries. Those with the fastest growth rates are energy, creative industries and accommodation and food. Manufacturing has the largest number of jobs linked to trade with the EU, followed by professional, technical and scientific activities and administrative services.

Manufacturing, as you would expect, is the sector which exports most to the EU, with transport equipment, food, metals, pharma and machinery the largest exporting subsectors. Wholesale and retail, real estate, financial and business services and mining are all other large exporters.

The CEBR projects that a deepening of the Single Market in future could add £277 billion to the UK economy by 2030, in particular through the Digital Single Market, completion of the service sector, as well as energy market reform.

So what does this mean for future trade priorities? Simply, there are no easy choices.

Manufacturing, with its high export value and employment linked to the Single Market, is both important to the UK economy and relies significantly on EU trade. Outside the Single Market and the Customs Union, it would face regulatory barriers and potentially tariffs on components.

Financial services, which contributed £122 billion to the UK economy in 2014, would surely have to be protected. Outside the Single Market, it could lose passporting rights, which in turn will hit the large-exporting professional, legal and business services sector.  It is doubtful it would be able to continue as a clearing house for some euro dominated transactions.

Energy is the fastest-growing sector in the UK, but if we leave the EU’s internal energy market we would miss out on the opening up of those markets, which the National Grid last year estimated could result in losses of up to £500 million a year.

The real estate sector would suffer if a loss of comprehensive UK market access started to affect the foreign investment flows that are important for commercial and residential property markets. This could have much broader knock-on effects on the UK economy.

The creative industries are fast-growing and rely on an integrated European labour market access to attract new and diverse talent, which could be under threat if we pursue a target of reducing migration to the ‘tens of thousands’, something which will also be felt in industries such as construction, as well as the public sector.  We should have greater restrictions on migration but lets not throw the baby out with the bath water – people want more control, as opposed to no migration at all.  So I’ve proposed moving from the free movement we have now to a system of fair movement.

You could go through all twenty major sectors of our economy featured in today’s report and describe their ties to the Single Market. The central finding of the research is that there is no sector whose economic characteristics do not link closely to and benefit from trading within the EU’s Single Market.

It is likewise difficult for industries to be siloed given the mutual dependence of sectors on each other as part of the UK value chain. Manufacturers rely on administrative services; food services rely on agriculture which impact retailing; digital services and creative industries are intertwined, and a digital Single Market could aid all sectors tendering for work abroad, as wide-ranging as construction, IT, and professional services.

So a sector-by-sector approach which sought to prioritise or choose ‘winners’ in isolation of others cannot be done without the risk of creating ‘losers’ through reduced access and reduced future mutual benefits. And in a dynamic and complex market economy, it is never possible to predict where growth is going to come from next.

If the UK chooses to leave the Single Market, we will not have the coverage we have now. There is no FTA which offers complete tariff-elimination and none that covers service sectors to the same extent as the Single Market.

Therefore, advocates of the FTA approach need to say which sectors they think it should cover and how tariff and non-tariff barriers will be avoided. What criteria will they use to determine a sectoral approach? What will the cost be, and if there are benefits, can they be quantified?

These advocates – Vote Leave ministers, UKIP, Leave.EU, the Eurosceptic wing of the Tory party …they are the establishment driving the Government agenda.  They are used to blaming Brussels and EU immigrants for all our problems. In a post Brexit world, that avenue will not be open to them.  They will be held to account for whatever impact this has on people’s jobs and wages – they will not be allowed to run away from it.

There are huge challenges to being in the Single Market, not least seeking to reform free movement, but it is the economically best option for us, as Nick will now talk about.