The Conservative party’s uneasy truce with Brussels

Good afternoon. Just back from Manchester where the Conservatives held their annual party conference this week and Rishi Sunak pitched himself as the candidate for “change” at the next election, despite his party holding the keys to Downing Street for the past 13 years.

On Brexit, however, the Conservative band was playing the same old tunes. Sunak claimed that Brexit freedoms were making the UK “ever more competitive” in the regulation department, despite business groups constantly warning about the cost of dual regulation.

He then lionised the UK’s membership of the Comprehensive and Progressive Trans-Pacific Partnership — worth a 0.08 per cent long-term boost to GDP by the government’s own estimate — and extolled the value of freeports, the positive effects of which the Office for Budget Responsibility has said will “be difficult to discern even in retrospect”.

Despite the polls showing dissatisfaction with Brexit, there was no sense of second thoughts. Kemi Badenoch, the trade secretary, led the chorus of denial, talking about the UK’s membership of the CPTPP as if it was a direct substitute for EU membership.

“We are joining a club of fast-growing countries committed to free trade. A club with no membership fees, no political union, and no free movement of people. A club that will give us access to a region that will account for 54 per cent of global growth and home to half of the world’s middle-class consumers. A club in which we will never again be asked to sacrifice our sovereignty.”

She also offered a glimpse into the “Brussels poodle” attacks that Sir Keir Starmer can expect if he follows through on his promise to move closer to Europe, with Badenoch saying the Labour leader planned to answer global challenges by asking “the EU what to do next”.

Even though, according to Redfield and Wilton polling this summer, a large portion of 2019 Tory voters now think Brexit has left the economy weaker, the NHS worse off and the cost of living higher, for Conservatives it remains a badge of national identity.

“Brexit was perhaps the greatest ever vote of confidence in the project of the United Kingdom — and we will soon be asking the country to trust that this project is safe in our hands.”

All that is notable only for the fact that no one takes any notice any more: unchallenged Brexit boosterism, however banal, is baked into the political discourse. 

Brussels sticks to its guns

You might think, therefore, that European Union diplomats attending the Tory party conference with increasing nationalist-nativist overtones would find it an uncomfortable place to be, but actually, quite the opposite.

Now that a floor has been put under the Northern Ireland problem via the Windsor framework — for which Sunak deserves much credit — the lack of ambition from the current UK government towards Europe appears to suit Brussels rather well.

With Brussels sticking to its guns on not reopening the Trade and Cooperation Agreement, it’s not clear, as one minister put it, why anyone on the UK side should “bust a gut” to deepen ties with Europe. This suits Europe too — for now, at least.

That’s why longstanding Conservative Brexiter Andrea Leadsom and the EU ambassador to London Pedro Serrano were in surprising agreement at a Centre for European Reform fringe event this week when I shared a platform with them both.

Serrano was only too happy to endorse Leadsom’s soothing line that the TCA was the “deepest trade deal the EU has ever done” — the same line, incidentally, that is used by Lord David Frost — while repeatedly reminding the audience there was no appetite to reopen it.

It’s a cute line, but utterly misleading, of course. The TCA is indeed Europe’s “biggest ever trade deal”, but for the UK it’s a huge step down from single market membership — a “reverse” trade deal, in effect, that erects trade barriers rather than taking them away.

The persistent application of such political local anaesthetic to the UK’s Brexit malady by Leadsom and Serrano only wore off when a representative from BASF, the German industrial giant, expressed the pain of post-Brexit regulatory uncertainty deterring investment in the UK business.

Not, of course, that that is a problem for the EU. The UK has made its choices and if those choices deter investment in the UK, that is a matter for the UK, not Brussels. 

When Leadsom advanced limited or “cakeist solutions” to smooth out the TCA’s wrinkles — better technology to handle border paperwork or what sounded like a Schengen-style visa for musicians — Serrano handed down a gentle warning about cherry-picking and the need to focus on the deal as it is now, not hypothetical conversations in the future, for which the EU isn’t currently ready.

Why not ready? Well, as we’ve seen all through the Brexit process since 2016, the best way to prevent EU divisions emerging is to stick to clear lines and avoid the interests of member states being played off against each other.

So recent attempts by the UK to negotiate bilateral youth mobility deals (which some EU members want, on the right terms) have been squashed by the Commission, which has urged member states to maintain a united front.

But as time passes, this is getting harder. Take one current example: the Commission is currently wrestling over whether to extend the ‘rules of origin’ thresholds in the TCA on electric vehicles for three years to avoid both sides paying 10 per tariffs on EV imports. 

This has become a source of Franco-German division. The Commission must now decide whether to yield to German industry pressure, or heed French calls to hold the line on not tinkering with the TCA. 

(Actually, the TCA is explicit that rules of origin can be changed by mutual agreement of the Partnership Council, but the principle stands.)

Smart money says a deal gets done at the eleventh hour (it would be mad to put tariffs on EVs) but as Mujtaba Rahman at the Eurasia Group wrote to clients this week. “Even if a deal is done, this is a far cry from the discipline that informed the EU’s approach in 2016.”

Labour’s response to the TCA

When Labour starts its attempt at improving the TCA, it may wish to exploit such divisions, but it will always have to bear in mind EU sensitivities that seeking a more nuanced relationship with the UK creates potential headaches within the 27 member states. 

In that sense, at least, a low-ambition Tory government is arguably a much more manageable proposition for the EU than a high-ambition Labour party that plans to ask challenging questions about deepening the EU-UK relationship.

Labour is currently talking only in generalities (I’ll be in Liverpool next week to hear more) but fast-forward to the Labour Conference in Autumn 2026 and the EU ambassador might face much trickier questions about the EU Commission’s structural unwillingness to engage.

If prime minister Starmer has given it his best diplomatic shot, and the Commission is still against a youth mobility deal, or an EU-UK veterinary agreement and improved professional mobility for performers or the travel industry, the discussion with Labour might actually be more confrontational and complicated than with the Tories, not less.

Brexit by numbers

To listen to Sunak’s conference speech you would think that UK trade has been booming since Brexit, but actually the picture is much less rosy than the prime minister suggested, particularly for goods. 

Today’s chart comes from the UK in a Changing Europe’s monthly trade-tracker by Stephen Hunsaker which finds that, with the exception of import services, UK trade is still below pre-pandemic/pre-TCA levels. 

“While exports have increased since 2019 in current prices, when adjusted for inflation, they have fallen by 0.62 per cent of GDP compared to Q2 2019,” he finds.

Not quite the picture Sunak painted when he said in his speech: “They tell you ‘Our exports have dropped to an all-time low’. Wrong. This year we rose from the world’s sixth to fifth-largest exporter of goods and services.” 

One key measure of UK trade performance is “trade openness”, calculated by taking exports and imports and dividing them by real GDP. It gives you a measure of a country’s integration into the global economy.

The trade tracker (see chart) finds that over the last two quarters the UK had the biggest fall in trade openness of the G7 — returning back to a trend that set in when the TCA came into force in January 2021.

Before the TCA the UK had fared better than most of the G7 countries but with the exception of the third quarter of 2022, when the UK briefly climbed above Canada, France and the US, the trend has been negative.

“It paints a very clear picture that the UK is still struggling to be open to trade, and still struggling to expand its trade more than other countries,” Hunsaker adds.

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