What is the UK's new Trade Strategy?
This morning the government published the UK’s new Trade Strategy, the first one since the UK left the EU. The report outlines the targeted approach the government will take over the coming years to provide ‘practical deals that deliver faster benefits to UK businesses’. The Trade Strategy makes clear that the EU is “our closest neighbour and trading partner”, with Prime Minister Keir Starmer saying that he wanted the UK-EU relationship “to move on in iterations” at the yearly summits the UK and EU have now agreed to.
What is in the new Trade Strategy?
The release of this new strategy is the first from a UK government in more than three decades. With turbulent geopolitical events impacting business confidence, tariffs from the White House hitting margins and sluggish business investment, British businesses continue to suffer after a decade of shocks.
The government hopes that the trade strategy can provide a level of security, confidence and predictability in government policy that will encourage investment in British businesses. The strategy expands the UK Export Finance’s capacity by £20 billion, making it easier for businesses to access loans and insurance.
The government has also announced a new Small Export Builder to give SMEs improved access to export protection insurance. This is crucial as around 20,000 small and medium sized businesses have stopped trading with the EU in the years following Brexit due to rising red tape. In a move to reduce red tape, the new trade strategy also highlights the importance of improving the extent of mutual recognition of qualifications to capitalise on the UK’s position as the second greatest exporter of services worldwide.
What is in the government’s ‘trade policy toolkit’?
The new strategy not only recognises the importance of EU trade - 46% of the UK’s trade in 2024 - but commits to ‘seeking new arrangements to create the conditions for smoother trade’. To do this, the government has laid out their policy tool kit which includes;
A focus on the importance of mutual recognition for removing trade barriers. Mutual Recognition Agreements (MRAs) allow countries to accept as equivalent their product regulations, this allows businesses to avoid additional red tape and costly compliance processes’. The trade strategy recognises that MRA’s and MRPQ’s (Mutual Recognition of Professional Qualifications) can be “special spurs to growth”, whilst highlighting that the UK already has MRA’s with countries such as Japan, Switzerland, and the US.
A commitment to consult with UK industries on whether joining the Regional Convention on Pan-Euro-Mediterranean rules of origin (PEM) would be beneficial. Joining PEM would allow the UK to align their rules of origin with the UK’s neighbours whilst improving the flexibility of UK businesses' trans-European supply chains. However, it remains to be seen whether joining PEM would benefit all British industries, particularly the eight sectors outlined in the recent industrial strategy as being of the highest priority (IS-8).
Cutting regulatory red tape. The government has committed to pursuing ‘International Regulatory Cooperation’ to establish “stable and predictable regulatory environments”. As EU regulations change, the Department of Business and Trade (DBT) has committed to smoothing trade barriers and supporting businesses wishing to export to the EU. DBT recognise the disruption brought by Brexit and agree on the need to lower costs and reduce red tape for British companies at the border.
What does the new Trade Strategy tell us about our relationship with Europe?
The trade strategy recognises the negative effect Brexit has had on UK SMEs and UK trade. Going further, the government has also committed to “strengthening UK-EU relations and making trade with our largest and most important trading partner easier”. During his press conference announcing the Trade Strategy, Keir Starmer commented on the need to “move at pace” on the reset deal, signalling that each annual summit offered an opportunity for improving the relationship further.
The direct acknowledgement that the EU is our most important trading partner is a clear indicator that this government rightly prioritises trade with the EU . Our polling shows that prioritising trade with the EU is remarkably popular amongst the public. In every constituency, even Nigel Farage’s Clacton, prioritising trade with the EU was the most popular option. Nationwide prioritising trade with the EU is more than twice (46%) as popular as prioritising trade with the US (22%). Our latest polling also shows that a clear majority (68%) of voters believe that a closer relationship with the EU will prove to be beneficial for UK-EU trade.
How could the UK benefit from cutting red tape with the EU?
If the UK government were to pursue deep regulatory alignment with the EU on goods and services the move would be not just popular but incredibly beneficial for delivering growth and reducing regional inequality. Our polling suggests that over half of Brits (52%) support aligning with the EU on goods and services to secure a better trading deal with the bloc.
Whilst independent research carried out by Frontier Economics on behalf of Best for Britain suggests that such alignment could deliver 2.2% growth in the longterm, particularly benefiting areas in the West Midlands and the North East, recovering approximately half of the Office for Budget Responsibility’s (OBR) estimated 4% long-term productivity loss following Brexit. Indeed, a Common Sense Deal with the EU which includes reform on visa rules on travelling artists, business visitors, and a fully fledged youth mobility scheme alongside deep alignment could deliver north of 2.2% growth.
A welcome change
The new Trade Strategy is a welcome change from the previous government's haphazard approach to trade policy. Explicitly recognising the importance of prioritising the EU as our most important trading partner is a much needed and supported step. Furthermore, highlighting the importance of mutual recognition and regulatory alignment for unlocking growth illustrates that the government understands the need to address the burden of costs and red tape on British businesses.
The government must now act to pursue deeper regulatory alignment with the EU and agree to both MRA’s and cross-sector MRPQ’s with our largest trading partner. As Naomi Smith Best for Britain’s Chief Executive commented ““This plan correctly identifies the importance of restoring frictionless access to reliable EU markets for British farmers, but the gamechanger will be doing the same for all British industries”.