UK think tank warns of GDP drop unless Britain obeys EU rules
Gaining access to the single market without committing to free movement of people and other EU rules would be unprecedented, the UK’s Institute of Fiscal Studies has warned.
Simply gaining access is “meaningless”, as full membership is required if tariffs and customs checks are to be eliminated, the think tank said.
Britain’s continued single market membership could add an extra 4pc to GDP, the Institute said. But losing it could put further pressure on Britain’s public finances. Given the close trading relationship between Britain and Ireland, the Government here is keen to ensure that there are no obstacles placed in the way of a post-Brexit UK that could hurt Irish exporters. After the Brexit vote, politician Boris Johnson claimed that a Britain outside of the EU would be able to trade freely and have access to the single market.
But that has been dismissed at EU level, amid claims the UK cannot enjoy benefits afforded to member states, while ignoring membership requirements.
Britain is yet to begin formal talks with the EU about its future relationship but retaining access to the single market, particularly for financial services, will be a key part of the negotiations.
“If the UK were able to join the European Economic Area (EEA), we would enjoy near-full membership of the Single Market but likely be obliged to accept EU regulations and free movement of people,” the Institute said.
“Obtaining membership of the Single Market without meeting these conditions would be unprecedented.”
Single market access alone, without membership, is “virtually meaningless as a concept”, the Institute said.
“Beyond the EEA, the UK could seek a type of ‘free trade agreement’ (FTA) with the EU. This would likely mean better ‘access’ relative to a situation with no agreement by substantially reducing, and potentially eliminating, tariffs on goods.” But the Institute said those type of deals are “rare”, are harder to agree and “stop well short of the kind of service access conferred by membership of the Single Market”.
The Institute said that maintaining membership of the Single Market could be worth potentially 4pc of GDP, relative to a World Trade Organisation-type agreement.
Unlike her rivals in the Conservative Party leadership race, Theresa May has been conciliatory towards the idea that the UK should retain access to the single market.
The Prime Minister had been in the ‘remain’ camp during the campaign, and last month said that in the Brexit negotiations it would be both a priority to allow British companies to trade with the single market in goods and services, while also regaining more control of the numbers of people who come from Europe.
Her latter desire will form part of the challenging aspects of the Brexit talks.
Some analysts have suggested she may look towards a “soft Brexit” – seeking continued access to the Single Market, while accepting some freedom of movement of people.
Ahead of the vote on June 23, Finance Minister Michael Noonan told the Irish Independent that the Irish government would be in favour of allowing the UK to remain in the single market.
Banks and financial firms registered in Britain are currently granted a “passport” to offer their services across the EU from their UK base.
The City of London, the United Kingdom’s financial hub, has said the UK must maintain its access.
Meanwhile, UK government bond yields climbed from record lows yesterday as the Bank of England’s expanded quantitative-easing plan got back on track.
The BoE said it received sales offers for 4.71 times the debt it planned to buy yesterday, in contrast to the previous day, when it failed to find enough sellers of longer-dated gilts.
The central bank said that the bonds it couldn’t buy at that operation would be acquired sometime during the second half of the six-month QE programme.
The BoE said it will deal with a £52m shortfall from Tuesday at a later date as it made no changes to its expanded £60bn quantitative-easing programme.
Details of these purchases will be announced when the institution publishes information on the second half of the plan in November. (Additional reporting Bloomberg)