Why failure to secure a trade deal with the EU would leave the Union more unstable than ever

For both the Conservatives and Labour, the risk of shunning a deal with Brussels involves the further risk of allowing another Scottish referendum.

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The fierce politics of Brexit is back at Westminster. The conflict revolves around the issue of what happens to the UK as a single market if no trade agreement with the EU is reached. Brexit has always been part symptom and part cause of the UK’s unresolved constitutional ­crisis. Now Britain has exited the EU, what ­remains is the question of whether or not the UK’s Union can adapt to its future economic relationship with the EU.

Britain’s membership of the EU and the country’s domestic politics have long ­existed in parallel. Labour’s opposition to the EU before its defeat in the 1979 general election contributed, more than anything else, to the formation of the Social Democratic insurgency in 1981. Labour’s return to a pro-community position in the late 1980s, after Jacques Delors, the president of the European Commission, vowed to put workers’ rights at the heart of his project, laid the foundations for New Labour.

Sterling’s exit from the Exchange Rate Mechanism in 1992, and the subsequent parliamentary struggle over the Maastricht Treaty, made the Conservatives unelectable for more than a decade. In the lull of New Labour’s ascendancy, Britain’s membership of the EU narrowed the political space between the left and the right economically and culturally, while opting out of the euro protected a pragmatic and growth-centric macroeconomic policy.

When Jeremy Corbyn won Labour’s 2015 leadership election, this changed the politics around David Cameron’s in-out referendum promise. What might have been a contest in which the majority of the parliamentary Conservative and Labour parties became allies, instead became one in which the Labour leader impeded the Remain campaign and inadvertently provided pro-Brexit arguments for Labour voters.

The debate between 2017 and 2019 about whether the referendum result should be honoured was resolved in favour of Brexit. In good part this was because enough rebel Tory MPs would not countenance Corbyn as prime minister, and enough Conservative Remain voters prioritised their objection to Corbyn over their dislike of Brexit.

Keir Starmer used those two years to make himself Labour leader, and his ascendancy has helped solidify some sort of consensus on the EU between the two main parties – each preferred a minimal free trade agreement negotiated without extending the transition period. But this concord was disturbed by the ­recent furore over the ­Internal Market Bill and Brandon Lewis’s ­remarks in the House of Commons on 8 September that the government could “break international law” if no trade agreement between the UK and EU is reached.

If Brussels maintains its position that Britain must accept (or duplicate) the EU’s rules on state aid, the question will then be how committed Starmer is to the argument that the absence of a trade deal “will be a failure on the part of the government”.

The reality is that not only do both Labour and the Conservatives want more discretion to adapt to economic conditions, but so palpably does the EU. For Starmer to say that a version of EU state aid rules must prevail when the Commission suspended the normal working of those very rules last March would be a big political risk. When the French president Emmanuel Macron is using the opportunity to bail out Renault and Air France, many voters might ask why a British government should be agreeing to restrict itself.

If one party did bind the UK to the EU’s state aid legal order, the matter would surface again as soon as there is a change of government. Signing up to legalised constraints is no way of ending the Brexit debate. For the government to establish specific rules for a state aid regime, it will need Labour to sign up to them too. Otherwise, a new trade treaty commitment will prohibit state aid being contested in democratic politics without a broad consensus, akin to that on the single market before 2015, that the rules should be permanently fixed.

By contrast, the UK’s unstable Union is politically exposed to the economic rupture that the transition’s end will bring. Again, the internal politics and Britain’s relationship with the EU go hand in hand. Because the single market eliminated the possibility of an economic border with England, Britain’s member status gave the SNP the political space for its independence project. By discouraging the SNP from pursuing membership of the euro, the eurozone crisis then played a significant part in the Scottish government losing the 2014 referendum.

On Northern Ireland, pre-referendum EU membership coincided with the time when the Conservative and Labour parties were united in keeping the province’s constitutional status out of Westminster politics. Last autumn, the Northern Ireland protocol in the withdrawal agreement reflected the concessions that a majority-less Johnson government had to make to give Brexit a chance of happening at all.

Consequently, the 2019 general election result and the EU exit resolved nothing about the Union. If the government can reach a trade agreement on the basis of a relatively weak state aid commitment, then Northern Ireland will be a persistent issue in how any agreement is interpreted.

If not, there will be nationalist fury at the EU’s need for some kind of Irish economic border, and the state aid problem will reappear through the Northern Irish protocol. As for Scotland, the question of whether Scots wish to stay in a Union that is not part of the EU must be asked sooner or later, especially if no trade agreement materialises. For both the Conservatives and Labour, the risk of eschewing a trade deal involves taking the further risk of allowing another Scottish referendum – and then finding a means to win it. 

Helen Thompson is professor of political economy at Cambridge University and a regular on the Talking Politics podcast. 

This article appears in the 18 September 2020 issue of the New Statesman, Planet Covid

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