173. Why Starmer Didn’t Do Enough On EU Trade

0:00Monzo Business is the proud partner of The Rest is Money. Now, did you know that over 600 ,000 businesses are already banking with Monzo Business? And mine is one of them. To celebrate us teaming up, we've got a special offer for you. New customers get Monzo Business Pro or team for free for the first six months. Just head to monzo.com slash the rest is money to claim it for your business. Now, maybe you run your own company and you're looking for a bank with the solutions to make your financial admin easier, like expense cards that help your team serve loads of time as your business grows. Just go to monzola.com forward slash the rest is money to learn more about the special offer and find out which of their plans is right for you.

0:46Offer is available to new Monzola business customers only for either Pro or Team plan. Offer ends on the 31st of July 2025. After the offer period ends, Pro will be£9 a month and Team from£25 a month. Expense cards are only available with team. Only sole traders or limited company directors in the UK can apply. T's and C's apply.

1:18Hello and welcome to another special episode of The Rest Is Money with me, Robert Peston. and me Steph McGovern I feel like we can't get through a week without having to come together at 11 o 'clock at night to talk about what has gone on that day but you know it's really important to tell you all this so obviously today's big news is we've done a deal with our biggest trading partner the EU before we get into all the details of it I always love hearing the colour from you Robert of what it was like in the room like give us the vibe you're in Lancaster House. So the vibe in terms of the relationship between those senior EU people and British ministers was, you know, lovey-dovey.

2:06There was lots of smiles and hugs. There's no question that, you know, that in terms of the mood of EU-UK relations, they've massively warmed up since Keir Starmer became Prime Minister. And just to set the scene for listeners who don't know Lancaster House, it's probably the grandest of all the buildings that the government uses. Incredibly ornate, lots of guilt everywhere, huge portraits. And people, many, you know, millions and millions of people will have seen it because the Crown used it to represent Buckingham Palace. It's been interesting seeing the headlines that have come out of this, and we're obviously going to pick into some of the detail and get your reaction on it all.

2:57But essentially the headlines are saying, you know, EU boats now are allowed to carry on fishing in UK waters for another 12 years. In return, there'll be a reduction on the checks done on the food we export to the EU and sausages and burgers can re-enter the EU market. And so that's kind of dominating at the minute, isn't it? I mean, there's a lot more to it, which we're going to talk about. But phishing seems to be the thing that's such an emotive and territorial topic. And yet it contributes such a tiny amount to our GDP, doesn't it? It's something like 0.04 % of GDP is worth about a billion pounds a year.

3:36So it's a tiny bit of the economy when you compare it to all the other things we do. But yet it's such an emotive one, because I remember when it was Brexit and when I was covering that, That was the one that got people really riled, the fishing quarters and that kind of territorial feeling about this kind of 6 to 12 miles around the UK of coastline that we are allowing the EU boats to fish in. But there's a lot more to it than that, isn't there, Robert? You know, fishing is always so emotive. And of course, this is sort of obvious to everybody listening. But, you know, we are an island nation.

4:10I mean, fishing has been an enormous part of our history. and the other thing, I saw one of the scandals of the last 25, 30 years is that many, many coastal towns in the UK have become the poorest towns in Britain. If you look at inequalities, regional inequalities in the UK, you know, one of the starkest examples of communities being left behind are, you know, towns that historically have relied on fishing. That's not the only reason that they've been depressed, but it is a very big reason. You know, I'm sure that reform and the Tories will pick up some additional support as a result of the charge against the government that they're not looking after this industry well enough.

5:00That said, the government has allocated, I think it's just under£400 million, to help these communities, knowing that, of course, it would face this kind of criticism. And just on that as well, you know, you mentioned the coastal towns obviously I live in one of them so and and regularly go down to the the Fish Quay near where I live in in North Shields and so you're right although it doesn't contribute much it's actually it's very much like the heart of the community here is going to the Fish Quay and so you can see how how that could be a massive problem if you if and that inequality will then continue as you say because these are the places which don't have masses of other industries or investment in the area to make things better.

5:46Another significant part of this deal is that for food and for agriculture, what they call agri-product products, it's awful. All the phrases in these trade deals, I can't bear them, agri-products. Anyway, agri-products, agriculture. Also that SPS one, we're going to talk about sanitary and, what is it, phytosanitary checks. Yeah, well that is what we're talking about now, right? So it is the phytosanitary checks part of the deal, the food and agriculture deal, that's probably the most important in a trade sense part of the deal is around food standards. Broadly, the government is agreeing to rejoin the EU single market when it comes to our farmers and our food producers.

6:30And what that means is there should no longer be checks on our food going into the EU at the border. That reduces a lot of bureaucracy. It reduces a lot of time wasted by producers of these foods. So it's a big win if you're in that industry. and it is the principal contributor to the government being able to say that by 2040, that's basically 15 years away, there'll be an extra£9 billion to annual GDP, annual national income. Again, for most of us,£9 billion sounds like a fair amount of money, but it is only 0.2 % of our GDP. And again, to put that into terms that most of us can understand, it means that for every thousand pounds of income generated in the UK, there'll be an extra 20 pounds, right?

7:33So it's non-trivial, but again, it is not going to turn us from a flatlining economy into a fast growing economy. It's just a useful increment. It's double what the India trade deal is expected to contribute to the UK economy. But both, in terms of our flatlining living standards, these are modest boosts. They are not transformative changes. And again, just to be the kind of anecdotal person here, I think this is really important for Northern Ireland as someone who's got a lot of family there, that this kind of, these, the checks and everything were being done on products going from Great Britain to Northern Ireland.

8:20And it was meaning that a lot of businesses were stopping selling products to Northern Ireland because of this kind of Irish sea border. So they were trying to not have the hard land border. When our standards diverge from the EU standards, you know it was very difficult to ship as you say food and agricultural products from mainland GB to Northern Ireland because the EU said there's no border in the Republic of Ireland and they just did not want GB food just going across that border and avoiding the checks and as you say once we sign up to Brussels essentially saying that our products are as safe as their products then of course they don't mind if products go from GB to Northern Ireland and then into the Republic and then into the eu basically lots of companies stopped um sending their stuff to northern ireland because of it so for example rick stein you know well-known restauranteur was doing these brilliant he started this in culvert he was doing these great boxes of make your own like seafood whatever and we tried to get them to send one over to family in northern ireland and it just every time because of this laborious checking process and all these dozens of you know forms to fill in all the stuff just perished.

9:33So it just didn't make business sense for them to do it. And it was just making people feel even less part of the UK in terms of doing business with the area. So now to get on to the sort of political ramifications of all of this. In order to get this seamless trade in food and agricultural products from GB into the EU, Keir Starmer had to agree that there would be a process called dynamic alignment. And what dynamic alignment means is that we will forever, or at least until we scrap this deal, implement in the UK the food standards, the hygiene standards, the quality standards that Brussels writes for the EU.

10:27So we will be following EU rules when it comes to the standards that apply to our farmers and our food manufacture. Keir Starmer would say, actually, we do that anyway, and we have very high standards, and there's not a cost to the UK in a practical sense. those people who you know the jacob reese moggs the boris johnsons the nigel farages i interviewed nigel farage's deputy today the richard tice they all say that as a matter of principle even if there is an economic benefit to the uk we should not be following brussels rules, that we should have the right, they believe, as a matter of sort of national pride, to make our own rules.

11:21And this so-called sovereignty issue is absolutely crucial for them, even if this particular version of sovereignty makes us poorer. And they find it particularly hateful that when it comes to adjudication on disputes about whether, for example, we're following their standards, that the European Court of Justice has a role, an important role, a decisive role in adjudicating on whether we're following those standards. And again, they just feel, you know, this is sort of as bad as, you know, William the Conqueror in 1066 coming up and invading. For them, it's a sort of ideological, it is an ideological obsession, rather than just a practical question of what is good for British farmers and British food producers.

12:16I suppose the other big point I wanted to make, because I'd lived and breathed the interminable rows about our Brexit deal post the decision to leave the European Union in the spring-summer of 2016. And as you know, it was... I mean, Parliament was in turmoil for years because the House of Commons simply couldn't agree on a deal to take us out of the EU. The sort of high point of the insanity was after Theresa May's so-called Chequers deal, right? So the Chequers deal was her plan agreed with the EU, put to cabinet and agreed by cabinet on the 6th of July 2018. And I went back and looked at it again, because when I saw what Keir Starmer had agreed on food, agricultural products, it just rang this massive bell in my head.

13:21Now, Chequers deal actually was the beginning of the turmoil that then ushered in Theresa May being thrown out the next year and Boris Johnson replacing her. And then we had the chaos of him trying to dissolve Parliament. And then eventually we got the hardest of hard Brexit deals at the end of 2019. What's really, really, really interesting about that Chequers deal, Chequers plan, that Parliament never ratified, right? The Labour Party could never bring itself to ally with Theresa May if it had done that then, if Corbyn's Labour Party, in which Keir Starmer was the shadow Brexit secretary, so he was in broadly in charge of their Brexit approach, right?

14:09If Starmer and Jeremy Corbyn had allied with Theresa May and the Tories who were not extreme Eurosceptics, this deal would be the deal we would have now. And just to sort of explain why for many people that matters, right? So Brexit, Office of Budget Responsibility says, has led to a four percentage point loss in our national income, in our GDP. Right. What Keir Starmer has agreed today adds 0.2 percent to our GDP. So a 20th of that. Right. According to the Resolution Foundation, Theresa May's deal would have actually restored half of that loss, 2 percent. Right. So 10 times what Starmer got today.

14:55And that's meaningful. Right. Now, the interesting thing about that deal is it has two elements that are really important. One is that what he agreed today for food would have applied to all goods, so-called dynamic alignment. And that would have actually been such a boost to British manufacturers because they would not have had all those incredibly burdensome border checks of getting their stuff into the EU's single market. So a big win. And so part of what I think today is, given that the Eurosceptics, the Brexit Party, the Tory Party, are going to absolutely do this massive pile-on, they are doing this massive pile-on, saying that Keir Starmer has betrayed Brexit, he surrendered to Brussels, he might as well have been hung for a sheep as a goat.

15:48He should have just gone the whole hog and done dynamic alignment for all our physical trade. Because if he's going to be killed for doing food, why not actually make the UK richer by doing it for all of our physical exports? And so I do think that they've not been courageous enough. And if they'd done that, one of the things he said today is, I can't rejoin the customs union. I can't rejoin the single market because we ruled that out in our manifesto. And I can't have free movement of people because I ruled that out in a manifesto. But actually, Theresa May's deal was not rejoining the customs union.

16:26It was not rejoining the single market. And it was not free movement of people. OK, so he could have been he could have been bolder. It was if it was on offer in 2018, presumably it was on offer now as well. So you could argue that he's been unnecessarily timid. And then there's another thing, which is quite interesting to me, which is they also had this really quite complicated, but looking back on it, amazingly beneficial deal with the EU, where we would have been in what's called a common trading area. Right. And it's a bit more bureaucratic than a customs union. You don't have essentially a single customs rate for the whole of the EU and the UK.

17:11but what happens is that goods can flow across from Northern Ireland into the UK more freely and into the EU more freely and then what there is after all the trade happens is a bit of a reckoning so that if what we charge countries to export to the UK is different from what the EU charges there's just a bit of a reckoning that goes on where the difference between the two gets sorted out and is paid to the relevant exchequers, as it were. But you are effectively in a customs union, but allowed to diverge in terms of, you know, the tariffs that you set. So he could have been inside that. It would have been helpful both to Northern Ireland-UK relationship and to businesses.

17:58And he could have still done his American trade deal and his Indian trade deal. They were still available. So it does seem to me they just haven't been, they just haven't been bold enough and they you know I mean maybe it was felt to be too politically humiliating for Keir Starmer that having rejected Theresa May's deal you know he might have found himself embarrassed you know when it came to explaining why you know why now rather than rather than then but the UK is definitely poorer for the fact that they're not being more ambitious there's still a lot more we want to go through but sit tight for a couple of minutes and we'll be back after a break

18:40I'm quite interested in this kind of youth access scheme as well. This 18 to 30 year olds being allowed to travel more freely between the UK and EU. And they're saying it'll be for a limited time only and there'll be a dedicated visa. And only if the overall number of people going between the two regions is acceptable to both sides. I mean, what does that mean and what does all that look like? It's another one of those, you know, we'll get the detail as time goes on. But up to 30, you know, that's a big chunk of people, isn't it? 18 to 30 year olds being able to move more freely, which surely has got to be good for business.

19:19But it's not going to go down well on the whole immigration point, which we keep saying is what everyone cares about at the moment in terms of, you know, those supporting reform and the like. Like they're bound to be sceptical that this is going to be well managed, especially when they're not giving any definitive numbers on it or anything like that, surely. You're right. One of the things that was, again, I suppose, slightly striking is both sides of sort of agreed the principle of this EU mobility scheme, or it's actually now they're now calling it because they're terrified of the sort of reform Tory charges.

19:54This is a reintroduction of free movement. So they're now calling it a European experience scheme. or an EU experience scheme. Anyway, we think it's going to be for two years. We think the numbers are going to be capped, but they should just bloobby well get on and do it because it's plainly something that is not the same as mass migration. And, you know, it's plainly the case that we are doing genuine harm to our young people, that we're making it harder for them to gain these experiences of other parts of the world. Obviously, we've talked now about the fishing side, about the food checks and everything else and this youth access scheme.

20:36But another element to this, which I'd love to hear your thoughts on, is what was talked about in terms of the energy and the energy market and this idea that they're going to explore the UK's participation in the EU's internal energy market. What does that mean and what's that all about? So this is another area where I would argue Kirstama was being a bit braver because they are talking about reintegrating our energy markets. They have been sort of separated since Brexit. If they do reintegrate our energy markets, if there's more energy flowing, we've got wires, as it were, that flow between the UK and the EU.

21:16and there is more energy sharing that we could do, but we would have to be, again, a rule taker. We would have to follow their energy market rules. But for me, one of the most significant aspects of the deal is that both sides would like to see a merger of what's called the emissions trading systems of the two countries. Now, both countries have a system whereby, If you are a business that emits a lot of CO2, you can buy permits that effectively allow you to do that. And these are permits that essentially put a price on carbon, on carbon dioxide. Right. These are tradable. so that let's just say you've got a certain number of these permits, you then manage to cut your emissions, then you are allowed to sell your permits to other businesses that are still producing more CO2.

22:27And it's a way, essentially, of incentivising businesses to become more efficient in terms of the CO2 that they emit. right now when you buy these permits you buy them in the uk's case from the treasury and one of the aspects which actually kirstama didn't talk about today but it's quite significant the price of permits in the eu is higher than the price of permits in the uk and the reason for that is because the eu they're more restrictive in terms of the number of permits that they issue relative to their CO2 spewing industries, right? So there are fewer of these permits, but there's a lot of demand.

23:14So the price is higher, right, than our price, okay? If you merge the two markets and you have a single price, the chances are that the UK price will rise. And that is obviously good news for the British Treasury, right? And it could raise, I don't know, a couple of, you know, one, two billion pounds a year of extra revenue for the Treasury, something like that. You might think that therefore industries like ceramics or are industries that are massive emitters of CO2 and have to pay for these permits, you might think they would object to the merger of the two schemes. The advantage, however, of the two schemes being merged and being subject to a common set of rules is that for those CO2 emitting businesses that trade with the EU, and it's still our biggest market, yeah, if we didn't have that merger, they would have to pay something called the carbon border adjustment mechanism, which is a tax that will be levied from next year by the EU on all heavy users of energy from regimes where they think they are doing less to cut emissions.

24:40In other words, it's a sort of tax so that China or India, which produces way more CO2, don't dump their cheaper steel, for example, on the EU. It's a way of making sure that the price of Chinese steel is more in line with the price of EU steel, because EU steel is more expensive to produce, largely because they've got much stricter conditions forced on them about the kind of energy they can use and they have to use more expensive clean power. And the point is that if we merge our emissions trading schemes, and Keir Starmer insists this is the number, our exporters to the EU will save something like£800 million that they would otherwise have to pay in this carbon border adjustment mechanism.

25:29So that's a win for our exporters. It's one of the reasons why they do want these emission schemes merged. But as I say, there's a lot of money that will flow into the Treasury. And one of the things, I mean, it's weird that the government's not talking about this at all. Maybe because they're terrified it will be seen as an additional tax on industries that are suffering because of the high. We've talked a lot about this, the high price of energy in the UK. So my suggestion to the Treasury is a very straightforward one. Whatever money you raise from the merger of the emissions trading schemes should be refunded to particularly the heavy consumers of energy, essentially to reduce the cost of power to them and indeed to all of us.

26:16So I think so long as that money goes back to cut the price of energy in the UK, to use an expression that Keir Starmer used today, it would be a win-win. we've covered a lot of ground in this my goodness we should probably wrap things up shouldn't we um there'll be loads more for us to pick up throughout the week uh so yeah we'll have lots more uh analysis as we go on and we've got guests coming up uh as well on the show but thank you very much for listening to us on the rest is money bye-bye all the rest to you goodbye