A £25bn annual boost to British exports is at stake for Sir Keir Starmer as he tries to secure a Brexit reset deal at a crucial summit on Monday, analysis shared with The Independent reveals.
Removing trade barriers on goods, including food and drink and electrical items, could result in a 2.2 per cent uplift in gross domestic product in the long run, boosting the economic growth the prime minister so desperately wants to deliver, financial analysts Frontier Economics found.
And a separate assessment by the National Institute for Economic and Social Research (NIESR) warns that a failure to land a deal for easier trading could lead to a 2.7 per cent drop in exports by 2027, costing the UK economy almost £30bn.
The impact on the British economy from such a deal is expected to dwarf that of the agreements recently signed with India and the US.
Gordon Brown’s former economic adviser Lord Jim O’Neill summed up the importance of Sir Keir’s summit in London: “Obviously, the closer and more serious we can get, the better it is for reversing our net trade losses, and importantly, net investment from EU areas.
“Given the shock from Trump [tariffs] to Europe, especially on Germany, on top of the Ukraine shock and China slowdown, I think Germany [will be] more open to pro-UK trade issues than before.
“Also, I suspect the EU is going to give more than lip service to cross-border services sector reform now. Given UK net advantages in service sector exports, this is important to us.”
Such reforms could make it easier for the UK to sell services to the bloc by allowing mutual recognition of qualifications so UK professionals can practice in the EU and vice versa without having a retrain.
NIESR’s interim director Stephen Millard said the value of Monday’s deal should not be underestimated.
He said: “In 2024 we exported roughly £6.5 billion to India, roughly £53.5 billion to the United States and roughly £159 billion to the European Union. It is fairly clear from those numbers that a trade deal with the European Union is much more likely to shift the dial than the deals with India and the United States.”
His assessment was echoed by Chris Southworth, director general of the UK’s largest business organisation, the International Chambers of Commerce (ICC), who noted that the trade deal signed with Donald Trump, that saw tariffs slashed on UK car and steel exports, was a “damage limitation agreement” and only accounted for 13 per cent of international Gross Domestic Product (GDP).
But he fears the deal to be unveiled on Monday “may not be ambitious enough” especially if it only focuses on goods rather than the future growth areas of digital services.
It is a view shared by the Labour chair of the Commons foreign affairs committee Dame Emily Thornberry.
In an interview with The Independent, she called on Sir Keir to be more “courageous”, adding: “We should be going further than the government currently seems to have the ambition for doing.”
The deal is expected to include closer defence cooperation, goods and services, and a youth mobility agreement, that would allow 18 to 30 year olds to live and work in the UK and Europe for a time-limited period.
Two immediate big wins could be to include the UK in the €150bn EU defence procurement fund, which would allow the government to bid for military equipment contracts and, invite them to join the EU data hub. The latter is being championed by Poland who currently have the presidency of the EU.
A special report from earlier this year found that Brexit had cost the UK £30.2bn in settlement costs, stopped 16,400 businesses from exporting to the EU, and could lead to a 15 per cent long-term loss of trade.
From the £24.8bn export boost for the UK estimated by Frontier Economics in a report commissioned by pro-EU group Best for Britain, farm food exports alone could see a £3.2bn increase.
Agricultural exports have suffered since Brexit, with food and drink exports down by more than a third, according to trade bodies.
The EU, meanwhile, would also benefit; with a £22.4bn boost to exports in goods and services from a closer agreement, selling £5bn more in agricultural products.
Amar Breckenridge, senior associate at Frontier Economist said that some of the economic damage caused by President Trump’s tariffs could be offset by the benefits of a closer EU trading relationship.
While tariffs could still cost the UK £4.3bn in GDP under the new US trade deal, Mr Breckenridge’s estimated the UK could claw back £8.1bn from closer trading with the EU.
The long-awaited youth mobility scheme alone could boost GDP by 0.45 per cent in the next decade, according to a separate study from the Centre for European Reform. But recent reports suggest that the deal might hit speed bumps in a row over high student fees for EU students coming to the UK, in addition to a lack of flexibility over amount of fish EU countries can take from British waters.
On youth mobility, John Springford, associate fellow at the Centre for European Reform, noted: “The youth mobility scheme would raise GDP by bringing more young EU workers into the UK labour force – although the final numbers will depend on how many are allowed to come and how long they can stay for.”
Introducing it could amount to 31,000 more young people a year coming to the UK at the highest end, which would mean more people working and contributing to the economy.
But EU officials want lower fees for their students, according to reports, which is causing tension ahead of Monday’s talks. International students currently pay around £12,000 more in fees on average a year than domestic students.
The number of EU students at UK universities has dropped to nearly half since Brexit, with 75,000 EU nationals enrolled in British colleges and universities in the 2023/24 academic year – down from 148,000 in 2019.
The Independent estimates that UK universities generate around £1bn a year in extra fees from EU students, which is likely why the government is facing domestic pushback over lowering fees.
Lowering fees would have a positive impact because EU students spend around £61,000 here over the course of their studies, research from London School of Economics found, on top of their tuition fees.
