Labour is this week fighting over its stance on Brexit, with the issue of the single market back on the table as some MPs try to change Jeremy Corbyn’s stance and call for the UK to retain access to it after Brexit.
And when you stack up the economic arguments you can see why – they are all in favour of staying part of the single market, something Theresa May and the government seem to be opposed to, setting the country on a path to a downturn in the economy after Brexit.
Uncertainty in Britain’s future trade relations is already undermining the economy, with rating agency Moody’s downgrading the UK’s credit rating. Worse is likely to come if the UK doesn’t remain in the single market, here are five reasons the UK should stay in it.
1. Don’t rely on a free trade deal
It is unlikely the EU will give the UK a bespoke trade deal with the benefits of the single market but not the disadvantages.
Customers from the EU purchase 45% of Britain’s exports. Without remaining in the single market, trade tariffs or non-tariff barriers would negate any savings the UK makes from contributing to the EU budget due to high transaction costs for traders.
It would be wise for the UK to maintain the existing trade model with the EU during any transitional stage, since negotiating a new trade agreement will be long, protracted and ultimately are highly unlikely to deliver the benefits of currently being in the single market.
2. Stronger bargaining position
The UK is eager to negotiate trade deals around the globe, but if it doesn’t agree to single market access it has a big job on its hands, with at least 759 treaties to re-arrange.
Trade agreement negotiations usually take several years, rather than months. Remaining part of the single market would not only be good for the UK to avoid the negative consequence of a hard Brexit, but it would mean the UK is in a stronger position to negotiate bilateral agreements with other countries. Many have already said they need to see what the UK’s deal with the EU is before embarking on trade negotiations.
Staying in the single market would provide the UK with more scope to reach more favourable bilateral trade agreements with other countries.
3. Keeping the jobs in the UK
Leaving the single market may leave the UK vulnerable to corporate relocations. At present, managements of many companies are concerned that if the UK does not make good progress with the Brexit negotiations as early as possible, they would have to advance their evacuation plans, because they are worried that after March 2019 they will lose access to enter the single market.
A guarantee that the UK remains in the single market would relieve the anxiety from the private sector and ensure that enterprises focus on expansion in investment and production rather than moving such projects abroad as well as their headquarters.
4. Keeping the City happy
Most people in the financial service industry are concerned that as the two-year negotiation period ends, the EU financial passport qualification, which financial institutions in the UK enjoy, will be immediately terminated.
This will cause the British financial industry a cliff-type earthquake. Furthermore, the uncertainty around Brexit and the future relationship with the EU is likely to cause concern for investors, and risks a reduction in capital flow into the UK.
Access to the single market would stabilise the prosperity of British financial services and attractiveness of foreign investment.
5. The UK needs more labour
Sterling depreciation has made many sectors including retail industry suffer from high imported cost, not to mention the future potential tariffs.
Meanwhile, as a result of the reduction in EU immigration, British farms, food factories and restaurants, which are heavily dependent on migrant workers, are complaining about labour shortages.
These factors will push up inflation and inhibit domestic consumption. The free movement of labour within the framework of single market would maintain the flexibility of labour market and provide power for the recovery of the British economy.
Yupu Lin, of Warwick Business School, is a Research Fellow in the Strategy & International Business group and researches cross-border mergers & acquisitions.