Anti-Brexit and pro-EU activists hold their weekly protest in Parliament Square. Photograph: Vuk Valcic/Zuma/Shutterstock
Rejoining the customs union would not fix the damage caused by Brexit, according to new research shared with the Guardian. Economists John Springford and Anton Spisak of the Centre for European Reform (CER) found that Brexit has depressed UK exports to the EU by 12%, and rejoining the customs union would reverse only a small portion of this decline.
With the UK's future relationship with the EU likely to be a key issue in a potential Labour leadership contest, the study provides fresh evidence of the economic harm from exiting the bloc. A decade after the referendum, services exports to the EU are 7% lower than they would have been if the UK had remained, while goods exports are 16% lower.
Single Market Exit Key Driver
Using detailed trade data and economic modeling, the researchers show that the overwhelming majority of the impact—10% of the total 12% decline in exports—is due to leaving the single market. They state, “The regulatory costs related to Brexit—such as new certification procedures and checks for compliance with EU standards—have had a much more significant impact on UK-EU trade than customs-related barriers.”
The hardest-hit sectors include travel, finance and insurance, chemicals and pharmaceuticals, and agrifood. The estimate of lost services exports is larger than previous research suggested because the authors accounted for a significant uptick in services trade within the EU since the Covid pandemic that the UK missed out on.
Political Context
Prime Minister Keir Starmer and Chancellor Rachel Reeves have stressed the importance of closer trading ties with the EU, with a summit planned next month. However, the government has committed to Labour's manifesto promises not to rejoin the single market or customs union, nor accept free movement of people. Potential leadership candidates Andy Burnham and Wes Streeting have both suggested they would like the UK to rejoin the EU in the future. The Liberal Democrats, previously advocating customs union membership as a first step, now campaign for re-entering the single market.
Customs Union Benefits Limited
The CER research suggests that rejoining only the customs union would yield modest gains. It would eliminate the need for UK firms to comply with complex rules of origin to qualify for tariff-free trade, but would not benefit the hard-hit services sector. By analyzing which goods exports currently fail to meet rules of origin, Springford and Spisak conclude the overall trade impact would be small. Moreover, the UK would lose the ability to pursue trade deals with non-EU countries, as customs union members must apply EU tariffs.
However, the more radical step of rejoining the single market would involve risky political trade-offs, including accepting free movement, budget contributions, and following EU rules without a vote. “The overwhelming majority of the estimated trade impacts stem from leaving the single market. Recovering those losses would entail re-integrating with the EU economy via a single market,” the authors argue. “Either path involves difficult political choices: accepting free movement, making budget contributions, and aligning with EU rules without a vote on them.”
Reeves has suggested dynamic alignment in some sectors, where the UK follows EU rules for increased market access. But Brussels-watchers are skeptical that the EU would go far without insisting on free movement and budget contributions.
Brexit advocates before the 2016 referendum argued that increased trade with non-EU countries would offset any hit to EU trade. However, Springford and Spisak find little evidence of this happening. Their findings align with multiple studies suggesting Brexit has knocked between 4% and 8% off UK GDP.
